UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification Number) |
|
| |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Global Market | ||||
Global Market | ||||
Global Market |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
At November 5, 2024, the registrant had shares of common stock, par value $ per share, outstanding.
INDEX
| 1 |
Forward-Looking Statements
Certain statements that we make from time to time, including statements contained in this Quarterly Report on Form 10-Q, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q are forward-looking statements. These statements relate to anticipated future events, future results of operations or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “shall,” “should,” “could,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “seeks,” “estimates,” “forecasts,” “predicts,” “possible,” “potential,” “target,” or “continue” or the negative of these terms or other comparable terminology. Our operations involve risks and uncertainties, many of which are outside of our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, statements reflecting management’s expectations for future financial performance and operating expenditures (including our ability to continue as a going concern, to raise additional capital and to succeed in our future operations), expected growth, profitability and business outlook, increased sales and marketing expenses, and the expected results from the integration of our acquisitions.
Forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties, and other factors that may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These factors include, among other things, the unknown risks and uncertainties that we believe could cause actual results to differ from these forward-looking statements as set forth under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 21, 2024. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all of the risks and uncertainties that could have an impact on the forward-looking statements, including without limitation, risks and uncertainties relating to:
| ● | our ability to manage our growth, including acquiring, partnering with, and effectively integrating acquired businesses into our infrastructure and avoiding legal exposure and liabilities associated with acquired companies and assets; |
| ● | our ability to retain our clients and revenue levels, including effectively migrating new clients and maintaining or growing the revenue levels of our new and existing clients; |
| ● | our ability to maintain operations in Pakistan, Azad Jammu and Kashmir, and Sri Lanka (together, the “Offshore Offices”) in a manner that continues to enable us to offer competitively priced products and services; |
| ● | our ability to keep pace with a rapidly changing healthcare industry; |
| ● | our ability to consistently achieve and maintain compliance with a myriad of federal, state, foreign, local, payor and industry requirements, regulations, rules, laws and contracts; |
| ● | our ability to maintain and protect the privacy of confidential and protected Company, client and patient information; |
| ● | our ability to develop new technologies, upgrade and adapt legacy and acquired technologies to work with evolving industry standards and third-party software platforms and technologies, and protect and enforce all of these and other intellectual property rights; |
| ● | our ability to attract and retain key officers and employees, and the continued involvement of Mahmud Haq as Executive Chairman and A. Hadi Chaudhry as Chief Executive Officer, all of which are critical to our ongoing operations and growing our business; |
| ● | our ability to realize the expected cost savings and benefits from our restructuring activities and structural cost reductions; |
| ● | our ability to comply with covenants contained in our credit agreement with our senior secured lender, Silicon Valley Bank, a division of First Citizens Bank, and other future debt facilities; |
| ● | our ability to resume and then continue to pay our monthly dividends to the holders of our Series A and Series B preferred stock; |
| ● | our ability to incorporate AI into our products faster and more successfully than our competitors, protecting the privacy of medical records and cybersecurity threats; |
| ● | our ability to compete with other companies developing products and selling services competitive with ours, and who may have greater resources and name recognition than we have; |
| 2 |
| ● | our ability to effectively integrate, manage and keep our information systems secure and operational in the event of a cyber-attack; |
| ● | our ability to respond to the uncertainty resulting from pandemics, epidemics or other public health emergencies and the impact they may have on our operations, the demand for our services, our projected results of operations, financial performance or other financial metrics or any of the foregoing risks and economic activity in general; |
| ● | our ability to keep and increase market acceptance of our products and services; |
| ● | changes in domestic and foreign business, market, financial, political and legal conditions; and |
| ● | other factors disclosed in this Quarterly Report on Form 10-Q or our other filings with the Securities and Exchange Commission (the “SEC”). |
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations, beliefs and views as of the date of this Quarterly Report on Form 10-Q concerning future developments and their potential effects on our business. Although we believe that the expectations reflected in the forward-looking statements contained in this Quarterly Report on Form 10-Q are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We anticipate that subsequent events and developments may cause our assessments to change. Except as required by law, we are under no duty to update or revise any of such forward-looking statements, whether as a result of new information, future events, or otherwise, after the date of this Quarterly Report on Form 10-Q.
