Change Healthcare Inc. Reports Fourth Quarter and Full Year Fiscal 2020 Financial Results

NASHVILLE, Tenn.--(BUSINESS WIRE)--Jun. 3, 2020-- Change Healthcare Inc. (Nasdaq: CHNG), a leading independent healthcare technology company, today reported financial results for Change Healthcare LLC (“Change Healthcare”) for the fourth quarter and fiscal year ended March 31, 2020.

“Change Healthcare delivered strong performance in our first year as a public company, achieving our desired financial and operational goals, executing on our transformation initiatives, and strengthening our platform for future growth. In fiscal 2020, we delivered underlying growth across all three segments, expanded margins, and delivered strong free cash flow,” said Neil de Crescenzo, president and chief executive officer.

“While the COVID-19 pandemic has created uncertainties in the near term, the core mission of our company to drive financial, administrative, and clinical efficiencies will be even more important to our customers going forward. I am proud of our team members who quickly adapted to the escalating pandemic and actively addressed the needs of our customers and partners. To further support our customers in this environment we advanced several new solutions including our Telehealth set of engagement solutions, our National Payments Connector solution to drive increased electronic payments, and our Virtual Front Desk solutions to enable touchless waiting rooms for providers. Despite the continuing uncertainty, we believe we remain well-positioned to drive growth and build shareholder value over the coming years.”

Adoption of the New Revenue Recognition Standard - ASC 606

Change Healthcare adopted the new revenue recognition accounting standard Accounting Standards Codification ("ASC") 606 effective April 1, 2019 on a modified retrospective basis. Financial results for reporting periods during fiscal year 2020 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to fiscal year 2020 are presented in conformity with the prior revenue recognition standard, ASC 605. This press release includes additional information to reconcile the impacts of the adoption of the new revenue recognition standard on Change Healthcare’s financial results for the quarter and year ended March 31, 2020. This includes the presentation of financial results during fiscal year 2020 under ASC 605 for comparison to the prior-year period.

Fiscal 2020 Fourth Quarter Highlights for Change Healthcare LLC:

Financial Summary - ASC 606 (standard adopted effective April 1, 2019)

  • Total revenue of $843.4 million, including solutions revenue of $786.6 million
  • Net loss of $108.6 million, resulting in net loss of $0.34 per diluted unit1
  • Adjusted net income of $133.2 million, resulting in adjusted net income of $0.42 per diluted unit1
  • Adjusted EBITDA of $264.4 million

Financial Summary - ASC 605 (standard before April 1, 2019)

  • Total revenue of $854.0 million, including solutions revenue of $797.2 million
  • Net loss of $108.0 million, resulting in net loss of $0.34 per diluted unit1
  • Adjusted net income of $133.7 million, resulting in adjusted net income of $0.42 per diluted unit1
  • Adjusted EBITDA of $269.3 million

Financial Results - ASC 606 (standard adopted effective April 1, 2019)

  • Solutions revenue was $786.6 million. Fourth-quarter results were impacted by the adoption of the new accounting standard, ASC 606, which resulted in the recognition of certain revenue in the first quarter of the fiscal year that would have been recognized in the subsequent periods under the prior accounting rules. The fourth-quarter results reflect an unfavorable revenue impact of $10.6 million as compared with ASC 605.
  • Net loss was $108.6 million, resulting in net loss of $0.34 per diluted unit. Net loss was primarily impacted negatively due to recognition of a $164.6 million McKesson tax receivable agreement liability as a part of their disposition of their ownership interest in Change Healthcare and the ASC 606 revenue impact noted above. These impacts were partially offset favorably by an extended recognition period for commissions and certain implementation costs, decreasing expenses in the period by $5.8 million.
  • Adjusted net income was $133.2 million, resulting in adjusted net income of $0.42 per diluted unit.
  • Adjusted EBITDA was $264.4 million. Adjusted EBITDA as a percent of Solutions revenue for the fourth quarter of fiscal 2020 was 33.6%.

Financial Results - ASC 605 (standard before April 1, 2019)

  • Solutions revenue was $797.2 million, compared to $778.4 million for the fourth quarter of fiscal 2019. Total revenue for the current period, which includes Postage revenue, was $854.0 million, compared to $836.3 million in the same period of the prior fiscal year. Growth in our Network Solutions business was partially offset by the impact of planned contract eliminations in our Technology-Enabled Services business, the strategic assessment of Connected Analytics, and a $6.2 million impact from COVID-19.
  • Net loss was $108.0 million, resulting in net loss of $0.34 per diluted unit, compared with net income of $37.7 million or $0.15 per diluted unit, respectively, for the fourth quarter of fiscal 2019. The net loss was primarily driven by the recognition of a $164.6 million McKesson tax receivable agreement liability.
  • Adjusted net income was $133.7 million, resulting in adjusted net income of $0.42 per diluted unit, compared with adjusted net income of $125.8 million or $0.50 per diluted unit, respectively, for the fourth quarter of fiscal 2019. Net loss per unit and Adjusted net income per unit for the current period is based on 320 million units compared to 253 million units in the prior year period, increasing as a result of the initial public offering completed on July 1, 2019.
  • Adjusted EBITDA was $269.3 million, compared with $257.2 million for the fourth quarter of fiscal 2019. The favorable impact of productivity improvements and growth across our Software & Analytics and Network Solutions businesses was partially offset by planned contract eliminations in our Technology-Enabled Service business, and the above mentioned impact from COVID-19. Adjusted EBITDA as a percent of Solutions revenue for the fourth quarter of fiscal 2020 was 33.8%, compared with 33.0% for the fourth quarter of fiscal 2019.

Cash Flow and Balance Sheet Highlights for Change Healthcare LLC:

Net cash provided by operating activities was $593.3 million for the fiscal year ended March 31, 2020, an increase of 106.2% from $287.7 million for the fiscal year ended March 31, 2019. Free cash flow was $334.7 million for the year ended March 31, 2020, an increase of 721.8% from $40.7 million for the fiscal year ended March 31, 2019. Adjusted free cash flow was $481.5 million, an increase of $189.3 million year over year.

Net cash provided by operating activities, free cash flow, and adjusted free cash flow each is affected by pass-thru funds we receive from certain pharmaceutical industry participants in advance of our obligation to remit these funds to participating retail pharmacies. Such pass-thru funds were $21.7 million for the fiscal year ended March 31, 2020 and $3.0 million for the fiscal year ended March 31, 2019. The increase in cash flow from operations, free cash flow, and adjusted free cash flow in the current period primarily resulted from revenue growth and improved working capital driven by lower receivable balances and reduced integration capital expenditures.

Change Healthcare LLC ended the year with approximately $407.7 million of cash, cash equivalents, and restricted cash and approximately $5,118.0 million of total debt. During the quarter, Change Healthcare LLC also borrowed $250.0 million from its revolving credit facility to have access to additional liquidity in an uncertain macro environment. Subsequent to the quarter, the Company issued $325.0 million of 5.75% Senior Unsecured Notes due 2025 under the same terms as the existing $1,000.0 million Senior Notes.

