It turns out the company needed the money — badly.

As Shah was negotiating a deal with Goldman Sachs, Google and other investors, he was worried the company would be toppled by debt it had taken on for an acquisition, according to a voice memo played Thursday in the fraud trial of Shah, co-founder Shradha Agarwal and former chief operating officer Brad Purdy.

Shah was quizzing head of sales Ashik Desai about his forecast that showed quarterly revenue coming in below target. “It’s very concerning, because we weren’t forecasting a lot of growth and, frankly, it’s getting to the point where I’m not sure we can afford to have the revision,” Shah told Desai. “Brad thinks it might violate a leverage covenant that will be tested March 31st, and, you know, we basically at that point lose the company. Now, obviously, we would scramble to bring in equity before that happens, but, um, you know, something we weren’t really anticipating.”

Outcome had just borrowed $325 million to purchase a rival, Accent Health. The company had forecast about $41 million in revenue for the first quarter, but now was struggling to reach $37 million, according to the voice memo.

“I just wanted to ask you what’s going on and why we have this slip . . . and the likelihood of getting back to where we expected to be. A million or two makes a big difference. Four makes a huge difference. He’s really shook up about it, and I am, too.”

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In a separate memo regarding the investment that he was trying to line up with Goldman and others, Shah told Purdy: “Getting this thing done is the most important thing we can do to not have crises in a financing capacity in the first six to nine months of the year.”

Desai, who was Shah’s protégé, pleaded guilty to fraud charges and became the government’s key witness in the case against his former bosses in exchange for a recommendation of a shorter sentence.

He’s at the center of an alleged fraud scheme in which Outcome Health overbilled clients for running ads on television screens and tablet computers in more doctor’s offices than the company had in its network. The problem dated back to the early days of the company, Desai and other witnesses testified. It boiled over as Outcome Health raised money from Goldman Sachs and other investors with plans to go public within a few years. In the meantime, Shah and Agarwal would pocket roughly half of the new capital coming into the company.

When Outcome borrowed money from banks and looked to money from investors with an eye toward an IPO, the company decided to clean up its billing practices. In a memo Desai sent to Shah and Purdy the same day that Shah received an investment proposal from Goldman Sachs for $100 million, he laid out the problem.

The company had billed clients from its sales-tracking software, based on the contracted amounts of ads, not necessarily what was delivered. In some cases, Outcome Health had for years been billing customers for more screens than it had. And the company couldn’t quickly increase the number of doctors’ offices to meet the contract terms.

“It’s not that they’re buying more, they’re buying the same footprint,” Desai said in his memo. “So starting to call attention to massive inventory gaps in their contracts would then open up a whole and historical legacy of potential issues that we’d have to address.”

This story first appeared in Crain’s Chicago Business.

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