Change Healthcare Inc. (Nasdaq: CHNG), a leading independent
healthcare technology company, today reported financial results for
Change Healthcare LLC (“Change Healthcare”) for the fourth quarter
and fiscal year ended March 31, 2020.
“Change Healthcare delivered strong performance in our first
year as a public company, achieving our desired financial and
operational goals, executing on our transformation initiatives, and
strengthening our platform for future growth. In fiscal 2020, we
delivered underlying growth across all three segments, expanded
margins, and delivered strong free cash flow,” said Neil de
Crescenzo, president and chief executive officer.
“While the COVID-19 pandemic has created uncertainties in the
near term, the core mission of our company to drive financial,
administrative, and clinical efficiencies will be even more
important to our customers going forward. I am proud of our team
members who quickly adapted to the escalating pandemic and actively
addressed the needs of our customers and partners. To further
support our customers in this environment we advanced several new
solutions including our Telehealth set of engagement solutions, our
National Payments Connector solution to drive increased electronic
payments, and our Virtual Front Desk solutions to enable touchless
waiting rooms for providers. Despite the continuing uncertainty, we
believe we remain well-positioned to drive growth and build
shareholder value over the coming years.”
Adoption of the New Revenue Recognition Standard - ASC
606
Change Healthcare adopted the new revenue recognition accounting
standard Accounting Standards Codification ("ASC") 606 effective
April 1, 2019 on a modified retrospective basis. Financial results
for reporting periods during fiscal year 2020 are presented in
compliance with the new revenue recognition standard. Historical
financial results for reporting periods prior to fiscal year 2020
are presented in conformity with the prior revenue recognition
standard, ASC 605. This press release includes additional
information to reconcile the impacts of the adoption of the new
revenue recognition standard on Change Healthcare’s financial
results for the quarter and year ended March 31, 2020. This
includes the presentation of financial results during fiscal year
2020 under ASC 605 for comparison to the prior-year period.
Fiscal 2020 Fourth Quarter Highlights for Change Healthcare
LLC:
Financial Summary - ASC 606 (standard adopted effective April
1, 2019)
- Total revenue of $843.4 million, including solutions revenue of
$786.6 million
- Net loss of $108.6 million, resulting in net loss of $0.34 per
diluted unit1
- Adjusted net income of $133.2 million, resulting in adjusted
net income of $0.42 per diluted unit1
- Adjusted EBITDA of $264.4 million
Financial Summary - ASC 605 (standard before April 1,
2019)
- Total revenue of $854.0 million, including solutions revenue of
$797.2 million
- Net loss of $108.0 million, resulting in net loss of $0.34 per
diluted unit1
- Adjusted net income of $133.7 million, resulting in adjusted
net income of $0.42 per diluted unit1
- Adjusted EBITDA of $269.3 million
Financial Results - ASC 606 (standard adopted effective April
1, 2019)
- Solutions revenue was $786.6 million. Fourth-quarter results
were impacted by the adoption of the new accounting standard, ASC
606, which resulted in the recognition of certain revenue in the
first quarter of the fiscal year that would have been recognized in
the subsequent periods under the prior accounting rules. The
fourth-quarter results reflect an unfavorable revenue impact of
$10.6 million as compared with ASC 605.
- Net loss was $108.6 million, resulting in net loss of $0.34 per
diluted unit. Net loss was primarily impacted negatively due to
recognition of a $164.6 million McKesson tax receivable agreement
liability as a part of their disposition of their ownership
interest in Change Healthcare and the ASC 606 revenue impact noted
above. These impacts were partially offset favorably by an extended
recognition period for commissions and certain implementation
costs, decreasing expenses in the period by $5.8 million.
- Adjusted net income was $133.2 million, resulting in adjusted
net income of $0.42 per diluted unit.
- Adjusted EBITDA was $264.4 million. Adjusted EBITDA as a
percent of Solutions revenue for the fourth quarter of fiscal 2020
was 33.6%.
Financial Results - ASC 605 (standard before April 1,
2019)
- Solutions revenue was $797.2 million, compared to $778.4
million for the fourth quarter of fiscal 2019. Total revenue for
the current period, which includes Postage revenue, was $854.0
million, compared to $836.3 million in the same period of the prior
fiscal year. Growth in our Network Solutions business was partially
offset by the impact of planned contract eliminations in our
Technology-Enabled Services business, the strategic assessment of
Connected Analytics, and a $6.2 million impact from COVID-19.
- Net loss was $108.0 million, resulting in net loss of $0.34 per
diluted unit, compared with net income of $37.7 million or $0.15
per diluted unit, respectively, for the fourth quarter of fiscal
2019. The net loss was primarily driven by the recognition of a
$164.6 million McKesson tax receivable agreement liability.
- Adjusted net income was $133.7 million, resulting in adjusted
net income of $0.42 per diluted unit, compared with adjusted net
income of $125.8 million or $0.50 per diluted unit, respectively,
for the fourth quarter of fiscal 2019. Net loss per unit and
Adjusted net income per unit for the current period is based on 320
million units compared to 253 million units in the prior year
period, increasing as a result of the initial public offering
completed on July 1, 2019.
- Adjusted EBITDA was $269.3 million, compared with $257.2
million for the fourth quarter of fiscal 2019. The favorable impact
of productivity improvements and growth across our Software &
Analytics and Network Solutions businesses was partially offset by
planned contract eliminations in our Technology-Enabled Service
business, and the above mentioned impact from COVID-19. Adjusted
EBITDA as a percent of Solutions revenue for the fourth quarter of
fiscal 2020 was 33.8%, compared with 33.0% for the fourth quarter
of fiscal 2019.