Recent Business Highlights

  • Completed the acquisition of PDX, a company focused on delivering patient centric and innovative technologies for pharmacies and health systems for a purchase price of $208.0 million.
  • Completed the acquisition of eRx Network, a leading provider of comprehensive, innovative, and secure data-driven solutions for pharmacies, for a purchase price of $212.9 million plus cash on the balance sheet.
  • Completed the sale of Connected Analytics for total consideration of $55.0 million.
  • Launched COVID-19 Information Hub, an online source of technology, business, and informational resources from Change Healthcare, its partners, and third-party expert sources to give providers and payers guidance on how to maintain administrative, financial, and operational stability during the COVID-19 pandemic.
  • Completed McKesson Corporation's disposition of its ownership interest in Change Healthcare. As a result, McKesson no longer owns any voting or economic interest in Change Healthcare.
  • Named as Software & Services Report Leader in the 2020 Best in KLAS awards. The awards reflect excellence in quality and customer service for technology solutions and services that help healthcare organizations achieve better outcomes.
  • Introduced Market Insights, a comprehensive analytic dataset that provides approved healthcare stakeholders unparalleled visibility into crucial utilization, population health, and financial trends that drive the U.S. healthcare system.

First Quarter Fiscal 2021 Guidance

Due to uncertainty around the duration of COVID-19, the Company will only be providing quarterly guidance. In addition, Change Healthcare Inc. was required to account for the McKesson exit as a business combination through which Change Healthcare Inc. obtained control of Change Healthcare LLC. As a result, the Change Healthcare Inc. balance sheet is now reflective of the fair value of assets and liabilities of Change Healthcare LLC. The impact of the fair value adjustments is included in our guidance.

For the first quarter of fiscal 2021, the Company expects Solutions revenue to be in the range of $595 million to $620 million, which includes a reduction of $55 million in revenue resulting from an adjustment of deferred revenue to fair value as described in our assumptions below, Adjusted EBITDA to be in the range of $160 million to $175 million and Adjusted EPS to be in the range of $0.14 - $0.18 per share.

The first quarter fiscal 2021 outlook is based on the following key assumptions and expectations and is also subject to risk factors such as those described in the Forward-Looking Statements below:

  • Reflects the Company’s current expectation that the largest impact from the COVID-19 pandemic will occur in the first quarter of the fiscal year with a gradual improvement throughout the remainder of the fiscal year as healthcare utilization trends improve.
  • Includes the impact of the sale of Connected Analytics and the acquisition of eRx Network as of May 1, 2020, and the acquisition of PDX as of June 1, 2020.
  • Assumes a revenue impact due to adjusting deferred revenue as part of fair value adjustments, which reduces revenue recognized by approximately $55 million with no impact on Adjusted EBITDA.
  • Interest expense of approximately $70 million, including the impact of $325 million in additional notes and the $250 million draw on the credit facility discussed above and assumes no additional debt paydown during the year. Includes approximately $4 million in non-cash, pre-tax interest expense for fair value adjustments related to the McKesson exit.
  • Depreciation and amortization2 expense of approximately $140 million, including approximately $54 million from the impact of fair value adjustments related to the McKesson exit.
  • Includes up to $10 million of increased bad debt expense provision in the first quarter consistent with anticipated days sales outstanding increase.

     

Supplemental Forward-Looking Information and Assumptions For Fiscal 2021

While the Company is not providing guidance for the full fiscal 2021 due to the uncertainty and rapidly evolving economic environment as a result of COVID-19, the Company has determined to provide the following supplemental expectations and assumptions that the Company has made regarding its fiscal 2021 results to provide further transparency to investors into the Company’s current beliefs regarding fiscal 2021, all of which are subject to change:

  • Free cash flow positive for the fiscal year; amount dependent on the speed of recovery.
  • Capital expenditures of approximately 7% of Solutions Revenue excluding the impact of fair value adjustments for the fiscal year and excluding integration related capital expenditures.
  • Integration related expense for the fiscal year of approximately $80 million and Integration related capital expenditures of approximately $20 million.
  • Assumes a revenue impact due to adjusting deferred revenue as part of fair value adjustments related to the McKesson exit, which reduces revenue recognized in future periods by approximately $137 million, including an approximate $129 million reduction for the fiscal year, with no impact on adjusted EBITDA.
  • Interest expense in the range of $280 - $290 million, including the impact of $325 million in additional notes and the $250 million draw on the credit facility discussed above and assumes no additional debt paydown during the year. Includes approximately $14 million in non-cash, pre-tax interest expense for fair value adjustments related to the McKesson exit.
  • Includes approximately $215 million in additional depreciation and amortization3 expense for fair value adjustments related to the McKesson exit
  • Adjusted effective tax rate of approximately 25% as a result of simplified corporate structure post McKesson exit.
  • Basic Shares Outstanding of 320.0 million.4

A reconciliation of the forward-looking first-quarter 2021 Adjusted EBITDA outlook to net income cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted. For the same reasons, Change Healthcare is unable to assess the probable significance of the unavailable information, which could have a material impact on its future financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

____________________________________________________
1 Common units of Change Healthcare LLC are equivalent to the number of outstanding common shares of Change Healthcare Inc. and, prior to McKesson’s March 2020 exit transaction, membership interests of Change Healthcare LLC held by subsidiaries of McKesson.
2 Depreciation and amortization expense for the first quarter of fiscal 2021 includes an increase of approximately $77 million in amortization for intangible assets, offset by approximately $25 million for the fair value adjustment of capitalized software, as well as an increase of approximately $2 million of depreciation for fixed assets.
3 The additional amortization expense for fiscal 2021 is comprised of an increase of approximately $308 million for intangible assets, offset by approximately $100 million for the fair value adjustment of capitalized software, as well as an additional $7 million of depreciation for fixed assets.
4 Basic shares outstanding includes the impact of the minimum issuable shares attributable to the TEUs.


Conference Call and Webcast Information

Change Healthcare will host a conference call on June 4, 2020, at 8:00 a.m. ET. Investors and other interested parties are invited to listen to the conference call by dialing 1-(877) 279-0788 in the U.S.; 1-(270) 215-9894 from abroad, including the conference ID number: 2987345; or via a live, audio webcast on the Company's website at https://ir.changehealthcare.com/.

A webcast replay will be available for on-demand listening shortly after the completion of the call until the fourth-quarter fiscal 2021 earnings call, at the aforementioned URL. In addition, a digital audio playback will be available until 11:00 a.m. Eastern Time on Thursday, June 11, 2020, by dialing 1-(855) 859-2056 or 1-(404) 537-3406 and referencing confirmation 2987345.

About Change Healthcare

Change Healthcare (Nasdaq: CHNG) is a leading independent healthcare technology company that provides data and analytics-driven solutions to improve clinical, financial and patient engagement outcomes in the U.S. healthcare system. We are a key catalyst of a value-based healthcare system, accelerating the journey toward improved lives and healthier communities. Learn more at changehealthcare.com.

