Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - Change Healthcare Inc. | d937321d8k.htm |
Exhibit 99.1
Change Healthcare Inc. Reports Fourth Quarter and Full Year Fiscal 2020 Financial Results
NASHVILLE, Tenn., Jun. 3, 2020— (BUSINESS WIRE) – 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 |
| 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. |
1
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. |
2
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 $5,117.9 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. |
3
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. |
| 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. |
4
| • | 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”).
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/.
| 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. |
5
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
Contacts
Evan Smith, CFA
Investor Relations
404-338-2225
Evan.Smith@changehealthcare.com
Kerry Kelly
External Communications
339-236-2756
Kerry.Kelly@changehealthcare.com
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 on 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 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.
6
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.
7
Change Healthcare Inc.
Consolidated Statements of Operations
(unaudited and amounts in thousands, except share and per share amounts)
| Three Months Ended March 31, |
Year Ended 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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
8
Change Healthcare Inc.
Consolidated Balance Sheets
(amounts in thousands, except share and per share amounts)
| March 31, 2020 |
March 31, 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 | ||||
9
Change Healthcare Inc.
Consolidated Statements of Cash Flows
(unaudited and amounts in thousands)
| Year Ended March 31, 2020 |
Year Ended March 31, 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 | ||||
|
|
|
|
|
|||||
10
Change Healthcare LLC
Consolidated Statements of Operations
(unaudited and amounts in thousands, except unit and per unit amounts)
| Three Months Ended March 31, |
Year Ended 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. |
11
Change Healthcare LLC
Consolidated Balance Sheets
(unaudited and amounts in thousands)
| March 31, 2020 |
March 31, 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 | ||||
|
|
|
|
|
|||||
12
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 | ||||
|
|
|
|
|
|||||
13
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 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
14
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 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
15
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. |
16
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. |
17
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. |
18
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 | ||||||||||||
19
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. |
20
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 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
21