Good day, and welcome to the MTBC Second Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Shruti Patel, General Counsel. Please go ahead.

Thank you. Good morning, everyone. Welcome to the MTBC 2019 Second Quarter Conference Call. On today's call are Mahmud Haq, our Founder and Executive Chairman; Stephen Snyder, our Chief Executive Officer and a Director; Hadi Chaudhry, our President and a 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 Exchange Act of 1934 as amended. All statements other than statements of historical facts 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. These statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise these forward-looking statements in light of new information or future events. Please refer to our press release and our reports filed with the Securities and Exchange Commission, where you will find a more comprehensive discussion of our performance and factors that could cause actual results to differ materially from these forward-looking statements. For those dialed into the call by telephone, you may download our second 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 second quarter 2019 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results. With that said, I'd now like to turn the call over to the Chief Executive Officer of MTBC, Stephen Snyder. Steve?

Thank you, Shruti, and thank you, everyone, for joining us on our second quarter 2019 earnings call. We are very pleased to report a strong second quarter with $16.7 million in revenue and $1.1 million in adjusted EBITDA. Our total revenue for the first half of 2019 was $31.8 million, a year-over-year increase of 87%. Our adjusted EBITDA for the first half of the year was $2.7 million, representing 7% year-over-year growth. Our team has made great strides in reducing G&A and direct operating costs associated with the Orion acquisition from last year and our recent Etransmedia acquisition. We've streamlined workflows, eliminated unnecessary expenses and increased overall efficiency. We believe that you'll see the impact of these reductions when we report during the second half of 2019. So with the strong first half of 2019, combined with the tailwinds from the integration steps already taken in our recent acquisitions, we are pleased to reaffirm our full year revenue guidance of $63 million to $65 million and our adjusted EBITDA guidance of $8 million to $10 million. In addition to continuing our search for new accretive acquisitions, our team is increasingly focused on cross-selling. With our 2 most recent acquisitions, we are now offering new solutions such as a request for information service, document storage, group purchasing and hospital solutions. And we believe that cross-selling will allow us to add further value to our existing relationships, while growing our revenue and expanding margins. We are also preparing for the upcoming full launch of our telemedicine platform in late 2019. We believe that our existing critical mass of health care customers, 15 years of experience developing leading health care IT solutions, health insurance, reimbursement expertise and experienced cost-efficient R&D team provide us with a competitive advantage over many pure-play telemedicine companies. Telemedicine will round out our existing offering, while positioning us to compete in the emerging telemedicine industry, which has a significant addressable market. During the 5 years since our IPO, we have grown our revenue at a compound annual growth rate of 37% per year from $10 million in 2013 to over $50 million in 2018. In addition to our top line growth, we grew adjusted EBITDA to $4.8 million during 2018, more than double our adjusted EBITDA the year before. In addition to strong revenue growth during 2019, we expect to operate at an adjusted EBITDA run rate of more than 20% during the second half of 2019. And we're pleased to reaffirm once again our full year revenue and adjusted EBITDA guidance. I'll now turn the floor over to our President. Hadi?

Thank you, Steve, and thank you, everyone, for joining us on our second quarter 2019 call. Since our last call, we have made significant progress on the last mile of Orion's integration and the full journey for Etransmedia's integrations efforts. For example, during the last 4 months, we have reduced Etransmedia's onshore labor costs by approximately 65% and also reduced facility expenses, while eliminating costly offshore vendors. At the same time, we have significantly improved the service quality as compared to our predecessor. We believe that the steps we have taken have positioned us to achieve our full year revenue and adjusted EBITDA guidance. We are also pleased to be making great progress towards the full launch of our telemedicine platform. We have been testing and refining our telemedicine solution since early 2019, and we are excited to now have Dr. Jonathan Bertman, a health care IT Pioneer and founder of one of the most successful EHRs for primary care providers, heading up our telemedicine team. We look forward to providing more details as we draw nearing to the full launch of our telemedicine solution during the fourth quarter. I will now turn the floor over to our Chief Financial Officer, Bill Korn. Bill?

