MTBC – Bill Korn, CFO

Speaker 1 (00:06):
Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Charles Rhyee (00:27):
Welcome to the Cowen FutureHealth Podcast, a part of Cowen's 5th Annual FutureHealth Conference held virtually this year on June 24th and 25th, 2020. Over the past five years, the Cowen FutureHealth Conference has brought together thought leaders, innovators and investors to discuss how the convergence of healthcare technology and consumerism is changing the way we look at health, healthcare and the healthcare system. My name is Charles Rhyee and I'm Cowen's healthcare services analyst. And in this episode, we talk about the role of technology in the provider setting. Technology is playing an increasingly important role in optimizing the workflows and reducing the administrative burdens of providers. And to help us explore this topic I'm joined by Bill Korn, CFO of MTBC, a health care information technology company that helps customers increase revenues, streamline workflows, and make better business and clinical decisions while reducing administrative burdens and operating costs. Welcome Bill.
Bill Korn (01:15):
Thanks Charles. Great to be here.
Charles Rhyee (01:18):
Great. Thanks. So Bill why don't we start out with a little of your background and how you found yourself at MTBC?
Bill Korn (01:26):
Sure. So I am a CFO who has spent my career in fast growing technology businesses, it's actually my 7th CFO gig. I joined MTBC about seven years ago. I was doing some board advisory work and I was approached by the founder of MTBC who had heard about me and said, "Bill, we're getting ready to go public. All we need a is a CFO and we'll be public in two months." I left, especially because at that point MTBC was a $10 million company, but I thought his idea was actually pretty interesting. And that was to buy a couple other companies at the time of the IPO to start to give us some scale. It took us a year to do that but MTBC has now been public for six years, we've done 15 acquisitions since then and today we're over a hundred billion dollar company.
Charles Rhyee (02:33):
That's interesting. And so maybe love to talk about the strategy in a little bit, but maybe to start, can you talk a little bit more about MTBC and what actually you guys do?
Bill Korn (02:42):
Sure. So we're a classic healthcare IT company. And what that means is we have clients who are mostly doctor practices, some hospitals as well. We typically do their billing so we send the claims into insurance, we advocate on their behalf, we provide the technology platform. So we've got a certified electronic health record system. We've got a practice management system, which is used to keep track of the appointments and the insurance eligibility, we've even launched a tele-health app last year. So today everybody's heard of tele-health, last year nobody knew what it was. So we developed a lot of this technology in-house and typically as we bought companies, for the most part what we've done is looked for operations where we felt we could add value, and where we could do where we could add customers and add business more cost-effectively than doing it through traditional sales and marketing activities.
(03:47):
And so over the years as MTBC has grown we've added capabilities, we're serving doctors at all 50 states, we're probably serving every specialty that's that's out there. When we bought CareCloud at the beginning of this year, we picked up a second EHR and practice management suite, one that was designed with additional complexity. So we could even down the road think about a platform where we have an easy to use, easy to learn entry level and then we have a pro version for other people who want more capabilities. But fundamentally we've got the team in-house, we've got over 2,500 employees. A large number of them overseas but they're still our employees working for our wholly owned subsidiaries. And completely looking at how do we provide better service for our clients than anybody else could.
Charles Rhyee (04:51):
So that's great Bill, that's helpful. You touched on a little bit about your customers most being physicians. Can you give us kind of a breakdown? Is it all physicians or you indicated there were some hospitals, what's the mix roughly?
Bill Korn (05:08):
So in terms of the client base the vast majority are our doctors practices. We have a lot of relatively small practices. Again, when the company was founded we tended to focus more on the one to 10 doctor practices, at least in part because that was a space that we knew well. The founder's wife is an internist in a solo practice and so our initial platform development was done in the office of a real customer trying to meet her needs. Over time, we've gotten bigger clients. Our largest client right now is a physical therapy and rehabilitation practice with over 1800 providers. We also serve probably a couple dozen hospitals, most of those relationships have come through acquisitions. We tend to be doing smaller amounts of services at those hospitals, so right now I think the largest client dollar wise is that rehabilitation practice. But with our most recent acquisition we've picked up some additional hospital relationships. So it could turn out that by 2021 we've actually got a bigger client who's actually in the hospital area.
