The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Allscripts Healthcare Solutions, Inc. (“Allscripts”) and its wholly-owned subsidiaries and controlled affiliates. All significant intercompany balances and transactions have been eliminated. Each of the terms “we,” “us,” “our” or the “Company” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements as of and for the three months ended March 31, 2019 and 2018 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim consolidated financial statements are unaudited and, in the opinion of our management,
include all adjustments, consisting of normal recurring adjustments and accruals, necessary
to present fairly the consolidated financial statements for the periods presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The consolidated results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year ending December 31, 2019.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting. The Company believes that the disclosures made are adequate to make these unaudited interim consolidated financial statements not misleading. They should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018 (our “Form 10-K”).
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.
Change in Presentation
During the first quarter of 2019, we changed our reportable segments from Clinical and Financial Solutions, Population Health and Unallocated to Provider, Veradigm and Unallocated. The business units reported within the historical segments have been reallocated into the new segments. Refer to Note 15 “Business Segments” for further discussion on the impact of the change.
Significant Accounting Policies
We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update No. 2016-02,
“Leases (Topic 842)”
(“ASU 2016-02”)
on January 1, 2019 using the cumulative-effect adjustment transition method
. This
method requires us to recognize an adoption impact as a cumulative-effect adjustment to the January 1, 2019 retained earnings balance.
Prior period balances were not adjusted upon adoption this standard. The standard requires that leased assets and corresponding lease liabilities be recognized within the consolidated balance sheets as right-to-use assets and operating or financing lease liabilities. Please refer to Note 3 “Leases” for further discussion on the impact of adop
tion.
Recently Adopted Accounting Pronouncements
In August 2017, the FASB issued Accounting Standards Update No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
(“ASU 2017-12”), which provides new accounting guidance to simplify and improve the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in ASU 2017-12 make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP.
We adopted ASU 2017-12 on January 1, 2019 and the adoption did not have any effect on our consolidated financial statements.
In June 2018, the FASB issued Accounting Standards Update No. 2018-07, “
Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
” (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers. We adopted this standard on January 1, 2019 and the adoption did not have any effect on our consolidated financial statements.
9
Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued Accounting Standards Update No. 2018-13,
“Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”
(“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements ASU 2018-13 will be effective for all entities for interim and annual periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the disclosure impact of this accounting guidance.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”). The guidance in ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently in the process of evaluating this new guidance, which we expect to have an impact on our consolidated financial statements and results of operations.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, will have a material impact on our consolidated financial statements.
2. Revenue from Contracts with Customers
Our two primary revenue streams are (i) software delivery, support and maintenance and (ii) client services. Software delivery, support and maintenance revenue consists of all of our proprietary software sales (either under a perpetual or term license delivery model), subscription-based software sales, transaction-related revenue, the resale of hardware and third-party software and revenue from post-contract client support and maintenance services, which include telephone support services, maintaining and upgrading software and ongoing enhanced maintenance. Client services revenue consists of revenue from managed services solutions, such as private cloud hosting, outsourcing and revenue cycle management, as well as other client services and project-based revenue from implementation, training and consulting services. For some clients, we host the software applications licensed from us using our own or third-party servers. For other clients, we offer an outsourced service in which we assume partial to total responsibility for a healthcare organization’s IT operations using our employees.
At March 31, 2019 and 2018, we had capitalized costs to obtain or fulfill a contract of $22.7 million and $27.4 million, respectively, in Prepaid and other current assets and $32.0 million and $37.3 million, respectively, in Other assets. During the three months ended March 31, 2019 and 2018, we recognized $7.6 million and $8.1 million, respectively, of amortization expense related to such capitalized costs, which is included in selling, general and administrative expenses within the consolidated statements of operations.
The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivables, contract assets and customer advances and deposits. Accounts receivable, net includes both billed and unbilled amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets include amounts where revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Deferred revenue includes advanced payments and billings in excess of revenue recognized. Our contract assets and deferred revenue are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term based on the timing of when we expect to complete the related performance obligations and bill the customer. Deferred revenue is classified as current or long-term based on the timing of when we expect to recognize revenue.
The breakdown of revenue recognized related based on the origination of performance obligations and elected accounting expedients is presented in the table below:
(In thousands)
|
|
Three Months
Ended
March 31, 2019
|
|
Revenue related to deferred revenue balance at beginning of period
|
|
$
|
126,184
|
|
Revenue related to new performance obligations satisfied during the period
|
|
|
248,221
|
|
Revenue recognized under "right-to-invoice" expedient
|
|
|
55,923
|
|
Reimbursed travel expenses, shipping and other revenue
|
|
|
1,721
|
|
Total revenue
|
|
$
|
432,049
|
|
10
(In thousands)
|
|
Three Months
Ended
March 31, 2018
|
|
Revenue related to deferred revenue balance at beginning of period
|
|
$
|
181,398
|
|
Revenue related to new performance obligations satisfied during the period
|
|
|
200,232
|
|
Revenue recognized under "right-to-invoice" expedient
|
|
|
49,403
|
|
Reimbursed travel expenses, shipping and other revenue
|
|
|
2,689
|
|
Total revenue
|
|
$
|
433,722
|
|
The aggregate amount of contract transaction price related to remaining unsatisfied performance obligations (commonly referred to as “backlog”) represents contracted revenue that has not yet been recognized and includes both deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog equaled $4.0 billion as of March 31, 2019, of which we expect to recognize approximately 38% over the next 12 months, and the remaining 62% thereafter.
Revenue Recognition
We recognize revenue only when we satisfy an identified performance obligation (or bundle of obligations) by transferring control of a promised product or service to a customer. We consider a product or service to be transferred when a customer obtains control because a customer has sole possession of the right to use (or the right to direct the use of) the product or service for the remainder of its economic life or to consume the product or service in its own operations. We evaluate the transfer of control primarily from the customer’s perspective as this reduces the risk that revenue is recognized for activities that do not transfer control to the customer.
The majority of our revenue is recognized over time because a customer continuously and simultaneously receives and consumes the benefits of our performance. The exceptions to this pattern are our sales of perpetual and term software licenses, and hardware, where we determined that a customer obtains control of the asset upon granting of access, delivery or shipment.
