CareCloud, Inc.

Mahmud Haq - Chairman and CEO Stephen Snyder - President Bill Korn - CFO Amritpal Deol - Vice President of Customer Relationship Management

Keay Nakae - Chardan

Good morning, everyone. Welcome to the MTBC 2015 first quarter conference call.

On today’s call are Mahmud Haq, our Chairman and Chief Executive Officer; Stephen Snyder, our President and 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 Provision 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 Chief Executive Officer Mr.

Mahmud Haq. Mahmud?

Thank you, Amrita and thank you for joining us on our first quarter 2015 financial results and business highlights call. First, the financial results, revenue for first quarter 2015 were $6.1 million which represents a 139% increased over 2014.

Adjusted EBITDA was 710,000 loss, we are on track to attain of 30% EBITDA margin in the fourth quarter 2015 as previously mentioned. I am pleased to report a number of accomplishments during the year so far.

We recently entered into a partnership with Amazing Charts to provide revenue cycle management to Amazing Chart client. As you know, Amazing Chart a leading EHR company focused on our target market.

We increased our line of credit with TD Bank to $3 million, which represents an increase of 150%. This increase in our credit facility provides additional working capital to fund our growth at very attractive interest rates.

We introduced number of upgrades to our service platform including I Check-in and enhanced version of our mobile patient checking app PHR 2.0 and enhanced personal health record platform for patient that simplified meaningful use stage 2 compliances. A partnership with X-Link that extends the reach of our platform to more than 350 other practice management and EHR platform.

We’ve started better testing of SameDay Funding. We made great progress integrating the three businesses that we purchased last year at the time of the IPO.

Integration efforts are going as planned and we are near completion. We have realigned resources and significantly cut expenses.

With this I will turn the call over to Steve Snyder, our President, to discuss our operations in more detail.

Thank you, Mahmud. As Mahmud mentioned, we're making substantial progress in terms of our integration efforts and have already transitioned approximately 90% of our clients to our platform.

We expect that the right sizing and system migration will allow us to continue to rationalize a variety of costs including facility leases and personnel and software expenses. Likewise, as we increasingly leveraged our proprietary technology and processes, our efficiency increases and our outcomes are optimized.

We look forward to experiencing additional reductions in our expenses during the second and third quarters of this year. We're also very pleased to have officially launched our European operations office MTBC Europe which is based in Poland.

Our European team members will be working alongside of our U.S. and Asia-based team members to support our continued growth.

I’ll now turn the call over to Bill Korn, our Chief Financial Officer to provide a detailed review of our first quarter financial results.

Thank you, Steve. We’re very pleased with our first quarter.

First quarter 2015 revenue was $6.1 million, grew 139% compared to 2.6 million in the first quarter of 2014. This growth was primarily attributed to our acquisitions.

Adjusted EBITDA in the first quarter was negative $710,000 compared with positive $2,000 in the first quarter a year ago. The adjusted EBITDA loss is primarily due to two factors: seasonality and post acquisition ramp-up costs.

First quarter revenue for each of our customer practices is normally lower than other quarters and because our fee structure is generally based upon a percentage of the money our doctors collect, our revenue typically declines in first quarter as well. Insurance payments are generally lower in Q1 because many health insurance plans have an annual deductible which resets our January 1st.

This is elongates most doctor's collection cycles, hence our first quarter revenues are normally lower than other quarters. Second, we spent approximately $0.5 million on payroll and benefits during the first quarter for employees who are no longer with us, as our U.S.

headcount decreased from 205 employees on January 1, to 104 employees on March 31st. That reduced costs were dropped to our bottom-line starting in the second quarter.

We are achieving the overall reduction of our expense profile as Steve described with reduced lease process, third-party software and other expense causing EBITDA losses to narrow during the first three months in the year. We are now at the point where EBITDA is turning positive and will begin growing.

Our non-GAAP adjusted net income was negative $854,000 or negative $0.08 per share, compared to non-GAAP adjusted debt income of $83,000 or $0.02 per share in first quarter 2014. The GAAP net loss in the quarter was $1.2 million or $0.12 per share compared to GAAP net income of $384,000 or $0.08 a share in the first quarter of 2014.

The $456,000 difference between adjusted EBITDA and the GAAP loss reflects $1.2 million of non-cash depreciation and amortization expense primarily related to purchase of intangible assets, a $127,000 of stock-based compensation, $35,000 of net interest expense offset by $46,000 of foreign currency gains, a $696,000 decrease in the value of the contingent consideration liability and a gain of a $133,000 related to CastleRock [indiscernible] of 53,797 shares of the Company's common stock. The $696,000 gain from the reduction in the fair value in the contingent consideration is primarily due to the decline in the price of the company stock hence value of the shares which are part of the purchase price, is now less.

In addition, you may recall that one of the former owners or one of the business as we acquired CastleRock violated the terms of our non-compete agreement. We settled with them in February and as a result CastleRock forfeited 53,797 shares of our common stock, which were due to released release from Australia in January.

We also modify the formula, we will use our final adjustment in September in a way that we’ll reduce the number of shares we pay for this company. This change in formula was a contributor to the $696,000 gain from the reduction in the fair value of the contingent consideration.

