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Edited Transcript of MTBC earnings conference call or presentation 28-Feb-20 1:30pm GMT

Q4 2019 MTBC Inc Earnings Call

SOMERSET Mar 15, 2020 (Thomson StreetEvents) -- Edited Transcript of MTBC Inc earnings conference call or presentation Friday, February 28, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* A. Hadi Chaudhry

MTBC, Inc. - President & Director

* Alfonso Nardi

MTBC, Inc. - SVP of Strategy

* Bill Korn

MTBC, Inc. - CFO

* Juan Molina

CareCloud Corporation - Divisional President

* Kimberly J. Grant

MTBC, Inc. - General Counsel & Secretary

* Mahmud U. Haq

MTBC, Inc. - Founder & Executive Chairman

* Shruti H. Patel

MTBC, Inc. - President of Telehealth Division & Director of Compliance

* Stephen A. Snyder

MTBC, Inc. - CEO & Director

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Conference Call Participants

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* Eugene Mark Mannheimer

Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare

* Kevin Darryl Dede

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst

* Marc Wiesenberger

B. Riley FBR, Inc., Research Division - Associate

* Matthew Evan Galinko

National Securities Corporation, Research Division - Senior Research Analyst

* Michael Galantino;Chapin Davis, Research Division

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Presentation

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Operator [1]

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Good day, and welcome to the MTBC Fourth Quarter 2019 Earnings Conference Call and Web cast. All participants should be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kim Grant, General Counsel. Please go ahead.

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Kimberly J. Grant, MTBC, Inc. - General Counsel & Secretary [2]

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Thank you. Good morning, everyone, and welcome to the MTBC 2019 fourth quarter conference call. On today's call are Mahmud Haq, our Founder and Executive Chairman; Stephen Snyder, our Chief Executive Officer and Director; A. Hadi Chaudhry, our President and Director; and Bill Korn, our Chief Financial Officer.

Before we begin, I would like to remind you that certain statements made during this conference call are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act -- the Securities Exchange Act of 1934 as amended.

All statements, other than statements of historical fact made during this conference call, are forward-looking statements, including, without limitation, statements regarding our expectations and guidance for future financial and operational performance, expected growth, business outlook and potential organic growth and acquisitions.

Forward-looking statements may sometimes be identified with words such as will, may, expect, plan, anticipate, upcoming, believe, estimate or similar terminology and the negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements.

Any assessment of offerings by our competitors is an opinion based on management’s objective believes and assumptions and on information currently available to our management which we believe to be reliable but in no way is warranted by us as to accuracy or completeness. We caution investors not to rely unduly on this assessment and urge investors to perform their own research, consult with their own advisors and make their own assessment before making any investment decisions. We assume no obligation and disclaim any duty to update or revise such assessment in the event it later turns out to be inaccurate; whether as a result of new information, future events or otherwise.

For anyone who dialed into the call by telephone, you may want to download our fourth quarter 2019 earnings presentation. Please visit our Investor Relations site, ir.mtbc.com, click on Events and download the earnings presentation.

Finally, on today's call, we may refer to certain non-GAAP financial measures. Please refer to today's press release announcing our fourth quarter 2019 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results.

With that said, I'll now turn the call over to the Chief Executive Officer of MTBC, Stephen Snyder. Steve?

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [3]

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Thank you, Kim, and thank you everyone for joining us on our fourth quarter 2019 earnings call. As Kim mentioned, I'm joined on today's call by Mahmud Haq, Bill Korn, Hadi Chaudhry and Kim Grant. I'm also pleased to introduce you to some additional team members including Shruti Patel, the President of our new Telehealth Division; Al Nardi, our Senior Vice President of Strategic Initiatives; and Juan Molina, the President of our new CareCloud division.

Shruti, Al and Juan are a few of the many rising stars in our leadership team and will be available for questions during the second half of today's call. Today I'm thrilled to report record revenue for the full year 2019 of $64.4 million; together with record adjusted EBITDA of $8.1 million. This represents year-over-year increases of 27% and 69% respectively. The fourth quarter, we're pleased to report revenue of $15.8 million together with record fourth quarter adjusted EBITDA of $2.8 million which represents year-over-year adjusted EBITDA growth for the quarter of 98%.

We expect 2020 to be another record year as we reaffirm our revenue and adjusted EBITDA guidance. During 2020, we expect to grow our revenue by 55% to 58% with guidance of $100 million to $102 million. We expect to generate between $12 million and $13 million of adjusted EBITDA which will represent growth of 48 to 60% year-over-year. We expect this growth to come across several growth vectors. This growth will be driven by our recent CareCloud acquisition, our newly scaled organic growth engine, partnerships and new business line opportunities.