CHNG-IR

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of federal securities laws. Any statements made in this press release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include information concerning possible or assumed future results of operations, including, but not limited to, our first quarter fiscal 2021 guidance, the supplemental information and assumptions regarding fiscal 2021, the potential length and impact of COVID-19, and descriptions of our business plans and strategies. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,” “predicts,” and the negatives of these words and other similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, including, but not limited to, the uncertainty around the length and severity of the COVID-19 pandemic; the ongoing impact of the COVID-19 pandemic on our operations and financial results, on our customers and on national, state and local economies; and new risks that may arise due to responses to the pandemic by the government, our customers and us; and other factors disclosed in the Registration Statement on Form S-4 (No.333-236234) and the Annual Report on Form 10-K for the year ended March 31, 2020 in the section entitled “Risk Factors,” as such factors may be updated from time to time in our periodic filings with the SEC, and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this release. All forward-looking statements are based on information currently available to Change Healthcare and are qualified in their entirety by this cautionary statement. The statements herein speak only as of the date such statements were first made. Except to the extent required by law, Change Healthcare assumes no obligation to update any such forward-looking statements or other statements included in this release.

Non-GAAP Financial Measures

In the company’s earnings releases, prepared remarks, conference calls, slide presentations and webcasts, there may be use or discussion of non-GAAP financial measures. We believe such measures provide supplemental information to investors with regard to our operating performance and assist investors’ ability to compare our financial results to those of other companies in the same industry. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between the comparable GAAP financial measure and each non-GAAP financial measure are included in this press release after the consolidated financial statements. These non-GAAP financial measures are calculated and presented on the basis of methodologies other than in accordance with GAAP. These non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP and may be defined and calculated differently by others in the same industry.

 
 
 
 

Change Healthcare Inc.
Consolidated Statements of Operations
(unaudited and amounts in thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

Year Ended

 

 

March 31,

 

March 31,

 

 

2020

 

2019

 

2020

 

2019

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Solutions revenue

 

$

184,161

 

 

$

 

$

184,161

 

 

$

Postage revenue

 

 

12,631

 

 

 

 

 

12,631

 

 

 

Total revenue

 

 

196,792

 

 

 

 

 

196,792

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales, marketing, general and administrative

 

 

37,389

 

 

 

971

 

 

 

39,893

 

 

 

1,159

 

Cost of operations (exclusive of depreciation and amortization below)

 

 

71,435

 

 

 

 

 

71,435

 

 

 

Research and development

 

 

11,559

 

 

 

 

 

11,559

 

 

 

Customer postage

 

 

12,631

 

 

 

 

 

12,631

 

 

 

Depreciation and amortization

 

 

30,838

 

 

 

 

 

30,838

 

 

 

Accretion and changes in estimate with related parties, net

 

 

(31,349

)

 

 

 

 

15,823

 

 

 

Tax Receivable Agreement charges

 

 

164,633

 

 

 

 

 

164,633

 

 

 

Goodwill impairment charge

 

 

561,164

 

 

 

 

 

561,164

 

 

 

Total operating expenses

 

 

858,300

 

 

 

971

 

 

 

907,976

 

 

 

1,159

 

Operating income (loss)

 

 

(661,508

)

 

 

(971

)

 

 

(711,184

)

 

 

(1,159

)

Non-operating (income) expense

 

 

 

 

 

 

 

 

 

 

 

 

Loss from Equity Method Investment in the Joint Venture

 

 

276,216

 

 

 

4,682

 

 

 

380,713

 

 

 

70,487

 

(Gain) Loss on sale of interests in the Joint Venture

 

 

 

 

 

 

 

 

(661

)

Management fee income

 

 

540

 

 

 

(190

)

 

 

(1,108

)

 

 

(378

)

Interest expense, net

 

 

16,248

 

 

 

 

 

16,652

 

 

 

(Gain) loss on other investments

 

 

55,768

 

 

 

 

 

(15,881

)

 

 

Other, net

 

 

(709

)

 

 

 

 

(709

)

 

 

Total non-operating (income) expense

 

 

348,063

 

 

 

4,492

 

 

 

379,667

 

 

 

69,448

 

Income (loss) before income tax provision (benefit)

 

 

(1,009,571

)

 

 

(5,463

)

 

 

(1,090,851

)

 

 

(70,607

)

Income tax provision (benefit)

 

 

(142,690

)

 

 

(1,931

)

 

 

(143,254

)

 

 

(18,595

)

Net income (loss)

 

$

(866,881

)

 

$

(3,532

)

 

$

(947,597

)

 

$

(52,012

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(1.64

)

 

$

(0.05

)

 

$

(6.92

)

 

$

(0.69

)

 

Weighted average common shares outstanding:

 

Basic and Diluted

186,342,936

75,474,675

136,996,624

75,513,130

 
 
 
 
 
 

Change Healthcare Inc.
Consolidated Balance Sheets
(amounts in thousands, except share and per share amounts)

 

 

 

March 31,

 

March 31,

 

 

2020

 

2019

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash & cash equivalents

 

$

410,405

 

 

$

3,409

 

Accounts receivable, net of allowance for doubtful accounts

 

 

740,105

 

 

 

Contract assets

 

 

132,704

 

 

 

Due from Joint Venture

 

 

 

 

373

 

Prepaid expenses and other current assets

 

 

117,495

 

 

 

Income taxes receivable

 

 

472

 

 

 

1,781

 

Total current assets

 

 

1,401,181

 

 

 

5,563

 

Property and equipment, net

 

 

206,196

 

 

 

Goodwill

 

 

3,795,325

 

 

 

Intangible assets, net

 

 

4,365,806

 

 

 

Dividend receivable

 

 

 

 

81,264

 

Investment in the Joint Venture

 

 

 

 

1,211,996

 

Investment in business purchase option

 

 

146,500

 

 

 

Other noncurrent assets, net

 

 

192,372

 

 

 

Total assets

 

$

10,107,380

 

 

$

1,298,823

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

68,169

 

 

$

Accrued expenses

 

 

390,294

 

 

 

176

 

Deferred revenues

 

 

302,313

 

 

 

Due to related parties, net

 

 

20,234

 

 

 

Current portion of long-term debt

 

 

278,779

 

 

 

Due to the Joint Venture

 

 

 

 

6,167

 

Total current liabilities

 

 

1,059,789

 

 

 

6,343

 

Long-term debt, excluding current portion

 

 

4,710,294

 

 

 

Deferred income tax liabilities

 

 

615,904

 

 

 

159,993

 

Tax receivable agreement obligations to related parties

 

 

177,826

 

 

 

Tax receivable agreement obligation

 

 

164,633

 

 

 

Other long-term liabilities

 

 

93,487

 

 

 

Total liabilities

 

 

6,821,933

 

 

 

166,336

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

Common Stock (par value, $.001), 9,000,000,000 and 252,800,000 shares authorized and 303,428,142 and 75,474,654 shares issued and outstanding at March 31, 2020 and 2019, respectively

 

 

303

 

 

 

75

 