We disaggregate our revenue from contracts with
customers
based on the type of revenue and nature of revenue stream, as we believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The below tables summarize revenue by type and nature of revenue stream as well as by our reportable segments:
|
|
Three Months Ended March 31
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
$
|
348,636
|
|
|
$
|
352,660
|
|
Non-recurring revenue
|
|
|
83,413
|
|
|
|
81,062
|
|
Total revenue
|
|
$
|
432,049
|
|
|
$
|
433,722
|
|
|
|
Three Months Ended March 31, 2019
|
|
(In thousands)
|
|
Provider
|
|
|
Veradigm
|
|
|
Unallocated
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
237,355
|
|
|
$
|
34,042
|
|
|
$
|
4,115
|
|
|
$
|
275,512
|
|
Client services
|
|
|
155,252
|
|
|
|
1,074
|
|
|
|
211
|
|
|
|
156,537
|
|
Total revenue
|
|
$
|
392,607
|
|
|
$
|
35,116
|
|
|
$
|
4,326
|
|
|
$
|
432,049
|
|
|
|
Three Months Ended March 31, 2018
|
|
(In thousands)
|
|
Provider
|
|
|
Veradigm
|
|
|
Unallocated
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
257,754
|
|
|
$
|
21,415
|
|
|
$
|
1,384
|
|
|
$
|
280,553
|
|
Client services
|
|
|
152,670
|
|
|
|
1,392
|
|
|
|
(893
|
)
|
|
|
153,169
|
|
Total revenue
|
|
$
|
410,424
|
|
|
$
|
22,807
|
|
|
$
|
491
|
|
|
$
|
433,722
|
|
11
3. Leases
We adopted ASU 2016-02
on January 1, 2019 using the cumulative-effect adjustment transition method.
The new guidance required the recognition of leased arrangements on the balance sheet as a right-of-use assets and liabilities pertaining to the rights and obligations created by the leased assets.
We determine whether an arrangement is a lease at inception. Assets leased under an operating lease arrangement are recorded in Right-of-use assets – operating leases and the associated lease liability is included in Current operating lease liabilities and Long-term operating lease liabilities within the consolidated balance sheets. Assets leased under finance lease arrangements are recorded within fixed assets and the associated lease liabilities are recorded within Accrued expenses and Other liabilities within the consolidated balance sheets.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate in conjunction with the market swap rate for the expected remaining lease team at commencement date for new leases, or as of January 1, 2019 for existing leases, in determining the present value of future lease payments. Our expected lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.
We have elected the group of practical expedients under ASU 2016-02 to forego assessing upon adoption: (1) whether any expired contracts are or contain leases; (2) the lease classification for any existing or expired leases and (3) any indirect costs that would have qualified for capitalization for any existing leases. We have lease agreements with lease and non-lease components, which are generally accounted for separately except for real estate and vehicle leases, which we have elected to combine through a practical expedient under ASU 2016-02. Non-lease components for our leases typically comprise of executory costs, which under the practical expedient allows for all executory costs to be recorded as lease payments. Additionally, for certain equipment leases, we apply a portfolio approach to effectively record right-of-use assets and liabilities
.
Our operating leases mainly include office leases and our finance leases include office and computer equipment leases. Our leases have remaining lease terms of approximately 1 year to 10 years, some of which include options to extend the leases for up to 5 years, which may include options to terminate the leases within 1 year. Total costs associated with leased assets are as follows:
(In thousands)
|
|
Three months ended
March 31, 2019
|
|
Operating lease cost
(1)
|
|
$
|
6,717
|
|
Less: Sublease income
|
|
|
(802
|
)
|
Total operating lease costs
|
|
|
5,915
|
|
Finance lease costs:
|
|
|
|
|
Amortization of right-of-use assets
(2)
|
|
|
51
|
|
Interest on lease liability
(3)
|
|
|
3
|
|
Total finance lease costs
|
|
$
|
54
|
|
(1)
|
Operating lease costs are recognized on a straight-line basis and are included in Selling, general and administrative expenses within the consolidated statement of operations.
|
(2)
|
Amortization of finance right-of-use assets is recognized on a straight-line basis and is included in in Selling, general and administrative expenses within the consolidated statement of operations.
|
(3)
|
Interest on finance lease liabilities is recorded as Interest expense within the consolidated statement of operations
.
|
Supplemental information for operating and finance leases is as follows:
(In thousands)
|
|
Three months ended
March 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
7,287
|
|
Operating cash flows from finance leases
|
|
$
|
3
|
|
Financing cash flows from finance leases
|
|
$
|
37
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
|
$
|
124,811
|
|
Finance leases
|
|
$
|
263
|
|
12
The balance sheet location and balances for operating and finance leases are as follows:
(In thousands, except lease term and discount rate)
|
|
March 31, 2019
|
|
Operating leases:
|
|
|
|
|
Right-of-use assets - operating leases
|
|
$
|
97,411
|
|
Current operating lease liabilities
|
|
$
|
24,154
|
|
Long-term operating lease liabilities
|
|
$
|
95,112
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
Fixed assets, gross
|
|
$
|
524
|
|
Accumulated depreciation
|
|
|
286
|
|
Fixed assets, net
|
|
$
|
238
|
|
|
|
|
|
|
Current finance lease liabilities
(1)
|
|
$
|
130
|
|
Long-term finance lease liabilities
(2)
|
|
$
|
97
|
|
|
|
|
|
|
Weighted average remaining lease term (in years)
|
|
|
|
|
Operating leases
|
|
|
6
|
|
Finance leases
|
|
|
2
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
|
|
4.6
|
%
|
Finance leases
|
|
|
5.0
|
%
|
(1)
|
Current finance lease liabilities are included in Accrued expenses within the consolidated balance sheets.
|
(2)
|
Long-term finance lease liabilities are included in Other liabilities within the consolidated balance sheets.
|
The future maturities of our leasing arrangements including lease and non-lease components are shown in the below table. The maturities are calculated using foreign currency exchange rates in effect as of March 31, 2019.