While our exceptional rate of revenue growth is a strong differentiator in this market, we believe that the combination of this growth coupled with consistent and accelerating adjusted EBITDA makes us one of the diamonds in the rough among companies of our size. We believe that our integrated solution is the most comprehensive end-to-end ambulatory offering available to U.S. healthcare providers today. Our robust, scalable SaaS platform and service offerings allow us to serve a broad spectrum of practice sizes and specialties. From a one doctor medical practice, to a 100 provider hospital-based group or 1800 clinician independent group, our unique approach and solutions give us a strong competitive advantage across a wide variety of practice types and sizes.

Today we work with providers practicing in more than 70 unique specialties and subspecialties across the country. More than 15,000 providers rely on one or more of our solutions to enable the delivery of care to more than ten million patients a year. Small independent practices across the country have embraced our intuitive, easy to use Cloud-based solution talkEHR. Likewise, with the acquisition of CareCloud, we now offer providers one of the top rated SaaS platforms in our space which supports small, medium and large groups.

In addition to our clinical solutions, we offer integrated practice management, revenue cycle management and a wide range of critical back office services. Our competitive advantage has enabled our strong consistent growth. Our 2020 growth strategy has 3 main prongs; organic growth, partnerships and acquisitions. While we continue to view acquisitions as the most cost efficient and highest velocity means of growth, the strong execution against our unique business model has driven margin expansion which has enabled us to increase our investment in organic growth. In fact, we have grown the size of our sales and marketing team by more than 5x as compared to 6 months ago. We are getting traction on a wide variety of fronts.

One example that we're incredibly excited about is the opportunity to expand our cross-selling and up-selling initiates across the CareCloud SaaS base. We expect this newfound reality to up-sell RCM and related services to be a key driver of our growth during this year and beyond. Likewise, additional synergies between MTBC and our CareCloud teams will help us further accelerate growth. We expect additional growth during 2020 to be driven by referral partnerships as well; together with other lead generating relationships that include billing and EHR clients, referrals from existing customers and our digital marketing programs.

As to acquisitive growth opportunities, we continue to believe that the healthcare IT and revenue cycle markets are highly fragmented and right for consolidation. Since our IPO, we've acquired the customer portfolios of more than a dozen competitors and we've developed what we believe to be a well-honed technology driven repeatable model for integrating acquired businesses and customers.

While the next few quarters will likely be devoted to integrating CareCloud and expanding our organic growth initiatives, as an executive team, we would like to be able to identify and close a target company or group of target companies representing an additional $100 million in revenues over the next year or so. As always, we will continue to employ a disciplined and patient approach to ensure we find the right strategic fits at optimal valuations and only time will tell if we are able to achieve our aspirational goal.

As I previously mentioned, acquisitive growth in 2020 is off to a great start with the acquisition of CareCloud last month. Over the last ten years, CareCloud raised an estimated $130 million from some of the most respected investors in Silicon Valley and they invested much of this capital in developing one of the top ranked Cloud-based platforms for ambulatory care in the U.S.

As a combined team, we believe that we can help add value and build on their success including further strengthening the platform and implementing a more disciplined approach around financial, operational, information technology and compliance structures as we've done with other companies we've acquired.

Through the acquisition of CareCloud, we acquired leading technology solutions, a broad-based of customers generating approximately $30 million in annual recurring revenues and an incredible brand and a highly talented team. CareCloud represents our largest acquisition to-date and we believe we're making great strides with the integration.

I'll now turn the floor over to our president Hadi, Hadi?

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A. Hadi Chaudhry, MTBC, Inc. - President & Director [4]

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Thank you, Steve, and thank you everyone for joining us on our fourth quarter 2019 call. As Steve mentioned, we are making great strides in the integration. The integration efforts are on track and this has been facilitated by repeatable integration capabilities coupled with the talented team at CareCloud. We have already begun seeing the benefits of this integration by, among other things, reducing the costs and reliance on third-parties; some of which include CareCloud's current offshore revenue cycle BPO and both near-shore and offshore product and engineering contractors.

As the integration progresses, our combined teams will enable us to enhance the quality outcomes of our revenue cycle management customers and accelerate development capabilities and timelines. We would like to take a few moments to discuss our existing new telehealth initiative. As many of you know, the telehealth industry is taking off and predicted to be the total addressable market of $35 million according to Statista analytics.

We believe this is the perfect time to expand our portfolio and be part of this exciting movement. As you may recall, in Quarter 4 of 2019, we announced the release of our integrated telehealth solution. This solution focused on integrated our telehealth software to our talkEHR product allowing providers and patience to conduct virtual patient encounters from the comfort of their own home or virtually anywhere. Following the initial success of our pilot, we are focused on taking telehealth to the next level. To accomplish this, last week we announced the creation of a separate division focused solely on telehealth led by an experienced team to drive growth.