Class X common stock (par value, $.001), 0 and 1 share authorized and no shares issued and outstanding at March 2020 and 2019, respectively

 

 

 

 

Preferred stock (par value, $.001), 900,000,000 and 0 shares authorized and no shares issued and outstanding at March 31, 2020 and 2019, respectively

 

 

 

 

Additional paid-in capital

 

 

4,222,580

 

 

 

1,153,509

 

Accumulated other comprehensive income (loss)

 

 

(7,372

)

 

 

(3,256

)

Accumulated deficit

 

 

(930,064

)

 

 

(17,841

)

Total stockholders' equity

 

 

3,285,447

 

 

 

1,132,487

 

Total liabilities and stockholders' equity

 

$

10,107,380

 

 

$

1,298,823

 

 
 
 
 
 

Change Healthcare Inc.
Consolidated Statements of Cash Flows
(unaudited and amounts in thousands)

 

 

 

Year Ended

 

 

Year Ended

 

 

March 31,

 

 

March 31,

 

 

2020

 

 

2019

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

(947,597

)

 

$

(52,012

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

Loss from Equity Method Investment in the Joint Venture

 

380,713

 

 

 

70,487

 

Depreciation and amortization

 

30,838

 

 

 

Accretion and changes in estimate, net

 

15,823

 

 

 

Tax receivable agreement charges

 

164,633

 

 

 

Equity compensation

 

1,701

 

 

 

Deferred income tax expense (benefit)

 

(143,822

)

 

 

(18,595

)

(Gain) Loss on Sale of Interests in the Joint Venture

 

 

 

(661

)

(Gain) loss on other investments

 

(15,881

)

 

 

Goodwill impairment charge

 

561,164

 

 

 

Amortization of debt discount and issuance costs

 

2,235

 

 

 

Other

 

(1,110

)

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(21,211

)

 

 

Prepaid expenses and other

 

(7,528

)

 

 

Due from the Joint Venture

 

(2,516

)

 

 

(72

)

Income taxes receivable

 

1,309

 

 

 

14,047

 

Accounts payable

 

7,532

 

 

 

Accrued expenses and other liabilities

 

(195,207

)

 

 

(125

)

Deferred Revenue

 

11,304

 

 

 

Due to the Joint Venture

 

3,692

 

 

 

(9,661

)

Net cash provided by (used in) operating activities

 

(153,928

)

 

 

3,408

 

Cash flows from investing activities:

 

 

 

 

 

Proceeds from sale of interests in the Joint Venture

 

 

 

6,503

 

Capitalized expenditures

 

(13,002

)

 

 

Acquisitions, net of cash acquired

 

330,667

 

 

 

Investment in debt and equity securities of the Joint Venture

 

(278,875

)

 

 

Proceeds from investments in debt securities of the Joint Venture

 

7,332

 

 

 

Investment in the Joint Venture

 

(610,784

)

 

 

Net cash provided by (used in) investing activities

 

(564,662

)

 

 

6,503

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from initial public offering, net of issuance costs

 

608,679

 

 

 

Proceeds from issuance of equity component of tangible equity units, net of issuance costs

 

232,929

 

 

 

Proceeds from issuance of debt component of tangible equity units

 

47,367

 

 

 

Payment of loan costs

 

(1,421

)

 

 

Repayment of senior amortizing notes

 

(11,094

)

 

 

Proceeds from draw on revolver

 

250,000

 

 

 

Payments to acquire common stock

 

 

 

(6,502

)

Receipts (payments) on derivative instruments

 

(890

)

 

 

Net cash provided by (used in) financing activities

 

1,125,570

 

 

 

(6,502

)

Effect of exchange rate changes on cash and cash equivalents

 

16

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

406,996

 

 

 

3,409

 

Cash, cash equivalents and restricted cash at beginning of period

 

3,409

 

 

 

Cash, cash equivalents and restricted cash at end of period

$

410,405

 

 

$

3,409

 

 
 
 
 
 

Change Healthcare LLC
Consolidated Statements of Operations
(unaudited and amounts in thousands, except unit and per unit amounts)

 

 

 

Three Months Ended

 

Year Ended

 

 

March 31,

 

March 31,

 

 

2020

 

2019

 

2020

 

2019

Revenue:

 

 

 

 

 

 

 

 

 

 

Solutions revenue

 

$

786,589

 

 

$

778,427

 

 

$

3,074,894

 

 

 

$

3,043,111

 

Postage revenue

 

 

56,791

 

 

 

57,912

 

 

 

228,079

 

 

 

 

238,618

 

Total revenue

 

 

843,380

 

 

 

836,339

 

 

 

3,302,973

 

 

 

 

3,281,729

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations (exclusive of depreciation and amortization below)

 

 

346,977

 

 

 

347,327

 

 

 

1,345,920

 

 

 

 

1,354,655

 

Research and development

 

 

53,257

 

 

 

42,637

 

 

 

205,035

 

 

 

 

202,241

 

Sales, marketing, general and administrative

 

 

175,221

 

 

 

200,470

 

 

 

742,807

 

 

 

 

821,082

 

Customer postage

 

 

56,791

 

 

 

57,912

 

 

 

228,079

 

 

 

 

238,618

 

Depreciation and amortization

 

 

89,852

 

 

 

69,917

 

 

 

315,946

 

 

 

 

278,020

 

Accretion and changes in estimate with related parties, net

 

 

4,627

 

 

 

6,039

 

 

 

14,966

 

 

 

 

19,329

 

Tax receivable agreement charge

 

 

164,633

 

 

 

 

 

164,633

 

 

 

 

Gain on sale of business

 

 

 

 

 

 

 

 

 

(111,435

)

Impairment of long-lived assets and related costs

 

 

504

 

 

 

675

 

 

 

504

 

 

 

 

675

 

Total operating expenses

 

 

891,862

 

 

 

724,977

 

 

 

3,017,890

 

 

 

 

2,803,185

 

Operating income (loss)

 

 

(48,482

)

 

 

111,362

 

 

 

285,083

 

 

 

 

478,544

 

Non-operating (income) and expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

64,084

 

 

 

83,591

 

 

 

283,745

 

 

 

 

325,431

 

Loss on extinguishment of debt

 

 

561

 

 

 

 

 

19,975

 

 

 

 

Contingent consideration

 

 

(1,900

)

 

 

91

 

 

 

(91

)

 

 

 

(809

)

Other, net

 

 

(3,749

)

 

 

(4,505

)

 

 

(14,630

)

 

 

 

(18,267

)

Total non-operating (income) and expense

 

 

58,996

 

 

 

79,177

 

 

 

288,999

 

 

 

 

306,355

 

Income (loss) before income tax provision (benefit)

 

 

(107,478

)

 

 

32,185

 

 

 

(3,916

)

 

 

 

172,189

 

Income tax provision (benefit)

 

 

1,112

 

 

 

(5,530

)

 

 

1,701

 

 

 

 

(4,481

)

Net income (loss)

 

$

(108,590

)

 

$

37,715

 

 