Charles Rhyee (06:36):
That's interesting, that's helpful. It seems like still a lot of the company's revenues is still generated largely from revenue cycle management. When you look out into the space, there are a number of different rev cycle platforms available to providers, what would you say differentiates the MTBC solution?
Bill Korn (07:00):
So while you're right that the majority of the revenues say their revenue cycle management, our strategy has always been to give our revenue cycle management or billing customers access to the whole platform. And so even though they're paying us a percentage of what the doctor actually collects. In fact, they're actually using in many cases the practice management system, the electronic health records software, and because they're paying one bundle feet there's no good way to break that revenue out. But we think that first is a big differentiator that we give people the whole the whole platform.
(07:44):
In fact, many times we've bought companies that have just been in the revenue cycle space, that are just doing the billing and their clients are using third party platforms. And we tell those clients, "You can keep paying the same fee, we'll honor the contract, but you now have access to the entire suite." And I think by having a system that's designed to work together, this allows us to work seamlessly. It gives the doctor one place to look to make sure that everything is done right and we think that that's what doctors want today.
(08:20):
They don't want to be dealing with a half a dozen different vendors, trying to make sure that when there's a problem, was it the EHR system that had an issue? Was it the practice management system? Did somebody make a mistake in submitting the bill? They want it all seamless with essentially one throat to choke.
Charles Rhyee (08:41):
I can see why that might be easier from their end. Do you have any breakdowns for what percentage of clients are using more than one service?
Bill Korn (08:52):
At this point I don't have a good number. It's been less than a week since we bought Meridian. And that's our largest acquisition to date. Meridian, while they've got revenue cycle management, they've also got a platform maybe not quite as advanced as ours, but I think they've got a lot of clients who are using one or more pieces of their technology as well as the billing. When we bought CareCloud in January, they have a platform actually a pretty advanced platform. And in fact, in their case, all their clients are using the technology and only about a third of them were using billing at the point that we bought them. So I don't have a good figure but I suspect at this point, the vast majority of our clients are using us from more than one thing. And over time as we work on integrating the platforms and the service offerings, you'll see more and more of that.
Charles Rhyee (09:53):
Okay. That's helpful. Obviously, your growth has been driven a lot by M&A, what does the current M&A landscape look like for you? And maybe give a description of sort of how as you've grown your focus in terms of what kind of targets you're looking for has changed?
Bill Korn (10:17):
The two largest transactions that we've ever done both happened in 2020, while the year is almost six months old we more than doubled our size this year. And I guess what that tells us is that even as you get bigger and people always worry, "Now, with this latest transaction there's going to be nobody else to buy." In fact, we're stronger, we have more capability and we have more of an ability to put together a bigger game-changing deals. For us, when we bought CareCloud in January, our initial take was we spend at least the first six to nine months integrating the transaction before seriously looking at another major acquisition. And I think we looked at the economic environment after COVID and we said while we're doing really well, we can see that that others are struggling so we proactively raised some money.
(11:29):
We did a public offering in April. It actually turned out to be the largest chunk of money we'd raised in one transaction and it was a six hour deal in total. And we did that specifically so that if we identified an acquisition target, we could walk in saying, "I've got cash. I don't need any contingency. I could close this deal next week if you'd like." And I guess we found that that strategy works well for us in acquisitions when we can come in ready to make an offer. It might not be the highest price, it might not be the number that the seller was hoping for, but if they want certainty that the deal can get done, we can get it done. And again, we've done enough of these transactions that we've got enough of a team that can jump on the due diligence.
(12:28):
And of course, every time we buy a company one of the things that we get is more good people and they were on the sell side before, no they can be on the buyer side helping us to evaluate it and to see immediately whether a deal makes sense. And a part of the process that we always go through is we look at where they are and again because we're not looking to pay top dollar. I would say, candidly, our focus is on a company that's having some challenges. We don't want a business that's already growing and generating 35% profitability each year.
(13:12):
If we found that we would not make it so much better, so therefore it wouldn't be worth a lot more to us than it was to the seller. So we look for somebody where there are some challenges, where we know that we can make it better. And again, those companies are out there they're easily available to identify. And we're really excited about the two transactions that we've been able to close this year.
