Change Healthcare Inc. (Nasdaq: CHNG) (the “Company” or “Change
Healthcare”), a leading independent healthcare technology company,
today reported financial results for the second quarter of fiscal
year 2021 ended Sept. 30, 2020.
“Our second quarter results reflect continued improvement in
both healthcare utilization in the U.S. and underlying momentum
across our business. The strong support of our customers in
expanding their business with us, as well as the penetration of new
solutions with both existing and new customers, contributed to our
strong results,” said Neil de Crescenzo, president and chief
executive officer. “The pandemic has underscored the need for
greater efficiency, improved access and enhanced consumer
experience across the healthcare continuum. Change Healthcare
remains committed to continuing to deliver value to our customers
and shareholders by leveraging the strength of our platform, which
has the scale, data intelligence, connectivity, interoperability,
and user experience capabilities to accelerate innovation and
performance.”
Fiscal 2021 Second Quarter Highlights:
Financial Summary
- Total revenue of $755.9 million, including solutions revenue of
$705.9 million
- Net loss of $42.6 million, resulting in net loss of $0.13 per
diluted share
- Adjusted net income of $103.5 million, resulting in adjusted
net income of $0.32 per diluted share
- Adjusted EBITDA of $231.8 million
Recent Business Highlights
- Announced a new consumer engagement and revenue cycle
management solution for pharmacies that makes it easier for
consumers to get COVID-19 testing in their local pharmacies.
Pharmacies can now electronically bill for COVID-19 tests just as
easily as they bill for prescriptions and flu shots.
- Integrated our SmartPay™ Consumer Payment solution with Epic
MyChart and encrypted device integration within Hyperspace,
allowing providers to offer their patients a wide range of payment
options––letting them easily pay their healthcare bills how and
when they want, with Change Healthcare providing phone and mail-in
payment channels to give providers a multi-channel payment
solution.
- Acquired Nucleus.io, a leader in the development of advanced,
fully enabled, cloud-native imaging and workflow technology
including its market-leading medical image exchange solution
currently utilized by over 7,500 organizations across the United
States.
- Acquired Prometheus Analytics®, the industry-standard for
value-based care reimbursement models based on medical episodes of
care. Prometheus is used by payer-provider collaborations
nationwide, uniquely providing a proven and fair blueprint for
value-based payments.
- Announced innovative new Artificial Intelligence models,
trained by expert physicians, which extract meaningful diagnostic
information from text in EHRs. The first application of this
technology is within our InterQual AutoReview™ solution, which
automates medical necessity reviews using real-time data from
EHRs.
Impact of McKesson Exit on Comparability of Results
On March 10, 2020, Change Healthcare Inc. acquired the interest
in Change Healthcare LLC (“the Joint Venture”) previously held by
McKesson. The transaction resulted in Change Healthcare Inc.
acquiring control of the Joint Venture, which was accounted for as
a business combination and resulted in a new basis of accounting,
and all of the business activities of the Joint Venture are now
reported by the Company. Change Healthcare Inc. financial
statements for periods prior to the acquisition were primarily
limited to the equity method investment in the Joint Venture, and
therefore did not reflect revenue, adjusted EBITDA, and other key
measures. As a result, Change Healthcare does not consider
comparison of the current operating results to the reported results
of Change Healthcare Inc. for the same period in the prior year to
be meaningful, and instead will compare our current quarter results
to the prior quarter results of the Joint Venture, which have been
recast to reflect the current segment structure, including the
allocation of all corporate costs to the business units. This press
release includes supplemental information for the recast results of
the Joint Venture for the three and six months ended September 30,
2019. The recast results for all quarters in fiscal year 2019 and
fiscal year 2020 are available in the appendix to the earnings
presentation and will be included as an exhibit to Change
Healthcare Inc.’s Form 10-Q.