|
|
March 31, 2019
|
|
(in thousands)
|
|
Operating Leases
|
|
|
Finance Leases
|
|
Remainder of 2019
|
|
$
|
22,128
|
|
|
$
|
107
|
|
2020
|
|
|
24,839
|
|
|
|
85
|
|
2021
|
|
|
20,773
|
|
|
|
40
|
|
2022
|
|
|
19,205
|
|
|
|
6
|
|
2023
|
|
|
16,817
|
|
|
|
0
|
|
Thereafter
|
|
|
33,171
|
|
|
|
0
|
|
Total lease liabilities
|
|
|
136,933
|
|
|
|
238
|
|
Less: Amount representing interest
|
|
|
(17,667
|
)
|
|
|
(11
|
)
|
Less: Short-term lease liabilities
|
|
|
(24,154
|
)
|
|
|
(130
|
)
|
Total long-term lease liabilities
|
|
$
|
95,112
|
|
|
$
|
97
|
|
4. Business Combinations
On March 1, 2019, we acquired all of the outstanding minority interest in Pulse8, Inc., a healthcare analytics and technology company that provides business intelligence software solutions for health plans and at-risk providers to enable them to analyze their risk adjustment and quality management programs, for $53.8 million (subject to adjustments for net working capital and a contingency holdback), plus up to a $10.0 million earnout based upon revenue targets through 2019. We initially acquired a controlling stake in Pulse 8, Inc. on September 8, 2016. This transaction was treated as an equity transaction and the cash payment is reported as part of cash flow from financing activities in the consolidated statement of cash flows for the three months ended March 31, 2019.
13
5. Fair Value Measurements and Long-term Investments
Fair value measurements are based upon observable and unobservable inputs.
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of the respective balance sheet dates:
|
|
Balance Sheet
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
(In thousands)
|
|
Classifications
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Foreign exchange
derivative assets
|
|
Prepaid expenses
and other
current assets
|
|
$
|
0
|
|
|
$
|
394
|
|
|
$
|
0
|
|
|
$
|
394
|
|
|
$
|
0
|
|
|
$
|
262
|
|
|
$
|
0
|
|
|
$
|
262
|
|
1.25% Call Option
|
|
Other assets
|
|
|
0
|
|
|
|
0
|
|
|
|
3,030
|
|
|
|
3,030
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,104
|
|
|
|
9,104
|
|
Total assets
|
|
|
|
$
|
0
|
|
|
$
|
394
|
|
|
$
|
3,030
|
|
|
$
|
3,424
|
|
|
$
|
0
|
|
|
$
|
262
|
|
|
$
|
9,104
|
|
|
$
|
9,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
- current
|
|
Accrued expenses
|
|
|
0
|
|
|
|
0
|
|
|
|
8,785
|
|
|
|
8,785
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,528
|
|
|
|
10,528
|
|
Contingent consideration
- long-term
|
|
Other liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
22,074
|
|
|
|
22,074
|
|
|
|
0
|
|
|
|
0
|
|
|
|
15,317
|
|
|
|
15,317
|
|
1.25% Embedded
cash conversion
option
|
|
Other liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
3,525
|
|
|
|
3,525
|
|
|
|
0
|
|
|
|
0
|
|
|
|
9,974
|
|
|
|
9,974
|
|
Total liabilities
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
34,384
|
|
|
$
|
34,384
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
35,819
|
|
|
$
|
35,819
|
|
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at March 31, 2019 are summarized as follows:
(In thousands)
|
|
Contingent Consideration
|
|
|
1.25% Notes Call Spread Overlay
|
|
Balance at December 31, 2018
|
|
|
25,845
|
|
|
|
(870
|
)
|
Additions
|
|
|
5,008
|
|
|
|
0
|
|
Fair value adjustments
|
|
|
6
|
|
|
|
375
|
|
Balance at March 31, 2019
|
|
$
|
30,859
|
|
|
$
|
(495
|
)
|
Long-term Investments
The following table summarizes our long-term equity investments which are included in Other assets in the accompanying consolidated balance sheets:
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investees
|
|
|
Original
|
|
|
Carrying Value at
|
|
(In thousands, except for number of investees)
|
|
at March 31, 2019
|
|
|
Cost
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Equity method investments
(1)
|
|
|
5
|
|
|
$
|
7,407
|
|
|
$
|
10,604
|
|
|
$
|
10,667
|
|
Cost method investments
|
|
|
8
|
|
|
|
37,874
|
|
|
|
26,935
|
|
|
|
25,923
|
|
Total long-term equity investments
|
|
|
13
|
|
|
$
|
45,281
|
|
|
$
|
37,539
|
|
|
$
|
36,590
|
|
(1)
|
Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.
|
As of March 31, 2019, it is not practicable to estimate the fair value of our non-marketable cost and equity method investments primarily because of their illiquidity and restricted marketability. The factors we considered in trying to determine fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations, the issuer’s subsequent or planned raises of capital, and observable price changes in orderly transactions.
14
Recovery and Impairment of Long-term Investments
During the three months ended March 31, 2019, we recovered $1.0 million from a third-party cost-method investment that we had previously impaired.
Each quarter, management performs an assessment of each of our investments on an individual basis to determine if there have been any declines in fair value. As a result of this review, we recognized a non-cash impairment charge during the three months ended March 31, 2018 of $5.5 million related to one of our cost-method equity investments and a related note receivable, which had cost bases of $4.9 million and $2.6 million, respectively, prior to the impairment.
Long-term Financial Liabilities
Our long-term financial liabilities include amounts outstanding under our senior secured credit facility (as defined in Note 9, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. In addition, the carrying amount of our 1.25% Cash Convertible Senior Notes (the “1.25% Notes”) approximates fair value as of March 31, 2019, since the effective interest rate on the 1.25% Notes approximates current market rates. Refer to Note 9, “Debt,” for further information regarding our long-term financial liabilities.
6. Stockholders' Equity
Stock-based Compensation Expense
Stock-based compensation expense recognized during the three months ended March 31, 2019 and 2018 is included in our consolidated statements of operations as shown in the below table. Stock-based compensation expense includes both non-cash expense related to grants of stock-based awards as well as cash expense related to the employee discount applied to purchases of our common stock under our employee stock purchase plan. No stock-based compensation costs were capitalized during the three months ended March 31, 2019 and 2018.
