CareCloud Inc (CCLD) 2015 Q4 法說會逐字稿

Good morning, and welcome to the MTBC fourth-quarter 2015 earnings conference call.

All participants will be in listen-only mode.

(Operator Instructions).

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions).

Please also note today's event is being recorded.

I would now like to turn the conference over to Amrita Deol, General Counsel.

Please go ahead.

Thank you.

Good morning, everyone.

Welcome to the MTBC 2015 fourth-quarter conference call.

On today's call are Mahmud Haq, our Chairman and Chief Executive Officer; Stephen Snyder, our President and the Director; and Bill Korn, our Chief Financial Officer.

Before we begin, I would like to remind you that many of our comments may contain forward-looking statements which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve a number of risks and uncertainties that could cause our actual results to differ materially.

These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise these forward-looking statements in light of new information or future events.

Please refer to our press release and our reports filed with the Securities and Exchange Commission, where you will find factors that could cause actual results to differ materially from these forward-looking statements.

With that said, I will now turn the call over to the Chairman and CEO of MTBC, Mr. Mahmud Haq.

Mahmud?

Thank you, Amrita, and thank you for joining us for our fourth-quarter 2015 highlights call.

I am pleased to report a number of accomplishments during the quarter.

We finished 2015 on a very strong note, having accomplished multiple key objectives which leave us well-positioned for growth and profitability, including achieving our first quarter of positive adjusted EBITDA since our IPO in 2014, growing our full-year revenue by 26%, and closing on our [non-convertible] (corrected by company after the call) preferred stock offering in November 2015, which generated gross proceeds of $5.8 million without any dilution to our common shares.

Combining the capital we recently raised from our preferred stock deal with our $10 million credit facility, which was signed with Opus in September 2015, we believe secures the growth capital we need to take us to the next level without diluting our shareholders.

We are very pleased to have ended 2015 with $8 million cash, the highest cash balance in MTBC history.

Another important milestone is that we turned the corner on earnings with our first positive EBITDA quarter since our IPO, and three simultaneous acquisitions in July 2014.

We have successfully integrated the nine business units which were part of these acquisitions, migrating most customers to our software platform and moving a large portion of operations work to our team offshore.

This allowed us to greatly reduce our operating costs throughout the year.

We are gaining traction on growing initiatives with an extra acquisition pipeline and improving organic growth results.

I would now like to turn the call over to our President, Steve Snyder, to discuss our growth activities' efforts in more detail.

Steve?

Thank you, Mahmud.

We are very encouraged by the acquisition opportunities that we see in the revenue cycle management space.

During 2016, we moved forward on one of these opportunities and acquired a Texas-based company called Gulf Coast Billing, Inc.

Gulf Coast had trailing 12 months revenues of approximately $3 million, and we were very pleased to acquire the company at an attractive valuation and a structure that aligns our collective interest in client retention and revenue growth.

We are paying 28% of revenues received during the three years after closing, which would total about 84% of annual revenues, assuming revenues remain constant.

At closing, we also made an advanced payment of $1.25 million, and this advanced payment will be deducted from the quarterly revenue base payments we make over the next three years.

While it has only been five weeks since we closed the Gulf Coast acquisition, we have already made significant strides in our transition.

Within two weeks of closing, we had moved all acquired customers to our platform, and we have now leveraged our technology and our global team to reduce local personnel expenses by approximately 30%.

We expect that this acquisition will be accretive to earnings starting in second-quarter 2016.

Now that MTBC has additional capital, we believe we have the ability to grow our business in a way that would have been impossible during 2015.

We are in daily conversations with potential acquisition targets as we continue to work at identifying the very best opportunities to put our growth capital to work.

The companies we are talking with, from the very smallest to the largest, are all struggling to hold their ground as the market evolves, since they lack the technology and the business models needed to remain competitive.

As we identify the best opportunities, we'll deploy our growth capital accordingly.