Financial Results
- Solutions revenue was $705.9 million for the current period,
inclusive of the impact of the fair value adjustment to deferred
revenue resulting from the McKesson exit, which reduced revenue
recognized in the quarter by $38.9 million. Total revenue, which
includes postage revenue, was $755.9 million. For the second
quarter of fiscal 2020, the Joint Venture reported $738.7 million
of solutions revenue and $795.8 million of total revenue. Solutions
revenue for the current period, including the $15.5 million net
favorable impact of acquisitions and divestitures, was negatively
impacted by the COVID-19 pandemic. Partially offsetting this impact
were new sales volumes across all three segments.
- Net loss was $42.6 million, resulting in net loss of $0.13 per
diluted share. For the second quarter of fiscal 2020, the Joint
Venture reported net loss of $0.1 million or $0.00 per diluted
unit. Net loss for the current period was negatively impacted by
the COVID-19 pandemic, partially offset by new sales volumes,
productivity improvements and cost initiatives.
- Adjusted net income was $103.5 million, resulting in adjusted
net income of $0.32 per diluted share. For the second quarter of
fiscal 2020, the Joint Venture reported adjusted net income of
$86.6 million or $0.27 per diluted unit. Net loss per diluted share
and adjusted net income per diluted share for the current period is
based on 321 million shares compared to 324 million units in the
prior year period.
- Adjusted EBITDA was $231.8 million for the current period. For
the second quarter of fiscal 2020, the Joint Venture reported
adjusted EBITDA of $217.7 million. The results in the current
quarter reflect approximately $15 million in lower SMG&A
expenses primarily related to a one-time change in benefits policy,
reduced healthcare benefits as a result of lower employee
healthcare utilization, and timing related to deferred hiring as a
result of COVID-19. The majority of these impacts are expected to
normalize in the 3rd fiscal quarter.
Cash Flow and Balance Sheet Highlights
Net cash provided by operating activities was $296.6 million,
free cash flow was $170.1 million, and adjusted free cash flow was
$210.7 million, in each case, for the six months ended September
30, 2020. For the six months ended September 30, 2019, the Joint
Venture reported net cash provided by operating activities, free
cash flow, and adjusted free cash flow of $223.9 million, $94.0
million, and $173.9 million, respectively.
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 on hand decreased by $1.4
million in the six months ended September 30, 2020, reducing free
cash flow for the period by that amount, and increased by $12.9
million for the Joint Venture for the six months ended September
30, 2019. The increase in cash flow from operations, free cash
flow, and adjusted free cash flow in the current period primarily
resulted from improved working capital driven by strong
collections.
The Company ended the quarter with approximately $167.5 million
of cash and cash equivalents, and approximately $5,014.2 million of
total debt. During the current period, the Company repaid $50.0
million on its Term Loan Facility. Subsequent to the end of the
quarter, the Company repaid an additional $75.0 million on its Term
Loan Facility.
Third Quarter Fiscal Year 2021 Guidance
Due to uncertainty around the duration of the COVID-19 pandemic,
the Company will only be providing quarterly guidance.
For the third quarter of fiscal year 2021, the Company expects
solutions revenue to be in the range of $725 million to $745
million, which includes a reduction of $24 million in revenue
resulting from an adjustment of deferred revenue to fair value with
no impact on adjusted EBITDA, adjusted EBITDA to be in the range of
$215 million to $235 million, and adjusted EPS to be in the range
of $0.28 - $0.33 per share.
The third quarter fiscal year 2021 outlook reflects the
Company’s current expectation that the impact from the COVID-19
pandemic will continue to be gradually reduced throughout the
remainder of the fiscal year as healthcare utilization trends
improve and is also subject to risk factors such as those described
in the Forward-Looking Statements below.
Supplemental Forward-Looking Expectations and Assumptions for
Fiscal 2021
While the Company is not providing guidance for the full fiscal
year 2021 due to the uncertainty of COVID-19, the Company has
determined to provide the following supplemental expectations and
assumptions that it has made regarding its fiscal year 2021 results
to provide further transparency to investors into the Company’s
current beliefs regarding fiscal year 2021, all of which are
subject to change:
- Expect free cash flow of $250 million to $300 million.
- Capital expenditures of approximately 7.5% - 8.0% of solutions
revenue excluding the impact of fair value adjustments and
excluding integration related capital expenditures.