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
513
|
|
|
$
|
596
|
|
Client services
|
|
|
1,093
|
|
|
|
1,408
|
|
Total cost of revenue
|
|
|
1,606
|
|
|
|
2,004
|
|
Selling, general and administrative expenses
|
|
|
8,325
|
|
|
|
6,132
|
|
Research and development
|
|
|
2,877
|
|
|
|
2,807
|
|
Total stock-based compensation expense
|
|
$
|
12,808
|
|
|
$
|
10,943
|
|
Allscripts Long-Term Incentive Plan
We measure stock-based compensation expense at the grant date based on the fair value of the award. We recognize the expense for service-based share awards over the requisite service period on a straight-line basis, net of estimated forfeitures. We recognize the expense for performance-based and market-based share awards over the vesting period under the accelerated attribution method, net of estimated forfeitures. In addition, we recognize stock-based compensation cost for awards with performance conditions if and when we conclude that it is probable that the performance conditions will be achieved.
The fair value of service-based and performance-based restricted stock units is measured at the underlying closing share price of our common stock on the date of grant. The fair value of market-based restricted stock units is measured using the Monte Carlo pricing model. No stock options were granted during the three months ended March 31, 2019 and 2018.
We granted stock-based awards as follows:
|
|
Three Months Ended
March 31, 2019
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
(In thousands, except per share amounts)
|
|
Shares
|
|
|
Fair Value
|
|
Service-based restricted stock units
|
|
|
1,040
|
|
|
$
|
10.72
|
|
Market-based restricted stock units with a service
condition
|
|
|
700
|
|
|
$
|
11.74
|
|
|
|
|
1,740
|
|
|
$
|
11.13
|
|
During the three months ended March 31, 2019 and the year ended December 31, 2018, 1.1 million and 1.6 million shares of common stock, respectively, were issued in connection with the exercise of options and the release of restrictions on stock awards.
Net Share-settlements
15
Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock. The majority of restricted stock units and awards that ves
ted during the three months ended March 31, 2019 and 2018 were net-share settled such that we withheld shares with fair value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the c
ash to the appropriate taxing authorities. Total payments for the employees' minimum statutory tax obligations to the taxing authorities are reflected as a financing activity within the accompanying consolidated statements of cash flows. The total shares w
ithheld for the three months ended March 31, 2019 and 2018 were 508 thousand and 609 thousand, respectively, and were based on the value of the restricted stock units on their vesting date as determined by our closing stock price. These net-share settlemen
ts had the effect of share repurchases by us as they reduced the number of shares that would have otherwise been issued as a result of the vesting.
Stock Repurchases
On November 17, 2016, we announced that our Board approved a stock purchase program (the “2016 Program”) under which we may
repurchase up to $200 million of our common stock through December 31, 2019. On August 2, 2018, we announced that our Board approved a new stock purchase program (the “2018 Program”) under which we may repurchase up to $250 million of our common stock through December 31, 2020, replacing the 2016 Program. We repurchased 6.1 million shares of our common stock under the 2018 Program for a total of $64.9 million during the three months ended March 31, 2019. The approximate dollar value of shares that may yet be purchased under the 2018 Program is $148.1 million as of March 31, 2019. We repurchased 4.1 million shares of our common stock under the 2016 Program for a total of $57.6 million during the three months ended March 31, 2018.
Any future stock repurchase transactions may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means, subject to market conditions. Any repurchase activity will depend on many factors such as our working capital needs, cash requirements for investments, debt repayment obligations, economic and market conditions at the time, including the price of our common stock, and other factors that we consider relevant. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.
7. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average shares of common stock outstanding. For purposes of calculating diluted earnings (loss) per share, the denominator includes both the weighted-average shares of common stock outstanding and dilutive common stock equivalents. Dilutive common stock equivalents consist of stock options, restricted stock unit awards and warrants calculated under the treasury stock method.
16
The calculations of earnings (loss) per share are as follows:
|
|
Three Months Ended
March 31,
|
|
(In thousands, except per share amounts)
|
|
2019
|
|
|
2018
|
|
Basic earnings (loss) per Common Share:
|
|
|
|
|
|
|
|
|
Loss from continuing operations, net of tax
|
|
$
|
(7,977
|
)
|
|
$
|
(25,161
|
)
|
Net loss attributable to non-controlling interests
|
|
|
424
|
|
|
|
790
|
|
Net loss from continuing operations attributable to
Allscripts Healthcare Solutions, Inc. stockholders
|
|
$
|
(7,553
|
)
|
|
$
|
(24,371
|
)
|
Loss from discontinued operations, net of tax
|
|
$
|
0
|
|
|
$
|
(3,354
|
)
|
Accretion of redemption preference on redeemable
convertible non-controlling interest - discontinued operations
|
|
|
0
|
|
|
|
(12,149
|
)
|
Net loss from discontinued operations attributable to
Allscripts Healthcare Solutions, Inc. stockholders
|
|
|
0
|
|
|
|
(15,503
|
)
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders
|
|
$
|
(7,553
|
)
|
|
$
|
(39,874
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
169,957
|
|
|
|
179,882
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations per
Common Share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.14
|
)
|
Basic income from discontinued operations per Common Share
|
|
|
0.00
|
|
|
|
(0.08
|
)
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders per Common Share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per Common Share:
|
|
|
|
|
|
|
|
|
Loss from continuing operations, net of tax
|
|
$
|
(7,977
|
)
|
|
$
|
(25,161
|
)
|
Net loss attributable to non-controlling interests
|
|
|
424
|
|
|
|
790
|
|
Net loss from continuing operations attributable to
Allscripts Healthcare Solutions, Inc. stockholders
|
|
$
|
(7,553
|
)
|
|
$
|
(24,371
|
)
|
Loss from discontinued operations, net of tax
|
|
$
|
0
|
|
|
$
|
(3,354
|
)
|
Accretion of redemption preference on redeemable
convertible non-controlling interest - discontinued operations
|
|
|
0
|
|
|
|
(12,149
|
)
|
Net loss from discontinued operations attributable to
Allscripts Healthcare Solutions, Inc. stockholders
|
|
|
0
|
|
|
|
(15,503
|
)
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders
|
|
$
|
(7,553
|
)
|
|
$
|
(39,874
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
169,957
|
|
|
|
179,882
|
|
Plus: Dilutive effect of stock options, restricted stock unit
awards and warrants
|
|
|
0
|
|
|
|
0
|
|
Weighted-average common shares outstanding assuming
dilution
|
|
|
169,957
|
|
|
|
179,882
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) from continuing operations per
Common Share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.14
|
)
|
Diluted income from discontinued operations per Common Share
|
|
|
0.00
|
|
|
|
(0.08
|
)
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders per Common Share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.22
|
)
|
Due to the net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders for the three months ended March 31, 2019 and 2018, we used basic weighted-average common shares outstanding in the calculation of diluted loss per share for those periods, since the inclusion of any stock equivalents would be anti-dilutive.
