Change Healthcare Inc. (Nasdaq: CHNG) (the “Company” or “Change
Healthcare”), a leading healthcare technology company, today
reported financial results for the first quarter of fiscal year
2022 ended June 30, 2021.
“The solid performance in the first quarter, combined with the
momentum in our sales pipeline, establishes a strong foundation for
growth as we move through fiscal 2022,” said Neil de Crescenzo,
president and chief executive officer. “We will continue to make
investments throughout the year to advance innovation and optimize
our cost structure, enabling us to deliver better experiences and
outcomes for our customers, partners and consumers.”
Fiscal 2022 First Quarter Highlights:
Financial Summary
- Total revenue of $867.9 million, including solutions revenue of
$816.6 million
- Net loss of $3.6 million, resulting in net loss of $0.01 per
diluted share
- Adjusted net income of $133.0 million, resulting in adjusted
net income of $0.41 per diluted share
- Adjusted EBITDA of $282.7 million
Recent Business Highlights
- Announced an expansion of the self-service resources the
Company offers developers to use application programming interfaces
(APIs) at scale to bring new healthcare innovations to market
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 resulting in fair value adjustments to
various assets and liabilities, including deferred revenue,
goodwill, and intangible assets.
Financial Results for First Quarter of Fiscal 2022
- Solutions revenue was $816.6 million, compared to $648.4
million for first quarter of fiscal 2021. Solutions revenue
includes the impact of fair value adjustments to deferred revenue
resulting from the McKesson exit, which reduced revenue recognized
by $4.5 million and $55.0 million in the first quarter of fiscal
2022 and 2021, respectively. Total revenue, which includes postage
revenue, was $867.9 million compared to $694.2 million in the same
period of the prior year. Solutions revenue for the current period
reflects the $6.5 million net favorable impact of acquisitions and
divestitures, including the negative $15.3 million impact during
the quarter from the divestitures of the Connected Analytics and
Capacity Management businesses which closed in fiscal year 2021.
Solutions revenue in the current period was positively impacted by
volume recovery from COVID-19 related volume declines in the prior
period and new sales.
- Net loss was $3.6 million, resulting in net loss of $0.01 per
diluted share, compared with net loss of $58.7 million and $0.18
per diluted share, respectively, for the first quarter of fiscal
2021.
- Adjusted net income was $133.0 million, resulting in adjusted
net income of $0.41 per diluted share, compared with adjusted net
income of $81.2 million and $0.25 per diluted share, respectively,
for the first quarter of fiscal 2021. Net loss per diluted share
and adjusted net income per diluted share for the current period is
based on 323 million shares compared to 320 million shares in the
prior year period.
- Adjusted EBITDA was $282.7 million, compared with $196.9
million for the first quarter of fiscal 2021. The results in the
current quarter reflect optimization of our cost structure.
Cash Flow and Balance Sheet Highlights
Net cash provided by operating activities was $110.1 million and
free cash flow was $44.1 million, in each case, for the three
months ended June 30, 2021. For the three months ended June 30,
2020, net cash provided by operating activities and free cash flow
was $169.1 million and $102.3 million, respectively, which included
the positive impact of deferring approximately $36.1 million of
interest and payroll tax payments during the period.
Net cash provided by operating activities and free cash flow
each are 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 increased by $7.3 million in the three
months ended June 30, 2021, increasing free cash flow for the
period by that amount, and decreased by $13.7 million for the three
months ended June 30, 2020.
The Company ended the quarter with approximately $109.1 million
of cash and cash equivalents, and approximately $4,758.4 million of
total debt. Subsequent to the end of the quarter, the Company
repaid $30.0 million on its Term Loan Facility.
Proposed Merger with OptumInsight
On January 5, 2021, OptumInsight, a diversified health services
company and part of UnitedHealth Group, and Change Healthcare
agreed to combine (the “Merger”). Under the terms of the merger
agreement, UnitedHealth Group, through a wholly-owned subsidiary,
will acquire all of the outstanding shares of Change Healthcare
common stock for $25.75 per share in cash. The Boards of Directors
of both UnitedHealth Group and Change Healthcare have unanimously
approved the terms of the Merger. At a special meeting held April
13, 2021, Change Healthcare stockholders voted to approve the
Merger. Of the approximately 222 million shares voted, 99.9% voted
in favor of the adoption of the merger agreement. The closing of
the Merger is subject to applicable regulatory approval and other
customary closing conditions.
Guidance
Due to the proposed transaction with OptumInsight, we will no
longer be providing financial guidance.