Cash Flow and Balance Sheet Highlights for Change Healthcare
LLC:
Net cash provided by operating activities was $593.3 million for
the fiscal year ended March 31, 2020, an increase of 106.2% from
$287.7 million for the fiscal year ended March 31, 2019. Free cash
flow was $334.7 million for the year ended March 31, 2020, an
increase of 721.8% from $40.7 million for the fiscal year ended
March 31, 2019. Adjusted free cash flow was $481.5 million, an
increase of $189.3 million year over year.
Net cash provided by operating activities, free cash flow, and
adjusted free cash flow each is affected by pass-thru funds we
receive from certain pharmaceutical industry participants in
advance of our obligation to remit these funds to participating
retail pharmacies. Such pass-thru funds were $21.7 million for the
fiscal year ended March 31, 2020 and $3.0 million for the fiscal
year ended March 31, 2019. The increase in cash flow from
operations, free cash flow, and adjusted free cash flow in the
current period primarily resulted from revenue growth and improved
working capital driven by lower receivable balances and reduced
integration capital expenditures.
Change Healthcare LLC ended the year with approximately $407.7
million of cash, cash equivalents, and restricted cash and
approximately $5,118.0 million of total debt. During the quarter,
Change Healthcare LLC also borrowed $250.0 million from its
revolving credit facility to have access to additional liquidity in
an uncertain macro environment. Subsequent to the quarter, the
Company issued $325.0 million of 5.75% Senior Unsecured Notes due
2025 under the same terms as the existing $1,000.0 million Senior
Notes.
Recent Business Highlights
- Completed the acquisition of PDX, a company focused on
delivering patient centric and innovative technologies for
pharmacies and health systems for a purchase price of $208.0
million.
- Completed the acquisition of eRx Network, a leading provider of
comprehensive, innovative, and secure data-driven solutions for
pharmacies, for a purchase price of $212.9 million plus cash on the
balance sheet.
- Completed the sale of Connected Analytics for total
consideration of $55.0 million.
- Launched COVID-19 Information Hub, an online source of
technology, business, and informational resources from Change
Healthcare, its partners, and third-party expert sources to give
providers and payers guidance on how to maintain administrative,
financial, and operational stability during the COVID-19
pandemic.
- Completed McKesson Corporation's disposition of its ownership
interest in Change Healthcare. As a result, McKesson no longer owns
any voting or economic interest in Change Healthcare.
- Named as Software & Services Report Leader in the 2020 Best
in KLAS awards. The awards reflect excellence in quality and
customer service for technology solutions and services that help
healthcare organizations achieve better outcomes.
- Introduced Market Insights, a comprehensive analytic dataset
that provides approved healthcare stakeholders unparalleled
visibility into crucial utilization, population health, and
financial trends that drive the U.S. healthcare system.
First Quarter Fiscal 2021 Guidance
Due to uncertainty around the duration of COVID-19, the Company
will only be providing quarterly guidance. In addition, Change
Healthcare Inc. was required to account for the McKesson exit as a
business combination through which Change Healthcare Inc. obtained
control of Change Healthcare LLC. As a result, the Change
Healthcare Inc. balance sheet is now reflective of the fair value
of assets and liabilities of Change Healthcare LLC. The impact of
the fair value adjustments is included in our guidance.
For the first quarter of fiscal 2021, the Company expects
Solutions revenue to be in the range of $595 million to $620
million, which includes a reduction of $55 million in revenue
resulting from an adjustment of deferred revenue to fair value as
described in our assumptions below, Adjusted EBITDA to be in the
range of $160 million to $175 million and Adjusted EPS to be in the
range of $0.14 - $0.18 per share.
The first quarter fiscal 2021 outlook is based on the following
key assumptions and expectations and is also subject to risk
factors such as those described in the Forward-Looking Statements
below:
- Reflects the Company’s current expectation that the largest
impact from the COVID-19 pandemic will occur in the first quarter
of the fiscal year with a gradual improvement throughout the
remainder of the fiscal year as healthcare utilization trends
improve.
- Includes the impact of the sale of Connected Analytics and the
acquisition of eRx Network as of May 1, 2020, and the acquisition
of PDX as of June 1, 2020.
- Assumes a revenue impact due to adjusting deferred revenue as
part of fair value adjustments, which reduces revenue recognized by
approximately $55 million with no impact on Adjusted EBITDA.
- Interest expense of approximately $70 million, including the
impact of $325 million in additional notes and the $250 million
draw on the credit facility discussed above and assumes no
additional debt paydown during the year. Includes approximately $4
million in non-cash, pre-tax interest expense for fair value
adjustments related to the McKesson exit.
- Depreciation and amortization2 expense of approximately $140
million, including approximately $54 million from the impact of
fair value adjustments related to the McKesson exit.
- Includes up to $10 million of increased bad debt expense
provision in the first quarter consistent with anticipated days
sales outstanding increase.
Supplemental Forward-Looking Information and Assumptions For
Fiscal 2021
While the Company is not providing guidance for the full fiscal
2021 due to the uncertainty and rapidly evolving economic
environment as a result of COVID-19, the Company has determined to
provide the following supplemental expectations and assumptions
that the Company has made regarding its fiscal 2021 results to
provide further transparency to investors into the Company’s
current beliefs regarding fiscal 2021, all of which are subject to
change:
- Free cash flow positive for the fiscal year; amount dependent
on the speed of recovery.
- Capital expenditures of approximately 7% of Solutions Revenue
excluding the impact of fair value adjustments for the fiscal year
and excluding integration related capital expenditures.
- Integration related expense for the fiscal year of
approximately $80 million and Integration related capital
expenditures of approximately $20 million.
- Assumes a revenue impact due to adjusting deferred revenue as
part of fair value adjustments related to the McKesson exit, which
reduces revenue recognized in future periods by approximately $137
million, including an approximate $129 million reduction for the
fiscal year, with no impact on adjusted EBITDA.
