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MTBC: Off To Strong Start in 2018. Orion Deal Could Add Significant Value

By Brian Marckx, CFA


Q1 2018 Results:

Medical Billing Transcription Corp (NASDAQ:MTBC) reported financial results for their first quarter 2018. Despite Q1 typically seasonally softer in the RCM industry due to January-1 deductible-resets, MTBC’s revenues remained relatively elevated. Benefitting from some customer onboardings in late-2017, Q1 ’18 revenue, at $8.3M, was up 1% yoy and just slightly better than flat on a sequential basis.

The prior-year period included $4.5M (~55% of total) in revenue from customers that came with the “2016 acquisitions” (most notably, MediGain, which closed Oct 2016). Given that MTBC did not make any significant acquisitions during 2017, the fact that revenue and customer-counts have held up as well as they have is encouraging. In addition, given that the deductible-related seasonality benefits Q4, the qoq strength was also somewhat surprising. Q1 revenue was about 4% better than our $8.0M estimate.

MTBC exited Q1 ’18 with 970 total customers, including 750 medical practices – which compares to 1,040 total customers, including 800 medical practices in Q1 ’17. Despite the incremental slide in customer-count, medical billing revenue (which accounts for ~89% of total revenue) actually ticked up about 1%. This is due to an almost 8% increase in medical billing revenue per customer over the same period.

That increased revenue-generating efficiency also showed up in operating expenses, which fell 14% (excludes D&A), or $1.2M, from Q1 ’17 (fell $110k, or 5% from Q4 ’17). Direct operating expenses shed over $700k while G&A fell almost $400k. With expenses falling to just 92% of revenue (for context, this compares to 108% in Q1 ’17 and 98% in Q4 ’17), MTBC achieved the greatest operating leverage since the company went public (in July 2014). The relatively strong top-line, muted expenses and lower D&A also resulted in new (i.e. since-public) records in operating income, net income and adjusted EBITDA. In fact, Q1 ’18 was the first period since their IPO that MTBC generated positive operating ($39k) and net ($75k) income. Meanwhile, adjusted EBITDA was $974k in Q1 ’18 – which is second to only Q4 ’17 ($1.5M) since going public.

Operational Update: Orion Acquisition Expected To Close By End of June…

The major news on the operational front relates to the intended acquisition of (privately-held) Orion Healthcorp Inc. Announced on May 7th, MTBC hopes to close the acquisition by the end of June (which corresponds to the timeline requested by Orion’s debtors to the bankruptcy court). Orion would not only bring RCM-related accounts but also expand MTBC’s capabilities to include long-term practice management services and a vaccine group purchasing organization. These bolt-capabilities presumably bring not only immediate incremental revenue but also opportunity to add-value via cross-selling to MTBC’s current customer base. In addition, Orion would also potentially accelerate penetration into the hospital segment.

Orion notes on their website that they are one of the largest RCM companies in the U.S. and that they provide (or, at least provided at one time) services to more than 3,700 physicians across 18 states. MTBC’s PR notes that Orion currently has 300 employees. Orion’s customers (per their website) include “single physician practices through multi-specialty clinics and hospitals”. Integrated Physician Solutions, Orion’s GPO, provides services to over 3,600 physicians (per IPS website).

MTBC will pay between $10M and $12M for Orion. MTBC expects the addition of Orion would increase annual revenue by 50% or more – which, using 2017 as the base, implies incremental annual revenue of at least $16M.
That also implies a purchase price of between 0.63x and 0.75x revenue – which would be a discount to the recent industry average take-out multiple of ~1x sales.

If we assume that (post-integration) Orion’s incremental adjusted-EBITDA is at a margin equal to MTBC’s TTM margin of 7.2%, this implies first-year (Orion-related) incremental adjusted-EBITDA of at least $1.1M. And that, we think, may be a highly conservative estimate given MTBC’s adjusted-EBITDA margin jumped to almost 12% in Q1 ‘18 and we would expect to see meaningful EBTDA-margin expansion as a result of (post-integration) operational synergies. In addition, it also does not consider synergistic revenue growth via cross-selling.

Management also noted that Orion is very similar to MediGain – and MediGain has proved an overwhelming successful acquisition. As a reminder, MediGain, a medical billing company, was in financial distress when acquired by MTBC in September 2016 for $7M. While operating expenses increased immediately after the acquisition, the assets were quickly integrated, costs were cut and MediGain generated incremental revenue to MTBC of $3.7M in 2016 and $13.6M in 2017. Contribution from MediGain was also a major component of MTBC’s significantly improved financial results: revenue grew 30% ($24.5M in 2016 to $31.8M in 2017), operating loss fell by $3.4M ($7.9M to $4.5M) adjusted EBITDA improved by $2.9M and ended the year in the black at $2.3M and MTBC even generated $282k of cash from operations (compared to $889k used by operations in 2016). MTBC bought MediGain for (what would prove to be) just of 50% of forward revenue. Much of the success of this acquisition was credited to the quick integration and ability to minimize customer and revenue attrition through providing a better customer experience (i.e. MTBC was able to quickly improve billing processes and collections which helped stem defections).

In terms of the likelihood of this Orion deal closing – MTBC noted that 14 or 15 other potential suitors kicked the tires on Orion and decided not to bid (or, at least not yet). As we discussed in our initiation report (May 3rd), MTBC’s RCM expertise and proven ability to quickly (and successfully) integrate and cut costs provides them a competitive advantage that few others enjoy. It also means that MTBC can generate ‘sufficient’ ROI on certain transactions that other potential acquirers cannot. And, importantly, with $13M of cash on the balance sheet (as of April 30th) and full availability under their $5M revolver (which can also be used for acquisitions), MTBC has the means to close. Management believes there is a 50% or better chance that they will close the Orion acquisition.


While management did not provide specific financial guidance, they have offered offer some general expectations in terms of revenue and adjusted EBITDA. After coming off a strong Q4 ’17, management mentioned on the (Q4) call (in March) that they were confident that “2018 numbers will be significantly better than 2017.”

Q1 results certainly show they are off to a strong start – particularly as it relates to adjusted EBITDA. On the call management not only mentioned that they are committed to beating the 30% revenue growth in 2017 but that their vision is to generate $70M of revenue in 2018. Much of that anticipated revenue growth is expected to be the result of acquisitions. And while the $70M figure assumes that the Orion deal closes, it also likely implies one or more additional meaningful acquisitions occur during the remainder of 2018.


We have updated our model following Q1 results, which beat our estimates on revenue, operating income, net income and adjusted EBITDA. Our model (and resultant price target) does not include contribution from Orion but will be updated if the transaction closes – if that happens, it would likely positively affect our calculated valuation of MTBC common stock.

Our model should be considered fluid, particularly given the potential for near-term acquisitions. We base our valuation on the average of implied EV/EBITDA and P/S multiples from analysts’ estimates of publicly traded EHR / RCM companies and providers of related technology and services. Based on a fully diluted share count of 15.6M, we calculate fair value of MTBC at approximately $5.70/share.


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