- Integration related operating expense for the fiscal year of
approximately $80 million and integration related capital
expenditures of approximately $20 million.
- Interest expense in the range of $245 million to $255
million.
- Adjusted effective tax rate of approximately 25%.
- Basic and fully diluted shares outstanding of 321
million.1
A reconciliation of the forward-looking third quarter fiscal
year 2021 adjusted EBITDA outlook to net income, adjusted effective
tax rate outlook for our effective tax rate outlook and free cash
flow outlook to cash provided by (used in) operating activities
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 Diluted shares outstanding includes the
impact of the minimum issuable shares attributable to the TEUs and
excludes the effect of potential shares that would be antidilutive
to Diluted EPS, based on expected GAAP Net Income (Loss) for
FY2021.
Conference Call and Webcast Information
Change Healthcare will host a conference call on Thursday, Nov.
5, 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: 6559165; 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 second quarter
fiscal year 2022 earnings call, at the aforementioned URL. In
addition, a digital audio playback will be available until 11:00
a.m. ET on Thursday, Nov. 12, 2020, by dialing 1-(855) 859-2056 or
1-(404) 537-3406 and referencing confirmation 6559165.
About Change Healthcare
Change Healthcare (Nasdaq: CHNG) is a leading independent
healthcare technology company, focused on insights, innovation, and
accelerating the transformation of the U.S. healthcare system
through the power of the Change Healthcare Platform. We provide
data and analytics-driven solutions to improve clinical, financial,
administrative, and patient engagement outcomes in the U.S.
healthcare system. 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
presentation 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 third quarter fiscal year 2021
guidance, the supplemental information and assumptions regarding
fiscal year 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 our Annual
Report on Form 10-K for the fiscal 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.
Consolidated Statements of
Operations
Quarter to Date
(unaudited and amounts in
thousands, except share and per share amounts)
Three Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
Change Healthcare LLC
Revenue:
Solutions revenue
$
705,913
$
—
$
738,701
Postage revenue
50,023
—
57,110
Total revenue
755,936
—
795,811
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
326,653
—
331,234
Research and development
54,052
—
51,783
Sales, marketing, general and
administrative
171,606
1,138
190,039
Customer postage
50,023
—
57,110
Depreciation and amortization
146,869
—
77,448
Accretion and changes in estimate with
related parties, net
3,564
48,363
3,214
Gain on sale of businesses
(176
)
—
—
Total operating expenses
752,591
49,501
710,828
Operating income (loss)
3,345
(49,501
)
84,983
Non-operating (income) and
expense
Interest expense, net
61,627
—
69,901
Contingent consideration
(550
)
—
1,700
Loss on extinguishment of debt
1,489
—
16,900
Loss from Equity Method Investment in the
Joint Venture
—
56,179
—
(Gain) loss on forward purchase
contract
—
2,435
—
Other, net
(3,211
)
(560
)
(4,386
)
Total non-operating (income) and
expense
59,355
58,054
84,115
Income (loss) before income tax
provision (benefit)
(56,010
)
(107,555
)
868
Income tax provision (benefit)
(13,388
)
(13,620
)
998
Net income (loss)
$
(42,622
)
$
(93,935
)
$
(130
)
Net income (loss) per common
share:
Basic and Diluted
$
(0.13
)
$
(0.66
)
$
—
Weighted average common shares
outstanding: (1)
Basic and Diluted
320,638,116
142,223,836
318,219,028
(1)
Prior to the McKesson exit, common units
of Change Healthcare LLC were equivalent to the number of
outstanding common shares of Change Healthcare Inc. and membership
interests of Change Healthcare LLC held by subsidiaries of
McKesson.