- Interest expense in the range of $280 - $290 million, including
the impact of $325 million in additional notes and the $250 million
draw on the credit facility discussed above and assumes no
additional debt paydown during the year. Includes approximately $14
million in non-cash, pre-tax interest expense for fair value
adjustments related to the McKesson exit.
- Includes approximately $215 million in additional depreciation
and amortization3 expense for fair value adjustments related to the
McKesson exit
- Adjusted effective tax rate of approximately 25% as a result of
simplified corporate structure post McKesson exit.
- Basic Shares Outstanding of 320.0 million.4
A reconciliation of the forward-looking first-quarter 2021
Adjusted EBITDA outlook to net income cannot be provided without
unreasonable effort because of the inherent difficulty of
accurately forecasting the occurrence and financial impact of the
various adjusting items necessary for such reconciliation that have
not yet occurred, are out of our control, or cannot be reasonably
predicted. For the same reasons, Change Healthcare is unable to
assess the probable significance of the unavailable information,
which could have a material impact on its future financial results
in accordance with generally accepted accounting principles in the
United States of America (“GAAP”).
____________________________________________________ 1 Common
units of Change Healthcare LLC are equivalent to the number of
outstanding common shares of Change Healthcare Inc. and, prior to
McKesson’s March 2020 exit transaction, membership interests of
Change Healthcare LLC held by subsidiaries of McKesson. 2
Depreciation and amortization expense for the first quarter of
fiscal 2021 includes an increase of approximately $77 million in
amortization for intangible assets, offset by approximately $25
million for the fair value adjustment of capitalized software, as
well as an increase of approximately $2 million of depreciation for
fixed assets. 3 The additional amortization expense for fiscal 2021
is comprised of an increase of approximately $308 million for
intangible assets, offset by approximately $100 million for the
fair value adjustment of capitalized software, as well as an
additional $7 million of depreciation for fixed assets. 4 Basic
shares outstanding includes the impact of the minimum issuable
shares attributable to the TEUs.
Conference Call and Webcast Information
Change Healthcare will host a conference call on June 4, 2020,
at 8:00 a.m. ET. Investors and other interested parties are invited
to listen to the conference call by dialing 1-(877) 279-0788 in the
U.S.; 1-(270) 215-9894 from abroad, including the conference ID
number: 2987345; or via a live, audio webcast on the Company's
website at https://ir.changehealthcare.com/.
A webcast replay will be available for on-demand listening
shortly after the completion of the call until the fourth-quarter
fiscal 2021 earnings call, at the aforementioned URL. In addition,
a digital audio playback will be available until 11:00 a.m. Eastern
Time on Thursday, June 11, 2020, by dialing 1-(855) 859-2056 or
1-(404) 537-3406 and referencing confirmation 2987345.
About Change Healthcare
Change Healthcare (Nasdaq: CHNG) is a leading independent
healthcare technology company that provides data and
analytics-driven solutions to improve clinical, financial and
patient engagement outcomes in the U.S. healthcare system. We are a
key catalyst of a value-based healthcare system, accelerating the
journey toward improved lives and healthier communities. Learn more
at changehealthcare.com.
CHNG-IR
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of federal securities laws. Any statements made in this
press release that are not statements of historical fact, including
statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements include information
concerning possible or assumed future results of operations,
including, but not limited to, our first quarter fiscal 2021
guidance, the supplemental information and assumptions regarding
fiscal 2021, the potential length and impact of COVID-19, and
descriptions of our business plans and strategies. These statements
often include words such as “anticipate,” “expect,” “suggest,”
“plan,” “believe,” “intend,” “estimate,” “target,” “project,”
“should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,”
“potential,” “continues,” “seeks,” “predicts,” and the negatives of
these words and other similar expressions. Forward-looking
statements involve known and unknown risks, uncertainties,
including, but not limited to, the uncertainty around the length
and severity of the COVID-19 pandemic; the ongoing impact of the
COVID-19 pandemic on our operations and financial results, on our
customers and on national, state and local economies; and new risks
that may arise due to responses to the pandemic by the government,
our customers and us; and other factors disclosed in the
Registration Statement on Form S-4 (No.333-236234) and the Annual
Report on Form 10-K for the year ended March 31, 2020 in the
section entitled “Risk Factors,” as such factors may be updated
from time to time in our periodic filings with the SEC, and other
factors that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements. Given these uncertainties, you should
not place undue reliance on any forward-looking statements in this
release. All forward-looking statements are based on information
currently available to Change Healthcare and are qualified in their
entirety by this cautionary statement. The statements herein speak
only as of the date such statements were first made. Except to the
extent required by law, Change Healthcare assumes no obligation to
update any such forward-looking statements or other statements
included in this release.
Non-GAAP Financial Measures
In the company’s earnings releases, prepared remarks, conference
calls, slide presentations and webcasts, there may be use or
discussion of non-GAAP financial measures. We believe such measures
provide supplemental information to investors with regard to our
operating performance and assist investors’ ability to compare our
financial results to those of other companies in the same industry.
The GAAP financial measure most directly comparable to each
non-GAAP financial measure used or discussed, and a reconciliation
of the differences between the comparable GAAP financial measure
and each non-GAAP financial measure are included in this press
release after the consolidated financial statements. These non-GAAP
financial measures are calculated and presented on the basis of
methodologies other than in accordance with GAAP. These non-GAAP
financial measures should be considered only as supplemental to,
and not as superior to, financial measures prepared in accordance
with GAAP and may be defined and calculated differently by others
in the same industry.
Change Healthcare Inc.