Thank you, Hadi. As we mentioned, our revenue for the first half of 2019 was $31.8 million, which represents an increase of 87% compared to $17 million in the first half of 2018. For the first half of 2019, our GAAP net loss was $1.1 million compared to GAAP net income of $270,000 in the first half of 2018. GAAP net loss includes noncash amortization and depreciation expense of $1.6 million, which increased by approximately $442,000 as a result of our acquisition of Orion last July and Etransmedia in April of this year. It also includes stock-based compensation expense of $1.6 million, which increased by approximately $1 million. Roughly half of that increase was due to our higher share price. And the other part is because vesting of stock used to pay bonuses is being spread equally throughout the year in 2019 and was weighted towards the second half of the year in 2018. The increase in these two GAAP expenses, which are primarily noncash in nature more than accounts for the difference in net income year-over-year. Our first half of 2019 results included approximately $249,000 of transaction costs related to the acquisition of Etransmedia. We also incurred $690,000 of integration costs to achieve future efficiencies from both the Orion and Etransmedia acquisitions. This includes the cost of winding down subcontractors, severance for redundant employees as well as exiting from facilities we no longer need, as we utilize our technology and our cost-effective employees offshore. We expect to reap the benefits of these investments during the third and fourth quarters, as indicated by our full year adjusted EBITDA outlook. The GAAP net loss per share was $0.34 per share based on the net loss attributable to common shareholders. This takes into account the preferred stock dividends declared during the quarter.…

Thank you, Bill. We had a very strong first half of 2019, which promises to be another year of record-breaking growth and increased profitability. We thank our investors, customers and employees for their support. We will now open the call to questions. Operator?

[Operator Instructions]. The first question is from Brian Marckx of Zacks Investment Research.

Congrats on the quarter. Just wanted to talk a little bit about the guidance in terms of adjusted EBITDA and the expenses that were in Q2 that you don't expect to repeat in Q3 or Q4. In the earnings release, I think you mentioned on the -- in your prepared remarks that the transaction integration costs related to Etransmedia was, I think, $733,000. If we can start with that, is the expectation that, that $733,000, none of that will repeat in Q3 or Q4?

That's correct. The only things -- and thanks for the question, Brian. The only things that go into that transaction costs are those nonrepeating costs of things like the cost of getting out of a lease, severance for an employee who's not needed incentive payments, often, we have third-party subcontractors that we want to move off of. We'll typically structure an arrangement where we'll contract with them for a couple of months and put an incentive out there for them to do a good job and have a smooth transition with no customer loss. So all those transaction expenses are not expected to repeat.

Okay. So if I just do kind of a back of the envelope, if I look at revenue guidance, 63% to 65% and then I look at the adjusted EBITDA guidance of 8% to 10%, it looks like relative to the EBITDA in -- the adjusted EBITDA in Q2 that you're going to need to cut an additional about $1.3 million per quarter in addition to the integration costs -- transaction integration costs that won't repeat in Q2. If that math is relatively close, I guess, where are the additional costs going to come out of?

Yes. So good question. So when you're looking at costs for the second quarter, recognized there are a lot of actions we took during the second quarter. For example, an employee that was there on April 1, who was let go during the quarter, we've got expense during second quarter, but the person is no longer there on July 1 at the beginning of third quarter. So we feel pretty confident that the impact of the actions that we've already taken allow us to achieve the earnings guidance that we've put forward.

Okay. So there's enough fat, I guess, I'll call it, in Q2 from the integration, even though they're not integration and acquisition-related costs, specifically, that those are going to come now, those aren't going to repeat, I guess, in Q2 -- or Q3, Q4?

Right.

And Brian, one other thing is if you think about this from a timing perspective, typically, the first 60 to 90 days post-closing are really focused on making sure that we're assembling the appropriate team, pressure testing the plans that we had going into the acquisition in terms of the nature and the timing of the costs, working on laying the foundation for transitioning work over. So generally speaking -- whether it's Etransmedia, whether it's other acquisitions, generally speaking, you'll really see the majority of those actions beginning to take place really about 60, 90 days out. And then in this case, for Etransmedia, majority of those actions really happen between day 60 and day, let's say, 150 post acquisition is really the sweet spot timing wise in terms of those actual action steps. The overwhelming majority of those steps have already been taken. And we've also charted out the course relative to the remaining handful of steps that have to occur.

The next question is from Gene Mannheimer of Dougherty & Company.

Congrats on the good progress this quarter, guys. I want to ask a couple of questions. With respect to the Etransmedia acquisition, which closed April 1, can you disclose the contribution during the quarter? And what you might expect that to deliver in the back half?

Yes, it's a good question, Gene. So we normally don't break out contributions from a particular transaction, in part because we've got the same team providing the work. We've got the same software platform. So a lot of those costs are really combined. I think you could look at the revenue growth from Q1 to Q2. And you could probably say that in large measure that, that sort of approximates the contribution, at least near to the top line.