With regard to organic growth initiatives, during the fourth quarter of 2015, we more than doubled our investment in sales and marketing spending, increasing it from less than 2% of revenues in the first nine months of last year to almost 4% of revenues during the fourth quarter.

We plan to further increase sales and marketing expenditures during 2016, as we continue to evaluate the return on this investment.

We have never been better positioned as a company to grow our sales and earnings.

By leveraging our industry-leading platform and our experienced team, we believe that we will be able to grow revenues this year to $27 million to $30 million while expanding our adjusted EBITDA to $1.5 million to $2 million.

I'll now turn the call over to Bill Korn, our CFO, to provide you with a detailed review of our fourth-quarter financial results.

Bill?

Thank you, Steve.

I'm happy to report that we met or exceeded the revenue and profitability targets we set forth at our last call.

We grew our full-year revenue by 26% from 2014 to 2015.

Total revenue for the year ended December 31, 2015 was $23.1 million, which exceeded our 2015 revenue guidance of $23 million compared to $18.3 million for the year ended December 31, 2014.

Fourth-quarter 2015 revenue of $5.4 million represents a decrease from $7.1 million in the corresponding period in 2014.

This is primarily due to clients who had given us notice of termination earlier in 2015.

As we completed integration of the businesses we purchased at the time of the IPO, and the migration of clients to our platform, our customer base has stabilized and we expect to see higher retention from these clients in the future.

For the year ended December 31, 2015, adjusted EBITDA was negative $675,000 or negative 2.9% of revenue compared to adjusted EBITDA of negative $1.7 million or negative 9.4% of revenue in 2014.

Our adjusted EBITDA of negative $675,000 for the year beat the high end of our guidance range, which was negative $750,000 to negative $1 million.

Our adjusted EBITDA for the first three months of 2015 was negative $710,000 and our business generated positive EBITDA over the last nine months of the year.

For the fourth quarter of 2015, adjusted EBITDA was a positive $312,000 or 5.8% to revenue compared to adjusted EBITDA of negative $838,000 or negative 11.8% of revenue in the fourth quarter of 2014.

Fourth-quarter 2015 is our first-quarter of positive adjusted EBITDA since the IPO and the three simultaneous acquisitions.

Our fourth-quarter 2015 direct operating costs were $2.4 million.

which is half of the $4.7 million in fourth quarter of 2014.

And our general and administrative expense was $2.6 million, $940,000 less than $3.5 million during fourth quarter of 2014.

We have reduced our direct operating costs four quarters in a row as we consolidated our acquired businesses, migrated clients to our platform, and moved work offshore where it can be done most effectively.

We reduced our US employee base of 205 employees at the end of 2014 to 64 employees at the end of 2015 at the same time that we reduced our offshore employees by 25% from approximately 2,080 at the end of 2014 to 1,560 at the end of 2015.

Our 2015 non-GAAP adjusted net income was negative $1.4 million or negative $0.13 per share compared to non-GAAP adjusted net income of negative $2.3 million or negative $0.21 per share in 2014.

This beat the high end of our guidance range of between negative $0.15 and negative $0.20 per share for the year.

For fourth-quarter 2015, non-GAAP adjusted net income was a positive $121,000 or $0.01 a share compared to non-GAAP adjusted net income of negative $1 million or negative $0.10 per share in 2014.

So this is also our first quarter with positive adjusted net income since the IPO.

For 2015, our GAAP net loss was $4.7 million or $0.50 per share compared to a GAAP net loss of $4.5 million or $0.64 per share in 2014.

Our GAAP net loss should be evaluated in the context of significant non-cash amortization of intangibles resulting from our acquisitions.

Depreciation and amortization for 2015 was $4.6 million, almost the same as our GAAP net loss.

For fourth-quarter 2015, the GAAP net loss was $802,000 or $0.10 per share compared to a GAAP net loss of negative $995,000 or negative $0.10 per share in fourth-quarter 2014.