Consolidated Statements of Operations (unaudited and
amounts in thousands, except share and per share amounts)
Three Months Ended
Year Ended
March 31,
March 31,
2020
2019
2020
2019
Revenue
Solutions revenue
$
184,161
$
—
$
184,161
$
—
Postage revenue
12,631
—
12,631
—
Total revenue
196,792
—
196,792
—
Operating expenses
Sales, marketing, general and
administrative
37,389
971
39,893
1,159
Cost of operations (exclusive of
depreciation and amortization below)
71,435
—
71,435
—
Research and development
11,559
—
11,559
—
Customer postage
12,631
—
12,631
—
Depreciation and amortization
30,838
—
30,838
—
Accretion and changes in estimate with
related parties, net
(31,349
)
—
15,823
—
Tax Receivable Agreement charges
164,633
—
164,633
—
Goodwill impairment charge
561,164
—
561,164
—
Total operating expenses
858,300
971
907,976
1,159
Operating income (loss)
(661,508
)
(971
)
(711,184
)
(1,159
)
Non-operating (income) expense
Loss from Equity Method Investment in the
Joint Venture
276,216
4,682
380,713
70,487
(Gain) Loss on sale of interests in the
Joint Venture
—
—
—
(661
)
Management fee income
540
(190
)
(1,108
)
(378
)
Interest expense, net
16,248
—
16,652
—
(Gain) loss on other investments
55,768
—
(15,881
)
—
Other, net
(709
)
—
(709
)
—
Total non-operating (income)
expense
348,063
4,492
379,667
69,448
Income (loss) before income tax
provision (benefit)
(1,009,571
)
(5,463
)
(1,090,851
)
(70,607
)
Income tax provision (benefit)
(142,690
)
(1,931
)
(143,254
)
(18,595
)
Net income (loss)
$
(866,881
)
$
(3,532
)
$
(947,597
)
$
(52,012
)
Net income (loss) per share:
Basic and Diluted
$
(1.64
)
$
(0.05
)
$
(6.92
)
$
(0.69
)
Weighted average common shares
outstanding:
Basic and Diluted
186,342,936
75,474,675
136,996,624
75,513,130
Change Healthcare Inc.
Consolidated Balance Sheets (amounts in thousands, except
share and per share amounts)
March 31,
March 31,
2020
2019
Assets
Current assets:
Cash & cash equivalents
$
410,405
$
3,409
Accounts receivable, net of allowance for
doubtful accounts
740,105
—
Contract assets
132,704
—
Due from Joint Venture
—
373
Prepaid expenses and other current
assets
117,495
—
Income taxes receivable
472
1,781
Total current assets
1,401,181
5,563
Property and equipment, net
206,196
—
Goodwill
3,795,325
—
Intangible assets, net
4,365,806
—
Dividend receivable
—
81,264
Investment in the Joint Venture
—
1,211,996
Investment in business purchase option
146,500
—
Other noncurrent assets, net
192,372
—
Total assets
$
10,107,380
$
1,298,823
Liabilities
Current liabilities:
Accounts payable
$
68,169
$
—
Accrued expenses
390,294
176
Deferred revenues
302,313
—
Due to related parties, net
20,234
—
Current portion of long-term debt
278,779
—
Due to the Joint Venture
—
6,167
Total current liabilities
1,059,789
6,343
Long-term debt, excluding current
portion
4,710,294
—
Deferred income tax liabilities
615,904
159,993
Tax receivable agreement obligations to
related parties
177,826
—
Tax receivable agreement obligation
164,633
—
Other long-term liabilities
93,487
—
Total liabilities
6,821,933
166,336
Commitments and contingencies
Stockholders' Equity
Common Stock (par value, $.001),
9,000,000,000 and 252,800,000 shares authorized and 303,428,142 and
75,474,654 shares issued and outstanding at March 31, 2020 and
2019, respectively
303
75
Class X common stock (par value, $.001), 0
and 1 share authorized and no shares issued and outstanding at
March 2020 and 2019, respectively
—
—
Preferred stock (par value, $.001),
900,000,000 and 0 shares authorized and no shares issued and
outstanding at March 31, 2020 and 2019, respectively
—
—
Additional paid-in capital
4,222,580
1,153,509
Accumulated other comprehensive income
(loss)
(7,372
)
(3,256
)
Accumulated deficit
(930,064
)
(17,841
)
Total stockholders' equity
3,285,447
1,132,487
Total liabilities and stockholders'
equity
$
10,107,380
$
1,298,823
Change Healthcare Inc.