Okay. Makes good sense, Bill. So on that note, let me ask a little bit about the revenue guidance implied in the second half because if we just take -- if we just annualize your Q2 revenue number, I get to $67 million, while your guidance is $64 million at the midpoint. So the implication is that there's some sequential decline in the second half. Just -- is that just being conservative? Or is your attrition running at a higher than normal pace? Maybe if you could reconcile that for us?

Sure. So typically, the first quarter after we do a transaction, revenue is higher, and it's higher for a couple of reasons. One is that there are clients who had previously given indication they were going to terminate and just -- that period is still working through, so the good news is we get the impact of their revenue for a month or 2 or 3, but they've already signed on with somebody else. We also spend a lot of time during those first couple of months addressing things that predecessor may not have addressed. So there might have been claims that were outstanding that needed to be followed up on, and we'll work hard to address those. So the good news is, we get a onetime benefit from doing work that somebody else should have done a quarter or 2 before. The bad news is, you only get to do that once. So I think as we put together our guidance, we've sort of thought about what we really expect. And we also don't want to get too far ahead of our season and put out a number that's too aggressive. Again, just knowing that when you do transactions and you buy companies, that have had a degree of trouble. The good news, again, is a low price. The bad news is, there are some clients who've been thinking about their options for months before we got into the picture.

Sure. Now that sounds prudent to me, Bill. And then if I could just switch gears a little bit to that new telemedicine platform that's going to debut later this year, that sounds very exciting. Now there are, obviously, many of those telemedicine platforms commercialized and out there already. I'm just wondering why not choose one of those versus building your own? And if you could kind of just walk us through the distinction there?

Sure. Thanks, Gene. We'll be very happy to do that. And I'll turn the floor over to Hadi for a minute who can talk some more about the platform. But if we step back for a moment and think, and we look at some of the industry numbers that we see analysts talking about, where we think about potentially a $70-billion-plus addressable market and then think about potentially $20 billion or greater addressable market in some of our key specialties, the primary care specialties and mental and behavioral health. We think it's really -- the telemedicine is a very natural fit, especially when you think about primary care, where some estimates say, over time -- between 25% and 50% of primary care encounters over time could be handled by telemedicine. And if we think about psychiatric care mental health, behavioral health, the estimates are greater than 50% over time can be handled through a virtual encounter and telemedicine. And as we think about what is it that we believe makes MTBC potentially uniquely situated to be very competitive in this space. We think about the fact that, to your point, there are many pure-play telemedicine companies that have raised a significant amount of money from private equity investors that are really putting together products. So what makes us different, what makes us believe that we can really grow telemedicine? I would say a few things. One is, if we think about some of the challenges that they have in terms of finalizing the product, enhancing the product and go into market, one of them would be, they don't have an existing installed base. So as we think about the fact that we have more than 5,000 health care providers in primary care, in mental and behavioral health, who are leveraging…

The next question is from Kevin Dede of H.C. Wainright.

Kevin Dede. I'm curious to, Steve, 2 points. One, on the telemedicine rollout, you are specifically -- the opportunity you see is really to market across your existing customer base, as you clearly stated. I guess what's lost on me is the actual physical -- the actual physical implementation. Are you going to just set it up somehow, so that a particular client's patients can call your client? I guess, I just -- I'm a little lost on the actual physical -- the physical operation. Can you just kind of run through that a little bit, please?

Yes, certainly. Good question. Thanks, Kevin. And I'll let Hadi jump and address that. And you're 100% right, we see the most natural place to initially get traction in our existing base. We already have the existing relationships. So that absolutely is the right place to begin to roll out the solution. Of course, beyond that, the rollout, of course, broadens to new customers, broadens to marketing this to patients who have an interest and really broadens to more of a wholesale model where, ultimately, we'd like, as the rollout continues, ultimately, to be able to go to payers and the likes who would purchase this in wholesale, like some of the other pure -- like some of the pure plays all medicine companies have done. But, Hadi, maybe you can address that question that Kevin had in terms of the patient scheduling and the like?

Sure. Thank you, Stephen, and thank you, Kevin, for the question. So as Steve mentioned, so we are currently working on a different rollout. So for existing MTBC's practice management or RCM or EHR clients, this platform is being provided as an integrated module in the existing workflow of the EHR or the practice management. The practices can continue using the same schedule and can have the telemedicine scheduling option integrated into that. And from the patient perspective, it will be available from the apps from the -- for existing patients of any of the MTBC's client, it will be part of the same, the PHR app that we have and also a desktop version of which the patient can use to schedule and connect with a provider using a telemedicine platform. And in addition to those for the customers -- for the doctors who are not using MTBC's practice management or the EHR product, there will be a stand-alone module, stand-alone application that will be available that they can use to connect with the patient and can do the scheduling and can perform the procedures.

