CareCloud(CCLD) - 2021 Q4 - Annual Report

Part I Item 1. Business CareCloud, Inc. provides comprehensive cloud-based healthcare IT solutions and business services, leveraging a global workforce Overview CareCloud offers proprietary cloud-based EHR and RCM solutions and services to enhance healthcare provider performance - The company's core business provides technology-enabled solutions including Electronic Health Records (EHRs), Practice Management (PM) software, Patient Experience Management (PXM), Robotic Processing Automation (RPA), Telehealth, and Revenue Cycle Management (RCM) services[26][27] - CareCloud also provides medical practice management services, supplying facilities, equipment, staff, and administrative support[28] Market Overview and Opportunity The U.S. healthcare IT market, driven by value-based care and regulatory complexity, offers opportunities for CareCloud U.S. Healthcare IT Market Size and Growth (2019 Estimates) | Market Segment | Estimated Size (2019) | Compound Annual Growth Rate (CAGR) | | :--- | :--- | :--- | | Total Healthcare IT | ~$177 billion | - | | Revenue Cycle Management (RCM) | ~$87 billion | 12% | | Electronic Health Record (EHR) | ~$40 billion | 6% | | Analytics and AI | ~$30 billion | 27% | | Telehealth | ~$20 billion | 17% | - Market opportunities for CareCloud arise from the industry's shift to value-based reimbursement, evolving regulatory requirements, and increasing patient consumerism[37][38][39] Business Strategy CareCloud's strategy focuses on market leadership in integrated SaaS and business services, leveraging a global workforce for growth - The company's multi-faceted strategy includes providing an integrated solution suite, continuously enhancing solutions, expanding into new markets, growing the client base, up-selling services, leveraging a cost-effective offshore workforce, and pursuing acquisitions[43][45][51] Offerings and Clients CareCloud's portfolio spans six strategic areas, serving approximately 40,000 providers across 2,600 practices and hospitals - The company's product and service portfolio is structured across six key areas: Cloud-based Software, Technology-enabled Services, Apps and App Ecosystem, Premier Healthcare IT Consulting & Staffing (medSR), On-demand Workforce (CareCloud Force), and Additional Business Services[57][58][62] - As of December 31, 2021, CareCloud served approximately 40,000 providers in about 2,600 medical practices and hospitals across 80 specialties and 50 states[70] Growth, Competition, and Employees CareCloud's growth strategy combines organic sales, partnerships, and acquisitions, leveraging its proprietary software and offshore workforce for competitive advantage - The company's growth strategy relies on three main levers: organic growth via direct sales, channel partners, and acquisitions of complementary businesses[75][77][78] - CareCloud's competitive advantage stems from delivering solutions at competitive prices by leveraging proprietary software and a global team, including an offshore workforce of approximately 3,400 members with significantly lower labor costs[82] - As of December 2021, the company employed approximately 4,100 full-time people worldwide[84] Item 1A. Risk Factors This section details significant risks to CareCloud's business, including acquisition strategy, operations, regulatory compliance, and stock ownership Risks Related to Our Acquisition Strategy CareCloud's acquisition strategy poses risks including ineffective growth management, customer retention, unforeseen liabilities, and potential dilutive equity or increased debt - The company's acquisition strategy is a key risk, presenting challenges in integrating software and services, assimilating new employees, and diverting management resources[92] - There is a risk of being unable to retain customers from acquired businesses, as contracts often allow termination on short notice[93] - Future acquisitions may result in dilutive equity issuances, debt incurrence, and increased amortization expenses, adversely affecting financial results[99] Risks Related to Our Business CareCloud faces business risks including COVID-19 impact, intense competition, offshore operations dependence, technological advancement, security breaches, and a history of losses - The COVID-19 pandemic poses a risk, as approximately 60% of revenue is tied to customer cash collections, which can decline with reduced patient visits[102] - Business success is heavily dependent on offshore operations in Pakistan and Sri Lanka, where approximately 3,400 employees are located, making operations vulnerable to political or social unrest[111][112] - The company has a history of operating and net losses, reporting a net loss of $8.8 