Charles Rhyee (13:43):
So Bill speaking to that, a lot of your growth has been driven by acquiring companies that when I look back at what you've guys done so far, a lot of them have challenges, they had either funding issues or operational issues. You've been able to incorporate them and continue to drive the growth. Two questions really first, what is the landscape for that type of asset in this market out there today still? I think a lot of times investors look at it and say, "Well, you got the Cerners of the world and the Allscripts and the other traditional EHR vendors out there Epic, Meditech."
(14:25):
But when you particularly look at the physician space, I think there's an assumption that it has become more consolidated, how fragmented is it still currently? And then the second question I had for you is the growth driven here is by M&A, a lot of it is you're picking up clients through these acquisitions. Can you talk about sort of the retention rate that you've been able to maintain with the strategy?
Bill Korn (14:50):
Sure. Every time we do a transaction, especially when we do one and it's the biggest that we've ever done. People's natural reaction is well, "Boy it's never going to get any bigger. So I've just seen the biggest best deal that you'll ever able to do." And of course the next deal turns out to be bigger and better. So I would say that there's still plenty of opportunities, especially when you say each one doesn't have to be cookie cutter. So I could buy a company just to pick up their other clients, but maybe there's a piece of technology that would be interesting to integrate. Maybe there's someone providing another service to a similar client base providing me with cross sell opportunities. So we think there are plenty of options that are out there.
(15:40):
And while M&A has certainly been the biggest engine for our growth. We were growing at a high single digit organic growth rate the last couple of years, which doesn't sound exciting but it's probably more than virtually anybody else who's out there in this space. And that was at a time when candidly we were not spending nearly as much on marketing itself last year, our marketing in sales as a percentage of revenue was something like 3%, which is really low. When we bought CareCloud in January, they were outspending us probably four to one for a company that was half our size and we've kept that same level of resources. So this 2020, I think has the promise to be our biggest year in terms of the organic growth in addition to the biggest year for M&A. And you asked about retention and to us client retention is really important.
(16:48):
And we recognize that through the industry there is a certain amount of turnover. Doctors get old and retire, sometimes they sell their practice, sometimes they're not getting reimbursed by insurance at the level that they wish they were, or that they think that they were in the past. And for a doctor sometimes the easiest thing to do is to say, "Look, it must be my billing company. It must be the company who is following up on my claims. Let me get someone else." I'd say when we buy companies, we know if the company's had some challenges, we know that there's a certain number of clients who are going to be looking at alternatives before we got there. So it doesn't surprise us when the first couple months there will be people who will say, "Okay, I'm switching. And by the way I made that decision four months ago, long before MTBC was on board."
(17:49):
But we find that over time clients get stickier, as we're doing multiple services, as they're using the technology platform, they get stickier. And again, we're only five and a half months into the CareCloud acquisition. But I'd say that so far, again, because all those clients were using their technology, we've done very well in terms of keeping clients. And our goal is we typically see the attrition of a 1% a month rate on average, again, with it being higher in those first say nine months typically lower as the clients are more mature. We think with the most recent acquisitions, we're actually doing better than that.
(18:40):
And again when you can go to a client and say, "The price is going to be the same, the work, instead of being done by a third party business process outsourcer. It's going to be done by one of my employees so we're going to care a lot about it. And by the way, I'll give you some technology that you might've had to spend extra money on in the past." We think that's a pretty compelling proposition.
Charles Rhyee (19:09):
I understand what you're saying here. You mentioned Meridian Medical a little earlier, this is obviously as you noted one of the largest acquisitions you've done to date. Can you talk a little bit more, how this fits into the portfolio, you really talked about their clients using more of their technology, less of the billing. I think one of the things that they have is something called a robotic process automation solution can you talk about that a little bit more?
Bill Korn (19:41):
Sure, sure. Good question. So Meridian's is an interesting company. It started out as a... there was a business that was a division of GE Healthcare that was spun out and an acquired by private equity back in 2013, developing healthcare IT technology. The PE firm then in 2014 bought a company named Origin Healthcare in the revenue cycle management business and married the two together. So when we looked at Meridian they were really two things, one is we're picking up the clients including some hospitals and we're picking up a good revenue base. And so that was enough for us to look at it and justify the purchase price. But in addition, we looked at the technology and I'd say we're pretty excited about it. So when you hear about process automation, you might envision R2-D2 rolling in and examining the patient.