Consolidated Statements of
Operations
Year to Date
(unaudited and amounts in
thousands, except share and per share amounts)
Six Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
Change Healthcare LLC
Revenue:
Solutions revenue
$
1,354,325
$
—
$
1,535,773
Postage revenue
95,795
—
115,594
Total revenue
1,450,120
—
1,651,367
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
645,195
—
658,181
Research and development
109,787
—
101,122
Sales, marketing, general and
administrative
337,080
1,389
383,312
Customer postage
95,795
—
115,594
Depreciation and amortization
285,409
—
148,764
Accretion and changes in estimate with
related parties, net
9,459
48,363
7,094
Gain on sale of businesses
(28,270
)
—
—
Total operating expenses
1,454,455
49,752
1,414,067
Operating income (loss)
(4,335
)
(49,752
)
237,300
Non-operating (income) and
expense
Interest expense, net
124,294
—
153,307
Contingent consideration
(3,000
)
—
909
Loss on extinguishment of debt
1,489
—
16,900
Loss from Equity Method Investment in the
Joint Venture
—
95,732
—
(Gain) loss on forward purchase
contract
—
2,435
—
Other, net
1,047
(664
)
(8,164
)
Total non-operating (income) and
expense
123,830
97,503
162,952
Income (loss) before income tax
provision (benefit)
(128,165
)
(147,255
)
74,348
Income tax provision (benefit)
(26,849
)
(15,804
)
2,563
Net income (loss)
$
(101,316
)
$
(131,451
)
$
71,785
Net income (loss) per common
share:
Basic
$
(0.32
)
$
(1.20
)
$
0.25
Diluted
$
(0.32
)
$
(1.20
)
$
0.25
Weighted average common shares
outstanding: (1)
Basic
320,347,128
109,111,853
285,107,046
Diluted
320,347,128
109,111,853
288,809,850
(1)
Prior to the McKesson exit, common units
of Change Healthcare LLC were equivalent to the number of
outstanding common shares of Change Healthcare Inc. and membership
interests of Change Healthcare LLC held by subsidiaries of
McKesson.
Consolidated Balance
Sheets
(unaudited and amounts in
thousands, except share and per share amounts)
September 30, 2020
March 31, 2020
Assets
Current assets:
Cash and cash equivalents
$
167,477
$
410,405
Accounts receivable, net
626,991
740,105
Contract assets, net
135,388
132,704
Prepaid expenses and other current
assets
125,996
117,967
Total current assets
1,055,852
1,401,181
Property and equipment, net
193,904
206,196
Operating lease right-of-use assets,
net
106,790
—
Goodwill
4,126,481
3,795,325
Intangible assets, net
4,418,079
4,365,806
Investment in business purchase option
—
146,500
Other noncurrent assets, net
309,107
192,372
Total assets
$
10,210,213
$
10,107,380
Liabilities
Current liabilities:
Accounts payable
$
47,351
$
68,169
Accrued expenses
452,974
390,294
Deferred revenue
319,115
302,313
Due to related parties, net
11,606
20,234
Current portion of long-term debt
30,488
278,779
Current portion of operating lease
liabilities
32,060
—
Total current liabilities
893,594
1,059,789
Long-term debt, excluding current
portion
4,983,737
4,710,294
Long-term operating lease liabilities
88,239
—
Deferred income tax liabilities
627,919
615,904
Tax receivable agreement obligations to
related parties
98,658
177,826
Tax receivable agreement obligations
232,009
164,633
Other long-term liabilities
76,807
93,487
Total liabilities
7,000,963
6,821,933
Commitments and contingencies
Stockholders' Equity
Common Stock (par value, $.001),
9,000,000,000 and 9,000,000,000 shares authorized and 304,426,569
and 303,428,142 shares issued and outstanding at September 30, 2020
and March 31, 2020, respectively
304
303