17
T
he following stock options, restricted stock unit awards and warrants are not included in the computation of diluted earnings (loss) per share as the effect of including such stock options, restricted stock unit awards and warrants in the computation would
be anti-dilutive:
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Shares subject to anti-dilutive stock options, restricted stock
unit awards and warrants excluded from calculation
|
|
|
26,738
|
|
|
|
23,208
|
|
8. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
$
|
537,952
|
|
|
$
|
(410,154
|
)
|
|
$
|
127,798
|
|
|
$
|
537,834
|
|
|
$
|
(401,093
|
)
|
|
$
|
136,741
|
|
Customer contracts and relationships
|
|
|
704,965
|
|
|
|
(469,326
|
)
|
|
|
235,639
|
|
|
|
704,808
|
|
|
|
(462,468
|
)
|
|
|
242,340
|
|
Total
|
|
$
|
1,242,917
|
|
|
$
|
(879,480
|
)
|
|
$
|
363,437
|
|
|
$
|
1,242,642
|
|
|
$
|
(863,561
|
)
|
|
$
|
379,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered trademarks
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,373,996
|
|
|
|
|
|
|
|
|
|
|
|
1,373,744
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,425,996
|
|
|
|
|
|
|
|
|
|
|
$
|
1,425,744
|
|
Changes in the carrying amounts of goodwill by reportable segment for the three months ended March 31, 2019 were as follows:
(In thousands)
|
|
Provider
|
|
|
Veradigm
|
|
|
Total
|
|
Balance as of December 31, 2018
|
|
$
|
1,254,284
|
|
|
$
|
119,460
|
|
|
$
|
1,373,744
|
|
Foreign exchange translation
|
|
|
252
|
|
|
|
0
|
|
|
|
252
|
|
Balance as of March 31, 2019
|
|
$
|
1,254,536
|
|
|
$
|
119,460
|
|
|
$
|
1,373,996
|
|
There are $13.5 million in accumulated impairment losses associated with our goodwill as of March 31, 2019 and December 31, 2018.
18
9. Debt
Debt outstanding, excluding lease obligations, consists of the following:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
(In thousands)
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
1.25% Cash Convertible
Senior Notes
|
|
$
|
345,000
|
|
|
$
|
18,534
|
|
|
$
|
326,466
|
|
|
$
|
345,000
|
|
|
$
|
22,112
|
|
|
$
|
322,888
|
|
Senior Secured Credit Facility
|
|
|
465,000
|
|
|
|
5,660
|
|
|
|
459,340
|
|
|
|
350,000
|
|
|
|
6,038
|
|
|
|
343,962
|
|
Other debt
|
|
|
952
|
|
|
|
0
|
|
|
|
952
|
|
|
|
748
|
|
|
|
0
|
|
|
|
748
|
|
Total debt
|
|
$
|
810,952
|
|
|
$
|
24,194
|
|
|
$
|
786,758
|
|
|
$
|
695,748
|
|
|
$
|
28,150
|
|
|
$
|
667,598
|
|
Less: Debt payable within
one year
|
|
|
20,952
|
|
|
|
434
|
|
|
|
20,518
|
|
|
|
20,538
|
|
|
|
479
|
|
|
|
20,059
|
|
Total long-term debt, less
current maturities
|
|
$
|
790,000
|
|
|
$
|
23,760
|
|
|
$
|
766,240
|
|
|
$
|
675,210
|
|
|
$
|
27,671
|
|
|
$
|
647,539
|
|
Interest expense consists of the following:
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Interest expense
|
|
$
|
6,229
|
|
|
$
|
7,938
|
|
Amortization of discounts and debt issuance costs
|
|
|
3,955
|
|
|
|
3,756
|
|
Total interest expense
|
|
$
|
10,184
|
|
|
$
|
11,694
|
|
Interest expense related to the 1.25% Cash Convertible Senior Notes (the “1.25% Notes”), included in the table above, consists of the following:
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Coupon interest at 1.25%
|
|
|
1,078
|
|
|
$
|
1,078
|
|
Amortization of discounts and debt issuance costs
|
|
|
3,577
|
|
|
|
3,407
|
|
Total interest expense related to the 1.25% Notes
|
|
$
|
4,655
|
|
|
$
|
4,485
|
|
Allscripts Senior Secured Credit Facility
On February 15, 2018, Allscripts and Healthcare LLC entered into a Second Amended and Restated Credit Agreement (the “Second Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent. The Second Amended Credit Agreement provides for a $400 million senior secured term loan (the “Term Loan”) and a $900 million senior secured revolving facility (the “Revolving Facility”), each with a five-year term. The Term Loan is repayable in quarterly installments, which began on June 30, 2018. A total of up to $50 million of the Revolving Facility is available for the issuance of letters of credit, up to $10 million of the Revolving Facility is available for swingline loans, and up to $100 million of the Revolving Facility could be borrowed under certain foreign currencies.
As of March 31, 2019, $345 million under the Term Loan, $120 million under the Revolving Facility, and $0.8 million in letters of credit were outstanding under the Second Amended Credit Agreement.
As of March 31, 2019, the interest rate on the borrowings under the Second Amended Credit Agreement was LIBOR plus 2.00%, which totaled 4.50%. We were in compliance with all covenants under the Second Amended Credit Agreement as of March 31, 2019.