You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we currently expect. The forward-looking statements contained herein should not be relied upon as representing our assessments as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
| 3 |
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CARECLOUD, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share and per share amounts)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable - net | ||||||||
| Contract asset | ||||||||
| Inventory | ||||||||
| Current assets - related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment - net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible assets - net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued expenses | ||||||||
| Operating lease liability (current portion) | ||||||||
| Deferred revenue (current portion) | ||||||||
| Notes payable (current portion) | ||||||||
| Dividend payable | ||||||||
| Total current liabilities | ||||||||
| Notes payable | ||||||||
| Borrowings under line of credit | ||||||||
| Operating lease liability | ||||||||
| Deferred revenue | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 7) | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ par value - authorized shares. Series A, issued and outstanding shares at September 30, 2024 and December 31, 2023. Series B, issued and outstanding and shares at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Common stock, $ par value - authorized shares. Issued and shares at September 30, 2024 and December 31, 2023, respectively. Outstanding and shares at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Less: common shares held in treasury, at cost at September 30, 2024 and December 31, 2023 | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| 4 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
($ in thousands, except share and per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Direct operating costs | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Loss on lease terminations, unoccupied lease charges and restructuring costs | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OPERATING INCOME (LOSS) | ( | ) | ( | ) | ||||||||||||
| OTHER: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) - net | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||||||||||
| Income tax provision | ||||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Preferred stock dividend | ||||||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share: basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted-average common shares used to compute basic and diluted loss per share | ||||||||||||||||
See notes to condensed consolidated financial statements.
| 5 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
($ in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| OTHER COMPREHENSIVE (LOSS) INCOME | ||||||||||||||||
| Foreign currency translation adjustment (a) | ( | ) | ( | ) | ( | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| (a) |
See notes to condensed consolidated financial statements.
| 6 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND SEPTEMBER 30, 2023
($ in thousands, except for number of shares)
| Preferred Stock Series A | Preferred Stock Series B | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Treasury (Common) | Total Shareholders’ | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Stock | Equity | ||||||||||||||||||||||||||||||||||
| Balance - January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - April 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - July 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net income | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - January 1, 2023 before adoption of ASC 326 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Cumulative effect of adopting ASC 326 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - January 1, 2023 after adoption | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series B Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - April 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Shares issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Balance - July 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under the equity incentive plan | - | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation, net of cash settlements | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||
For the nine months ended September 2023, the preferred stock dividends were paid monthly at the rate of $and $for Series A and Series B, respectively, per share per annum.
dividends were declared or paid during the nine months ended September 2024.
See notes to condensed consolidated financial statements.
| 7 |
CARECLOUD, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
($ in thousands)
| 2024 | 2023 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Lease amortization | ||||||||
| Deferred revenue | ||||||||
| Provision for expected credit losses | ||||||||
| Provision for deferred income taxes | ||||||||
| Foreign exchange (gain) loss | ( | ) | ||||||
| Interest accretion | ||||||||
| Stock-based compensation expense (benefit) | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract asset | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ( | ) | ||||
| Accounts payable and other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Capitalized software and other intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Preferred stock dividends paid | ( | ) | ||||||
| Settlement of tax withholding obligations on stock issued to employees | ( | ) | ( | ) | ||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Proceeds from issuance of Series B Preferred Stock, net of expenses | ||||||||
| Proceeds from line of credit | ||||||||
| Repayment of line of credit | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH - Beginning of the period | ||||||||
| CASH - End of the period | $ | $ | ||||||
| SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Dividends declared, not paid | $ | $ | ||||||
| Purchase of prepaid insurance with assumption of note | $ | $ | ||||||
| Reclass of deposits for property and equipment placed in service | $ | $ | ||||||
| SUPPLEMENTAL INFORMATION - Cash paid during the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
See notes to condensed consolidated financial statements.
| 8 |
CARECLOUD, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024
AND 2023 (UNAUDITED)
1. ORGANIZATION AND BUSINESS
CareCloud, Inc., (together with its consolidated subsidiaries, “CareCloud,” the “Company,” “we,” “us” and/or “our”) is a leading provider of technology-enabled services and solutions that redefine the healthcare revenue cycle. We provide technology-enabled revenue cycle management and a full suite of proprietary cloud-based solutions to healthcare providers, from small practices to enterprise medical groups, hospitals, and health systems throughout the United States. Healthcare organizations today operate in highly complex and regulated environments. Our suite of technology-enabled solutions helps our clients increase financial and operational performance, streamline clinical workflows, and improve the patient experience.
Our portfolio of proprietary software and business services includes: technology-enabled business solutions that maximize revenue cycle management and create efficiencies through platform agnostic AI-driven applications; cloud-based software that helps providers manage their practice and patient engagement while leveraging analytics to improve provider performance; digital health services to address value-based care and enable the delivery of remote patient care; healthcare IT professional services & staffing to address physician burnout, staffing shortages and leverage consulting expertise to transition into the next generation of healthcare; and, medical practice management services to assist medical providers with operating models and the tools needed to run their practice. Our high-value business services, such as revenue cycle management, are often paired with our cloud-based software, premiere healthcare consulting and implementation services, and on-demand workforce staffing capabilities for high-performance medical groups and health systems nationwide.