Preferred stock (par value, $.001),
900,000,000 and 900,000,000 shares authorized and no shares issued
and outstanding at September 30, 2020 and March 31, 2020,
respectively
—
—
Additional paid-in capital
4,242,721
4,222,580
Accumulated other comprehensive income
(loss)
(1,978
)
(7,372
)
Accumulated deficit
(1,031,797
)
(930,064
)
Total stockholders' equity
3,209,250
3,285,447
Total liabilities and stockholders'
equity
$
10,210,213
$
10,107,380
Consolidated Statements of
Cash Flows
(unaudited and amounts in
thousands)
Six Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
Change Healthcare LLC
Cash flows from operating
activities:
Net income (loss)
$
(101,316
)
$
(131,451
)
$
71,785
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Loss from Equity Method Investment in the
Joint Venture
—
95,732
—
Depreciation and amortization
285,409
—
148,764
Amortization of capitalized software
developed for sale
89
—
6,698
Accretion and changes in estimate, net
11,188
—
7,094
Equity compensation
23,914
—
15,207
Deferred income tax expense (benefit)
(28,590
)
(15,806
)
1,473
Amortization of debt discount and issuance
costs
16,551
212
9,941
Contingent consideration
(3,000
)
—
909
Gain on sale of businesses
(28,270
)
—
—
Loss on extinguishment of debt
1,489
—
16,900
(Gain) loss on forward purchase
contract
—
2,435
—
Non-cash lease expense
14,629
—
—
Other, net
7,530
—
(111
)
Changes in operating assets and
liabilities:
Accounts receivable, net
114,052
—
54,240
Contract assets, net
(3,786
)
—
12,688
Prepaid expenses and other assets
(48,382
)
(2,136
)
(8,583
)
Accounts payable
(28,666
)
—
(15,209
)
Accrued expenses and other liabilities
27,687
48,640
(16,311
)
Deferred revenue
36,029
—
(69,471
)
Due to the Joint Venture, net
—
2,374
—
Due to related party, net
—
—
(12,150
)
Net cash provided by (used in)
operating activities
296,557
—
223,864
Cash flows from investing
activities:
Capitalized expenditures
(126,432
)
—
(129,847
)
Acquisitions, net of cash acquired
(439,483
)
—
—
Proceeds from sale of businesses
54,369
—
—
Investments in businesses
—
—
(18,946
)
Investment in the Joint Venture
—
(609,818
)
—
Investment in debt and equity securities
of the Joint Venture
—
(278,875
)
—
Other, net
1,100
3,621
—
Net cash provided by (used in)
investing activities
(510,446
)
(885,072
)
(148,793
)
Cash flows from financing
activities:
Payments on Revolving Facility
(250,000
)
—
—
Payments on Term Loan Facility
(50,000
)
—
(902,750
)
Proceeds from issuance of Senior Notes
325,000
—
—
Payments under tax receivable agreements
with related parties
(20,691
)
—
(27,227
)
Receipts (payments) on derivative
instruments
(14,810
)
—
3,109
Employee tax withholding on vesting of
equity compensation awards
(3,131
)
—
—
Payments on deferred financing
obligations
(6,547
)
—
—
Payment of senior amortizing notes
(7,680
)
(3,621
)
—
Payment of debt issued to Change
Healthcare Inc.
—
—
(3,621
)
Proceeds from exercise of equity
awards
2,584
1,139
—
Capital contribution from Members from
exercise of equity compensation awards
—
—
1,139
Proceeds from initial public offering, net
of issuance costs
—
608,679
—
Proceeds from Change Healthcare Inc.
initial public offering
—
—
608,679
Proceeds from issuance of debt component
of tangible equity units
—
47,367
—
Proceeds from debt issued to Change
Healthcare Inc.
—
—
47,367
Proceeds from issuance of equity component
of tangible equity units, net of issuance costs
—
232,929
—
Proceeds from forward purchase contract
with Change Healthcare Inc.