As of March 31, 2019, we had $899.2 million available, net of outstanding letters of credit, under our Revolving Facility. There can be no assurance that we will be able to draw on the full available balance of our Revolving Facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings.
19
1.25% Cash Convertible Senior Notes
As of March 31, 2019, the if-converted value of the 1.25% Notes did not exceed the 1.25% Notes’ principal amount.
The following table summarizes future debt payment obligations as of March 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Remainder of 2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
Thereafter
|
|
1.25% Cash Convertible Senior
Notes
(1)
|
|
$
|
345,000
|
|
|
$
|
0
|
|
|
$
|
345,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Term Loan
|
|
|
345,000
|
|
|
|
15,000
|
|
|
|
27,500
|
|
|
|
30,000
|
|
|
|
37,500
|
|
|
|
235,000
|
|
|
|
0
|
|
Revolving Facility
(2)
|
|
|
120,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
120,000
|
|
|
|
0
|
|
Other debt
|
|
|
952
|
|
|
|
952
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total debt
|
|
$
|
810,952
|
|
|
$
|
15,952
|
|
|
$
|
372,500
|
|
|
$
|
30,000
|
|
|
$
|
37,500
|
|
|
$
|
355,000
|
|
|
$
|
0
|
|
(1)
Assumes no cash conversions of the 1.25% Notes prior to their maturity on July 1, 2020.
(2)
Assumes no additional borrowings after March 31, 2019, payment of any required periodic installments of principal and that all drawn amounts are repaid upon maturity.
10. Income Taxes
We account for income taxes under FASB Accounting Standards Codification 740,
Income Taxes
(“ASC 740”). We calculate the quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby we forecast the estimated annual effective tax rate and then apply that rate to the year-to-date pre-tax book (loss) income. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective rate, including factors such as the valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, or changes in or the interpretation of tax laws in jurisdictions where the Company conducts business. There is no tax benefit recognized on certain of the net operating losses incurred due to insufficient evidence supporting the Company’s ability to use these losses in the future. The effective tax rates were as follows:
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Loss from continuing operations before income taxes
|
|
$
|
(6,045
|
)
|
|
$
|
(24,862
|
)
|
Income tax provision
|
|
$
|
(1,932
|
)
|
|
$
|
(299
|
)
|
Effective tax rate
|
|
|
(32.0
|
%)
|
|
|
(1.2
|
%)
|
Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate due primarily to permanent differences, income attributable to foreign jurisdictions taxed at different rates, state taxes,
tax credits and certain discrete items. Our effective tax rate for the three months ended March 31, 2019, compared with the prior year comparable period, differs primarily due to higher tax shortfalls associated with stock-based compensation reflected in the provision for the three months ended March 31, 2019 and valuation allowance of $10.7 million recorded in the three months ended March 31, 2018.
In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). During the three months ended March 31, 2019, we recorded immaterial impacts for valuation allowances.
Our unrecognized income tax benefits were $20.8 million and $19.8 million as of March 31, 2019 and December 31, 2018, respectively. If any portion of our unrecognized tax benefits is recognized, it could impact our effective tax rate. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations, and changes in tax law.
20
11
. Derivative Financial Instruments
The following tables provide information about the fair values of our derivative financial instruments as of the respective balance sheet dates:
|
|
March 31, 2019
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
394
|
|
|
Accrued expenses
|
|
$
|
0
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
3,030
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
3,525
|
|
Total derivatives
|
|
|
|
$
|
3,424
|
|
|
|
|
$
|
3,525
|
|
|
|
December 31, 2018
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
262
|
|
|
Accrued expenses
|
|
$
|
0
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
9,104
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
9,974
|
|
Total derivatives
|
|
|
|
$
|
9,366
|
|
|
|
|
$
|
9,974
|
|
N/A – We define “N/A” as disclosure not being applicable
Foreign Exchange Contracts
We have entered into non-deliverable forward foreign currency exchange contracts with reputable banking counterparties in order to hedge a portion of our forecasted future Indian Rupee-denominated (“INR”) expenses against foreign currency fluctuations between the United States dollar and the INR. These forward contracts cover a decreasing percentage of forecasted monthly INR expenses over time. As of March 31, 2019, there were 9 forward contracts outstanding that were staggered to mature monthly starting in April 2019 and ending in December 2019. In the future, we may enter into additional forward contracts to increase the amount of hedged monthly INR expenses or initiate hedges for monthly periods beyond December 2019. As of March 31, 2019, the notional amount for each of the outstanding forward contracts was 160 million INR, or the equivalent of $2.3 million, based on the exchange rate between the United States dollar and the INR in effect as of March 31, 2019. These amounts also approximate the forecasted future INR expenses we target to hedge in any one month in the future. As of March 31, 2019, we estimate that $0.4 million of net unrealized derivative gains included in AOCI will be reclassified into income within the next twelve months.
The following tables show the impact of derivative instruments designated as cash flow hedges on the consolidated statements of operations and the consolidated statements of comprehensive loss:
|
|
Amount of Gain (Loss) Recognized
in OCI
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
(In thousands)
|
|
Three Months
Ended
March 31, 2019
|
|
|
Location of Gain (Loss) Reclassified
from AOCI into Income
|
|
Three Months
Ended
March 31, 2019
|
|
Foreign exchange
contracts
|
|
$
|
151
|
|
|
Cost of Revenue
|
|
$
|
7
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
5
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
7
|
|
21
|
|
Amount of Gain (Loss) Recognized
in OCI
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
(In thousands)
|
|
Three Months
Ended
March 31, 2018
|
|
|
Location of Gain (Loss) Reclassified
from AOCI into Income
|
|
Three Months
Ended
March 31, 2018
|
|
Foreign exchange
contracts
|
|
$
|
(78
|
)
|
|
Cost of Revenue
|
|
$
|
189
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
144
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
222
|
|
1.25% Call Option
In June 2013, concurrent with the issuance of the 1.25% Notes, we entered into privately negotiated hedge transactions with certain of the initial purchasers of the 1.25% Notes (collectively, the “1.25% Call Option”). Assuming full performance by the counterparties, the 1.25% Call Option is intended to offset cash payments in excess of the principal amount due upon any conversion of the 1.25% Notes.