(20:54):
It's probably not quite as colorful as that it really provides a little more assistance to the doctors. And we've already got artificial intelligence that's embedded within our platform. That's been a part of talkEHR for years, but we think that the microbots that have been developed by Meridian, we think have some capability to extend that even further. So we're going to look at how do we take that technology embed that more broadly into our platform. When we bought CareCloud in January, they've also got a leading edge practice management and EHR system. And we think that the microbots and the robotic process automation will work well in that setting as well.
(21:51):
Meridians also got a EHR, I'd say, candidly, their EHR is a little bit older technology than ours or CareCloud's. And so we're already on a roadmap to merging our platform with CareCloud. More likely than not we've owned this company less than a week, but more likely than not we'll find a way as we come up with one integrated offering to migrate Meridians EHR and practice management based seamlessly into a next generation platform.
Charles Rhyee (22:30):
That's helpful and do you have a sense of timing of when that would occur? Is that something we can expect in the next year, or is that a little bit maybe further out you think?
Bill Korn (22:42):
I would say it's probably a little too early to mention that. Again, we bought CareCloud in January and we looked at their platform and we looked at the work they were doing on a next generation platform. And we're well underway in terms of that integration, but even so because doctors really depend on this for their livelihood and patients depend on this technology being right and secure for their lives, it's not something where you want to make a change overnight. So it's not like I've got a something that's broken with it, technology is referred to as a burning platform so we can take our time and do it smoothly.
(23:28):
And our president is actually going to spend tomorrow at Meridian's office in Connecticut, starting a conversation with them about the platform and the migration and the integration. So expect that our plans will get refined over the course of the next couple of months. And that we'll be giving people plenty of notice of a roadmap.
Charles Rhyee (23:55):
Great. Wanted to touch on COVID-19 and the impact that you're seeing with your customers and for the company. Obviously, with the lockdown procedure volumes across hospitals and visits for physicians have dropped dramatically, particularly in April, we're starting to see some signs of that picking back up. What kind of rebound have you seen since the trough levels and how has your business adapted to that? We talked earlier about the business model payment structure was through payment on collections, regardless of what services they were using, talk about how you guys adapted for that?
Bill Korn (24:40):
Sure. So COVID-19 obviously has been a tragedy around the world, but I'd say for MTBC the economic impact it hasn't really been nearly as probably it has been for others. And in fact if anything I'd say even before the Meridian acquisition we were stronger, and of course with Meridian we're now even stronger far stronger than we were before. So yes, we definitely had seen a slowdown in doctor visits and roughly about 60% of our revenue is tied to the doctor collections. The other 40%, that includes software as a service fees and printing and mailing fees and practice management fees. So there's there's pieces that are not all directly visit sensitive. So we took a small hit on revenue, but again, probably not as much as somebody who was totally just RCM.
(25:54):
I think the fact that we had launched a tele-health platform last year, which we integrated into our talkEHR, so it was available to all our doctors. And we were able to tell them, "Look, you've got the ability to do telehealth visits. It's integrated into the system, it's HIPAA compliant and secure. We know how to bill for it. And so if you can't see the patient in person, don't worry you, you can do this remotely." We gave people that message end of last year and doctors weren't so interested and then comes COVID and all of a sudden Medicare is now reimbursing for telehealth and then private insurance follow suit.
Charles Rhyee (26:45):
Wow.
Bill Korn (26:45):
And I think that gave our physicians a little more of a lifeline than those who didn't have that capability,
Charles Rhyee (26:53):
Any feedback you've gotten from your clients now that they started getting used to tele-health. Is this something that you think your clients will continue to use, or as the economy has been slowly opening up in various parts of the country, do you think they will move back into their old habits?
Bill Korn (27:11):
So we think that tele-health is here to stay. And again, there's a lot of visits for which telehealth makes sense, there's a lot of visits where it doesn't make sense. And at least what we see is that doctors are going to look at this as, "Okay, I've now got one more tool in my toolkit." When I've got a patient who's less mobile, when I've got a situation where I'm not giving the young child their measles shot." I can't do a measles shot through telehealth. There's a lot of examinations where the doctor's going to want to be in person, but there's also a lot of cases where that's not a 100% necessary, and just the ability to see them and make it just that much more convenient for the patient means they'll comply and do the visit.