CareCloud has its corporate office in Somerset, New Jersey and maintains client support teams throughout the U.S., and offshore offices in Pakistan and Azad Jammu and Kashmir, a region administered by Pakistan (the “Pakistan Offices”), and in Sri Lanka. Effective February 1, 2024, MTBC Acquisition Corp. (“MAC”) and its wholly owned subsidiary were merged into CareCloud, Inc. (“CCI”). There was no financial or operational impact as a result of the merger.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 8-03. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the Company’s financial position as of September 30, 2024, the results of operations for the three and nine months ended September 30, 2024 and 2023 and cash flows for the nine months ended September 30, 2024 and 2023. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 21, 2024.
| 9 |
Liquidity
and Going Concern — Primarily due to a decline in revenue associated with our Healthcare IT segment and a goodwill impairment
of $
However,
management has considered its plans to continue the Company as a going concern and believes substantial doubt was alleviated by focusing
on cost-control. As discussed in Note 9, the Company approved a restructuring plan to reduce headcount and operating costs and generate
positive cash flow. In addition, in December 2023, the Company suspended the dividend on the Company’s Preferred Stock, which saved
approximately $
Significant Accounting Policies — During the nine months ended September 30, 2024, there were no changes to the Company’s significant accounting policies from its disclosures in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.
Recent Accounting Pronouncements — From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently adopted and recently issued accounting pronouncements will not have a material impact on our condensed consolidated financial position, results of operations and cash flows.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.
The guidance in Accounting Standards Update (“ASU”) 2016-13 replaces the incurred loss impairment methodology under current
GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets
and certain other instruments. It will apply to all entities. For trade receivables, loans and held-to-maturity debt securities, entities
will be required to estimate lifetime expected credit losses. This may result in the earlier recognition of credit losses. In November
2019, the FASB issued ASU No. 2019-10, which delayed this standard’s effective date for SEC smaller reporting companies to the
fiscal years beginning on or after December 15, 2022. The Company adopted this guidance on January 1, 2023 using a modified retrospective
adoption methodology, whereby the cumulative impact of all prior periods is recorded in accumulated deficit or other impacted balance
sheet items upon adoption. The impact to the accumulated deficit as of January 1, 2023 was a charge of approximately $
In March 2023, the FASB issued ASU 2023-01, Leases (Topic 842): Common Control Arrangements – Issue 2. The amendments in this update require that leasehold improvements associated with common control leases be: (1) amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. The amendments in this update are effective for fiscal years beginning after December 15, 2023. There was no impact on the condensed consolidated financial statements as a result of this standard.
| 10 |
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This update amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The new guidance is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the application of U.S. GAAP for all entities. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If by June 30, 2027 the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the associated amendment will be removed from the Codification and will not become effective.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Disclosures. The amendments in this update improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The expected impact would only be to the financial statement disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The amendments in this update enhance the transparency and decision usefulness of income tax disclosures primarily related to rate reconciliation and income taxes paid information. The update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this update to have a material impact on the condensed consolidated financial statements.
In March 2024, the FASB issued ASU 2024-02, Codification Improvements – Amendments to Remove References to the Concepts Statements. This update contains amendments to the Codification that remove references to various FASB Concepts Statements. These Codification updates are for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance and other minor improvements. The resulting amendments are referred to as Codification improvements. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect this update to have a material impact on the condensed consolidated financial statements.
3. GOODWILL AND INTANGIBLE ASSETS-NET
Goodwill
consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. At September 30,
2024 and December 31, 2023, approximately $
The
Company tests goodwill for impairment at the reporting unit level annually or more frequently if a change in circumstances or the occurrence
of events indicates that potential impairment exists. As a result of a triggering event in December 2023 resulting from the decreased
equity market value following the suspension of the Preferred Stock dividend, the Company updated its annual goodwill impairment test
that was performed as of October 31, 2023 for the Healthcare IT segment. It was determined that the fair value of the Healthcare IT reporting
unit was less than the carrying value at both October 31 and as of the date of the triggering event. Accordingly, impairment charges
of approximately $
The following is the summary of the carrying amount of goodwill for the nine months ended September 30, 2024 and the year ended December 31, 2023:
| Nine Months Ended | Year Ended | |||||||
| September 30, 2024 | December 31, 2023 | |||||||
| ($ in thousands) | ||||||||
| Beginning gross balance | $ | $ | ||||||
| Impairment charges | ( | ) | ||||||
| Ending gross balance | $ | $ | ||||||
| 11 |
Intangible assets – net as of September 30, 2024 and December 31, 2023 consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| ($ in thousands) | ||||||||
| Contracts and relationships acquired | $ | $ | ||||||
| Capitalized software | ||||||||
| Non-compete agreements | ||||||||
| Other intangible assets | ||||||||
| Total intangible assets | ||||||||
| Less: Accumulated amortization | ||||||||
| Intangible assets - net | $ | $ | ||||||
Capitalized
software represents payroll and development costs incurred for internally developed software. Other intangible assets primarily
represent purchased intangibles. Amortization expense for the three months ended September 30, 2024 and 2023, was approximately $
As of September 30, 2024, future amortization is scheduled to be expensed as follows:
| Years ending December 31, | ($ in thousands) | |||
| 2024 (three months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| ($ in thousands, except share and per share amounts) | ||||||||||||||||
| Basic and Diluted: | ||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted-average common shares used to compute basic and diluted loss per share | ||||||||||||||||
| Net loss attributable to common shareholders per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
The
net loss attributable to common shareholders includes the preferred stock dividend amount earned, but not declared, for the three and
nine months ended September 30, 2024 of approximately $
| 12 |
At September 30, 2024, the unvested equity restricted stock units (“RSUs”), as discussed in Note 12, have been excluded from the above calculations as they were anti-dilutive. All of the warrants previously outstanding expired unexercised in 2023 and are excluded from the above calculations. At September 30, 2023, the unvested equity RSUs have been excluded from the above calculations as they were anti-dilutive. Vested RSUs, vested restricted shares and exercised warrants have been included in the above calculations.
