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Is MTBC the Next AthenaHealth?

Updated on January 23, 2018
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Kyle has made a career as a researcher for several investment/research firms as well as founding & managing an array of private companies.

What, You Thought I'd Start With The Conclusion?

MTBC (NASDAQ) has been very rewarding for investors. After trading down since its IPO in 2014 on less than 5,000 shares/day, MTBC skyrocketed in April of this year on over 20 million in volume, as investors finally woke up and saw what was right in front of their eyes. MTBC's is currently trading around $3.00. Although the past 12 months have been rewarding for those who stayed true, MTBC is still trading at a severely depressed valuation.

Report Summary

• MTBC's CEO (and owner of nearly 50%) purchased 30,000 shares at $2.93 in December

• MTBC made its largest client acquisition in company history; a client increase of 36%.

• SeeThru Equity increases price target to $5.00.

• MTBC reported 2 straight record earnings and indicated Q4 will be its third.

• Short percentage of actual float roughly 30%.

• Management and institutions own over 60% of the 11 million share float, so having 1 million shares short makes it trade like a 30% short float.

So You Are Telling Me Its Still "Cheap"? How "Cheap"?

In 2018 MTBC's revenue should be roughly $36 million up to $41 million, and their expenses should come in as $3 - $4 million less for 2018. Profitability should increase by roughly $10 million with a projected adjusted EBITDA of $5 million (and potentially as high as $8 million). Athenahealth (ATHN) trades at 5x revenue, while MTBC remains at around 1x revenue. If MTBC traded at half of ATHN's multiple, their 2018 forward-looking value would be $90 million to $100 million.

This would put MTBC's share price at roughly $8.25 for 2018 (with $.40 to $.60 EPS for 2018). Additionally, MTBC's shares valued at $8 to $9 per share, would only be a 15x to 21x multiple of 2018's EPS projections. This is not only conservative, but half of what micro-cap healthcare/technology companies trade at with similar financials!

Are You Noticing That MTBC Is Overlooked Yet?

There's More: MTBC Just Made Its Largest Acquisition In Company History

On November 27, 2017, MTBC announced that they had agreed to terms with what will is already their largest client in company history. On February 16, 2017, MTBC's partnership with (their prior-largest client to date) Pikeville Medical Center was announced. The Pikeville partnership increased MTBC's providers (their core business) by roughly 400 providers. MTBC provided services to roughly 2600 providers prior to its November 27th announcement.

MTBC's newest client's name has yet to be announced, but the announcement itself gave us a good idea of who it could be. The announcement stated that the new client will add over 950 providers (a 36% increase in current providers) and has already signaled that this client had already become their largest quarterly client in Q4 (even though they were only online for less than half the quarter). What we can take from this is that although EPS will likely not drastically be affected in Q4 numbers (because of the initial cost of getting services migrated), the revenue that has already come in should offset such costs in the near term and produce a positive earnings contribution starting in Q1 of 2018.

Ultimately, MTBC's core business generates 5% of medical provider's bills. It has been rumored that Fox Rehabilitation is this large acquisition, although the company has never verified this. Without speculating whether this is the actual client, Fox Rehabilitation provides a worthy comparison; Fox is the exact type of company that MTBC just received as a client and also has roughly 950 providers. Last year, Fox Rehabilitationreported $108 million in revenue according to sources (they are private, so less financial information is public). Assuming that MTBC's services to their new client is also for 5% of billings, and using Fox as a comparison (if not the actual client) the new client, would add roughly $5.4 million in revenue. Fox has been projected as having 7% yearly growth, and such growth for Fox (or a similar client) would also be growth in MTBC's revenue moving forward.

The new client is expected to add 10% or more to 2017 full year's revenue (or $3.2 million. Using this information, we can assume that $300,000 to $400,000 in added revenue will impact 2017 Q4's earnings. MTBC has shown that the long-term margin contribution of organic sales, such as this partnership, equals roughly 50%. MTBC's 2018 financials should confirm this margin expansion, in doing so, add roughly $1.5 million in positive cash flow to MTBC's bottom line.

When Good Numbers Become Great

But Is Q4 Really Going To Be That Special?

In the Q3 earnings call, MTBC did not reaffirm guidance on 2017 revenue, citing Athena Health's (ATHN) as having similar Q3 impacts from natural disasters that devastated the South. MTBC's MediGain acquisition's substantial amount of business added this last year positively impacted MTBC's earnings throughout 2017, but it is worth noting that MediGain (and another smaller client of MTBC) had significant operations in the Gulf Coast. The good news is, MTBC stated that, although slightly lower than they hoped, the impact was so small on their books that they couldn't attribute it to any one event.

Adding the new client allowed MTBC to reaffirm 2017 revenue guidance on the November 28th release as well as later in a preview to Q4 earnings. This release also stated that full year 2017 revenue would ultimately yield "year-over-year revenue growth of roughly 30%." Additionally, MTBC stated this month that their 2017 adjusted EBITDA would come in at roughly $2 million, which would fit into their full year 2017 guidance as planned. MTBC is not showing signs of slowing down, and has projected future margin expansion and record revenue moving forward into 2018.