$

(5,617

)

 

 

$

176,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.34

)

 

$

0.15

 

 

$

(0.02

)

 

 

$

0.70

 

Diluted

 

$

(0.34

)

 

$

0.15

 

 

$

(0.02

)

 

 

$

0.70

 

Weighted average common units outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

319,789,840

 

 

 

251,469,867

 

 

 

302,412,870

 

 

 

 

251,508,322

 

Diluted

 

 

319,789,840

 

 

 

253,409,601

 

 

 

302,412,870

 

 

 

 

253,377,778

(1) 

 

Common units of Change Healthcare LLC are equivalent to the weighted average outstanding common shares of Change Healthcare Inc. and prior to the Merger membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 
 
 
 
 

Change Healthcare LLC
Consolidated Balance Sheets
(unaudited and amounts in thousands)

 

 

 

March 31,

 

March 31,

 

 

2020

 

2019

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

407,687

 

$

47,718

 

Restricted cash

 

 

 

 

1,176

 

Accounts receivable, net of allowance for doubtful accounts

 

 

740,105

 

 

759,502

 

Contract assets

 

 

132,704

 

 

Prepaid expenses and other current assets

 

 

144,051

 

 

172,067

 

Total current assets

 

 

1,424,547

 

 

980,463

 

Property and equipment, net

 

 

150,000

 

 

197,263

 

Goodwill

 

 

3,288,765

 

 

3,284,266

 

Intangible assets, net

 

 

1,192,776

 

 

1,320,161

 

Other noncurrent assets, net

 

 

574,078

 

 

421,985

 

Total assets

 

$

6,630,166

 

$

6,204,138

 

Liabilities and members' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Drafts and accounts payable

 

$

68,169

 

$

98,550

 

Accrued expenses

 

 

379,700

 

 

316,179

 

Deferred revenues

 

 

439,364

 

 

437,636

 

Due to related parties, net

 

 

20,779

 

 

34,629

 

Current portion of long-term debt

 

 

278,779

 

 

2,789

 

Total current liabilities

 

 

1,186,791

 

 

889,783

 

Long-term debt, excluding current portion

 

 

4,762,832

 

 

5,787,150

 

Deferred income tax liabilities

 

 

109,144

 

 

106,099

 

Tax receivable agreement obligations to related parties

 

 

207,395

 

 

212,698

 

Other long-term liabilities

 

 

267,584

 

 

113,194

 

Commitments and contingencies

 

 

 

 

 

 

Members' equity (deficit)

 

 

96,420

 

 

(904,786

)

Total liabilities and members' equity

 

$

6,630,166

 

$

6,204,138

 

 
 
 
 
 

Change Healthcare LLC
Consolidated Statements of Cash Flows
(unaudited and amounts in thousands)

 

 

 

Year Ended

 

 

March 31,

 

 

2020

 

2019

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

(5,617

)

 

$

176,670

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

315,946

 

 

 

278,020

 

Amortization of capitalized software developed for sale

 

 

14,415

 

 

 

14,673

 

Accretion and changes in estimate, net

 

 

14,966

 

 

 

19,329

 

Tax receivable agreement charge

 

 

164,633

 

 

 

Equity compensation

 

 

31,808

 

 

 

20,135

 

Deferred income tax expense (benefit)

 

 

(2,613

)

 

 

(3,774

)

Amortization of debt discount and issuance costs

 

 

18,807

 

 

 

21,823

 

Contingent consideration

 

 

(91

)

 

 

(809

)

Gain on Sale of the Extended Care Business

 

 

 

 

(111,435

)

Loss on extinguishment of debt

 

 

19,975

 

 

 

Impairment of long-lived assets and related costs

 

 

504

 

 

 

675

 

Other

 

 

6,392

 

 

 

(2,340

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,267

)

 

 

(61,556

)

Contract assets

 

 

21,390

 

 

 

Prepaid expenses and other

 

 

(29,375

)

 

 

(33,286

)

Accounts payable

 

 

(16,609

)

 

 

(2,111

)

Accrued expenses and other liabilities

 

 

10,929

 

 

 

12,048

 

Deferred Revenue

 

 

32,648

 

 

 

(40,196

)

Due to related party, net

 

 

(3,532

)

 

 

(185

)

Net cash provided by (used in) operating activities

 

 

593,309

 

 

 

287,681

 

Cash flows from investing activities:

 

 

 

 

 

 

Capitalized expenditures

 

 

(258,576

)

 

 

(246,986

)

Proceeds from Sale of the Extended Care Business

 

 

 

 

159,871

 

Payments for acquisitions, net of cash acquired

 

 

(18,994

)

 

 

Proceeds from sale of real estate

 

 

29,837

 

 

 

Investments in businesses

 

 

 

 

(15,500

)

Other

 

 

(2

)

 

 

(3,068

)

Net cash provided by (used in) investing activities

 

 

(247,735

)

 

 

(105,683

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from Change Healthcare Inc. initial public offering

 

 

608,679

 

 

 

Proceeds from forward purchase contract with Change Healthcare Inc.

 

 

232,929

 

 

 

Proceeds from debt issued to Change Healthcare Inc.

 

 

47,367

 

 

 

Proceeds from Revolving Facility

 

 

250,000

 

 

 

Capital contribution from Members from exercise of equity awards

 

 

6,256

 

 

 

205

 

(Advances to) and refunds from Members

 

 

5,531

 

 

 

2,636

 

Receipts (payments) on derivative instruments

 

 

935

 

 

 

5,776

 

Payments on Term Loan Facility

 

 

(1,087,750

)

 

 

(153,000

)

Payments under tax receivable agreements with related parties

 

 

(27,227

)

 

 

(25,096

)

Payments of third party initial public offering and loan costs

 

 

(8,555

)

 

 

Payment of debt issued to Change Healthcare Inc.

 

 

(7,332

)

 

 

Payments of deferred financing obligations

 

 

(6,593

)

 

 

(3,432

)

Repurchase of equity awards

 

 

 

 

(7,425

)

Payment of working capital settlement to related party

 

 

 

 

Payment of data sublicense obligation

 

 

 

 

Settlement of Legacy CHC equity awards

 

 

 

 

Other

 

 

 

 

(1,758

)

Net cash provided by (used in) financing activities

 

 

14,240

 

 

 

(182,094

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,021

)

 

 

(1,021

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

358,793

 

 

 

(1,117

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

48,894

 

 

 

50,011

 

Cash, cash equivalents and restricted cash at end of period

 

$

407,687

 

 

$

48,894

 

 
 
 
 
 

Change Healthcare LLC
Reconciliation of Net Income (Loss) to Adjusted EBITDA – Quarter End
(unaudited and amounts in thousands)

 

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

As Reported

 

 

Impacts

from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Net income (loss)

 

$

(108,590

)

 

$

554

 

$

(108,036

)

 

$

37,715

 

Net interest expense

 

 

64,084

 

 

 

 

 

64,084

 

 

 

83,591

 

Income tax provision (benefit)

 

 

1,112

 

 

 

4,342

 