Webcast Information
Change Healthcare will host a conference call on Thursday,
August 5, 2021, at 8:00 a.m. ET. Due to the previously announced
transaction with OptumInsight, the Company will not be taking
questions during the conference call.
Investors and other interested parties are invited to listen to
the conference call via the Company's website at
https://ir.changehealthcare.com/. The webcast will be available for
on-demand listening at the aforementioned URL until August 5,
2022.
About Change Healthcare
Change Healthcare (Nasdaq: CHNG) is a leading 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 the Private Securities Litigation Reform Act of 1995
with respect to the financial condition, results of operations and
businesses of Change Healthcare. Some of these statements can be
identified by terms and phrases such as “anticipate,” “believe,”
“intend,” “estimate,” “expect,” “continue,” “could,” “should,”
“may,” “plan,” “project,” “predict” and similar expressions. Change
Healthcare cautions readers of this press release that such
“forward looking statements,” including without limitation, those
relating to the timing of the proposed merger and Change
Healthcare’s future business prospects, revenue, working capital,
liquidity, capital needs, interest costs and income, wherever they
occur in this press release or in other statements attributable to
Change Healthcare, are necessarily estimates reflecting the
judgment of Change Healthcare’s senior management and involve a
number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the “forward looking
statements.”
Factors that could cause Change Healthcare’s actual results to
differ materially from those expressed or implied in such
forward-looking statements include, but are not limited to, the
inability to complete the proposed merger due to the failure to
satisfy conditions to completion of the proposed merger, including
that a governmental entity may prohibit, delay or refuse to grant
approval for the consummation of the transaction; risks related to
disruption of management’s attention from Change Healthcare’s
ongoing business operations due to the transaction; the effect of
the announcement of the proposed merger on Change Healthcare’s
relationships with its customers, operating results and business
generally; the risk that the proposed merger will not be
consummated in a timely manner; exceeding the expected costs of the
merger; the occurrence of any event, change or other circumstances
that could give rise to the termination of the merger agreement;
macroeconomic and industry trends and adverse developments in the
debt, consumer credit and financial services markets; uncertainty
and risks related to the impact of the COVID-19 pandemic (including
the rise of COVID-19 variant strains such as the Delta variant) on
the national and global economy, Change Healthcare’s business,
suppliers, customers, and employees; Change Healthcare’s ability to
retain or renew existing customers and attract new customers;
Change Healthcare’s ability to connect a large number of payers and
providers; Change Healthcare’s ability to provide competitive
services and prices while maintaining its margins; further
consolidation in end-customer markets; Change Healthcare’s ability
to effectively manage costs; Change Healthcare’s ability to
effectively develop and maintain relationships with channel
partners; Change Healthcare’s ability to timely develop new
services and the market’s willingness to adopt new services; Change
Healthcare’s ability to deliver services timely without
interruption; a decline in transaction volume in the U.S.
healthcare industry; Change Healthcare’s ability to maintain access
to its data sources; Change Healthcare’s ability to maintain the
security and integrity of its data; Change Healthcare’s reliance on
key management personnel; Change Healthcare’s ability to manage and
expand its operations and keep up with rapidly changing
technologies; the ability of outside service providers and key
vendors to fulfill their obligations to Change Healthcare; risks
related to international operations; Change Healthcare’s ability to
protect and enforce its intellectual property, trade secrets and
other forms of unpatented intellectual property; Change
Healthcare’s ability to defend its intellectual property from
infringement claims by third parties; government regulation and
changes in the regulatory environment; changes in local, state,
federal and international laws and regulations, including related
to taxation; economic and political instability in the U.S. and
international markets where Change Healthcare operates; litigation
or regulatory proceedings; losses against which Change Healthcare
does not insure; Change Healthcare’s ability to make acquisitions
and integrate the operations of acquired businesses; Change
Healthcare’s ability to make timely payments of principal and
interest on its indebtedness; Change Healthcare’s ability to
satisfy covenants in the agreements governing its indebtedness;
Change Healthcare’s ability to maintain liquidity; our adoption of
new, or amendments to existing, accounting standards, and other
risks. For a more detailed discussion of these factors, see the
information under the captions “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in Change Healthcare’s most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission (“SEC”)
on May 27, 2021 as such factors may be updated from time to time in
our periodic filings with the SEC.
Change Healthcare’s forward-looking statements speak only as of
the date of this press release or as of the date they are made.