Great, Hadi. So, gentlemen, you mentioned that you might expect to see this contribute to revenue, which seems a departure from typical MTBC pricing schemes, where you've offered a whole compendium of solutions on just reimbursement solutions and revenue cycle management. So I'm curious how you're thinking about your pricing options, especially across your installed base?

Great question, Kevin. And we'll discuss some of the additional details as the quarter progresses and certainly by the next earnings call. And by the way, the overall effort in addition to our team that's been working on this for quite some time, is really being headed up by Dr. Jon Bertman. Dr. Berman started one of the earliest EHRs for primary care practices and just did a phenomenal job developing his EHR and growing that EHR. So really brings a unique perspective to this, together with another physician, who has been part of our team for quite some time and is really managing the overall development of this product with a real eye towards the end user because that will be a key to making sure this is successful. So with regard to pricing, as you correctly say, our vision has been and continues to be having a very broad platform because it makes our overall offering more attractive. And historically, the majority of our solution has been included in our percentage-based fee. But frankly, some of these other solutions, whether it be the GPO solution where it is free to the provider, but we're generating incremental revenue from the pharmaceutical industry or whether it be the request of information solution that is free for a provider, but we're generating revenue from the requesters of information or credentialing or coding where we're charging an additional fee to the providers. So we already have built into our model both a percentage-based fee, where everything is included together with additional services that are charged and -- that incur an incremental fee as either paid by a third-party or is paid by our clients. So telemedicine will certainly help us be able to broaden our overall reach, we believe, when it comes to our RCM offering and EHR offering. But we'd also anticipate having a model that also includes additional revenue being generated from the use of telemedicine. The actual pricing and the like, we'll talk about as the year progresses. But our vision would be to provide an increasingly comprehensive platform and also to be able to generate incremental revenue from the telemedicine part.

Final question for you, my favorite one that I was all backed on, offer as much as you can about your view of the M&A pipeline?

Certainly, and as we kind of step back even further, we think about really to -- what we believe to be the additional proof of concept when we think about the second year, at least our expectations in terms of the second year with adjusted EBITDA in the second year doubling, almost tripling under our guidance compared to the first half of the year and really being able to achieve the highest EBITDA margins in our history. We think about a large part of the ability to accomplish that from a growth perspective has been not only the organic growth, but the acquisitions growth. So that's a great question. And as we think about our ability, we believe we've never been better positioned to move forward. Once we have the right company with the right structure, the right valuation, we'll certainly commit to continuing the disciplined approach that we've taken, which has really served us well over the years. We're continuing to review an average of at least 1 or 2 new acquisition opportunities each week. We've seen and pursued some potential good fits, but haven't yet arrived at the structure and valuation, that's optimal. And as you'll recall, we've spoken about this in prior calls. Over the years, we purchased more than half dozen companies that were good fits on the face of the companies in terms of the commercial aspects and the opportunities for growth, but the valuation structures weren't yet right for the picking. We walked away from them and then purchased them on more favorable terms, sometimes in a very short period of time, sometimes further down the road. So that approach has really served us well, that patient, methodical approach. That's the approach we'll continue to take. Historically, we've closed a larger acquisition on average once every 6 to 8 quarters with the smaller tuck-ins in between. We'd love to do it even more frequently, and it's been about 4 quarters since we closed Orion. We certainly would like to close another large one, but we'll continue to wait until we have the right business with the right structure and valuation, which we don't yet have. So we'll continue to look for these bigger fish, while scooping up the smaller Etransmedia-type fish as we move along.

[Operator Instructions]. The next question is from Andrew D'Silva of B. Riley FBR.

And sorry, if you answered this, I was jumping between calls. So if you did, just let me know, and I'll read the transcript afterwards. But just generally speaking, right now, obviously, there's a lot of issues in the market related to cybersecurity, obviously, you have an EHR platform, billing, practice management. I was wondering if any of that having it all in a bundled package creates some opportunities due to some of the cybersecurity risks that are going in -- on in market right now?