 

5,454

 

 

 

(5,530

)

Depreciation and amortization

 

 

89,852

 

 

 

 

 

89,852

 

 

 

69,917

 

Amortization of capitalized software developed for sale

 

 

3,959

 

 

 

 

 

3,959

 

 

 

3,793

 

EBITDA

 

 

50,417

 

 

 

4,896

 

 

55,313

 

 

 

189,486

 

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Equity compensation

 

 

6,893

 

 

 

 

 

6,893

 

 

 

3,757

 

Acquisition accounting adjustments

 

 

522

 

 

 

 

 

522

 

 

 

341

 

Acquisition and divestiture-related costs

 

 

1,664

 

 

 

 

 

1,664

 

 

 

1,559

 

Integration and related costs

 

 

15,132

 

 

 

 

 

15,132

 

 

 

34,728

 

Strategic initiatives, duplicative and transition costs

 

 

8,991

 

 

 

 

 

8,991

 

 

 

8,325

 

Severance costs

 

 

7,824

 

 

 

 

 

7,824

 

 

 

3,339

 

Costs related to recently issued accounting standards 

 

 

 

 

 

 

 

 

1,022

 

Accretion and changes in estimate with related parties, net

 

 

4,627

 

 

 

 

 

4,627

 

 

 

6,039

 

Tax receivable agreement

 

 

164,633

 

 

 

 

 

 

164,633

 

 

 

Management fees and related costs

 

 

2,647

 

 

 

 

 

2,647

 

 

 

2,607

 

Impairment of long-lived assets and other

 

 

1,347

 

 

 

 

 

1,347

 

 

 

463

 

Gain on sale of business

 

 

 

 

 

 

 

 

Contingent consideration

 

 

(1,900

)

 

 

 

 

(1,900

)

 

 

91

 

Loss on Extinguishment of Debt

 

 

560

 

 

 

 

 

560

 

 

 

Other non-routine, net

 

 

1,002

 

 

 

 

 

1,002

 

 

 

5,423

 

EBITDA Adjustments

 

 

213,942

 

 

 

 

 

213,942

 

 

 

67,694

 

Adjusted EBITDA

 

$

264,359

 

 

$

4,896

 

$

269,255

 

 

$

257,180

 

 
 
 
 
 

Change Healthcare LLC
Reconciliation of Net Income (Loss) to Adjusted EBITDA – Year End
(unaudited and amounts in thousands)

 

 

 

 

Year Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

As

Reported

 

 

Impacts

from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Net income (loss)

 

$

(5,617

)

 

$

(22,633

)

 

$

(28,250

)

 

$

176,670

 

Net interest expense

 

 

283,745

 

 

 

 

 

283,745

 

 

 

325,431

 

Income tax provision (benefit)

 

 

1,701

 

 

 

1,989

 

 

 

3,690

 

 

 

(4,481

)

Depreciation and amortization

 

 

315,946

 

 

 

 

 

315,946

 

 

 

278,020

 

Amortization of capitalized software developed for sale

 

 

14,415

 

 

 

 

 

14,415

 

 

 

14,673

 

EBITDA

 

 

610,190

 

 

 

(20,644

)

 

 

589,546

 

 

 

790,313

 

Adjustments to EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

Equity compensation

 

 

31,808

 

 

 

 

 

31,808

 

 

 

20,135

 

Acquisition accounting adjustments

 

 

1,889

 

 

 

 

 

1,889

 

 

 

3,532

 

Acquisition and divestiture-related costs

 

 

4,217

 

 

 

 

 

4,217

 

 

 

13,076

 

Integration and related costs

 

 

82,108

 

 

 

 

 

82,108

 

 

 

114,533

 

Strategic initiatives, duplicative and transition costs

 

 

23,325

 

 

 

 

 

23,325

 

 

 

27,339

 

Severance costs

 

 

22,113

 

 

 

 

 

22,113

 

 

 

17,666

 

Costs related to recently issued accounting standards 

 

 

 

 

 

 

 

 

8,265

 

Accretion and changes in estimate with related parties, net

 

 

14,966

 

 

 

 

 

14,966

 

 

 

19,329

 

Tax receivable agreement

 

 

164,633

 

 

 

 

 

164,633

 

 

 

Management fees and related costs

 

 

10,355

 

 

 

 

 

10,355

 

 

 

10,490

 

Impairment of long-lived assets and other

 

 

72

 

 

 

 

 

72

 

 

 

4,205

 

Gain on sale of business

 

 

 

 

 

 

 

 

(111,435

)

Contingent consideration

 

 

(91

)

 

 

 

 

(91

)

 

 

(809

)

Loss on Extinguishment of Debt

 

 

19,975

 

 

 

 

 

19,975

 

 

 

Other non-routine, net

 

 

10,172

 

 

 

 

 

10,172

 

 

 

18,359

 

EBITDA Adjustments

 

 

385,542

 

 

 

 

 

385,542

 

 

 

144,685

 

Adjusted EBITDA

 

$

995,732

 

 

$

(20,644

)

 

$

975,088

 

 

$

934,998

 

 
 
 
 
 

Change Healthcare LLC
Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)
(unaudited and amounts in thousands)

 

 

 

Three Months Ended March 31,

 

 

2020

 

2019

 

 

 

As Reported

 

 

Impacts

from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Net income (loss)

 

$

(108,590

)

 

$

554

 

$

(108,036

)

 

$

37,715

 

Amortization expense resulting from acquisition method adjustments

 

 

35,251

 

 

 

 

 

35,251

 

 

 

36,273

 

EBITDA Adjustments

 

 

213,942

 

 

 

 

 

213,942

 

 

 

67,694

 

Tax effect of EBITDA Adjustments and amortization expense

 

 

(7,417

)

 

 

 

 

(7,417

)

 

 

(15,878

)

Adjusted Net Income

 

$

133,186

 

 

$

554

 

$

133,740

 

 

$

125,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income (loss) per diluted unit

 

$

0.42

 

 

 

 

 

$

0.42

 

 

$

0.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended March 31,

 

 

2020

 

2019

 

 

 

As Reported

 

 

Impacts

from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Net income (loss)

 

$

(5,617

)

 

$

(22,633

)

 

$

(28,250

)

 

$

176,670

 

Amortization expense resulting from acquisition method adjustments

 

 

139,875

 

 

 

 

 

139,875

 

 

 

146,549

 

EBITDA Adjustments

 

 

385,542

 

 

 

 

 

385,542

 

 

 

144,685

 

Tax effect of EBITDA Adjustments and amortization expense

 

 

(52,168

)

 

 

 

 

(52,168

)

 

 

(57,953

)

Adjusted Net Income

 

$

467,632

 

 

$

(22,633

)

 

$

444,999

 

 

$

409,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net income (loss) per diluted unit (1)

 

$

1.55

 

 

 

 

 

$

1.47

 

 

$

1.62

(1)

 

Common units of Change Healthcare LLC are equivalent to the weighted average outstanding common shares of Change Healthcare Inc. and prior to the Merger membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 
 