Consolidated Statements of Cash Flows (unaudited and
amounts in thousands)
Year Ended
Year Ended
March 31,
March 31,
2020
2019
Cash flows from operating
activities:
Net income (loss)
$
(947,597
)
$
(52,012
)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Loss from Equity Method Investment in the
Joint Venture
380,713
70,487
Depreciation and amortization
30,838
—
Accretion and changes in estimate, net
15,823
—
Tax receivable agreement charges
164,633
—
Equity compensation
1,701
—
Deferred income tax expense (benefit)
(143,822
)
(18,595
)
(Gain) Loss on Sale of Interests in the
Joint Venture
—
(661
)
(Gain) loss on other investments
(15,881
)
—
Goodwill impairment charge
561,164
—
Amortization of debt discount and issuance
costs
2,235
—
Other
(1,110
)
—
Changes in operating assets and
liabilities:
Accounts receivable
(21,211
)
—
Prepaid expenses and other
(7,528
)
—
Due from the Joint Venture
(2,516
)
(72
)
Income taxes receivable
1,309
14,047
Accounts payable
7,532
—
Accrued expenses and other liabilities
(195,207
)
(125
)
Deferred Revenue
11,304
—
Due to the Joint Venture
3,692
(9,661
)
Net cash provided by (used in)
operating activities
(153,928
)
3,408
Cash flows from investing
activities:
Proceeds from sale of interests in the
Joint Venture
—
6,503
Capitalized expenditures
(13,002
)
—
Acquisitions, net of cash acquired
330,667
—
Investment in debt and equity securities
of the Joint Venture
(278,875
)
—
Proceeds from investments in debt
securities of the Joint Venture
7,332
—
Investment in the Joint Venture
(610,784
)
—
Net cash provided by (used in)
investing activities
(564,662
)
6,503
Cash flows from financing
activities:
Proceeds from initial public offering, net
of issuance costs
608,679
—
Proceeds from issuance of equity component
of tangible equity units, net of issuance costs
232,929
—
Proceeds from issuance of debt component
of tangible equity units
47,367
—
Payment of loan costs
(1,421
)
—
Repayment of senior amortizing notes
(11,094
)
—
Proceeds from draw on revolver
250,000
—
Payments to acquire common stock
—
(6,502
)
Receipts (payments) on derivative
instruments
(890
)
—
Net cash provided by (used in)
financing activities
1,125,570
(6,502
)
Effect of exchange rate changes on cash
and cash equivalents
16
—
Net increase (decrease) in cash, cash
equivalents and restricted cash
406,996
3,409
Cash, cash equivalents and restricted cash
at beginning of period
3,409
—
Cash, cash equivalents and restricted
cash at end of period
$
410,405
$
3,409
Change Healthcare LLC
Consolidated Statements of Operations (unaudited and
amounts in thousands, except unit and per unit amounts)
Three Months Ended
Year Ended
March 31,
March 31,
2020
2019
2020
2019
Revenue:
Solutions revenue
$
786,589
$
778,427
$
3,074,894
$
3,043,111
Postage revenue
56,791
57,912
228,079
238,618
Total revenue
843,380
836,339
3,302,973
3,281,729
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
346,977
347,327
1,345,920
1,354,655
Research and development
53,257
42,637
205,035
202,241
Sales, marketing, general and
administrative
175,221
200,470
742,807
821,082
Customer postage
56,791
57,912
228,079
238,618
Depreciation and amortization
89,852
69,917
315,946
278,020
Accretion and changes in estimate with
related parties, net
4,627
6,039
14,966
19,329
Tax receivable agreement charge
164,633
—
164,633
—
Gain on sale of business
—
—
—
(111,435
)
Impairment of long-lived assets and
related costs
504
675
504
675
Total operating expenses
891,862
724,977
3,017,890
2,803,185
Operating income (loss)
(48,482
)
111,362
285,083
478,544
Non-operating (income) and
expense
Interest expense, net
64,084
83,591
283,745
325,431
Loss on extinguishment of debt
561
—
19,975
—
Contingent consideration
(1,900
)
91
(91
)
(809
)
Other, net
(3,749
)
(4,505
)
(14,630
)
(18,267
)
Total non-operating (income) and
expense
58,996
79,177
288,999
306,355
Income (loss) before income tax
provision (benefit)
(107,478
)
32,185
(3,916
)
172,189
Income tax provision (benefit)
1,112
(5,530
)
1,701
(4,481
)
Net income (loss)
$
(108,590
)
$
37,715
$
(5,617
)
$
176,670
Net income (loss) per common
unit:
Basic
$
(0.34
)
$
0.15
$
(0.02
)
$
0.70
Diluted
$
(0.34
)
$
0.15
$
(0.02
)
$
0.70
Weighted average common units
outstanding:
Basic
319,789,840
251,469,867
302,412,870
251,508,322
Diluted
319,789,840
253,409,601
302,412,870
253,377,778
(1)
Common units of Change Healthcare LLC are equivalent to the
weighted average outstanding common shares of Change Healthcare
Inc. and prior to the Merger membership interests of Change
Healthcare LLC held by subsidiaries of McKesson.
Change Healthcare LLC
Consolidated Balance Sheets (unaudited and amounts in
thousands)
March 31,
March 31,
2020
2019
Assets
Current assets:
Cash and cash equivalents
$
407,687
$
47,718
Restricted cash
—
1,176
Accounts receivable, net of allowance for
doubtful accounts
740,105
759,502
Contract assets
132,704
—
Prepaid expenses and other current
assets
144,051
172,067
Total current assets
1,424,547
980,463
Property and equipment, net
150,000
197,263
Goodwill
3,288,765
3,284,266
Intangible assets, net
1,192,776
1,320,161
Other noncurrent assets, net
574,078
421,985
Total assets
$
6,630,166
$
6,204,138
Liabilities and members' equity
Current liabilities:
Drafts and accounts payable
$
68,169
$
98,550
Accrued expenses
379,700
316,179
Deferred revenues
439,364
437,636
Due to related parties, net
20,779
34,629
Current portion of long-term debt
278,779
2,789
Total current liabilities
1,186,791
889,783
Long-term debt, excluding current
portion
4,762,832
5,787,150
Deferred income tax liabilities
109,144
106,099
Tax receivable agreement obligations to
related parties
207,395
212,698
Other long-term liabilities
267,584
113,194
Commitments and contingencies
Members' equity (deficit)
96,420
(904,786
)
Total liabilities and members'
equity
$
6,630,166
$
6,204,138
Change Healthcare LLC
Consolidated Statements of Cash Flows (unaudited and
amounts in thousands)
Year Ended
March 31,
2020
2019
Cash flows from operating
activities:
Net income (loss)
$
(5,617
)
$
176,670
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization
315,946
278,020
Amortization of capitalized software
developed for sale
14,415
14,673
Accretion and changes in estimate, net
14,966
19,329
Tax receivable agreement charge
164,633
—
Equity compensation
31,808
20,135
Deferred income tax expense (benefit)
(2,613
)
(3,774
)
Amortization of debt discount and issuance
costs
18,807
21,823
Contingent consideration
(91
)
(809
)
Gain on Sale of the Extended Care
Business
—
(111,435
)
Loss on extinguishment of debt
19,975
—
Impairment of long-lived assets and
related costs
504
675
Other
6,392
(2,340
)
Changes in operating assets and
liabilities:
Accounts receivable
(1,267
)
(61,556
)
Contract assets
21,390
—
Prepaid expenses and other
(29,375
)
(33,286
)
Accounts payable
(16,609
)
(2,111
)
Accrued expenses and other liabilities
10,929
12,048
Deferred Revenue
32,648
(40,196
)
Due to related party, net
(3,532
)
(185
)
Net cash provided by (used in)
operating activities
593,309
287,681
Cash flows from investing
activities:
Capitalized expenditures
(258,576
)
(246,986
)
Proceeds from Sale of the Extended Care
Business
—
159,871
Payments for acquisitions, net of cash
acquired
(18,994
)
—
Proceeds from sale of real estate
29,837
—
Investments in businesses
—
(15,500
)
Other
(2
)
(3,068
)
Net cash provided by (used in)
investing activities
(247,735
)
(105,683
)
Cash flows from financing
activities:
Proceeds from Change Healthcare Inc.