5. ACCRUED EXPENSES AND DEBT
Accrued expenses as of September 30, 2024 and December 31, 2023 consist of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| ($ in thousands) | ||||||||
| Accrued expenses | $ | $ | ||||||
| Payable to managed practices | ||||||||
| Taxes and other | ||||||||
| Total | $ | $ | ||||||
Bank
Debt —The Company has a revolving line of credit with Silicon Valley Bank (“SVB”). The Company’s credit
facility is a secured revolving line of credit where borrowings are based on a formula of
As
of September 30, 2024, there were borrowings under the credit facility, compared to $
In
connection with the original SVB debt agreement, the Company paid SVB approximately $
During March 2023, SVB became a division of First Citizens Bank & Trust Company. The agreements that governed the former SVB relationship remain in place. As a result, there was no change to the terms of the credit agreement.
The
Company maintains cash balances at SVB in excess of the FDIC insurance coverage limits. The Company performs periodic evaluations of
the relative credit standing of this financial institution to ensure its credit worthiness. As of September 30, 2024 and December 31,
2023, the Company held cash of approximately $
| 13 |
6. LEASES
We determine if an arrangement is a lease at inception. We have operating leases for office and temporary living space as well as for some office equipment. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liability and non-current operating lease liability in our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023. The Company does not have any finance leases.
As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rates, which are derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our bank financing arrangements, geographical location and collateralization of assets when calculating our incremental borrowing rates. We review our incremental borrowing rate on a quarterly basis.
Our
lease terms include options to extend the lease when we believe that we may want the right to exercise that option.
If
a lease is modified after the effective date, the operating lease ROU asset and liability are re-measured using the current incremental
borrowing rate. During the three and nine months ended September 30, 2023, there were approximately $
During
the nine months ended September 30, 2023, the Miami office lease that we assumed in connection with an acquisition ended, and we entered
into a new lease arrangement with the landlord for significantly less office space. Charges of approximately $
Lease expense is included in direct operating costs, general and administrative expense, selling and marketing expense and research and development expense in the condensed consolidated statements of operations based on the nature of the expense. Our lease terms are determined taking into account lease renewal options, the Company’s anticipated operating plans and leases that are on a month-to-month basis. The Company also has some related party leases – see Note 8.
The components of lease expense were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Short-term lease cost | ||||||||||||||||
| Variable lease cost | ||||||||||||||||
| Total - net lease cost | $ | $ | $ | $ | ||||||||||||
Short-term lease cost represents leases that were not capitalized as the lease term as of the later of January 1, 2024 or the beginning of the lease was less than 12 months. Variable lease costs include utilities, real estate taxes and common area maintenance costs.
| 14 |
Supplemental balance sheet information related to leases is as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| ($ in thousands) | ||||||||
| Operating leases: | ||||||||
| Operating lease ROU assets, net | $ | $ | ||||||
| Current operating lease liabilities | $ | $ | ||||||
| Non-current operating lease liabilities | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Operating leases: | ||||||||
| ROU assets | $ | $ | ||||||
| Asset lease expense | ( | ) | ( | ) | ||||
| Foreign exchange gain/(loss) | ( | ) | ||||||
| ROU assets, net | $ | $ | ||||||
| Weighted average remaining lease term (in years): | ||||||||
| Operating leases | ||||||||
| Weighted average discount rate: | ||||||||
| Operating leases | % | % | ||||||
Supplemental cash flow and other information related to leases is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||||||||||
| Operating leases, excluding terminations | $ | $ | $ | $ | ||||||||||||
Maturities of lease liabilities are as follows:
| Operating leases - Years ending December 31, | ($ in thousands) | |||
| 2024 (three months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease obligations | ||||
| Less: current obligations | ( | ) | ||
| Long-term lease obligations | $ | |||
The
Company leases certain apartments which are subleased to others. The sublease agreements are currently on a month-to-month basis and
are considered operating leases. For the three and nine months ended September 30, 2024, the Company received sublease income of approximately
$
| 15 |
7. COMMITMENTS AND CONTINGENCIES
Legal
Proceedings — On December 22, 2023, an arbitrator rendered a decision in favor of Ramapo Anesthesiologists, PC (“Ramapo”)
and granted in part and denied in part certain claims brought against Origin Healthcare Solutions, LLC; Meridian Medical Management,
Inc.; and the Company for alleged breach of contract and other allegations. Ramapo was awarded mitigation related costs of $
A
former customer filed a complaint against the Company in New Jersey State Court to recover damages claimed to have been caused by the
mishandling of their account. Plaintiff alleged at least approximately $
In
connection with a prior acquisition, the seller had alleged that the Company owed approximately $
From time to time, we may become involved in other legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of our management, would individually or taken together have a material adverse effect on our business, consolidated results of operations, financial position or cash flows of the Company.