The 1.25% Call Option, which is indexed to our common stock, is a derivative asset that requires mark-to-market accounting treatment (due to the cash settlement features) until the 1.25% Call Option settles or expires. The 1.25% Call Option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy.
The 1.25% Call Option does not qualify for hedge accounting treatment. Therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of operations in Other income, net. Because the terms of the 1.25% Call Option are substantially similar to those of the 1.25% Notes embedded cash conversion option, discussed below, we expect the net effect of those two derivative instruments on our earnings to be minimal.
1.25% Notes Embedded Cash Conversion Option
The embedded cash conversion option within the 1.25% Notes is required to be separated from the 1.25% Notes and accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of operations in Other income, net until the cash conversion option settles or expires. The initial fair value liability of the embedded cash conversion option was $82.8 million, which simultaneously reduced the carrying value of the 1.25% Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy.
The following table shows the net impact of the changes in fair values of the 1.25% Call Option and the 1.25% Notes’ embedded cash conversion option in the consolidated statements of operations:
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
1.25% Call Option
|
|
$
|
(6,074
|
)
|
|
$
|
(21,168
|
)
|
1.25% Embedded cash conversion option
|
|
|
6,449
|
|
|
|
21,331
|
|
Net loss included in other income, net
|
|
$
|
375
|
|
|
$
|
163
|
|
22
12. Other Comprehensive Income
Accumulated Other Comprehensive Loss
Changes in the balances of each component included in AOCI are presented in the tables below. All amounts are net of tax and exclude non-controlling interest.
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
|
Unrealized Net Gains on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2018
(1)
|
|
$
|
(5,584
|
)
|
|
$
|
195
|
|
|
$
|
(5,389
|
)
|
Other comprehensive income (loss) before
reclassifications
|
|
|
695
|
|
|
|
111
|
|
|
|
806
|
|
Net (gains) losses reclassified from accumulated
other comprehensive loss
|
|
|
0
|
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Net other comprehensive loss
|
|
|
695
|
|
|
|
97
|
|
|
|
792
|
|
Balance as of March 31, 2019
(2)
|
|
$
|
(4,889
|
)
|
|
$
|
292
|
|
|
$
|
(4,597
|
)
|
(1)
|
Net of taxes of $68 thousand for unrealized net gains on foreign exchange contract derivatives and $149 thousand arising from the revaluation of tax effects included in accumulated other comprehensive income.
|
(2)
|
Net of taxes of $102 thousand for unrealized net losses on foreign exchange contract derivatives.
|
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
|
Unrealized Net Gains on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2017
(1)
|
|
$
|
(2,676
|
)
|
|
$
|
691
|
|
|
$
|
(1,985
|
)
|
Other comprehensive income (loss) before
reclassifications
|
|
|
123
|
|
|
|
(58
|
)
|
|
|
65
|
|
Net (gains) losses reclassified from accumulated
other comprehensive loss
|
|
|
0
|
|
|
|
(261
|
)
|
|
|
(261
|
)
|
Net other comprehensive income
|
|
|
123
|
|
|
|
(319
|
)
|
|
|
(196
|
)
|
Balance as of March 31, 2018
(2)
|
|
$
|
(2,553
|
)
|
|
$
|
372
|
|
|
$
|
(2,181
|
)
|
(1)
Net of taxes of $445 thousand for unrealized net gains on foreign exchange contract derivatives.
(2)
Net of taxes of $131 thousand for unrealized net losses on foreign exchange contract derivatives and $149 thousand arising from the revaluation of tax effects included in accumulated other comprehensive income.
Income Tax Effects Related to Components of Other Comprehensive Income (Loss)
The following tables reflect the tax effects allocated to each component of other comprehensive income (loss) (“OCI”):
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
(In thousands)
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation adjustments
|
|
$
|
695
|
|
|
$
|
0
|
|
|
$
|
695
|
|
|
$
|
123
|
|
|
$
|
0
|
|
|
$
|
123
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses) gains arising during the period
|
|
|
151
|
|
|
|
(40
|
)
|
|
|
111
|
|
|
|
(78
|
)
|
|
|
20
|
|
|
|
(58
|
)
|
Net losses (gains) reclassified into income
(1)
|
|
|
(19
|
)
|
|
|
5
|
|
|
|
(14
|
)
|
|
|
(555
|
)
|
|
|
294
|
|
|
|
(261
|
)
|
Net change in unrealized (losses) gains on foreign exchange contracts
|
|
|
132
|
|
|
|
(35
|
)
|
|
|
97
|
|
|
|
(633
|
)
|
|
|
314
|
|
|
|
(319
|
)
|
Net (loss) gain on cash flow hedges
|
|
|
132
|
|
|
|
(35
|
)
|
|
|
97
|
|
|
|
(633
|
)
|
|
|
314
|
|
|
|
(319
|
)
|
Other comprehensive (loss) income
|
|
$
|
827
|
|
|
$
|
(35
|
)
|
|
$
|
792
|
|
|
$
|
(510
|
)
|
|
$
|
314
|
|
|
$
|
(196
|
)
|
(1)
Tax effects for the three months ended March 31, 2018 include $
149
thousand arising from the revaluation of tax effects included in accumulated other comprehensive income at December 31, 2017.
13. Contingencies
In addition to commitments and obligations in the ordinary course of business, we are currently subject to various legal proceedings and claims that have not been fully adjudicated. We intend to vigorously defend ourselves in these matters.
23
No less than quarterly, we review the status of each significa
nt matter and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required
in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made.
The outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. In the opinion of our management, the ultimate disposition of pending legal proceedings or claims will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, if one or more of these legal proceedings were resolved against or settled by us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that and subsequent reporting periods could be materially adversely affected. Additionally, the resolution of a legal proceeding against us could prevent us from offering our products and services to current or prospective clients or cause us to incur increased compliance costs, either of which could further adversely affect our operating results.