Our fourth-quarter 2015 GAAP net loss was less than our fourth-quarter 2015 depreciation and amortization of $1.1 million.

The $4 million difference between adjusted EBITDA and the GAAP loss reflects $4.6 million of non-cash depreciation and amortization expense, primarily related to purchased intangible assets; $629,000 of stock-based compensation; $341,000 of integration and transaction costs; $262,000 of net interest expense; and a $138,000 income tax provision offset by $175,000 of foreign currency gains and a $1.8 million decrease in the value of the contingent consideration liability from the acquisitions at the time of the IPO.

This decrease is primarily due to the decline in the price of the Company stock since the value of the shares which were part of the purchase price is less, and two of the sellers forfeited a total of 472,000 of these shares that they had received, based on the revenue that we actually received from their acquisitions.

This gain from decreasing contingent consideration is included in our GAAP earnings each quarter, but we've excluded this gain from non-GAAP adjusted EBITDA and non-GAAP adjusted net income, since it is non-cash.

We have not yet reached agreement with one of the three companies we acquired at the time of the IPO, but when we do sell, those shares that they currently have will be released from escrow, and the value of those shares will move from a liability account to equity.

And there will be no further change in the value of the purchase price for each of these companies.

Of the small acquisitions we made during 2015, we paid 5% of the purchase price upfront and we will make cash payments for 36 months based on the actual revenues we collect.

Together, we estimate total contingent consideration in cash of approximately $890,000 for these two companies.

And this amount will be adjusted based on the actual and forecasted revenues each quarter.

As of December 31, 2015, MTBC's cash balance was approximately $8 million compared to approximately $1 million as of December 31, 2014.

MTBC completed its public offering of 231,600 shares of 11% Series A cumulative redeemable perpetual preferred stock at a price of $25 per share.

These shares are trading on the NASDAQ capital market under the ticker symbol MTBCT.

They have a $25 liquidation preference and carry a 11% dividend payable monthly, and we've already made our first four dividend payments.

These shares are not convertible.

They have no stated maturity and will not be subject to a sinking fund or mandatory redemption.

Shares of Series A preferred stock will remain outstanding indefinitely, unless we decide to redeem the shares, which can occur at the Company's option any time after five years or within 120 days of a change of control.

In September 2015, we refinanced our credit line with TD Bank and signed a $10 million credit facility with Opus Bank, with an interest rate of prime plus 1.75%, which is a total of 5.25% today.

At December 31, 2015, we had drawn $8 million from that facility, half of which was used to retire existing loans.

Opus will release the final $2 million after receiving our 10-K and confirming satisfaction of our covenants.

We intend to use the proceeds from the preferred stock offering and our credit facility with Opus Bank to grow the business.

This includes acquisitions of revenue cycle management or healthcare IT businesses, as well as expansion of sales and marketing activities.

During December 2015, MTBC's Board of Directors authorized a stock repurchase program, allowing the Company to return value to existing shareholders by purchasing MTBC shares at prices that we believe to be very attractive.

We purchased approximately 100,000 shares under this one-month program.

During January 2016, with global equity markets in turmoil, our Board authorized a $1 million stock repurchase program, which will run through January 2017.

As our share prices remained at levels that we believe to be undervalued, we purchased approximately 486,000 additional shares under this program so far.

All shares are repurchased in open market transactions in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities and Exchange Act of 1934 as amended.

Simultaneous with the filing of our 10-K, we intend to file an S-3 shelf registration statement with the SEC.

We have no immediate plans to raise any additional capital and believe we have plenty of cash for operating expenses, but having an effective shelf registration statement may provide us with additional flexibility in the future.

If a significant acquisition opportunity arises, which requires more capital than we have available, a shelf registration statement might allow us to raise funds in the public market more quickly and easily than filing an S-1 registration statement.