initial public offering
608,679
—
Proceeds from forward purchase contract
with Change Healthcare Inc.
232,929
—
Proceeds from debt issued to Change
Healthcare Inc.
47,367
—
Proceeds from Revolving Facility
250,000
—
Capital contribution from Members from
exercise of equity awards
6,256
205
(Advances to) and refunds from Members
5,531
2,636
Receipts (payments) on derivative
instruments
935
5,776
Payments on Term Loan Facility
(1,087,750
)
(153,000
)
Payments under tax receivable agreements
with related parties
(27,227
)
(25,096
)
Payments of third party initial public
offering and loan costs
(8,555
)
—
Payment of debt issued to Change
Healthcare Inc.
(7,332
)
—
Payments of deferred financing
obligations
(6,593
)
(3,432
)
Repurchase of equity awards
—
(7,425
)
Payment of working capital settlement to
related party
—
—
Payment of data sublicense obligation
—
—
Settlement of Legacy CHC equity awards
—
—
Other
—
(1,758
)
Net cash provided by (used in)
financing activities
14,240
(182,094
)
Effect of exchange rate changes on cash
and cash equivalents
(1,021
)
(1,021
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
358,793
(1,117
)
Cash, cash equivalents and restricted cash
at beginning of period
48,894
50,011
Cash, cash equivalents and restricted
cash at end of period
$
407,687
$
48,894
Change Healthcare LLC
Reconciliation of Net Income (Loss) to Adjusted EBITDA – Quarter
End (unaudited and amounts in thousands)
Three Months Ended March
31,
2020
2019
As Reported
Impacts
from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Net income (loss)
$
(108,590
)
$
554
$
(108,036
)
$
37,715
Net interest expense
64,084
—
64,084
83,591
Income tax provision (benefit)
1,112
4,342
5,454
(5,530
)
Depreciation and amortization
89,852
—
89,852
69,917
Amortization of capitalized software
developed for sale
3,959
—
3,959
3,793
EBITDA
50,417
4,896
55,313
189,486
Adjustments to EBITDA:
Equity compensation
6,893
—
6,893
3,757
Acquisition accounting adjustments
522
—
522
341
Acquisition and divestiture-related
costs
1,664
—
1,664
1,559
Integration and related costs
15,132
—
15,132
34,728
Strategic initiatives, duplicative and
transition costs
8,991
—
8,991
8,325
Severance costs
7,824
—
7,824
3,339
Costs related to recently issued
accounting standards
—
—
—
1,022
Accretion and changes in estimate with
related parties, net
4,627
—
4,627
6,039
Tax receivable agreement
164,633
164,633
—
Management fees and related costs
2,647
—
2,647
2,607
Impairment of long-lived assets and
other
1,347
—
1,347
463
Gain on sale of business
—
—
—
—
Contingent consideration
(1,900
)
—
(1,900
)
91
Loss on Extinguishment of Debt
560
—
560
—
Other non-routine, net
1,002
—
1,002
5,423
EBITDA Adjustments
213,942
—
213,942
67,694
Adjusted EBITDA
$
264,359
$
4,896
$
269,255
$
257,180
Change Healthcare LLC
Reconciliation of Net Income (Loss) to Adjusted EBITDA – Year
End (unaudited and amounts in thousands)
Year Ended March 31,
2020
2019
As
Reported
Impacts
from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Net income (loss)
$
(5,617
)
$
(22,633
)
$
(28,250
)
$
176,670
Net interest expense
283,745
—
283,745
325,431
Income tax provision (benefit)
1,701
1,989
3,690
(4,481
)
Depreciation and amortization
315,946
—
315,946
278,020
Amortization of capitalized software
developed for sale
14,415
—
14,415
14,673
EBITDA
610,190
(20,644
)
589,546
790,313
Adjustments to EBITDA:
Equity compensation
31,808
—
31,808
20,135
Acquisition accounting adjustments
1,889
—
1,889
3,532
Acquisition and divestiture-related
costs
4,217
—
4,217
13,076
Integration and related costs
82,108
—
82,108
114,533
Strategic initiatives, duplicative and
transition costs
23,325
—
23,325
27,339
Severance costs
22,113
—
22,113
17,666
Costs related to recently issued
accounting standards
—
—
—
8,265
Accretion and changes in estimate with
related parties, net
14,966
—
14,966
19,329
Tax receivable agreement
164,633
—
164,633
—
Management fees and related costs
10,355
—
10,355
10,490
Impairment of long-lived assets and
other
72
—
72
4,205
Gain on sale of business
—
—
—
(111,435
)
Contingent consideration
(91
)
—
(91
)
(809
)
Loss on Extinguishment of Debt
19,975
—
19,975
—
Other non-routine, net
10,172
—
10,172
18,359
EBITDA Adjustments
385,542
—
385,542
144,685
Adjusted EBITDA
$
995,732
$
(20,644
)
$
975,088
$
934,998
Change Healthcare LLC
Reconciliation of Net Income (Loss) to Adjusted Net Income
(Loss) (unaudited and amounts in thousands)
Three Months Ended March
31,
2020
2019
As Reported
Impacts
from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Net income (loss)
$
(108,590
)
$
554
$
(108,036
)
$
37,715
Amortization expense resulting from
acquisition method adjustments
35,251
—
35,251
36,273
EBITDA Adjustments
213,942
—
213,942
67,694
Tax effect of EBITDA Adjustments and
amortization expense
(7,417
)
—
(7,417
)
(15,878
)
Adjusted Net Income
$
133,186
$
554
$
133,740
$
125,804
Adjusted net income (loss) per diluted
unit
$
0.42
$
0.42
$
0.50
Year Ended March 31,
2020
2019
As Reported
Impacts
from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Net income (loss)
$
(5,617
)
$
(22,633
)
$
(28,250
)
$
176,670
Amortization expense resulting from
acquisition method adjustments
139,875
—
139,875
146,549
EBITDA Adjustments
385,542
—
385,542
144,685
Tax effect of EBITDA Adjustments and
amortization expense
(52,168
)
—
(52,168
)
(57,953
)
Adjusted Net Income
$
467,632
$
(22,633
)
$
444,999
$
409,951
Adjusted net income (loss) per diluted
unit (1)
$
1.55
$
1.47
$
1.62
(1)
Common units of Change Healthcare LLC are equivalent to the
weighted average outstanding common shares of Change Healthcare
Inc. and prior to the Merger membership interests of Change
Healthcare LLC held by subsidiaries of McKesson.