Change Healthcare disclaims any intent or obligation to update any
“forward looking statement” made in this press release to reflect
changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
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 regards 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
(unaudited and amounts in
thousands, except share and per share amounts)
Three Months Ended June
30,
2021
2020
Revenue:
Solutions revenue
$
816,648
$
648,412
Postage revenue
51,208
45,772
Total revenue
867,856
694,184
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
352,063
318,542
Research and development
71,240
55,734
Sales, marketing, general and
administrative
177,955
165,474
Customer postage
51,208
45,772
Depreciation and amortization
168,211
138,541
Accretion and changes in estimate with
related parties, net
3,037
5,895
Gain on sale of businesses
—
(28,095
)
Total operating expenses
823,714
701,863
Operating income (loss)
44,142
(7,679
)
Non-operating (income) and
expense
Interest expense, net
59,386
62,667
Other, net
(3,189
)
1,809
Total non-operating (income) and
expense
56,197
64,476
Income (loss) before income tax
provision (benefit)
(12,055
)
(72,155
)
Income tax provision (benefit)
(8,450
)
(13,461
)
Net income (loss)
$
(3,605
)
$
(58,694
)
Net income (loss) per common
share:
Basic and diluted
$
(0.01
)
$
(0.18
)
Weighted average common shares
outstanding:
Basic and diluted
322,546,171
320,052,943
Consolidated Balance
Sheets
(unaudited and amounts in
thousands, except share and per share amounts)
June 30, 2021
March 31, 2021
Assets
Current assets:
Cash and cash equivalents
$
109,104
$
113,101
Accounts receivable, net
744,482
732,614
Contract assets, net
134,100
132,856
Prepaid expenses and other current
assets
147,835
140,258
Total current assets
1,135,521
1,118,829
Property and equipment, net
162,784
174,370
Operating lease right-of-use assets,
net
86,292
93,412
Goodwill
4,112,222
4,108,792
Intangible assets, net
4,064,439
4,187,072
Other noncurrent assets, net
470,593
430,141
Total assets
$
10,031,851
$
10,112,616
Liabilities
Current liabilities:
Accounts payable
$
92,644
$
57,449
Accrued expenses
453,367
484,293
Deferred revenue
403,536
436,666
Due to related parties, net
11,392
10,766
Current portion of long-term debt
23,099
27,339
Current portion of operating lease
liabilities
29,423
30,608
Total current liabilities
1,013,461
1,047,121
Long-term debt, excluding current
portion
4,735,332
4,734,775
Long-term operating lease liabilities
68,346
75,396
Deferred income tax liabilities
596,327
605,291
Tax receivable agreement obligations to
related parties
94,737
103,151
Tax receivable agreement obligations
195,201
229,082
Other long-term liabilities
64,594
65,572
Total liabilities
6,767,998
6,860,388
Commitments and contingencies
Stockholders' Equity
Common Stock (par value, $0.001),
9,000,000,000 and 9,000,000,000 shares authorized and 310,677,936
and 306,796,076 shares issued and outstanding at June 30, 2021 and
March 31, 2021, respectively
311
307
Preferred stock (par value, $0.001),
900,000,000 shares authorized and no shares issued and outstanding
at both June 30, 2021 and March 31, 2021
—
—
Additional paid-in capital
4,294,927
4,283,391
Accumulated other comprehensive income
(loss)
14,911
11,221
Accumulated deficit
(1,046,296
)
(1,042,691
)
Total stockholders' equity
3,263,853
3,252,228
Total liabilities and stockholders'
equity
$
10,031,851
$
10,112,616
Consolidated Statements of
Cash Flows
(unaudited and amounts in
thousands)
Three Months Ended June
30,
2021
2020
Cash flows from operating
activities:
Net income (loss)
$
(3,605
)
$
(58,694
)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization
168,211
138,541
Amortization of capitalized software
developed for sale
717
78
Accretion and changes in estimate, net
4,732
5,895
Equity compensation
26,166
9,583
Deferred income tax expense (benefit)
(8,989
)
(13,845
)
Amortization of debt discount and issuance
costs
7,910
8,047
Non-cash lease expense
7,007
7,402
Gain on sale of businesses
—
(28,095
)
Other, net
249
4,766
Changes in operating assets and
liabilities:
Accounts receivable, net
(11,773
)
113,470
Contract assets, net
(3,090
)
10,013
Prepaid expenses and other assets
(25,029
)
(24,632
)
Accounts payable
34,722
(19,244
)
Accrued expenses and other liabilities
(53,649
)
(4,852
)
Deferred revenue
(33,472
)
20,667
Net cash provided by (used in)
operating activities
110,107