million in 2020, despite achieving net income of $2.8 million in 2021, with future profitability not guaranteed[124] - A material weakness in internal controls over financial reporting was identified due to a lack of controls over the completeness and accuracy of key inputs for a non-routine transaction[177] Regulatory Risks Operating in the heavily regulated healthcare industry, CareCloud faces significant regulatory risks, including compliance with complex laws and maintaining EHR certification - The company is subject to complex healthcare regulations, including the federal Anti-Kickback Statute (AKS) and False Claims Act (FCA), with potential for substantial civil and criminal penalties for violations[189] - As a business associate, the company must comply with HIPAA and HITECH Act provisions; a breach of protected health information could lead to significant liabilities, including civil penalties of up to $1.5 million per incident[197][199] - The company must maintain EHR solution certification under the HITECH Act for customers to qualify for government incentives; failure to do so would adversely affect the business[192][194] Risks Related to Ownership of Our Common and Preferred Stock Stockholders face risks including stock price volatility, Executive Chairman Mahmud Haq's 30.1% control, no common stock dividends, and for preferred stockholders, junior ranking to debt and potential dividend non-payment - Executive Chairman Mahmud Haq beneficially owns 30.1% of outstanding common stock, granting him significant control over stockholder-approved matters, including director elections[214] - The company does not intend to pay cash dividends on common stock, making capital appreciation the sole potential source of gain for common stockholders[219] - Series A and B preferred stock rank junior to all company indebtedness; in bankruptcy or liquidation, assets are available to preferred stockholders only after all creditors are paid[227] - Preferred stock dividend payments are contingent on compliance with SVB loan covenants; a default could prohibit payments[230][231] Item 2. Properties CareCloud's headquarters are in Somerset, New Jersey, with significant leased office space in the U.S., Pakistan, and Sri Lanka, all deemed adequate - The company's principal executive offices are in Somerset, New Jersey, leasing approximately 152,000 sq. ft. in 16 U.S. locations and 47,000 sq. ft. for pediatric offices[251] - Significant office and server facility space is leased in Islamabad, Bagh, and Karachi, Pakistan, and in Sri Lanka to support offshore operations[252] Item 3. Legal Proceedings CareCloud's subsidiary, MAC, is in arbitration with RPRWC over an alleged billing services breach, with damages claimed up to $10.8 million, which MAC intends to vigorously defend - The company's subsidiary, MTBC Acquisition Corp. (MAC), is in arbitration with Randolph Pain Relief and Wellness Center (RPRWC) over an alleged contract breach by an acquired predecessor company[254][257] - RPRWC's damage claim has fluctuated, with a recent expert estimate between $9.8 million and $10.8 million, and the arbitration hearing is scheduled for April 2022[258] - MAC believes the allegations lack merit and plans to vigorously defend against the claim, anticipating any potential loss to be substantially less than the amount claimed[259] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "MTBC", with approximately 7,800 holders; no cash dividends are anticipated due to lender restrictions - The company's common stock is listed on the Nasdaq Global Market under the symbol "MTBC"[263] - The company has not paid cash dividends on common stock since its 2014 IPO and does not plan to, as restricted by its credit agreement with SVB[266] Securities Authorized for Issuance under Equity Compensation Plan (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Vesting | Securities Remaining for Future Issuance | | :--- | :--- | :--- | | Common Stock Plan | 331,039 | 1,191,383 | | Preferred Stock Plan | 34,000 | 320,065 | | Total | 365,039 | 1,511,448 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes CareCloud's 2021 financial performance, highlighting 33% revenue growth to $139.6 million, a shift from $8.8 million net loss to $2.8 million net income, and Adjusted EBITDA growth to $22.1 million Key Performance Measures (Non-GAAP) Management uses non-GAAP measures like Adjusted EBITDA and adjusted net income, with Adjusted EBITDA reaching $22.1 million and adjusted net income rising to $18.5 million in 2021 Adjusted EBITDA Reconciliation | Metric | 2021 ($ in thousands) | 2020 ($ in thousands) | | :--- | :--- | :--- | | GAAP Net Income (Loss) | 2,836 | (8,813) | | Adjustments | 19,283 | 19,684 | | Adjusted