8. RELATED PARTIES
The
Company had sales to a related party, a physician who is the wife of the Executive Chairman. Revenues from this customer were approximately
$
The
Company leases its corporate office in New Jersey, temporary housing for its foreign visitors, a storage facility, its backup operations
center in Bagh, Pakistan and an apartment for temporary housing in Dubai, the UAE, from the Executive Chairman. The related party rent
expense for the three months ended September 30, 2024 and 2023 was approximately $
| 16 |
Included
in the ROU asset at September 30, 2024 is approximately $
Included
in the ROU asset at December 31, 2023 is approximately $
During
June 2022, the Company entered into a one-year consulting agreement with an entity owned and controlled by one of its former non-independent
directors whereby that director received shares of the Company’s
Effective
January 9, 2024, and as amended February 12, 2024, the Company entered into a consulting agreement with an entity owned and controlled
by a member of its Board of Directors to provide investor relations services for $
During
2020, a New Jersey corporation, talkMD Clinicians, PA (“talkMD”), was formed by the wife of the Executive Chairman, who is
a licensed physician, to provide telehealth services. talkMD was determined to be a variable interest entity (“VIE”) for
financial reporting purposes because the entity will be controlled by the Company. As of September 30, 2024, talkMD had not yet commenced
operations. Cumulatively, the Company has paid approximately $
9. RESTRUCTURING COSTS
On October 2, 2023, the Company committed to effectively align resources with business priorities and improve profitability through a reduction in the workforce for the Healthcare IT segment. The Company identified opportunities for improvements in its workforce realignment, strategy and staffing, and increased its focus on performance management, to ensure it has the right skillsets and number of employees to execute its long-term vision. In addition, the Company instituted certain other expense reductions.
A
majority of the impacted employees exited in the fourth quarter of 2023. The Company estimates that it will incur expenses of approximately
$
| 17 |
The expense associated with the restructuring is included in loss on lease terminations, unoccupied lease charges and restructuring cost in the condensed consolidated statement of operations for the three and nine months ended September 30, 2024. This line also includes loss on lease terminations and unoccupied lease charges. The liabilities associated with restructuring costs are included in accrued expenses in the September 30, 2024 and December 31, 2023 condensed consolidated balance sheets. The following table summarizes activity related to liabilities associated with restructuring costs:
| Severance and separation costs | Equity awards acceleration costs | Other exit related costs | Total restructuring and other costs | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Payments and other adjustments | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | ||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Payments and other adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ||||||||||||
10. SHAREHOLDERS’ EQUITY
On
September 11, 2024 a Certificate of Amendment (the “Amendment”) to the Certificate of Designations, Preferences and Rights
of
The
title of the Existing Certificate was amended to read “Amended and Restated Certificate of Designations, Preferences and Rights
of
The
Company had the right to sell up to $ million of its Series B Preferred Stock using its preferred stock at-the-market facility (“ATM”).
This right terminated when the Company suspended the Preferred Stock dividends in December 2023. The Company also had the right to sell
up to $ million of its common stock using a common stock ATM facility. This right also terminated when the Company suspended the Preferred
Stock dividends. The underwriters of the ATMs receive
On December 11, 2023, the Board of Directors suspended the monthly cash dividends for the Series A Preferred Stock and Series B Preferred Stock beginning with the payment scheduled for December 15, 2023 together with the remaining dividends that were declared. The suspension of these dividends deferred approximately $ million in cash dividend payments each month. Due to the above Amendment, effective on September 12, 2024, the monthly cash dividends were reduced to approximately $ million per month. During this suspension, dividends will continue to accumulate in arrears on the Series A and Series B Preferred Stock. The Board of Directors will regularly review and consider when the suspension should be lifted.