Since we believe that our common stock is currently undervalued, we do not anticipate any scenario in which we would sell additional shares of common stock until its value significantly increases.

Management owns nearly 47% of our common stock, and we will exercise the same judgment and same prudence that we have exhibited in the past, and only issue new securities when we believe the overall impact will be accretive to shareholders, not dilutive.

Our registration statement would allow us to reopen our Series A preferred stock, which is not convertible and carries an 11% coupon, which we consider a much more attractive and less expensive means of financing than issuing additional common shares at these prices.

As Steve mentioned, we are reaffirming our 2016 full-year revenue guidance of $27 million to $30 million, which represents growth of $4 million to $7 million over 2015 revenue.

This includes revenue from the recent acquisition of Gulf Coast Billing, and anticipates additional tuck-in acquisitions, but excludes any major acquisitions that may occur during the year.

Revenue during the first quarter of 2016 will be below our fourth-quarter 2015 run rate since healthcare providers throughout the industry experience lower revenues during the first quarter, as insurance reimbursements are reduced due to the annual resetting of patients' insurance deductibles.

MTBC recognizes revenue when our providers are paid, and thus, our fees are determinable.

So while providers wait for patient payments, which generally take longer than insurance payments, our revenues are delayed.

We believe revenue will rise cyclically during the second quarter of 2016 after the largest impact of deductibles will likely be behind us, and we recognize a full quarter of revenue from Gulf Coast Billing.

We are also reaffirming our 2016 full-year adjusted EBITDA guidance of $1.5 million to $2 million.

Because of the seasonality with revenue, we anticipate a negative adjusted EBITDA during first-quarter 2016, since our expenses reflect the work of submitting a constant level of claims, even though payments to our doctors are down.

We anticipate positive adjusted EBITDA during the second through the fourth quarters of 2016.

We expect non-GAAP adjusted net income per share between negative $0.05 and negative $0.10 per share.

These forecasts are based on our current share count of 10.3 million shares.

That concludes my review of MTBC's fourth-quarter and full-year financial results.

And I'll now turn the call over to our Chairman and Chief Executive Officer, Mahmud Haq, for some closing remarks.

Mahmud?

Thank you, Bill.

We beat our revenue and earning guidance for 2015, turned EBITDA positive in fourth-quarter, and raised the capital we need to execute attractive acquisitions and partnership opportunities.

MTBC has never been in a stronger position, and we look forward to giving you future updates on our progress.

I want to thank you, our common and preferred shareholders, for their belief in MTBC.

I would also like to thank all of our team members in US, Poland and Pakistan for their hard work and dedication, as well as Opus Bank, who has been very responsive and a pleasure to work with.

Finally, I want to thank all our physician customers for trusting us to help manage their practices.

We will now open the call to the questions.

Operator?

(Operator Instructions).

Keay Nakae, Chardan.

As we look forward to 2016 and the organic growth from the existing businesses, can you give some examples of some of the lower hanging fruit where you can add revenue to those existing businesses?

Sure, we would be happy to, Keay.

Again, from a growth perspective, we continue to see the real opportunity primarily in the acquisitive growth, where we can acquire large portfolios of customers at very attractive prices.

On a parallel track, we continue to be excited, though, about ramping up organic growth.

We are continuing to focus on two areas.

Primarily, we're focusing in on our core strength, which is the small to medium-size ambulatory practices.

Again, our platform is really specifically designed around the unique needs and workflows of these groups, so we see significant opportunity there.

So we will continue to focus on those smaller groups, in particular, primary care practices, podiatry practices, ophthalmology groups, mental health -- those are some of the key specialties.

But on a parallel track, from an organic growth perspective, we've also included in our team some folks who have a background with regard to working with IPAs and ACO's and larger groups.

So we are also leveraging some of that knowledge base, and some of those contacts to begin to explore some of the larger growth opportunities which have a much longer timeframe between the initial conversations and closing.