That's a great question. And I think you're right, whether it be -- whether you're thinking about this from the perspective of enhancing the overall revenue by having the charting occur in the same platform, where the demographic information is stored and patient insurance information and historical claim and reimbursement details are on one unified platform. One of the key kind of secret sauces that we have in terms of ensuring that we're optimizing revenues is this unified platform. That also helps us from a reporting visibility perspective, allowing practices and hospitals to have adequate visibility into what's actually happening at a practice from a clinical and practice management and revenue cycle management perspective. So this unified platform is helpful there. And we agree, again, having a unified platform as opposed to a disparate group of different platforms that are used, we believe, enhances the ability to the greatest extent possible safeguard that data. So that's really been -- it's been our vision to provide that fully integrated platform for a whole variety of reasons. And we agree, certainly, data security is one great reason to have a unified platform that's managed in a HIPAA secure way using the appropriate protocols and having a team focused on it that's experienced like ours.

Great color. And then just my last question is going to be related to the practice management arm. I know that hasn't been necessarily the core focus of the Orion acquisition, but seems to be just an increasing amount of student loan debt, particularly for physicians when they're coming out of college. I was curious if there was an opportunity due to that, as many of them are entrepreneurs, but don't necessarily have the capital to establish their own practice through more conventional means?

Yes, that's actually a very interesting point. And if we think about our overall business model and our value proposition, really, the core of it is helping providers reduce their costs, reduce the operating costs while increasing revenue. And over time, what's happened is the revenue cycle management, the practice management and the clinical charting components of the overall practice have come together in such a way that all 3 of them on one platform lays the best foundation for accomplishing those objectives. From a practice management perspective, certainly, I think you're right. There are opportunities. Where we see the greater opportunity today, though, really is -- is really empowering independent physician offices, empowering hospital employed physician groups and the like with the technology, with the domain knowledge that we have, with the expertise to really allow them to accomplish those objectives, while having their own structure as opposed to primarily moving towards a traditional kind of managed services agreement of the variety that you're talking about.

There's a follow-up question from Mr. Kevin Dede of H.C. Wainwright.

Yes, Bill, I was hoping that you could help me understand the seasonality you might see? Got you on your response to Gene's question about second half is the top line, but I was wondering what you thought Orion's implications might be to the seasonality? Typically, if I remember correctly, you see a stronger September quarter than December. I was wondering if you might take a moment to offer a little color on that?

Thanks, Kevin. And there is a little seasonality to our business, as you mentioned. Typically, lots of people have deductibles in their health insurance, which often means that in Q1, when we are charging a percentage of what the doctor collects, you go to the doctor insurance designated amount, but amounts aren't necessarily paid. So that tends to reduce revenue a little bit in Q1, I would say. And in Q3, one of the things that happened with Orion is the -- through the group purchasing organization, we're getting some revenue as doctors are signing up to receive vaccines from Merck, Sanofi and others, and then we're getting a small repay check. About half of those vaccines are vaccines that happen throughout the year, such as vaccines that are given to the children when they reach a certain age or people who are traveling. But about half the dollar value is flu vaccines. Flu vaccine, typically, physicians are purchasing more of those during third quarter and then using them during third and fourth quarter. So typically, that gives a little bit of a bump to Q3. It's not a major bump, but it's a little bit of a bump.

Right. Okay. Steve, one question just on the environment in general. Given political machinations as they are, would you -- I mean could you characterize the environment, I guess, in general, for some of these smaller practices as being perhaps more volatile than normal? And would you -- I mean could you infer from that inherent instability that it might be opportune for a sophisticated operator to help those practices? I mean have you seen any dynamics related to that? Or am I just sort of plucking at thin air?

No, you're onto something, Kevin. And we have -- I think that's been really the increasing trend, which is the increasing changes even those that are -- that are positioned by wall makers in such a way that they're designed to make life easier for the physician or to increase reimbursement or to reduce expenses and so on and so forth. Even well-intended changes continue to just make the environment that much more complex, and I think are a really compelling, especially in the aggregate, are a compelling argument to the practice administrator, to the independent physician office, to the hospital employed group that they're in over their heads and really need someone who has the decades of experience that a company like MTBC has, has the domain knowledge, 24/7 is focused on these issues, has the platform in order to support them. So all of these changes, the uncertainty and the like is undoubtedly a helpful thing in terms of making our case that there's a real value that's added by our solution.

I apologize. But due to lack of time, this concludes our question-and-answer session. I would like to turn the conference back over to Ms. Shruti Patel for any closing remarks.

Thank you. And thank you, everyone, for joining the conference call today. We look forward to speaking with you soon. Have a great day.

Thanks, everyone.

Thank you.

Thank you.