169,100
Cash flows from investing
activities:
Capitalized expenditures
(66,006
)
(66,770
)
Acquisitions, net of cash acquired
—
(398,651
)
Proceeds from sale of businesses
—
28,553
Other, net
(1,000
)
1,039
Net cash provided by (used in)
investing activities
(67,006
)
(435,829
)
Cash flows from financing
activities:
Payments under tax receivable
agreements
(21,537
)
(20,691
)
Receipts (payments) on derivative
instruments
(7,364
)
(7,364
)
Employee tax withholding on vesting of
equity compensation awards
(13,015
)
—
Payments on deferred financing
obligations
(6,796
)
(5,788
)
Payment of senior amortizing notes
(3,965
)
(4,028
)
Proceeds from exercise of equity
awards
5,225
2,143
Payments on Revolving Facility
—
(250,000
)
Proceeds from issuance of Senior Notes
—
325,000
Other, net
(116
)
(5,543
)
Net cash provided by (used in)
financing activities
(47,568
)
33,729
Effect of exchange rate changes on cash
and cash equivalents
470
946
Net increase (decrease) in cash and
cash equivalents
(3,997
)
(232,054
)
Cash and cash equivalents at beginning of
period
113,101
410,405
Cash and cash equivalents at end of
period
$
109,104
$
178,351
Reconciliation of Net Income
(Loss) to Adjusted EBITDA
(unaudited and amounts in
thousands)
Three Months Ended June
30,
2021
2020
Net income (loss)
$
(3,605
)
$
(58,694
)
Income tax provision (benefit)
(8,450
)
(13,461
)
Income (loss) before income tax provision
(benefit)
(12,055
)
(72,155
)
Amortization of capitalized software
developed for sale
717
78
Depreciation and amortization
168,211
138,541
Interest expense, net
59,386
62,667
Equity compensation
26,166
9,583
Acquisition accounting adjustments
(559
)
48,540
Acquisition and divestiture-related
costs
6,394
5,120
Integration and related costs
11,368
10,358
Strategic initiatives, duplicative and
transition costs
9,928
5,080
Severance costs
4,720
4,704
Accretion and changes in estimate, net
4,732
5,895
Impairment of long-lived assets and
other
1,612
6,313
Gain on sale of business
—
(28,095
)
Contingent consideration
—
(2,450
)
Other non-routine, net
2,108
2,677
Adjusted EBITDA
$
282,728
$
196,856
Reconciliation of Net Income
(Loss) to Adjusted Net Income (Loss)
(unaudited and amounts in
thousands, except share and per share amounts)
Three Months Ended June
30,
2021
2020
Net income (loss)
$
(3,605
)
$
(58,694
)
Amortization expense resulting from
acquisition method adjustments
124,314
113,024
EBITDA adjustments
66,469
67,725
Tax effect of EBITDA adjustments and
amortization expense
(54,222
)
(40,860
)
Adjusted net income (loss)
$
132,956
$
81,195
Adjusted net income (loss) per diluted
share
$
0.41
$
0.25
Segment Results
(unaudited and amounts in
thousands)
Three Months Ended June
30,
2021
2020
Segment revenue
Software and Analytics
$
420,317
$
391,589
Network Solutions
209,461
142,826
Technology-Enabled Services
225,521
187,706
Postage and Eliminations (1)
17,018
27,063
Purchase Accounting Adjustment (2)
(4,461
)
(55,000
)
Net revenue
$
867,856
$
694,184
Segment adjusted EBITDA
Software and Analytics
$
160,365
$
143,932
Network Solutions
109,488
70,503
Technology-Enabled Services
12,875
(17,579
)
Postage and Eliminations
—
—
Total adjusted EBITDA
$
282,728
$
196,856
(1)
Revenue for Postage and Eliminations includes postage revenue of
$51.2 million for the three months ended June 30, 2021 and $45.8
million for the three months ended June 30, 2020.
(2)
Amount reflects the impact to deferred revenue resulting from
the McKesson exit which reduced revenue recognized during the three
months ended June 30, 2021 and June 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)
Three Months Ended June
30,
2021
2020
Cash provided by (used in) operating
activities (1)
$
110,107
$
169,100
Capital expenditures
(66,006
)
(66,770
)
Free cash flow
44,101
102,330
Adjustments to free cash flow
(2):
Integration and related costs
11,368
10,358
Strategic initiatives, duplicative and
transition costs
9,928
5,080
Severance costs
4,720
4,704
Integration and strategic capital
expenditures
6,395
4,081
Adjusted free cash flow
$
76,512
$
126,553
(1)
Includes cash provided by pass-thru funds
of $7.3 million for the three months ended June 30, 2021 and cash
used by pass-thru funds of $13.7 million for the three months ended
June 30, 2020.
(2)
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/20210804005977/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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