During
the nine months ended September 30, 2024, no dividends were declared by the Board of Directors. At September 30, 2024, the Company owed
approximately $ million for dividends that had previously been declared through February 2024 (but whose payment has been suspended),
and also had total undeclared dividends of approximately $
| 18 |
11. REVENUE
Introduction
The Company accounts for revenue in accordance with ASC 606, Revenue from Contracts with Customers. All revenue is recognized as our performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under ASC 606. The Company recognizes revenue when the revenue cycle management services begin on the medical billing claims, which is generally upon receipt of the claim from the provider. For many services, the Company recognizes revenue as a percentage of the amount the customer collects on the medical billing claims. The Company’s software is utilized at the time the provider sees the patient, and the Company estimates the value of the consideration it will earn over the remaining contractual period as our services are provided and recognizes the fees over the term; this estimation involves predicting the amounts our clients will ultimately collect associated with the services they provided. Certain significant estimates, such as payment-to-charge ratios, effective billing rates and the estimated contractual payment periods are required to measure revenue cycle management revenue under the standard.
Most of our current contracts with customers contain a single performance obligation. For contracts where we provide multiple services, such as where we perform multiple ancillary services, each service represents its own performance obligation. The standalone selling prices are based on the contractual price for the service.
We apply the portfolio approach as permitted by ASC 606 as a practical expedient to contracts with similar characteristics and we use estimates and assumptions when accounting for those portfolios. Our contracts generally include standard commercial payment terms. We have no significant obligations for refunds, warranties or similar obligations and our revenue does not include taxes collected from our customers.
Disaggregation of Revenue from Contracts with Customers
We derive revenue from five primary sources: (1) technology-enabled business solutions, (2) professional services, (3) printing and mailing services, (4) group purchasing services and (5) medical practice management services.
The following table represents a disaggregation of revenue for the three and nine months ended September 30, 2024 and 2023:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Healthcare IT: | ||||||||||||||||
| Technology-enabled business solutions | $ | $ | $ | $ | ||||||||||||
| Professional services | ||||||||||||||||
| Printing and mailing services | ||||||||||||||||
| Group purchasing services | ||||||||||||||||
| Medical Practice Management: | ||||||||||||||||
| Medical practice management services | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Technology-enabled business solutions:
Revenue derived on an on-going basis from our technology-enabled solutions, which typically include revenue cycle management services, is billed as a percentage of payments collected by our customers. The fee for our services often includes the ability to use our electronic health records (“EHR”) and practice management software as well as revenue cycle management (“RCM”) as part of the bundled fee. The Software-as-a-Service (“SaaS”) component is not a material portion of the contract compared to the stand-alone value of RCM.
Technology-assisted revenue cycle management services are the recurring process of submitting and following up on claims with health insurance companies in order for the healthcare providers to receive payment for the services they rendered. The Company typically invoices customers on a monthly basis based on the actual collections received by its customers and the agreed-upon rate in the sales contract. The fee for these services typically includes use of practice management software and related tools (on a SaaS basis), electronic health records (on a SaaS basis), medical billing services and use of mobile health solutions. We consider the services to be one performance obligation since the promises are not distinct in the context of the contract. The performance obligation consists of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers.
| 19 |
In many cases, our clients may terminate their agreements with 90 days’ notice without cause, thereby limiting the term in which we have enforceable rights and obligations, although this time period can vary between clients. Our payment terms are normally net 30 days. Although our contracts typically have stated terms of one or more years, under ASC 606 our contracts are considered month-to-month and accordingly, there is no financing component.
For the majority of our revenue cycle management contracts, the total transaction price is variable because our obligation is to process an unknown quantity of claims, as and when requested by our customers over the contract period. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include variable consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with variable consideration is subsequently resolved. Estimates to determine variable consideration such as payment-to-charge ratios, effective billing rates, and the estimated contractual payment periods are updated at each reporting date. Revenue is recognized over the performance period using the input method.
Our proprietary, cloud-based practice management application automates the labor-intensive workflow of a medical office in a unified and streamlined SaaS platform. The Company has a large number of clients who utilize the Company’s practice management software, electronic health records software, patient experience management solutions, business intelligence software and/or robotic process automation software on a SaaS basis, but who do not utilize the Company’s revenue cycle management services. SaaS fees may be fixed based on the number of providers, or may be variable.
Our
digital health services, which began generating revenue in 2022, include chronic care management, where a care manager has remote visits
with patients with one or more chronic conditions under the supervision of a physician who is our client. The performance obligation
for chronic care management is satisfied at a point in time once the patient receives the remote visit. The digital health services also
include remote patient monitoring where our system monitors recordings from FDA approved internet connected devices. These devices record
patient trends and alert the physician to changes which might trigger the need for additional follow-up visits. The performance obligations
for remote patient monitoring are satisfied over time as the recordings are received and the patient receives the remote visit. The revenue
for chronic care management for the three months ended September 30, 2024 and 2023, was approximately $
The medical billing clearinghouse service takes claim information from customers, checks the claims for errors and sends this information electronically to insurance companies. The Company invoices customers on a monthly basis based on the number of claims submitted and the agreed-upon rate in the agreement. This service is provided to medical practices and providers to medical practices who are not revenue cycle management customers. The performance obligation is satisfied once the relevant submissions are completed.