EBITDA | 22,119 | 10,871 | Non-GAAP Adjusted Net Income Reconciliation | Metric | 2021 ($ in thousands) | 2020 ($ in thousands) | | :--- | :--- | :--- | | GAAP Net Income (Loss) | 2,836 | (8,813) | | Adjustments | 15,661 | 17,272 | | Non-GAAP Adjusted Net Income | 18,497 | 8,459 | Non-GAAP Adjusted Earnings Per Share | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Non-GAAP Adjusted EPS | $1.24 | $0.63 | | Non-GAAP Adjusted Diluted EPS | $1.19 | $0.50 | Results of Operations For 2021, net revenue increased 33% to $139.6 million, driven by acquisitions, resulting in an operating income of $3.5 million and a net income of $2.8 million Comparison of Results of Operations (2021 vs. 2020) | Metric ($ in thousands) | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | 139,599 | 105,122 | 33% | | Total Operating Expenses | 136,070 | 113,393 | 20% | | Operating Income (Loss) | 3,529 | (8,271) | N/A | | Net Income (Loss) | 2,836 | (8,813) | N/A | - The 33% revenue growth in 2021 was primarily driven by contributions from the CCH, Meridian, and medSR acquisitions[332] - Research and development expense decreased by 53% to $4.4 million in 2021 from $9.3 million in 2020, due to increased capitalized software projects and offshore maintenance resources[336] Liquidity and Capital Resources CareCloud's liquidity improved significantly in 2021, with cash from operations turning positive at $13.3 million, $10.3 million in cash, and $6.0 million in positive working capital Summary of Cash Flows (2021 vs. 2020) | Cash Flow Activity ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 13,334 | (892) | | Net cash used in investing activities | (23,146) | (31,469) | | Net cash (used in) provided by financing activities | (519) | 33,422 | - The significant improvement in operating cash flow was driven by higher net income and changes in working capital, despite increased operating expenses from acquisitions[357] - Cash used in investing activities decreased due to lower cash paid for acquisitions in 2021 ($12.6 million for medSR) compared to 2020 ($23.7 million for CareCloud and Meridian)[360] Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of December 31, 2021, due to a material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021, due to a material weakness in internal control over financial reporting[370] - A material weakness was identified related to a lack of controls over the completeness and accuracy of key inputs for a non-routine transaction, which did not result in misstatements to filed financial statements[375][420] - The company has a remediation plan to add controls for increased precision in reviewing key inputs for non-routine transactions, expected to be completed before the end of 2022[379] Part III Items 10-14 Information for Items 10-14 (Directors, Executive Compensation, Security Ownership, Related Transactions, and Accountant Fees) is incorporated by reference from the forthcoming 2022 Proxy Statement - Information for Directors, Executive Compensation, Security Ownership, Related Transactions, and Accountant Fees is incorporated by reference from the forthcoming 2022 Proxy Statement[384][385][388] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists documents filed as part of the 10-K, including consolidated financial statements for 2021 and 2020, and an index of exhibits - This section contains the company's audited consolidated financial statements for the fiscal years ended December 31, 2021 and 2020[390] - An extensive list of exhibits is provided, including acquisition agreements, corporate governance documents, material contracts, and certifications[391] Consolidated Financial Statements and Notes The audited consolidated financial statements present CareCloud's financial position and results, highlighting total assets of $140.8 million, net income of $2.8 million in 2021, and an adverse auditor opinion on internal controls Consolidated Balance Sheet Highlights (as of Dec 31) | Metric ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total Current Assets | 35,559 | 44,819 | | Total Assets | 140,848 | 137,999 | | Total Current Liabilities | 29,562 | 29,024 | | Total Liabilities | 42,917 | 36,754 | | Total Shareholders' Equity | 97,931 | 101,245 | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | Metric ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net Revenue | 139,599 | 105,122 | | Operating Income (Loss) | 3,529 | (8,271) | | Net Income (Loss) | 2,836 | (8,813) | | Net Loss Attributable to Common Shareholders | (11,216) | (22,690) | - The independent auditor, Grant Thornton LLP, issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2021, due to a material weakness related to controls over a non-routine transaction[402][418]