We are thrilled to have a dynamic leader focused on this latest opportunity for us. Shruti Patel has been able -- has been a valuable member of the MTBC team for more than 5 years and has worked on some of our most strategic initiatives. She recently served as MTBC's General Counsel and has now been promoted to division president of Telehealth Business Division. In the quarters ahead, we intend to expand our telehealth offering from a SaaS only offering to one that includes the provision of virtual care to a management services agreement with a physician-owned partner entity. We are bullish about our newest phase in our telehealth solution and the go-to market opportunities that exist with this software offering; especially as we being to work to enable these capabilities across our more than 15,000 providers within our base and other partners we plan on bringing onboard.

We expect general availability of this new telehealth offering within the next 90 days. We look forward to continue providing updates in our journey as we progress to 2020.

I will now turn the floor over to our Chief Financial Officer, Bill Korn. Bill?

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Bill Korn, MTBC, Inc. - CFO [5]

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Thank you Hadi. As Stephen and Hadi said, 2019 was a great year. Our revenue for the full year was a record $64.4 million, an increase of 27% compared to $50.5 million in 2018 and was in the upper end of our guidance range of $63 million to $65 million. 2019 was one of our best years ever for organic sales with 9% revenue growth from a combination of new organic customers and growth in revenue from existing customers. Our revenue has grown at a compound annual rate of 35% per year since MTBC's IPO and a $10 million revenue run rate in July 2014.

Our GAAP operating income was $67,000, an improvement of $2.6 million compared to 2018. This is the first full year that MTBC reported positive GAAP operating income since going public. Non-GAAP adjusted operating income was $6.8 million or 11% of revenue which represents an improvement of $3.1 million from 2018 and a new record. In the full year 2019, our GAAP net loss was $872,000 or $0.60 per share which included $3.2 million in stock-based compensation expense and $3 million in noncash depreciation and amortization expense. This reflects an improvement of $1.3 million compared to 2018.

Non-GAAP adjusted net income for 2019 was $6.7 million or $0.55 per share, an improvement of $3.2 million compared to last year and a new record. Adjusted EBITDA for the full year of 2019 increased 69% to a record $8.1 million as compared to $4.8 million in 2018. Adjusted EBITDA was within our $8 million to $10 million guidance range. During 2019, MTBC generated a record $7.6 million in cash from operations. As we continue to scale our business through both organic and strategic means such as the CareCloud acquisition. We're able to spread our fixed expenses over a larger revenue base and generate larger adjusted EBITDA, larger adjusted operating income and larger adjusted net income than we have ever before. Since the companies that we've acquired do not have significant net tangible assets, a large portion of the purchase price is attributed to intangible assets; most of which are advertised over the first few years after each acquisition. While this reduces our GAAP operating income and GAAP net income, it does not impact our cash flow and is excluded from our non-GAAP financial measures.

We expect to report a GAAP operating loss and a GAAP net loss for the next few quarters as we amortized the intangible assets from CareCloud. However, as we reduced our cash based expenses, these will turn to GAAP operating profits and GAAP net profits over the next few quarters. Turning to the fourth quarter, our revenue for the fourth quarter of 2019 was $15.8 million. Our fourth quarter 2019 GAAP operating income was $864,000; another new record for MTBC. This $1.7 million improvement in operating income reflects our successful integration of Orion and Etransmedia; systematically reducing operating costs. After our last 3 acquisitions, MTBC has been able to reduce operating expenses by an average of 35% after 1 quarter, 53% after 2 quarters and 63% after 3 quarters. This explains the dramatic improvement in our operating income during the second half of 2019 and sets the stage for our integration of CareCloud during the first 3 quarters of 2020.

Non-GAAP adjusted operating income for fourth quarter 2019 was $2.5 million, or 16% of revenue which was also a new record for MTBC. Our fourth quarter 2019 GAAP net income was $332,000, yet another new record for MTBC. Non-GAAP adjusted net income for fourth quarter 2019 was $2.4 million or $0.20 per share; one more new record, an adjusted EBITDA for fourth quarter 2019 was $2.8 million or 18% of revenue and our final record for the quarter. The fourth quarter 2019 cash flow provided by operations was $2.9 million.

As of December 31, 2019 the company had approximately $30 million of cash and positive working capital of approximately $19.8 million. During 2019, the company raised net proceeds of $9.6 million by issuing $373,000 of its nonconvertible Series A Preferred Stock through an at-the-market offering. Series A Preferred Stock is perpetual.