Again from the lower value of contingent consideration must be 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 and might be reversed in the future quarter if the stock price boost high. In September of this year, when the actual revenue for the 12 months after purchase and each acquisition is known, the number of shares will be fixed and there will be no further change to the value of the purchase price.

As of March 31st, 2015, MTBC’s cash balance was approximately $1.2 million, compared to approximately $1 million as of December 31st, 2014. That concludes my review of MTBC’s first quarter financial results and I’ll now turn the call back over to Mahmud for some closing remarks.

Mahmud?

Thank you, Bill. This quarter has been very encouraging for us.

Our strategy is on track. Our team is making meaningful progress on the integration and our pipeline is full of potential acquisition target.

We believe that we will get a boost from ICD-10, the new Medical Classification System which all doctors in the U.S. will need to use for medical billing starting in October 2015.

ICD-10 has seven times as many close as a current system ICD-9. And the government believes that bring many benefits to the medical community.

But the extra complexity means that it will be nearly impossible for most of the doctors to their billing in-house and the other revenue sector management who lack our technology platform and our low-cost offshore workforce to perform these services profitability. We think this will provide us with an attractive acquisition and partnership opportunities.

We look forward to keeping you all on our current efforts and providing you with updates on our initiatives for the future. Lastly, I want to thank all of our shareholders for their belief in MTBC.

I would like to thank all of our team members in U.S., Poland and Pakistan for their hard work and our physicians for trusting us to help manage their practices. We will now open the call for questions.

Operator?

First question is for Bill. Just wanted to revisit your comment that EBITDA had turned positive, now that we are halfway through the quarter, should we expect that positive adjusted EBITDA to be reported for Q2?

Thanks Keay. So we’re really glad to see that all of the integration and the cost reduction is really providing the results.

And at the moment as I look at our Q2 numbers, I see our direct operating costs down, I see our G&A down again due to all the savings that we look out. I’d say the only wild card is we’re starting to at spend a little more on marketing and sales and depending on what we, which we think is great investment for the future.

So depending on exactly what we spend on that investment that might shed the number a little bit. But otherwise, we’re really confident that we have turned the corner here and we’ll be operating profitably as we did for the six years before the acquisitions in IPO.

When we look at some of the remaining cost reduction items related to the acquisitions, what are some of the key areas there where we should see continued reductions?

As you know we’ve been reducing the number of employees in the U.S. from these – from the companies that we acquired, that number was nearly 300 at the time of the acquisition, it was 104 by the end of March.

That number is going to continue to go down gradually. There’s not going to be a one sudden drop-off, but basically as we find, we can move work offshore keeping our clients happy, we’ll continue to do so.

We’ve also been working on what I’ll call sort of the second order effects like let’s think about making the foreign services cost effective in each office like look at least copier that came from the four acquisitions and do we really need them, so there’s lots of little things, so there’s no silver bullet where you can expect a $0.5 million drop in cost, but literally we’re saving $1,000 at a time in the old fashion way.

And on the – as far as the foreign workers, where are you in terms of transitioning those workers to Pakistan?

Yes, so we’ve got roughly 90% of the work being done by our team offshore, mostly Pakistan few in the office in Poland. And again, we continue to look at the employees in the U.S.

as once you’ve got the customer relationship and the employees offshore to be doing most of the operations work. I don’t know Steve if you want to add to that.

Sure, no, I think that’s exactly right Bill. I think Keay in terms of if we breakdown the functions and we look at the core operational parts of the workflow, so the data entry, the charge capture, the payment posting, follow up and alike roughly 90% of those functions are being handled by our team members offshore or offshore offices and then the onshore team is primarily focused on the retention of our clients, throughout focus in on higher value activities, identifying opportunities for additional reimbursement, meeting with our clients, really client facing responsibilities.

And just one final question in terms of practice retention, so of the three acquired businesses, where would you characterize the percent of practices that are still with those doctors that are still with you?

I think I was – this is Mahmud going back to your previous question and we’ll get to the number in a minute. The second quarter, the second half of the year as Bill mentioned.

Now we are focusing on growing the business. We have experienced I think roughly if I -- in different ways of looking at numbers, but let’s say we went through about a 20% loss of business of going through transition and understand that part of it was as Bill mentioned, one of these companies that we purchased CastleRock majority of the loss came from there from that division.

But I think at this point as Bill mentioned, we are cash flow positive and the next two quarter the remaining of the year is where we want to focus, regain the lost business and add some more and I think that’s what our goal is for the next half of the year. So if you want to walk away with a number, it will be about 20% of the factor attrition since the IPO.

When you talk about growing the business, are you talking about organic growth or additional acquisitions?

I think mostly we are focused on organic growth as Steve mentioned the partnership with Amazing Charts, Practice Fusion providing the back-end support, back-end revenue cycle management those plus the right opportunity comes we’ll be open for an acquisition. Just to remind everyone that initially we were thinking of doing many more acquisitions, but we raised the amount of money that we raised was 20 million instead of 30, which kind of made us focus on bringing the cost under control at a faster pace than we speed than what we initially planned on.

So now that that’s behind us, we will have the funding for organic growth plus if there’s a right opportunity comes for acquisition, if we can find funding. If it’s big enough, if it could be self-funded, funding will be open for smaller acquisition.

Okay, Amrita? We like to thank you all of you.

Is there any other comments on this?

No other comments.

Okay, thank you.

Thanks everyone.

Bye-bye.