Additional services such as coding and transcription are rendered in connection with the delivery of revenue cycle management and related medical services. The Company invoices customers monthly, based on the actual amount of services performed at the agreed-upon rate in the contract. These services are only offered to revenue cycle management customers. These services do not represent a material right because the services are optional to the customer and customers electing these services are charged the same price for those services as if they were on a standalone basis. Each individual coding or transcription transaction processed represents a performance obligation, which is satisfied over time as that individual service is rendered.
Professional services:
Our
professional services include an extensive set of services including EHR vendor-agnostic optimization and activation, project management,
IT transformation consulting, process improvement, training, education and staffing for large healthcare organizations including health
systems and hospitals. The performance obligation is satisfied over time using the input method. The revenue is recorded on a monthly
basis as the professional services are rendered. Unbilled revenue at September 30, 2024 and 2023 was approximately $
| 20 |
Printing and mailing services:
The Company provides printing and mailing services for both revenue cycle management customers and a non-revenue cycle management customer, and invoices on a monthly basis based on the number of prints, the agreed-upon rate per print and the postage incurred. The performance obligation is satisfied once the printing and mailing is completed.
Group purchasing services:
The Company provides group purchasing services which enable medical providers to purchase various vaccines directly from selected pharmaceutical companies at a discounted price. Currently, there are approximately 4,000 medical providers who are members of the program. Revenue is recognized as the vaccine shipments are made to the medical providers. Fees from the pharmaceutical companies are paid either quarterly or annually and the Company adjusts its revenue accrual at the time of payment. The Company makes significant judgments regarding the variable consideration which we expect to be entitled to for the group purchasing services which includes the anticipated shipments to the members enrolled in the program, anticipated volumes of purchases made by the members, and the changes in the number of members. The amounts recorded are constrained by estimates of decreases in shipments and loss of members to avoid a significant revenue reversal in the subsequent period. The only performance obligation is to provide the pharmaceutical companies with the medical providers who want to become members in order to purchase vaccines. The performance obligation is satisfied once the medical provider agrees to purchase a specific quantity of vaccines and the medical provider’s information is forwarded to the vaccine suppliers. The Company records a contract asset for revenue earned and not paid as the ultimate payment is conditioned on achieving certain volume thresholds.
For all of the above revenue streams other than group purchasing services and chronic care management, revenue is recognized over time, which is typically one month or less, which closely matches the point in time that the customer simultaneously receives and consumes the benefits provided by the Company. For the group purchasing services, revenue is recognized at a point in time. Each service is substantially the same and has the same periodic pattern of transfer to the customer. Each of the services provided above is considered a separate performance obligation.
There were no unsatisfied performance obligations for contracts with an original duration greater than one year. The Company has elected to utilize the practical expedient available with the guidance for contracts with an expected duration of one year or less.
Medical practice management services:
The Company also provides medical practice management services under long-term management service agreements to three medical practices. We provide the medical practices with the nurses, administrative support, facilities, supplies, equipment, marketing, RCM, accounting, and other non-clinical services needed to efficiently operate their practices. Revenue is recognized as the services are provided to the medical practices. Revenue recorded in the condensed consolidated statements of operations represents the reimbursement of costs paid by the Company for the practices and the management fee earned each month for managing the practice. The management fee is based on either a fixed fee or a percentage of the net operating income.
The Company assumes all financial risk for the performance of the managed medical practices. Revenue is impacted by the amount of the costs incurred by the practices and their operating income. The gross billing of the practices is impacted by billing rates, changes in current procedural terminology code reimbursement and collection trends which in turn impacts the management fee that the Company is entitled to. Billing rates are reviewed at least annually and adjusted based on current insurer reimbursement practices. The performance obligation is satisfied as the management services are provided.
Our contracts for medical practice management services have approximately an additional 14 years remaining and are only cancellable under very limited circumstances. The Company receives a management fee each month for managing the day-to-day business operations of each medical group as a fixed fee or a percentage payment of the net operating income which is included in revenue in the condensed consolidated statements of operations.
| 21 |
Our medical practice management services obligations consist of a series of distinct services that are substantially the same and have the same periodic pattern of transfer to our customers. Revenue is recognized over time, however for reporting and convenience purposes, the management fee is computed at each month-end.
Information about contract balances:
As
of September 30, 2024, the estimated revenue expected to be recognized in the future related to the remaining revenue cycle management
performance obligations outstanding was approximately $
Amounts that we are entitled to collect under the applicable contract are recorded as accounts receivable. Invoicing is performed at the end of each month when the services have been provided. The contract asset includes our right to payment for services already transferred to a customer when the right to payment is conditional on something other than the passage of time. For example, contracts for revenue cycle management services where we recognize revenue over time but do not have a contractual right to payment until the customer receives payment of their claim from the insurance provider. The contract asset also includes the revenue accrued, not received, for the group purchasing services and referral fees earned.