Trades on the NASDAQ Global Market under the ticker MTBCP pays monthly cash dividends at the rate of 11% per annum and to be redeemed at the company's option at $25.00 per share starting in November of 2020. I'd like to close by elaborating on our 2020 guidance. 2020 revenue will be in the range of $100 million to $102 million which represents growth, 55% to 58% over 2019 revenue. The combination of additional sales and marketing resources and the increase in cross-selling opportunities means that we anticipate stronger organic growth than in the past. During 2020, we anticipate the value of new recurring contracts signed will be significantly higher than our previous trend of single digit organic growth.

We anticipate adjusted EBITDA of $12 million to $13 million for full year 2020, growth of 48% to 60% over our 2019 adjusted EBITDA as the company integrates the CareCloud acquisition. We plan to exit 2020 with CareCloud positioned to contribute significantly to our growth and profitability in future years.

I will now turn the floor over to our Chairman, Mahmud for his concluding comments.

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Mahmud U. Haq, MTBC, Inc. - Founder & Executive Chairman [6]

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Thank you Bill. 2020 will be another year of record breaking growth and increasing profitability. We thank our investors, customers and employees for their support. We will now open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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We will now begin the question and answer session. (Operator Instructions) Our first question today comes from Gene Mannheimer of Dougherty and Company.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [2]

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Congrats on a strong finish to the year. Guys, as with most acquisitions MTB has done, you know, there's often some disruption with the customer based post deal. Is there any early read from your family of customers on CareCloud and so far as the retention expectations there?

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Juan Molina, CareCloud Corporation - Divisional President [3]

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Hey, Gene, how are you? This is Juan Molina, and for those of you that don't know me, President of CareCloud. So Gene, great question. We're not seeing any -- any impacts, whatsoever, from the recent acquisition and we're not -- we're not expecting to see any churn associated with that. In fact, what we've been able to do is, because of the expanded value proposition opportunities that we have with MTBC including different product lines and service offerings, we've been able to very quickly start injecting that into our customer base and the customer base is actually very excited to see those new opportunities available to them.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [4]

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That's terrific. Thanks and welcome, Juan. Again, maybe one for you, Bill. What -- can you just share with us, what are the primary factors that led you to hit the low end of your EBITDA range for -- for 2019 versus the upper band and if you could also talk for 2020 about how the cadence of expenses may look with -- with the CareCloud business folded in?

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Bill Korn, MTBC, Inc. - CFO [5]

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Sure, thanks -- thanks Gene. So as we were starting fourth quarter of 2019, we had CareCloud on the radar screen and so we thought about what we wanted to do to end the year really strong to be able to integrate CareCloud quickly. So we started ramping up resources in our team overseas knowing that once we closed the acquisition we wanted people on the ground that were ready to pick up the work. So I think we did this proactively knowing that it was a good bet to make. And as I think about 2020, what you'll see is somewhat consistent with other acquisitions. So I think during first quarter of 2020, you've got CareCloud, which was spending a lot more than its revenue in the past, even as we're reducing expenses you'll see that it being a little bit of a drag on our Q1 EBITDA and that's okay. We factored that into our plan.

By Q2, we expect that the CareCloud will be essentially neutral on EBITDA so we will have brought the CareCloud specific expenses down to the level of CareCloud's revenue which, you know, frankly is something that I think they tried for many, many years and with our resources with our team, with our technology, we're -- resources compared with -- integrated with theirs, we're able to do.

In Q3 and Q4, you'll see CareCloud actually contributing to our overall EBITDA. So as you think about the $12 million to $13 million of EBITDA, that will be back end loaded and, again, you'll see us by the end of the year running at a significantly higher annual run rate of EBITDA and cash flow.

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Eugene Mark Mannheimer, Dougherty & Company LLC, Research Division - Senior Research Analyst of Healthcare [6]

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Very helpful. Thank you, Bill, congrats again.

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Operator [7]

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The next question comes from Marc Wiesenberger of B. Riley FBR.

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Marc Wiesenberger, B. Riley FBR, Inc., Research Division - Associate [8]

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Do you anticipate -- I know you talked about the kind of overall magnitude of new deals, but specifically like individual deal sizes, do you anticipate those going up after the CareCloud deal and if so, does that potentially impact the timing and cadence of signing on these new deals?

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [9]

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That's a great question, thanks for the question, Marc. As we look at the trend in terms of the overall signings relative to the size of the practices over the last few years, the overall practice size has consistently grown over time and we would envision that same trend continuing as we move forward with CareCloud. The CareCloud offering allows us to extend the reach of our overall solution set across a broader variety of practice sizes even though we work with many large groups today. From a clinical perspective, the CareCloud platform really helps to strengthen our overall offering from a clinical perspective to really meet the needs of those larger practices in particular.