Change Healthcare LLC Segment
Results (unaudited and amounts in thousands)
Three Months Ended March
31,
Year Ended March 31,
2020
2019
2020
2019
As
Reported
Impacts
from
Adoption
Without
Adoption
(ASC 605)
As
Reported
(ASC 605)
As
Reported
Impacts
from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Segment revenue
Software and Analytics
$
418,658
$
12,341
$
430,999
$
419,125
$
1,612,799
$
2,401
$
1,615,200
$
1,579,023
Network Solutions
152,163
—
152,163
140,093
588,749
—
588,749
556,525
Technology-Enabled Services
242,444
(1,692
)
240,752
243,995
978,684
665
979,349
1,005,377
Corporate and Eliminations
30,115
—
30,115
33,126
122,741
—
122,741
140,804
Net revenue
$
843,380
$
10,649
$
854,029
$
836,339
$
3,302,973
$
3,066
$
3,306,039
$
3,281,729
Segment Adjusted EBITDA
Software and Analytics
$
172,717
$
8,574
$
181,291
$
177,454
$
663,016
$
(14,287
)
$
648,729
$
610,313
Network Solutions
89,323
(496
)
88,827
83,439
353,486
(1,899
)
351,587
337,360
Technology-Enabled Services
47,141
(2,770
)
44,371
42,695
175,116
(2,998
)
172,118
175,953
Corporate and Eliminations
(44,821
)
(441
)
(45,262
)
(46,408
)
(195,886
)
(1,460
)
(197,346
)
(188,628
)
Total Adjusted EBITDA
$
264,360
$
4,867
$
269,227
$
257,180
$
995,732
$
(20,644
)
$
975,088
$
934,998
(1)
Revenue for the Corporate and Eliminations segment includes
postage revenue of $56,791 and $57,912 for the three months ended
March 31, 2020 and 2019, respectively, and $228,079 and $238,618
for the years ended March 31, 2020 and 2019, respectively.
Change Healthcare LLC
Reconciliation of Cash Provided by (Used in) Operating
Activities to Free Cash Flow and Adjusted Free Cash Flow
(unaudited and amounts in thousands)
Year Ended
March 31,
2020
2019
Cash provided by (used in) operating
activities (1)
$
593,309
$
287,681
Capital expenditures
(258,576
)
(246,986
)
Free Cash Flow
334,733
40,695
Adjustments to Free Cash Flow
(2):
Integration and related costs
82,108
114,533
Strategic initiatives, duplicative and
transition costs
23,325
27,339
Severance costs
22,113
17,666
Costs related to recently issued
accounting standards
—
8,265
Integration capital expenditures
19,254
83,752
Adjusted Free Cash Flow
$
481,533
$
292,250
(1)
Includes cash provided by pass thru funds of $21.7 million and
$3.0 million for the years ended March 31, 2020 and 2019,
respectively.
(2)
All operating costs and integrational
capital expenditures are presented on an as incurred basis.