—
—
232,929
Other, net
(6,454
)
(1,421
)
(10,897
)
Net cash provided by (used in)
financing activities
(31,729
)
885,072
(51,272
)
Effect of exchange rate changes on cash
and cash equivalents
2,690
—
299
Net increase (decrease) in cash and
cash equivalents
(242,928
)
—
24,098
Cash and cash equivalents at beginning of
period
410,405
3,409
48,894
Cash and cash equivalents at end of
period
$
167,477
$
3,409
$
72,992
Reconciliation of Net Income
(Loss) to Adjusted EBITDA
Quarter to Date
(unaudited and amounts in
thousands)
Three Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
(1)
Change Healthcare LLC
Net income (loss)
$
(42,622
)
$
(93,935
)
$
(130
)
Income tax provision (benefit)
(13,388
)
(13,620
)
998
Income (loss) before income tax provision
(benefit)
(56,010
)
(107,555
)
868
Amortization of capitalized software
developed for sale
12
3,249
Depreciation and amortization
146,869
77,448
Interest expense, net
61,627
69,901
Equity compensation
14,331
9,345
Acquisition accounting adjustments
34,686
553
Acquisition and divestiture-related
costs
2,337
414
Integration and related costs
7,536
19,781
Strategic initiatives, duplicative and
transition costs
3,765
6,120
Severance costs
3,172
2,929
Accretion and changes in estimate, net
5,293
3,214
Management fees and related costs
—
2,413
Impairment of long-lived assets and
other
7,447
—
Gain on sale of business
(176
)
—
Contingent consideration
(550
)
1,700
Loss on extinguishment of debt
1,489
16,900
Other non-routine, net
13
2,858
Adjusted EBITDA
$
231,841
$
217,693
(1)
Prior to the McKesson exit, Change
Healthcare Inc. did not utilize adjusted EBITDA as a key
performance metric, therefore we have not presented a
reconciliation to adjusted EBITDA for the three months ended
September 30, 2019.
Reconciliation of Net Income
(Loss) to Adjusted EBITDA
Year to Date
(unaudited and amounts in
thousands)
Six Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
(1)
Change Healthcare LLC
Net income (loss)
$
(101,316
)
$
(131,451
)
$
71,785
Income tax provision (benefit)
(26,849
)
(15,804
)
2,563
Income (loss) before income tax provision
(benefit)
(128,165
)
$
(147,255
)
74,348
Amortization of capitalized software
developed for sale
89
6,698
Depreciation and amortization
285,409
148,764
Interest expense, net
124,294
153,307
Equity compensation
23,914
15,207
Acquisition accounting adjustments
83,225
927
Acquisition and divestiture-related
costs
7,458
1,073
Integration and related costs
17,894
45,507
Strategic initiatives, duplicative and
transition costs
8,845
9,688
Severance costs
7,876
10,099
Accretion and changes in estimate, net
11,188
7,094
Management fees and related costs
—
5,060
Impairment of long-lived assets and
other
13,760
(840
)
Gain on sale of business
(28,270
)
—
Contingent consideration
(3,000
)
909
Loss on extinguishment of debt
1,489
16,900
Other non-routine, net
2,690
4,008
Adjusted EBITDA
$
428,696
$
498,749
(1)
Prior to the McKesson exit, Change
Healthcare Inc. did not utilize adjusted EBITDA as a key
performance metric, therefore we have not presented a
reconciliation to adjusted EBITDA for the six months ended
September 30, 2019.
Reconciliation of Net Income
(Loss) to Adjusted Net Income (Loss)
(unaudited and amounts in
thousands, except share and per share amounts)
Three Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
(1)
Change Healthcare LLC
Net income (loss)
$
(42,622
)
$
(93,935
)
$
(130
)
Amortization expense resulting from
acquisition method adjustments
115,873
35,054
EBITDA adjustments
79,343
66,227
Tax effect of EBITDA adjustments and
amortization expense
(49,107
)
(14,527
)
Adjusted net income (loss)
$
103,487
$
86,624
Adjusted net income (loss) per diluted
share (2)
$
0.32
$
0.27
Six Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
(1)
Change Healthcare LLC
Net income (loss)
$
(101,316
)
$
(131,451
)
$
71,785
Amortization expense resulting from
acquisition method adjustments
228,898
69,702
EBITDA adjustments
147,069
115,632
Tax effect of EBITDA adjustments and
amortization expense
(89,966
)
(28,991
)
Adjusted net income (loss)
$
184,685
$
228,128
Adjusted net income (loss) per diluted
share (2)
$
0.58
$
0.79
(1)
Prior to the McKesson exit, Change
Healthcare Inc. did not utilize adjusted net income (loss) as a key
performance metric, therefore we have not presented a
reconciliation to adjusted net income (loss) for the three and six
months ended September 30, 2019.
(2)
Prior to the McKesson exit, Common units
of Change Healthcare LLC were equivalent to the number of
outstanding common shares of Change Healthcare Inc. and membership
interests of Change Healthcare LLC held by subsidiaries of
McKesson.