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Marc Wiesenberger, B. Riley FBR, Inc., Research Division - Associate [10]

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And maybe just kind of similar point, can you talk about the interoperability of the legacy MTBC platform and the CareCloud experience and how kind of practice it will be able to navigate between them?

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [11]

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For sure. We'd be very happy to do that and one thing I'd say at the outset is, with the transaction just having recently been closed from the perspective of the overall integration when it comes to things like the information technology, our team is still working on finalizing the road map relative to that. But at least at the onset, what we can say for sure is that as we think about CareCloud's ecosystem of applications and solutions from a technology perspective, the EHR, the PM, the patient focused applications and the like. In many respects, it's similar to what we provide to our existing base; the main differentiators relate to the broader solution set, the full service revenue cycle management credentialing, the coding and a whole variety of these other value-added services which we'll be working over time, in terms of being able to deploy them and being able to incorporate those same solutions into the CareCloud solution set.

So I think that will be at least initially one of the key things that we do. Over time, we continue to, at least at this point in time, believe that we'll maintain 2 different applications; the MTBC application being a lighter application that in particular is a phenomenal solution from a clinical perspective for the -- the smaller practices; the 1 to 5 doctor groups and the CareCloud solution from a clinical perspective being particularly well equipped at -- to meet the needs of those medium and larger groups.

And I think from an interoperability perspective, if there's anything Hadi or Juan you'd like to add?

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Juan Molina, CareCloud Corporation - Divisional President [12]

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Yes, so this is Juan and that's a great point, Steve, and it's a great question as well. So we've already begun -- as Steve mentioned, we're still rationalizing what the overall product strategy is and specifically I think Steve is right on that we're looking at having these 2 separate products and continuing to serve our customers with the respective products.

However, a good example of how some of this interoperability is actually working, CareCloud has been able to, over the last several years, externalize some of our internal Web services and open up our API's to the broader market and to developers across the country. And one of the things that we've been able to do very quickly with MTBC is allow them to leverage our open API infrastructure and we've been plugging in their automated appointment confirmation and calling tools. So that's just one example of the many examples that we're working through as we rationalize all of these different integration points.

You know, as you've heard today, there's also some existing -- some exciting opportunities on the telemedicine side. So as we think about our Breeze solution, telemedicine is a natural product synergy that could exist. So there's a lot more to come on this and we're excited to see what the next several quarters hold as we launch new products into the market or new integrations into the market.

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Operator [13]

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The next question today comes from Matthew Galinko of National Securities. Please go ahead.

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Matthew Evan Galinko, National Securities Corporation, Research Division - Senior Research Analyst [14]

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I guess firstly is, Steve, you touched on, I think, an aspirational goal to drive $100 million, if I heard that right, in revenue growth tied to additional M&A over the next year or 2. Can you touch on, just briefly, A, what the pipeline looks like to get you there and, B, how do you think about funding it, particularly with respect to the Series B Preferred that's, you know, I think, an optional redemption later this year.

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [15]

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Sure, be very happy to. Great question. So there are 2 aspects to your question that we'll do our best job to address. First is in terms of our overall vision with regard to this aspiration of some very large, either one -- one large target company that we acquire or a group of target companies we acquire that are in roughly the $100 million revenue range over the next year or so, to your point. The second part of that is -- is funding. And I think from a funding perspective, I think I'd put that in the category of we would -- we can speak a little bit to that but I think more so we'd cross that bridge as we get there, at that point in time, based upon the overall equity valuations and based upon options with regard to debt and the like. We would -- we would continue to ensure that in the most cost efficient way, from a cost of capital perspective, we're moving forward in a way that gives us both the flexibility operationally to be able to acquire companies that need work but that can be purchased at very attractive valuations but also at a reasonable cost to capital. And I'll let Bill jump in -- in just a moment on that if he has anything else to add.

I think in terms of the overall kind of aspiration that we have in terms of these larger acquisitions, there are a limited number of companies that are in the, you know, strictly speaking, the RCM alone space; companies that are solely focused on RCM that rise to that level. There's a relatively small universe of those companies. So to the extent that we were able to accomplish this objective with only RCM companies, more likely than not, it would be a combination of 2 or 3 of these companies together that we would acquire. Do we have those companies in the pipeline from an RCM perspective? We do, and we talked about that some during the last call but candidly our -- our suspicion is that by the time we get to the point where we're ready to move forward on acquisitions like this, they'll be candidly a new crop of target companies that will be there. So I'd be hard pressed to say that those companies would certainly come from the existing pipeline because really our focus today, and really for the next 6 months or so, will really be just doing an excellent job when it comes to integrating CareCloud and also focusing on really ramping up, continuing to ramp up, the acquisitive growth.