 
 
 

Change Healthcare LLC
Segment Results
(unaudited and amounts in thousands)

 

 

 

 

Three Months Ended March 31,

 

Year Ended March 31,

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

As

Reported

 

 

Impacts

from

Adoption

 

 

Without

Adoption

(ASC 605)

 

As

Reported

(ASC 605)

 

 

 

As

Reported

 

 

Impacts

from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Segment revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software and Analytics

 

$

418,658

 

 

$

12,341

 

 

$

430,999

 

 

$

419,125

 

 

 

$

1,612,799

 

 

$

2,401

 

 

$

1,615,200

 

 

$

1,579,023

 

Network Solutions

 

 

152,163

 

 

 

 

 

152,163

 

 

 

140,093

 

 

 

 

588,749

 

 

 

 

 

588,749

 

 

 

556,525

 

Technology-Enabled Services

 

 

242,444

 

 

 

(1,692

)

 

 

240,752

 

 

 

243,995

 

 

 

 

978,684

 

 

 

665

 

 

 

979,349

 

 

 

1,005,377

 

Corporate and Eliminations

 

 

30,115

 

 

 

 

 

30,115

 

 

 

33,126

 

 

 

 

122,741

 

 

 

 

 

122,741

 

 

 

140,804

 

Net revenue

 

$

843,380

 

 

$

10,649

 

 

$

854,029

 

 

$

836,339

 

 

 

$

3,302,973

 

 

$

3,066

 

 

$

3,306,039

 

 

$

3,281,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software and Analytics

 

$

172,717

 

 

$

8,574

 

 

$

181,291

 

 

$

177,454

 

 

 

$

663,016

 

 

$

(14,287

)

 

$

648,729

 

 

$

610,313

 

Network Solutions

 

 

89,323

 

 

 

(496

)

 

 

88,827

 

 

 

83,439

 

 

 

 

353,486

 

 

 

(1,899

)

 

 

351,587

 

 

 

337,360

 

Technology-Enabled Services

 

 

47,141

 

 

 

(2,770

)

 

 

44,371

 

 

 

42,695

 

 

 

 

175,116

 

 

 

(2,998

)

 

 

172,118

 

 

 

175,953

 

Corporate and Eliminations

 

 

(44,821

)

 

 

(441

)

 

 

(45,262

)

 

 

(46,408

)

 

 

 

(195,886

)

 

 

(1,460

)

 

 

(197,346

)

 

 

(188,628

)

Total Adjusted EBITDA

 

$

264,360

 

 

$

4,867

 

 

$

269,227

 

 

$

257,180

 

 

 

$

995,732

 

 

$

(20,644

)

 

$

975,088

 

 

$

934,998

 

(1)

 

Revenue for the Corporate and Eliminations segment includes postage revenue of $56,791 and $57,912 for the three months ended March 31, 2020 and 2019, respectively, and $228,079 and $238,618 for the years ended March 31, 2020 and 2019, respectively.

 
 
 
 
 

Change Healthcare LLC
R
econciliation of Cash Provided by (Used in) Operating Activities to Free Cash Flow and Adjusted Free Cash Flow
(unaudited and amounts in thousands)

 

 

 

Year Ended

 

 

March 31,

 

 

2020

 

2019

Cash provided by (used in) operating activities (1)

 

$

593,309

 

 

$

287,681

 

Capital expenditures

 

 

(258,576

)

 

 

(246,986

)

Free Cash Flow

 

 

334,733

 

 

 

40,695

 

Adjustments to Free Cash Flow (2):

 

 

 

 

 

 

Integration and related costs

 

 

82,108

 

 

 

114,533

 

Strategic initiatives, duplicative and transition costs

 

 

23,325

 

 

 

27,339

 

Severance costs

 

 

22,113

 

 

 

17,666

 

Costs related to recently issued accounting standards

 

 

 

 

8,265

 

Integration capital expenditures

 

 

19,254

 

 

 

83,752

 

Adjusted Free Cash Flow

 

$

481,533

 

 

$

292,250

(1)

 

Includes cash provided by pass thru funds of $21.7 million and $3.0 million for the years ended March 31, 2020 and 2019, respectively.

(2)

 

All operating costs and integrational capital expenditures are presented on an as incurred basis.

 
 
 
 
 

Change Healthcare LLC
Consolidated Statements of Operations – Quarter End
Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
(unaudited and amounts in thousands, except unit and per unit amounts)

 

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

 

As Reported

 

 

Impacts from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Solutions revenue

 

$

786,589

 

 

$

10,649

 

$

797,238

 

 

$

778,427

 

Postage revenue

 

 

56,791

 

 

 

 

 

56,791

 

 

 

57,912

 

Total revenue

 

 

843,380

 

 

 

10,649

 

 

854,029

 

 

 

836,339

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations (exclusive of depreciation and amortization below)

 

 

346,978

 

 

 

239

 

 

347,217

 

 

 

347,327

 

Research and development

 

 

53,257

 

 

 

 

 

53,171

 

 

 

42,637

 

Sales, marketing, general and administrative

 

 

175,221

 

 

 

5,514

 

 

180,821

 

 

 

200,470

 

Customer postage

 

 

56,791

 

 

 

 

 

56,791

 

 

 

57,912

 

Depreciation and amortization

 

 

89,851

 

 

 

 

 

89,851

 

 

 

69,917

 

Accretion and changes in estimate with related parties, net

 

 

4,627

 

 

 

 

 

4,627

 

 

 

6,039

 

Tax receivable agreement charge

 

 

164,633

 

 

 

 

 

164,633

 

 

 

Gain on sale of business

 

 

 

 

 

 

 

 

Impairment of long-lived assets and related costs

 

 

504

 

 

 

 

 

504

 

 

 

675

 

Total operating expenses

 

 

891,862

 

 

 

5,753

 

 

897,615

 

 

 

724,977

 

Operating income (loss)

 

 

(48,482

)

 

 

4,896

 

 

(43,586

)

 

 

111,362

 

Non-operating (income) and expense

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

64,084

 

 

 

 

 

64,084

 

 

 

83,591

 

Loss on extinguishment of debt

 

 

561

 

 

 

 

 

561

 

 

 

Contingent consideration

 

 

(1,900

)

 

 

 

 

(1,900

)

 

 

91

 

Other, net

 

 

(3,749

)

 

 

 

 

(3,749

)

 

 

(4,505

)

Total non-operating (income) and expense

 

 

58,996

 

 

 

 

 

58,996

 

 

 

79,177

 

Income (loss) before income tax provision (benefit)

 

 

(107,478

)

 

 

4,896

 

 

(102,582

)

 

 

32,185

 

Income tax provision (benefit)

 

 

1,112

 

 

 

4,342

 

 

5,454

 

 

 

(5,530

)

Net income (loss)

 

$

(108,590

)

 

$

554

 

$

(108,036

)

 

$

37,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common unit:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.34

)

 

$

0.00

 

$

(0.34

)

 

$

0.15

 

Diluted

 

$

(0.34

)

 