(28:03):
So we think that there's going to continue to be an interest in that. And so we've at this point actually even integrated the tele-health platform that we built last year, we've integrated that with CareCloud's platform and branded it at CareCloud Live, so we made it a part of that platform as well. And we think that, again, longterm, there's going to be a lot of interest in doctors knowing that there's a capability. And again, anecdotally, we've seen that a lot of platforms that we would have said, "This platform is big, it's robust, they've spent 10 or 50 times as much on development." We've seen doctors who use those platforms using FaceTime because there is no integrated HIPAA Compliance solution. So we think that our doctor base is in far better shape.
Charles Rhyee (29:01):
That's helpful. And you touched a little bit on regulations, obviously in March ONC released a 21st century Cures Act the inter-operability, information blocking rules and also more clarity around the Health IT Certification Program. What is you as a company doing to comply with the rules? It seems like there will be some leniency in terms of timelines, but as you understand it right now what are the requirements on from your end that you need to do to your clients ready for this?
Bill Korn (29:44):
Good question. So we've typically been on the earlier end of complying with the ONC's timelines, and this is probably not going to be any different because a lot of what's what's needed. We were already much of the way there so while there's a little bit of work that needs to get done. Frankly, the documentation, training our customers, that that might actually be a bigger activity for us than actually doing the work to comply with the latest regulations at least within our native platform. Work is also underway on getting a similar capability within CareCloud's platform. And our technology team had already started to pick up much of the technology worked for the CareCloud platform, as they're working on coming up with a merged platform.
(30:43):
So again, that'll be pretty straight forward. We haven't really had the discussions yet with the Meridian team, but if I was guessing, I'd say that it would be, again, it would actually be our technology team off shore who would do the work that's needed within the Meridian platform to get that up to at this speed. Assuming that we're going to want to get that up to speed and at least know that everything was all compliant. So as we merge the platforms together and migrate a client, you don't want to do that while you have a firm deadline of you got to comply, you want to have everything in compliance upfront and then be able to move it at a leisurely pace.
Charles Rhyee (31:29):
That makes sense. And the last few minutes here Bill and appreciate you for being with us today, what should we look out for? Any kind of milestones or any things that we should be looking out for from the company let's say over the next six to 12 months? What are some of the key things you would highlight for investors to pay attention to?
Bill Korn (31:53):
Good question. In May, long before we'd bought Meridian or even before we knew Meridian was available for sale, we had reaffirmed our guidance for 2020 saying that we would do at least 100 to 102 million in revenue. And now having done this large acquisition clearly where we're on board for this to be our first year over a hundred million. Again, for reference we were 50 million in revenue in 2018 and 64 million in revenue in 2019. So look at our previous 35% compound growth rate and say, "Gee, that's actually going to be in the rear view mirror for 2020 and probably 2021 as the growth is even more significant than that."
(32:49):
And the other side of it is for us, growth is important but growth with profitability is really what we strive to do. So look at us doing the same with Meridian, as we're doing with CareCloud and as we've done with previous acquisitions. Eliminating the off shore subcontractors and moving that work to our own team, which cuts the cross by anywhere from 75, 80%. Look at moving some work that's being done even on shore and saying, "Okay, even in these cases I can move that overseas and probably cut that cost by 90%." Automating things that can be automated, reducing the size of unneeded facilities and integrating all the G&A capabilities, so that we're not running multiple accounting systems and paying multiple sets of benefits packages and just streamline all that.
(34:01):
So look at us, again, continuing to consolidate the profitability and the cash generation from the business. Because at the end of the day that's what it's all about, you don't want to just grow whether it's organic or through acquisition, you want to grow in a way that that becomes more and more profitable each year. And we're certainly on track to, I think, continue that trend.
Charles Rhyee (34:27):
Well, that's great Bill. That's something we'll definitely look forward to seeing in the future here. And I think that's about all the time we have. And so I want to thank you Bill for joining us today. Really appreciate your time. And I want to thank everyone for tuning in to this podcast and look forward to having everyone listening on a future one.
Bill Korn (34:43):
Thanks Charles. Appreciate it. Have a great day.
Charles Rhyee (34:46):
Thanks. Take care everyone.
Speaker 1 (34:48):
Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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