So in addition to the RCM companies, our focus increasingly has been on other companies for instance healthcare IT companies that are focused on EHR, practice management, analytics, that are helping with value-based care. At some point in time when the valuations perhaps become more attractive, perhaps distressed telehealth company, telehealth players. And a whole variety of more -- of companies that fall more within the healthcare IT segment of the overall market.

So that's the overall aspiration and I think if we think back over the last 5 or 6 years in terms of many of the aspirations that we've expressed on these calls, I think oftentimes that the initial kind of reception was a little bit of a skepticism candidly in terms of is this something we can accomplish? But I think if we look over the last 5 or 6 years, I think that most folks will say that we've really been able, over time, to really -- when we put our team to work, we've been able to really accomplish some pretty significant things in terms of acquisitive growth and also organic growth and we're hopeful to be able to do the same thing here.

And I don't know if, Bill, if there's anything else that you'd like to add from a financing perspective?

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Bill Korn, MTBC, Inc. - CFO [16]

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Sure, so you mentioned the Series A Preferred Stock where we have the right, if we wanted to, starting in November to redeem the shares. But, again, it's only if we want to and we have the cash to do so without impacting other priorities and clearly we'll wait until that time to make a decision.

From run perspective, our monthly cash flow from operations is typically greater than our dividend. For example, last year the cash flow was 1.25 times our dividend. We expect it to be similar this year and what we've found is that with penalties, covenant, a lot of flexibility, the ability to raise money easily, the preferred stock has been a great financing instrument for us in a way that doesn't dilute our shareholders. And as long as we could use proceeds wisely, as we have for accretive acquisitions, for example, like CareCloud, like Orion, we feel confident we can generate incremental returns that are far in excess of the dividend rate.

So we'll see down the road as we see the next opportunities; what's the right way to finance it. It's great to be a $100 million company with many different options and the flexibility that whichever way the markets go we know we can raise capital and do so on good terms.

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Operator [17]

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The next question today comes from Kevin Dede of H.C. Wainwright

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [18]

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Steve, you touched on this for a bit already with regard to the $100 million that you mentioned in pipeline that you'd like to address. What -- I scratch my head a little bit, I'm wondering if you could dive in a little on valuations, per se. Historically, you've paid a fraction of sales and that changed with regard to CareCloud and I'm just wondering how you're going to look at that going forward and what we should expect as you -- as you pull the trigger on other deals going forward?

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [19]

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Thanks, Kevin, great question. So to -- to your point Kevin, historically when we look at RCM companies struggling, distressed RCM companies where we're only buying the customer relationships and where there's a high historical rate of churn, when we look at those companies, we've oftentimes been able to buy them opportunistically somewhere in the range of 0.3 and 0.5 or 0.6 times annualized revenues. I think when we look at other transactions that occur in this space, oftentimes for RCM companies that are healthier from a balance sheet perspective and in terms of retention. Oftentimes those companies, when they're in our experience, when they're $10 million plus in revenue are nevertheless trading at, or selling, at one times or so revenues. But for the stress companies, agreed, we've really been very fortunate to be able to identify to acquire companies that have been accretive and have helped us grow at very attractive valuations.

When we look at CareCloud, there are a couple of additional elements that, to us, really made CareCloud and exciting opportunity for us. CareCloud has a customer base that standing alone is generating $30 million plus in annualized revenues but in addition to that, unlike the other companies we've purchased, CareCloud also has significant brand equity around the CareCloud name and the company they've been able to build, have a phenomenal team that's drawn from some of the leading companies in our space, from Allscripts and from Athena Health and from many of the other leaders in our space. We have individuals who have significant industry and domain knowledge who we believe will really be critical to us as we continue to execute against our business plan and focus in on growth.

And in addition to that, from a technology perspective, the -- they've leveraged, and they've utilized a significant amount of the $100 million plus that they've raised over the last decade. They've invested that in research and development, in building a first class platform that's used by existing clients, together with making a lot of progress towards yet another new generation product. And we really see an opportunity to be able to not only pick up a client base, pick up an exceptional brand, pick up and be able to onboard an excellent team but also to be able to step into and to help bring their information technology platform to the next level.

They've done a phenomenal job building the SaaS platform and that's another element in terms of the overall valuation when we looked at CareCloud that we thought was really important to add to the mix. So now transitioning for a moment to the other companies that we'll look at. We'll continue, of course, to view each company separately based upon the assets that we're able to acquire through that acquisition to the extent that it's a customer base alone without the brand equity, without the technology. We would believe that the valuation would be more likely than not, all things being equal, closer to the historical non-CareCloud valuations. To the extent that there's brand equity and to the extent that there are -- there's a technology platform, the leading technology platform, there are other assets that fall into that category. I think the valuations would tend to be probably closer to the CareCloud valuation.