But on a parallel track, we'll continue those conversations going as well.

With respect to ICD-10 going live, how is that impacting your business?

It's really helped us from the perspective of name recognition.

Again, our ICD-9, ICD-10 converter app in the lead-up to that conversion was the most popular app on the Apple App Store among US physicians, and has continued to hold that place.

So it's really helped us from the perspective of branding and name recognition.

In terms of our overall client base operationally, it's helped us significantly being able to streamline the processes, and move a relatively significant percentage of the practices who were formerly using paper-based manual processes from charge capture to our electronic charge capture.

So it's really streamlined the overall processes and the throughput from a data input perspective.

And the ultimate result, of course, being improved timeframe between the actual encounter and reimbursement.

And Keay, the discussion that Steve just pointed to is, we are very comfortable with where we are in terms of numbers and going forward with organic growth, with the business that we have today.

The most excitement is coming from the way we are positioned in the marketplace.

If you are following, which I'm sure you are, there major players that are announcing a sale of business or closure of the business.

We believe that we will be with our -- especially with our preferred stock -- and we have talked to bankers who are excited about reopening it when the time comes -- we believe that we have the capital available to us when we need, for acquisition.

And we believe that with the IPO market the way it is, with six IPOs so far, one of the slowest and toughest IPO markets, some of these players who are thinking of going public, their exit strategy was public, are finding it hard.

And so we are talking to a couple of them, a number of them, in a bigger $10 million to $50 million type numbers.

And if we can do this -- the funding through preferred, that is where majority of the excitement for us is to acquire one of these larger players in the market.

And as we have talked in the past, there were two different type of money that came into the space.

One were the ones that built their own software.

They ended up using $100 million to $200 million of either the PE money or investors' money, but really could not achieve the revenue that was needed to support the business.

The other set of acquisition targets that we are looking at were basically the consolidators, where the money came from PE, whether it was $40 million, $50 million, there they -- they bought a few companies but did not consolidate/integrate.

We went through some rough times, as you know, over the last four or five quarters, because we made a deliberate decision to integrate, go through the painful process of integrating, which we did over the years.

And these majority of these companies with the PE money have not brought everyone on the same platform.

So they are feeling the pain at this point.

And I think that's where the excitement, when we sit around the table as management, and as Bill mentioned, we own roughly half of all outstanding shares, that is where the excitement as a shareholder we see for the Company.

These companies, whether they are going through a bankruptcy process or the PE is looking to get out because they don't see the start of the public market as a viable exit strategy, that's where the excitement is for us today.

Organic growth, as you mentioned, and cross-selling opportunities, they will bring us, let's say, 5%, 10% revenue growth, but the bigger bang for the buck will come from acquiring one of these major players out there.

Okay.

Well, that's helpful and insightful.

Finally, just with respect to the latest acquisition, how much of the run rate revenue $3 million do you think you're going to be able to hang on to?

And then on the expense side, how much expense are you adding on the front end?

Keay, this will be our first acquisition where our goal is to increase the revenue.

There will be some attrition, as expected, but we will be -- will be there enough pipeline with this company that we will be backfilling as attrition.

We expect to see that revenue at least stay flat, if not grow.

And then on the expense side?

Expense side, as Steve mentioned, we have already gone through reducing the expense over here.

We believe in 90 days, Steve, the target is --?

Sure.

So, from a personnel expense, we've reduced the personnel expenses to this point by 30%.

By the time we have our next call, we have the opportunity to provide a subsequent update.

We believe we will have reduced the personnel expenses by another 30%, and then with some subsequent reductions thereafter.

Again, [with regard to GCB] (corrected by company after the call), during the second quarter of this year, we expect to be EBITDA positive, where we are EBITDA neutral probably during the first quarter of this year with only a month-and-a-half in terms of GCB alone, I'm speaking now.

But then we expect to be well on our way to our target margins relative to this particular acquired division of 30% by the end of the year.