Segment Results
(unaudited and amounts in
thousands)
Three Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
(1)
Change Healthcare LLC
(2)
Segment revenue
Software and Analytics
$
354,860
N/A
$
372,990
Network Solutions
184,095
N/A
144,276
Technology-Enabled Services
231,817
N/A
247,341
Postage and Eliminations (3)
24,073
N/A
31,204
Purchase Accounting Adjustment (4)
(38,909
)
N/A
—
Net revenue
$
755,936
N/A
$
795,811
Segment adjusted EBITDA
Software and Analytics
$
117,393
N/A
$
110,993
Network Solutions
94,508
N/A
79,526
Technology-Enabled Services
19,940
N/A
27,174
Postage and Eliminations
—
N/A
—
Total adjusted EBITDA
$
231,841
N/A
$
217,693
Six Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
(1)
Change Healthcare LLC
(2)
Segment revenue
Software and Analytics
$
746,449
N/A
$
806,811
Network Solutions
326,921
N/A
285,888
Technology-Enabled Services
419,523
N/A
494,854
Postage and Eliminations (3)
51,136
N/A
63,814
Purchase Accounting Adjustment (4)
(93,909
)
N/A
—
Net revenue
$
1,450,120
N/A
$
1,651,367
Segment adjusted EBITDA
Software and Analytics
$
261,325
N/A
$
287,494
Network Solutions
165,011
N/A
158,748
Technology-Enabled Services
2,360
N/A
52,507
Postage and Eliminations
—
N/A
—
Total adjusted EBITDA
$
428,696
N/A
$
498,749
(1)
Prior to the McKesson exit, Change
Healthcare Inc. did not have revenues from customers and did not
utilize adjusted EBITDA as a key performance metric.
(2)
The prior year results of Change
Healthcare LLC have been retrospectively adjusted to be consistent
with the Company’s current segment structure and cost allocation
methodology.
(3)
Revenue for Postage and Eliminations
includes postage revenue of $50.0 million for Change Healthcare
Inc. for the three months ended September 30, 2020 and $57.1
million for Change Healthcare LLC for the three months ended
September 30, 2019. Revenue for Postage and Eliminations includes
postage revenue of $95.8 million for Change Healthcare Inc. for the
six months ended September 30, 2020 and $115.6 million for Change
Healthcare LLC for the six months ended September 30, 2019.
(4)
Amount reflects the impact to deferred
revenue resulting from the McKesson exit which reduced revenue
recognized during the three and six months ended September 30,
2020.
Reconciliation of Cash
Provided by (Used in) Operating Activities to Free Cash Flow and
Adjusted Free Cash Flow
(unaudited and amounts in
thousands)
Six Months Ended September
30,
2020
2019
2019
Change Healthcare Inc.
(1)
Change Healthcare LLC
Cash provided by (used in) operating
activities (2)
$
296,557
$
—
$
223,864
Capital expenditures
(126,432
)
—
(129,847
)
Free cash flow
170,125
—
94,017
Adjustments to free cash flow
(3):
Integration and related costs
17,894
45,507
Strategic initiatives, duplicative and
transition costs
8,845
9,688
Severance costs
7,876
10,099
Integration and strategic capital
expenditures
5,938
14,546
Adjusted free cash flow
$
210,678
$
173,858
(1)
Prior to the McKesson exit, Change
Healthcare Inc. did not utilize adjusted free cash flow as a key
performance metric, therefore we have not presented a
reconciliation to adjusted free cash flow for the six months ended
September 30, 2019.
(2)
Includes cash used in pass-thru funds of
$1.4 million for Change Healthcare Inc. for the six months ended
September 30, 2020 and cash provided by pass-thru funds of $12.9
million for Change Healthcare LLC for the six months ended
September 30, 2019.
(3)
All operating costs and integration and
strategic capital expenditures are presented on an as-incurred
basis.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201104005552/en/
Evan Smith, CFA Investor Relations 404-338-2225
Evan.Smith@changehealthcare.com
Katherine Wojtecki External Communications 630-624-9142
Katherine.Wojtecki@changehealthcare.com
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