When all is said and done in terms of the overall approach, we'll continue to employ the same disciplined approach, we'll continue to be highly focused on making sure that from a valuation perspective we're -- we're at a valuation that we feel very comfortable with and we think is a very solid valuation for this transaction. And without getting into too much of the overall back and forth in terms of CareCloud, I think CareCloud is a good example. We've talked about this in the past that for many of the companies we acquire, we've stepped away from the discussions because the valuation we thought was not a reasonable valuation from our estimation only to acquire that company in the future, 1 or 2 or 4 years down the road at a much lower valuation. And while that exact thing didn't happen here in that same -- with that same gap of time in CareCloud, what I can tell you is that in terms of the overall negotiation of the structure and the valuation of CareCloud, at multiple points in time we stepped away from that negotiating table only to come back when we felt more comfortable that the overall structure and the valuation was consistent with what we believe to be the right valuation for that company.

And when all is said and done, the final valuation we arrived at, we couldn't be more pleased with.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [20]

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Okay, thanks for the feedback, Steve, I really appreciate it. Another question that's looming, I think, is the sort of the brand and marketing strategy. And I know that both you and Juan had touched on this a little bit and clearly there are 2 elements that, of MTBC now that you can market, right, one for sort of a high end prime larger practice and one for a smaller. I'm wondering how you intend to rationalize, or at least help us rationalize your desire to grow organic sales, build a sales force and somehow manage 2 platforms? Could -- if -- if you could just sort of dive in a little bit on how you'd like us to think about your brand and equity charter going forward, I think it would be really helpful.

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [21]

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Absolutely. I'd be very happy to and I think in terms of being able to provide the best answer, what we'll do is, we have Al Nardi -- Al's our -- is the -- is our Senior Vice President of Strategic Initiatives and has played a key role over the last number of years from a sales and -- and overall business development perspective.

So Al, if you can help us, first of all maybe kind of talk some about the opportunities that you see in terms of the combined company from a sales and marketing perspective and then, Kevin, right after that, then we'll address the question that you -- the other part of the question that you had with regard to the overall IT platform.

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Alfonso Nardi, MTBC, Inc. - SVP of Strategy [22]

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Thank you, Steve. Yes, as far as organic growth, I can outline a little bit of a strategy for you and what we're doing and what we see the opportunity to be. We see an opportunity to up-sell and cross-sell into a much larger combined client base now. That's in addition to the expanding GPO. The GPO has grown approximately 10% in the last 90 days and 20% over the last 18 months. We also, with this combined team of a larger team of 20, are coordinating on marketing through multiple campaigns for sales and organic growth.

There's also a large opportunity to reengage lost opportunities with expanded services from a combined pipeline. So for example, for clients who may not have closed on the CareCloud platform but were looking for services, we've already reached out to ten lost opportunities and had 4 respond that are in discussion with us on services. And I think that's something that helps us also define why the opportunity is so great. Though I can't quantify in the market how all competitors operate, what we found is that most of them require you to be on their software in order to provide revenue cycle services whereas MTBC has the ability and does build on multiple platforms in addition to our own. So we've been able to seize new opportunities from the CareCloud base and opportunities that were lost because they weren't choosing that specific platform.

We also have an additional avenue for sales that we're currently working with partnerships to other billing companies and EHR's and other software for back office support on an FTE model. This effort is being led by our SVP of partnerships and helps these partners expand while reducing costs. We have 2 of these partnerships already in contract and another 2 that are in negotiations out of a large pipeline of potential partners.

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [23]

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Perfect, thanks Al. And Hadi, maybe you can jump in and just kind of help us think through and talk a little bit about the 2 platforms?

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A. Hadi Chaudhry, MTBC, Inc. - President & Director [24]

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Great, thank you, Steve. And thanks, Kevin, for the question. So as Steve mentioned and as Juan has also mentioned, so there are 2 separate independent platforms; we're still continuing to primarily focus on 1 to 5 provider groups at practices and when it comes to the much larger client base, we will continue to try to use the CareCloud platform.

With an addition to that, as Juan mentioned previously, there's a lot of different API's that are available and we have already started to work on. First of all, identifying to the right mix where the 2 integrations can happen such as the -- there's a minor call service, for example, there's an integration from the Greece perspective we have started looking on. And in the same -- the rule-based system, our proprietary rule-based system that we have, we are working on integrating that into the CareCloud platform. So I think, yes, we will continue to work on the road map but from the focusing perspective in addition to the integration, how the 2 systems will be operating together, we will continue to sell and reach out to the different client sets or the client base for MTBC and/or CareCloud platform.