Apparently Doctors Can't Get Enough Of Their Technology

MTBC announced that they have,

"already signed new talkEHR clients representing 30 unique specialties, spanning across 42 states plus Guam and Puerto Rico"

within the first month of talkEHR's launch. We knew this would gather steam quickly, but this type of adoption could not have been anticipated.

talkEHR is a direct competitor to Practice Fusion software. Practice Fusion is the most widely used EHR software for medical billing. talkEHR is not the most competitively priced EHR alternative for acquiring new clients, but is also a bridge to MTBC's entire suite of medical records/billing solutions. talkEHR's quick adoption by such a vast and diverse client base not only proves that MTBC will be able to add to their amount of clients, but also that existing clients will be likely be willing to switch over from their existing EHR platforms as well.

talkEHR In A Nutshell (Soft-Euro-Dance Music Makes The 2 Minutes Worth It)

Institutions Are Starting To Take Notice, Are You?

SeeThru Equity, provided an October 25th valuation update that broke down MTBC's financial health in detail. SeeThru increased their price target from $4.00 (from just a couple months prior) to $5.00. They projected $36.2 million in 2018 revenue and adjusted EBITDA for 2018 of $4.2 million. These numbers did not include MTBC's large client, who was announced after this valuation update. MTBC's 2018 guidance for this new client added to SeeThru Equity's model yields $39-$40 million in 2018 revenue and $5-$5.5 million in adjusted EBITDA. SeeThru's model valued MTBC at a conservative multiplier of 2.2x 2018E full-year revenue and 18.6x 2018 EBITDA, which with the added new client would value MTBC at $6.00-$6.50. This value is still very conservative, considering ATHN currently has a multiple of over 4.2x revenue and even smaller public companies in MTBC's market receive multiples between 2.2x - 8.4x forward earnings.

And Insurance Companies Like Them; OK, Everyone Likes Them, We Get It...

MTBC announced on October 4th that a top 10 ranked insurer chose to use MTBC's newest enrollment software. The contract details are unknown at this time, but contracts to use software of this type were recently awarded by other companies for $1.5 million and $6 million.

MTBC's platform is a SaaS platform; it has been newly developed and has never been impacted earnings at this scale for MTBC. Because of this, institutions have never included its growth in their valuation models. There are two takeaways from this release: First, MTBC now has exposure to a new line of large clients; and second, on its first rollout, the software was good enough to sign a huge client. The question to ask now is how big, not whether the contract is big. Whatever it comes in at, the release of further details will surely be accepted with open arms by investors and institutions alike.

Consolidation Means Acquisitions, Right?

MTBC recently had a private offering of $3.9 million of its preferred stock (which didn't dilute its common stock). This offering did not specify exactly what its purpose was, but judging by the fact that MTBC has an open credit line of $5 million which it hasn't used, as well as cash on top of that, the only reasonable explanation is that MTBC is getting ready for another acquisition.

MTBC has indicated that it has been looking for to acquire a competitor with yearly revenue of over $10 million (and probably in a range between $15-$20 million). Up until recently, MTBC was not in a place to acquire such a large company, because of debt obligations to Prudential and Opus Bank. However, in Q3, MTBC resolved the remainder of their debt, and indicated that early 2018 is when we could see a major acquisition.

MTBC's acquisition targets previously have been purchased for 70% of revenues and MTBC has consistently reached 30% EBITDA contribution within a 6 month to 1 year timeframe from the date of these acquisitions. MTBC's streamlined cost reduction methods have enabled them to do so at a speed where they do not risk losing an impactful portion of the acquisition's business post-acquisition. Another good sign for shareholders is that MTBC has stated repeatedly that they have no intention of selling additional shares of their common stock until they trade at least above $5.00.

Why MTBC's Next Quarter Will Be Its Best

  • MTBC's first nine months had already surpassed its 1-year record for organic sales growth. They have continued this in Q4 with the signing of their largest client, and there is no indication we will see a slow down in 2018.
  • Revenue guidance indicates that there will be an increase of $3-$5 million/year from their newest client addition.
  • The cash flow from their newest client will already begin impacting first quarter numbers for 2018.
  • With SeeThru's valuation model, the newest client alone should yield an upgrade in the near future by SeeThru to $6.50/share.

Wait, Wasn't This Supposed To Be About ATHN?

Athena grew to prominence after consolidating the fragmented electronic health records backend systems for hospitals and other larger practices, yet they never touched the 1-10 physician sized offices. Well, those "small" offices make up a not-so-small, 70% of the market, and no company provides services for more than 5% of them. MTBC anticipated the inevitable demand for consolidation of the local "mom & pop shops" as technology began to advance more quickly (you know doctors like their Ipad apps) and has positioned themselves to be the beneficiary as more practices look for more office gadgets (to bill us for). If MTBC is the recipient of this consolidation, then you may wake up in a world where MTBC is a multi-billion dollar company just like ATHN. The business is there for the taking, and I'd challenge you to name another company better positioned to be the market's next "golden goose". One step further: I'd challenge you to even name another company in this sector, period!


The author of this report has been long in MTBC since the second quarter of 2017. The author of the article does not have any present or past business relationship with the companies mentioned in this report. This report represents the opinions of the author and is not intended to be used as investment advice; the report is simply intended to provide readers with a snapshot of the recent company developments, and is not to be used as a substitute for an individual's own due diligence. Companies of MTBC's size tend to have higher volatility and investors should first speak to their investment advisors before making any investment decision

Want To Know More About MTBC Or Other Opportunities?

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© 2018 Kyle Coker

Tell Me I'm Right (or Wrong) Below!

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    • profile imageAUTHOR

      Kyle Coker 

      9 months ago

      Thank you Paras; it does seem like we ended up getting the timing right of the anticipated correction in value.

    • profile image

      Paras Shah 

      9 months ago

      Once again, you nailed it. Your analysis in past was spot on and hoping for the same this time around. Excellent post Kyle.


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