$

0.00

 

$

(0.34

)

 

$

0.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common units outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

319,787,840

 

 

 

319,787,840

 

 

319,787,840

 

 

 

251,469,867

 

Diluted

 

 

319,787,840

 

 

 

319,787,840

 

 

319,787,840

 

 

 

253,409,601

 

 
 
 
 

 

Change Healthcare LLC
Consolidated Statements of Operations – Year End
Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
(unaudited and amounts in thousands, except unit and per unit amounts)

 

 

 

Year Ended March 31,

 

 

2020

 

 

2019

 

 

 

As Reported

 

 

Impacts from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Solutions revenue

 

$

3,074,894

 

 

$

3,066

 

 

$

3,077,960

 

 

$

3,043,111

 

Postage revenue

 

 

228,079

 

 

 

 

 

228,079

 

 

 

238,618

 

Total revenue

 

 

3,302,973

 

 

 

3,066

 

 

 

3,306,039

 

 

 

3,281,729

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations (exclusive of depreciation and amortization below)

 

 

1,345,920

 

 

 

3,282

 

 

 

1,349,202

 

 

 

1,354,655

 

Research and development

 

 

205,035

 

 

 

 

 

205,035

 

 

 

202,241

 

Sales, marketing, general and administrative

 

 

742,807

 

 

 

20,428

 

 

 

763,235

 

 

 

821,082

 

Customer postage

 

 

228,079

 

 

 

 

 

228,079

 

 

 

238,618

 

Depreciation and amortization

 

 

315,946

 

 

 

 

 

315,946

 

 

 

278,020

 

Accretion and changes in estimate with related parties, net

 

 

14,966

 

 

 

 

 

14,966

 

 

 

19,329

 

Tax receivable agreement charge

 

 

164,633

 

 

 

 

 

164,633

 

 

 

Gain on sale of business

 

 

 

 

 

 

 

 

(111,435

)

Impairment of long-lived assets and related costs

 

 

504

 

 

 

 

 

504

 

 

 

675

 

Total operating expenses

 

 

3,017,890

 

 

 

23,710

 

 

 

3,041,600

 

 

 

2,803,185

 

Operating income (loss)

 

 

285,083

 

 

 

(20,644

)

 

 

264,439

 

 

 

478,544

 

Non-operating (income) and expense

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

283,745

 

 

 

 

 

283,745

 

 

 

325,431

 

Loss on extinguishment of debt

 

 

19,975

 

 

 

 

 

19,975

 

 

 

Contingent consideration

 

 

(91

)

 

 

 

 

(91

)

 

 

(809

)

Other, net

 

 

(14,630

)

 

 

 

 

(14,630

)

 

 

(18,267

)

Total non-operating (income) and expense

 

 

288,999

 

 

 

 

 

288,999

 

 

 

306,355

 

Income (loss) before income tax provision (benefit)

 

 

(3,916

)

 

 

(20,644

)

 

 

(24,560

)

 

 

172,189

 

Income tax provision (benefit)

 

 

1,701

 

 

 

1,989

 

 

 

3,690

 

 

 

(4,481

)

Net income (loss)

 

$

(5,617

)

 

$

(22,633

)

 

$

(28,250

)

 

$

176,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common unit:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02

)

 

$

(0.07

)

 

$

(0.09

)

 

$

0.70

 

Diluted

 

$

(0.02

)

 

$

(0.07

)

 

$

(0.09

)

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common units outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

302,412,870

 

 

 

302,412,870

 

 

 

302,412,870

 

 

 

251,508,322

 

Diluted

 

 

302,412,870

 

 

 

302,412,870

 

 

 

302,412,870

 

 

 

253,377,778

 

(1)

 

Common units of Change Healthcare LLC are equivalent to the weighted average outstanding common shares of Change Healthcare Inc. and prior to the Merger membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 
 
 
 
 

Change Healthcare LLC
Consolidated Balance Sheets
Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard
(unaudited and amounts in thousands)

 

 

 

 

March 31, 2020

 

 

March 31, 2019

 

 

 

As Reported

 

 

Impacts

from

Adoption

 

 

Without

Adoption

(ASC 605)

 

 

As Reported

(ASC 605)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

407,687

 

$

 

$

407,687

 

 

$

47,718

 

Restricted cash

 

 

 

 

 

 

 

 

1,176

 

Accounts receivable, net of allowance for doubtful accounts

 

 

740,105

 

 

21,822

 

 

 

761,927

 

 

 

759,502

 

Contract assets

 

 

132,704

 

 

(132,704

)

 

 

 

 

Prepaid expenses and other current assets

 

 

144,051

 

 

19,616

 

 

 

163,667

 

 

 

172,067

 

Total current assets

 

 

1,424,547

 

 

(91,266

)

 

 

1,333,281

 

 

 

980,463

 

Property and equipment, net

 

 

150,000

 

 

 

 

150,000

 

 

 

197,263

 

Goodwill

 

 

3,288,765

 

 

 

 

3,288,765

 

 

 

3,284,266

 

Intangible assets, net

 

 

1,192,776

 

 

 

 

1,192,776

 

 

 

1,320,161

 

Other noncurrent assets, net

 

 

574,078

 

 

(52,889

)

 

 

521,189

 

 

 

421,985

 

Total assets

 

$

6,630,166

 

$

(144,155

)

 

$

6,486,011

 

 

$

6,204,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and members' equity (deficit)

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Drafts and accounts payable

 

$

68,169

 

$

 

$

68,169

 

 

$

98,550

 

Accrued expenses

 

 

379,700

 

 

 

 

379,700

 

 

 

316,179

 

Deferred revenues

 

 

439,364

 

 

38,043

 

 

 

477,407

 

 

 

437,636

 

Due to related parties, net

 

 

20,779

 

 

 

 

20,779

 

 

 

34,629

 

Current portion of long-term debt

 

 

278,779

 

 

 

 

278,779

 

 

 

2,789

 

Total current liabilities

 

 

1,186,791

 

 

38,043

 

 

 

1,224,834

 

 

 

889,783

 

Long-term debt, excluding current portion

 

 

4,762,832

 

 

 

 

4,762,832

 

 

 

5,787,150

 

Deferred income tax liabilities

 

 

109,144

 

 

 

 

109,144

 

 

 

106,099

 

Tax receivable agreement obligations to related parties

 

 

207,395

 

 

 

 

207,395

 

 

 

212,698

 

Other long-term liabilities

 

 

267,584

 

 

438

 

 

 

268,022

 

 

 

113,194

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

Members' equity (deficit)

 

 

96,420

 

 

(182,636

)

 

 

(86,216

)

 

 

(904,786

)

Total liabilities and members' equity (deficit)

 

$

6,630,166

 

$

(144,155

)

 

$

6,486,011

 

 

$

6,204,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Evan Smith, CFA
Investor Relations
404-338-2225
Evan.Smith@changehealthcare.com

Kerry Kelly
External Communications
339-236-2756
Kerry.Kelly@changehealthcare.com

Source: Change Healthcare Inc.