Change Healthcare LLC
Consolidated Statements of Operations – Quarter End
Reconciliation of the Impacts from the Adoption of the New
Revenue Recognition Standard (unaudited and amounts in
thousands, except unit and per unit amounts)
Three Months Ended March
31,
2020
2019
As Reported
Impacts from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Revenue:
Solutions revenue
$
786,589
$
10,649
$
797,238
$
778,427
Postage revenue
56,791
—
56,791
57,912
Total revenue
843,380
10,649
854,029
836,339
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
346,978
239
347,217
347,327
Research and development
53,257
—
53,171
42,637
Sales, marketing, general and
administrative
175,221
5,514
180,821
200,470
Customer postage
56,791
—
56,791
57,912
Depreciation and amortization
89,851
—
89,851
69,917
Accretion and changes in estimate with
related parties, net
4,627
—
4,627
6,039
Tax receivable agreement charge
164,633
—
164,633
—
Gain on sale of business
—
—
—
—
Impairment of long-lived assets and
related costs
504
—
504
675
Total operating expenses
891,862
5,753
897,615
724,977
Operating income (loss)
(48,482
)
4,896
(43,586
)
111,362
Non-operating (income) and
expense
Interest expense, net
64,084
—
64,084
83,591
Loss on extinguishment of debt
561
—
561
—
Contingent consideration
(1,900
)
—
(1,900
)
91
Other, net
(3,749
)
—
(3,749
)
(4,505
)
Total non-operating (income) and
expense
58,996
—
58,996
79,177
Income (loss) before income tax
provision (benefit)
(107,478
)
4,896
(102,582
)
32,185
Income tax provision (benefit)
1,112
4,342
5,454
(5,530
)
Net income (loss)
$
(108,590
)
$
554
$
(108,036
)
$
37,715
Net income (loss) per common
unit:
Basic
$
(0.34
)
$
0.00
$
(0.34
)
$
0.15
Diluted
$
(0.34
)
$
0.00
$
(0.34
)
$
0.15
Weighted average common units
outstanding:
Basic
319,787,840
319,787,840
319,787,840
251,469,867
Diluted
319,787,840
319,787,840
319,787,840
253,409,601
Change Healthcare LLC
Consolidated Statements of Operations – Year End
Reconciliation of the Impacts from the Adoption of the New
Revenue Recognition Standard (unaudited and amounts in
thousands, except unit and per unit amounts)
Year Ended March 31,
2020
2019
As Reported
Impacts from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Revenue:
Solutions revenue
$
3,074,894
$
3,066
$
3,077,960
$
3,043,111
Postage revenue
228,079
—
228,079
238,618
Total revenue
3,302,973
3,066
3,306,039
3,281,729
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
1,345,920
3,282
1,349,202
1,354,655
Research and development
205,035
—
205,035
202,241
Sales, marketing, general and
administrative
742,807
20,428
763,235
821,082
Customer postage
228,079
—
228,079
238,618
Depreciation and amortization
315,946
—
315,946
278,020
Accretion and changes in estimate with
related parties, net
14,966
—
14,966
19,329
Tax receivable agreement charge
164,633
—
164,633
—
Gain on sale of business
—
—
—
(111,435
)
Impairment of long-lived assets and
related costs
504
—
504
675
Total operating expenses
3,017,890
23,710
3,041,600
2,803,185
Operating income (loss)
285,083
(20,644
)
264,439
478,544
Non-operating (income) and
expense
Interest expense, net
283,745
—
283,745
325,431
Loss on extinguishment of debt
19,975
—
19,975
—
Contingent consideration
(91
)
—
(91
)
(809
)
Other, net
(14,630
)
—
(14,630
)
(18,267
)
Total non-operating (income) and
expense
288,999
—
288,999
306,355
Income (loss) before income tax
provision (benefit)
(3,916
)
(20,644
)
(24,560
)
172,189
Income tax provision (benefit)
1,701
1,989
3,690
(4,481
)
Net income (loss)
$
(5,617
)
$
(22,633
)
$
(28,250
)
$
176,670
Net income (loss) per common
unit:
Basic
$
(0.02
)
$
(0.07
)
$
(0.09
)
$
0.70
Diluted
$
(0.02
)
$
(0.07
)
$
(0.09
)
$
0.70
Weighted average common units
outstanding:
Basic
302,412,870
302,412,870
302,412,870
251,508,322
Diluted
302,412,870
302,412,870
302,412,870
253,377,778
(1)
Common units of Change Healthcare LLC are equivalent to the
weighted average outstanding common shares of Change Healthcare
Inc. and prior to the Merger membership interests of Change
Healthcare LLC held by subsidiaries of McKesson.
Change Healthcare LLC
Consolidated Balance Sheets Reconciliation of the Impacts
from the Adoption of the New Revenue Recognition Standard
(unaudited and amounts in thousands)
March 31, 2020
March 31, 2019
As Reported
Impacts
from
Adoption
Without
Adoption
(ASC 605)
As Reported
(ASC 605)
Assets
Current assets:
Cash and cash equivalents
$
407,687
$
—
$
407,687
$
47,718
Restricted cash
—
—
—
1,176
Accounts receivable, net of allowance for
doubtful accounts
740,105
21,822
761,927
759,502
Contract assets
132,704
(132,704
)
—
—
Prepaid expenses and other current
assets
144,051
19,616
163,667
172,067
Total current assets
1,424,547
(91,266
)
1,333,281
980,463
Property and equipment, net
150,000
—
150,000
197,263
Goodwill
3,288,765
—
3,288,765
3,284,266
Intangible assets, net
1,192,776
—
1,192,776
1,320,161
Other noncurrent assets, net
574,078
(52,889
)
521,189
421,985
Total assets
$
6,630,166
$
(144,155
)
$
6,486,011
$
6,204,138
Liabilities and members' equity
(deficit)
Current liabilities:
Drafts and accounts payable
$
68,169
$
—
$
68,169
$
98,550
Accrued expenses
379,700
—
379,700
316,179
Deferred revenues
439,364
38,043
477,407
437,636
Due to related parties, net
20,779
—
20,779
34,629
Current portion of long-term debt
278,779
—
278,779
2,789
Total current liabilities
1,186,791
38,043
1,224,834
889,783
Long-term debt, excluding current
portion
4,762,832
—
4,762,832
5,787,150
Deferred income tax liabilities
109,144
—
109,144
106,099
Tax receivable agreement obligations to
related parties
207,395
—
207,395
212,698
Other long-term liabilities
267,584
438
268,022
113,194
Commitments and contingencies
Members' equity (deficit)
96,420
(182,636
)
(86,216
)
(904,786
)
Total liabilities and members' equity
(deficit)
$
6,630,166
$
(144,155
)
$
6,486,011
$
6,204,138
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200603005883/en/
Evan Smith, CFA Investor Relations 404-338-2225
Evan.Smith@changehealthcare.com
Kerry Kelly External Communications 339-236-2756
Kerry.Kelly@changehealthcare.com
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