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [25]

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And, Kevin, just to use as -- as just one example, we think about the CareCloud base virtually 100% of the CareCloud base is leveraging their practice management. A smaller subset are leveraging the EHR and then the smallest subset of that client-base of 4500 providers is leveraging revenue cycle management which represents roughly 30% of their base in terms of number of providers is leveraging revenue cycle management.

So we think we have a significant opportunity that we can leverage to up-sell the remainder of that base, the other 70% on the possibility of leveraging revenue cycle management. And if you think about this in terms of the kind of it's a marketers dream or a salesman's dream in some respects, because they're leveraging the platform, we have complete visibility in term of the key performance indicators regarding their existing operations from a -- from a revenue cycle management perspective, what's working well, what's not working well, where we can add value so we have really the ability in a very informed way to be able to provide additional visibility with regard to their existing workflows and their existing KPI's so we can add value in that context even if they don't leverage RCM but we can also specifically tailor our RCM offering on a client level in a way that specifically addresses the needs that they have in their day-to-day practices. So that data allows us, in a -- in a very targeted way to be able to make sure that we're providing the best and most compelling offering to those CareCloud customers.

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Kevin Darryl Dede, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Technology Analyst [26]

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Okay, just to follow-up, so I have it sort of sorted out in my little head, Steve, does that mean that you'll continue to market 2 brands? I guess I was kind of wondering if you've made progress or decided at all to consolidate the entire marketing effort under 1 brand or perhaps continue to push 2?

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Stephen A. Snyder, MTBC, Inc. - CEO & Director [27]

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Absolutely, good question. For the time being we'll continue to promote 2 brands; we'll continue to really strengthen the overall CareCloud offering with our back office solutions and by integrating our technology and the like. So we'll continue to -- to manage 2 brands for the time being but that's one of the discussions -- that's one of the items that's on your discussion and we're analyzing with regard to the overall integration road map.

So perhaps more to -- certainly more to come on that and your idea for sure is a good idea in terms of what the possibilities could be in terms of being able to leverage that brand and equity more broadly across the whole organization but that's still something that we're internally analyzing.

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Operator [28]

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The next question today comes from Michael Galantino of Chapin Davis.

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Michael Galantino;Chapin Davis, Research Division, [29]

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Ccongratulations guys, great quarter. You guys have under promised and over delivered as usual, so terrific acquisition of care. I have a 2-part question if I may, first, for Hadi, could you talk a little bit about the synergies and expense savings you have implemented in the few months since the acquisition of CareCloud and also I have a quick question for Shruti in terms of the telehealth division. How do you plan on differentiating your service, the telemedicine health service side of MTBC from the likes of the Teladocs of the world?

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A. Hadi Chaudhry, MTBC, Inc. - President & Director [30]

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Thank you, Michael, and thanks for the question. So from the integration perspective, if -- in terms of the numbers, we are already on track to reduce the expenses when it comes to the BPO and the development contractors by roughly about 85%, sometime in the mid of the second quarter. And as Bill has mentioned, it -- the way this whole transition is happening right now, we expect the second quarter to be EBITDA neutral for the CareCloud.

And in terms of how much we have accomplished so far, I think we're probably around halfway through in terms of the 85% reduction in those expenses and that's, as you understand that's the initial transition from the third-party vendors and the contractors to MTBC's own onshore employees. So that -- that process is taking place.

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Shruti H. Patel, MTBC, Inc. - President of Telehealth Division & Director of Compliance [31]

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Perfect. Thanks for the question. I'm still here. So, to address your -- so to address your question, so how do we see ourselves different from competitors, so in terms of competitors, we see 2 major categories of competitors of the market. The first is we see standalone telehealth companies such as Teladoc, MDLive and Doctor on Demand, just to name a few, but then we also see a category of competitors that are offering more of a standalone application that only offer software, not a full suite of telehealth services.

So for example, like a Kyron. So what we're trying to do is we are now focusing on our efforts to go to market approach by combining both. We are looking to do a standalone business unit that will provide not only software but will also provide services as well. And another advantage, differentiation from the competitors is that we have a vast -- we have a group of existing providers of over 15,000 providers in our GPO members that we can even, you know, leverage and -- use as our go-to-market approach.

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Michael Galantino;Chapin Davis, Research Division, [32]

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Okay. That's the sexy part of the story now, it's a great story. Thank you.

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Operator [33]

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This concludes our question and answer session. I would like to turn the conference back over to Kim Grant for any closing remarks.

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Kimberly J. Grant, MTBC, Inc. - General Counsel & Secretary [34]

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Thank you and we would like to thank everyone for joining today and for all of your continued support. We look forward to speaking to you again in the near future. Thank you all and have a great day.

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Operator [35]

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The conference is now concluded. Thank you for attending today's presentation, you may now disconnect.