Okay.

Very good.

Thanks.

Paul Nouri, Noble Equity Funds.

The depreciation and amortization of over $1 million in the quarter seems a bit high, given your intangible asset base.

Can you talk about what the depreciation and amortization is going to look like in 2016?

Sure, Paul.

So we -- like all companies, when we do acquisitions, we have to apportion the purchase price into goodwill, which is not amortized, and into intangible assets, which are amortized.

We apply a three-year life for amortization purposes.

And we made the decision last year that it was -- that it made sense to use a double declining balance, an accelerated method for amortizing, that would essentially amortize these intangibles in a way that was -- that reflected the fact that you -- at the beginning of an acquisition, you have a lot of value for having acquired the customer.

By three years out, the value of that customer is from our relationship with them, and really has much less correlation to where they came from.

So we have chosen to do a faster amortization.

And again, our view is that most people tend to really be focused more on the cash flow as opposed to the amortization.

Interestingly, in fourth-quarter of 2015, our cash flow from operations was a positive number.

And again, that to us is really the true measure of the business.

We hope to be sitting here a year from now and nobody's worried about GAAP, non-GAAP; everybody's talking about the fact that we are generating cash from operations.

Because, at the end of the day, that's what we're here for.

Okay.

And you talked about being in discussions with one of your former acquisitions about releasing some shares possibly.

Is that -- would that be a significant number, if you are able to come to an agreement?

So, at the time of the IPO, we bought three companies, and they each received shares that went into escrow.

And the goal was, at the end of the year, we would do a true-up.

Two of the three -- that's done.

And the third case, Practicare, those shares haven't been released.

They are counted in the 10.3 million shares that are -- that we talk about as outstanding today.

There are -- there's -- I think the number, which is in the -- it's in the public record, but there's nothing under 300,000 shares that are sitting in escrow at the moment.

They will not get any more than the original number.

They will most likely forfeit some of them.

Frankly, they haven't been fast at moving to release them, because they look at the stock price and say I'm not going to sell them at this price anyway.

So what's the difference whether they sit in escrow or sit in my brokerage account?

Okay.

In some ways, it's a non-event, but for accounting purposes, that still gets treated as a, quotes, contingent liability; it doesn't move into equity until they are released.

Okay.

And do you expect any significant capital expenditures for 2016?

Other than acquisitions -- and again, those are, I would say, are a big question mark.

As Mahmud mentioned, we have a lot of exciting things.

Until a deal is done, you don't know that it's going to happen.

But we are not spending a lot on brick-and-mortar.

We're not spending a lot on -- we've got a great technology infrastructure.

So most of the capital is really buying businesses and growing the Company.

Okay.

And then last question.

It looks like you are expanding your direct sales presence.

And can you talk about then what your strategy is to go direct to the market in terms of whether it's geographically or by the type of client?

Sure.

Our focus continues to remain on the small to medium-size practices in the ambulatory space, where we really think we have a solution and a price point that is extremely compelling.

So it continues to be focusing additional resources and team members on the opportunities that we think exist.

As we acquire companies, that also opens the door to additional opportunities, because we can leverage that expanded network of providers to obtain referrals from those new providers, that then lead to organic growth related to those referrals.

In our experience, a referral from an existing provider is worth far more than any other type of lead source.

So, there's a certain synergy or certain snowball effect, if I could use that as the phrase, whereas we continue to grow through acquiring new books of business, new customers, those acquired customers then allow us to, in turn, generate referrals, which help us grow organically.

Okay.

Thank you.

(Operator Instructions).

Showing no further questions, I'd like to turn the conference back over to Amrita Deol for any closing remarks.

Thank you.

Thank you, everyone, for joining the MTBC 2015 fourth-quarter conference call.

Thank you.

Thanks.

And thank you.

Today's conference has now concluded, and we thank you all for attending today's presentation.

You may now disconnect your lines and have a wonderful day.