Changes in the contract asset are recorded as adjustments to net revenue. The changes primarily result from providing services to revenue cycle management customers that result in additional consideration and are offset by our right to payment for services becoming unconditional and changes in the revenue accrued for the group purchasing services. The contract asset for our group purchasing services is reduced when we receive payments from vaccine manufacturers and is increased for revenue earned, not received. The opening and closing balances of the Company’s accounts receivable, contract asset and deferred revenue are as follows:
| Accounts Receivable - Net | Contract Asset | Deferred Revenue (current) | Deferred Revenue (long term) | |||||||||||||
| ($ in thousands) | ||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | ||||||||||||
| Increase (decrease), net | ( | ) | ( | ) | ||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | ||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ||||||||||||
| (Decrease) increase, net | ( | ) | ||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | ||||||||||||
Deferred commissions:
Our
sales incentive plans include commissions payable to employees and third parties at the time of initial contract execution that are capitalized
as incremental costs to obtain a contract. The capitalized commissions are amortized over the period the related services are transferred.
As we do not offer commissions on contract renewals, we have determined the amortization period to be the estimated client life, which
is three years. Deferred commissions were approximately $
Trade Accounts Receivable – Estimate of Credit Losses:
ASU
2016-13 requires the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable. The guidance also
requires we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption
of the ASU 2016-13 for trade accounts receivable was recorded as a charge to accumulated deficit of approximately $
| 22 |
At adoption, we segmented the accounts receivable population into pools based on their risk assessment. Risks related to trade accounts receivable are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment and business size. The pools are aligned with management’s review of financial performance. For the three and nine months ended September 30, 2024 and 2023, no adjustment to the pools was necessary.
We utilize a loss-rate method to measure the expected credit loss for each pool. The loss rate is calculated using a three-year lookback period of write-offs and adjustments, divided by the revenue for each pool by aging category, net of customer payments during that period. We consider current and future economic conditions, internal forecasts, customer collection experience and credit memos issued during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data for the current quarter. In addition, the Company uses specific account identification in determining the total allowance for expected credit losses. Trade receivables are written off only after the Company has exhausted all collection efforts.
Changes in the allowance for expected credit losses for trade accounts receivable are presented in the table below:
| Nine Months Ended | Year Ended | |||||||
| September 30, 2024 | December 31, 2023 | |||||||
| ($ in thousands) | ||||||||
| Beginning balance | $ | $ | ||||||
| Adoption of ASC 326 | ||||||||
| Provision | ||||||||
| Recoveries/adjustments | ||||||||
| Write-offs | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
As of September 30, 2024, shares of common stock, shares of Series A Preferred Stock and shares of Series B Preferred Stock are available for grant. Permissible awards include incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance stock and cash-settled awards and other stock-based awards in the discretion of the Compensation Committee of the Board of Directors including unrestricted stock grants.
Certain equity-based RSU agreements contain a provision in which the units shall immediately vest and become converted into common shares at the rate of one share per RSU, immediately after a change in control, as defined in the award agreement.
Common and preferred stock RSUs
In February 2023, the Compensation Committee approved executive bonuses to be paid in shares of Series B Preferred Stock, with the number of shares and the amount based on specified criteria being achieved during the year 2023. During October 2023, the Compensation Committee approved the issuance of of the above shares to one of the executives who retired. The remaining shares were forfeited in 2024.
In March 2024, the Compensation Committee approved executive bonuses to be paid in shares of Series B Preferred Stock with the number of shares and the amount based on specified criteria being achieved during the year 2024. There were shares awarded. These criteria will be evaluated in early 2025. During May 2024, an additional executive bonus with similar terms was approved and shares were awarded. For the three and nine months ended September 30, 2024, an expense of approximately $ and a net benefit of approximately $, respectively, was recorded. The stock-based compensation benefit was primarily related to prior year bonuses that had been accrued but were not awarded, net of current year bonuses that have been accrued. Stock compensation expense recorded is based on the value of the shares at the grant date and recognized over the service period. The portion of the stock compensation expense to be used for the payment of withholding and payroll taxes is included in accrued compensation in the condensed consolidated balance sheets. The balance of the stock compensation expense has been recorded as additional paid-in capital.
| 23 |
| Common Stock | Series A Preferred Stock | Series B Preferred Stock | ||||||||||
| Outstanding and unvested shares at January 1, 2024 | ||||||||||||
| Granted | ||||||||||||
| Vested | ( | ) | ( | ) | ||||||||
| Forfeited | ( | ) | ( | ) | ||||||||
| Outstanding and unvested shares at September 30, 2024 | ||||||||||||