On May 1, 2012, Physicians Healthsource, Inc. filed a class action complaint in the U.S. District Court for the Northern District of Illinois against us. The complaint alleges that, on multiple occasions between July 2008 and December 2011, we or our agent sent advertisements by fax to the plaintiff and a class of similarly situated persons, without first receiving the recipients’ express permission or invitation in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (the “TCPA”). The plaintiff sought $500 for each alleged violation of the TCPA, treble damages if the Court finds the violations to be willful, knowing or intentional, and injunctive and other relief. Allscripts answered the complaint denying all material allegations and asserting a number of affirmative defenses, as well as counterclaims for breach of a license agreement. On March 31, 2016, plaintiff filed its motion for class certification. On May 31, 2016, we filed our opposition to plaintiff’s motion for class certification, and simultaneously moved for summary judgment on all of plaintiff’s claims. On June 2, 2017, an order was entered denying class certification and, accordingly, the case will not proceed on a class-wide basis.
The EIS Business acquired from McKesson on October 2, 2017 is subject to a May 2017 civil investigative demand (“CID”) from the U.S. Attorney’s Office for the Eastern District of New York. The CID requests documents and information related to the certification McKesson obtained for Horizon Clinicals in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program. In August 2018, McKesson received an additional CID seeking similar information for Paragon. McKesson has agreed, with respect to the CIDs, to indemnify Allscripts for amounts paid or payable to the government (or any private relator) involving any products or service
s marketed, sold or licensed by the EIS Business as of or prior to the closing of the acquisition.
Practice Fusion, acquired by Allscripts on February 13, 2018, received in March 2017 a request for documents and information from the U.S. Attorney’s Office for the District of Vermont pursuant to a CID. Between April 2018 and January 2019, Practice Fusion received five additional requests for documents and information through another CID and Health Insurance Portability and Accountability Act (“HIPAA”) subpoenas. In March 2019, Practice Fusion received a grand jury subpoena in connection with a related criminal investigation. The document and information requests received by Practice Fusion relate to both the certification Practice Fusion obtained in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program and Practice Fusion’s compliance with the Anti-Kickback Statute and HIPAA as it relates to certain business practices engaged in by Practice Fusion. Practice Fusion continues to produce documents and information in response to these various requests.
On January 25, 2018, a complaint was filed in
Surfside Non-Surgical Orthopedics, P.A. v. Allscripts Healthcare Solutions, Inc.
, No. 1:18-cv-00566, in the Northern District of Illinois. This is a purported class action lawsuit related to a January 18, 2018 ransomware attack, and alleges the following counts: (1) negligence, gross negligence and negligence per se; (2) breach of contract; (3) unjust enrichment; (4) violation of the Illinois Consumer Fraud Act; and (5) violation of the Illinois Deceptive Trade Practices Act. Plaintiff seeks to represent a class of customers seeking damages from Allscripts. Allscripts has moved to dismiss the plaintiff’s complaint.
24
14. Discontinued Operations
Netsmart
On December 31, 2018, we sold all of the Class A Common Units of Netsmart LLC, a Delaware limited liability company (“Netsmart”) held by the Company. Prior to the sale, Netsmart comprised a separate reportable segment, which due to its significance to our historical consolidated financial statements and results of operations, is reported as a discontinued operation as a result of the sale.
The following table summarizes Netsmart’s major income and expense line items as reported in the consolidated statements of operations for the three months ended March 31, 2018:
|
|
Three Months Ended
|
|
(In thousands)
|
|
March 31, 2018
|
|
Major income and expense line items related to Netsmart:
|
|
|
|
|
Revenue:
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
49,213
|
|
Client services
|
|
|
30,991
|
|
Total revenue
|
|
|
80,204
|
|
Cost of revenue:
|
|
|
|
|
Software delivery, support and maintenance
|
|
|
14,367
|
|
Client services
|
|
|
21,713
|
|
Amortization of software development and acquisition related assets
|
|
|
7,814
|
|
Total cost of revenue
|
|
|
43,894
|
|
Gross profit
|
|
|
36,310
|
|
Selling, general and administrative expenses
|
|
|
23,133
|
|
Research and development
|
|
|
5,187
|
|
Amortization of intangible and acquisition-related assets
|
|
|
5,609
|
|
Income from discontinued operations for the Netsmart
sale before income taxes
|
|
|
2,381
|
|
Interest expense
|
|
|
(13,351
|
)
|
Other loss
|
|
|
(12
|
)
|
Income tax benefit
|
|
|
3,213
|
|
Loss from discontinued operations, net of tax
for Netsmart
|
|
$
|
(7,769
|
)
|
Horizon Clinicals and Series2000 Revenue Cycle
Two of the product offerings (Horizon Clinicals and Series2000 Revenue Cycle) acquired with the Enterprise Information Solutions (the “EIS Business”) business combination were sunset after March 31, 2018. The decision to discontinue maintaining and supporting these solutions was made prior to our acquisition of the EIS Business and, therefore, are presented below as discontinued operations. Until the end of the first quarter of 2018, we were involved in ongoing maintenance and support for these solutions until customers have transitioned to other platforms. No disposal gains or losses were recognized during the 2018 fiscal year related to these discontinued operations. We had $0.9 million of accrued expenses associated with the Horizon Clinicals and Series2000 Revenue Cycle businesses on the consolidated balance sheets as of December 31, 2018.
25
The following table summarizes the major classes of line items constituting income (loss) of the discontinued operations specifically with the sunset businesses
of Horizon Clinicals and Series2000 Revenue Cycle, as reported in the consolidated statements of operations for the three months ended March 31, 2018:
|
|
Three Months Ended
|
|
(In thousands)
|
|
March 31, 2018
|
|
Major classes of line items constituting pretax profit (loss) of
discontinued operations for Horizon Clinicals and
Series2000 Revenue Cycle:
|
|
|
|
|
Revenue:
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
9,804
|
|
Client services
|
|
|
492
|
|
Total revenue
|
|
|
10,296
|
|
Cost of revenue:
|
|
|
|
|
Software delivery, support and maintenance
|
|
|
2,463
|
|
Client services
|
|
|
743
|
|
Total cost of revenue
|
|
|
3,206
|
|
Gross profit
|
|
|
7,090
|
|
Research and development
|
|
|
1,124
|
|
Income from discontinued operations for Horizon Clinicals
and Series2000 Revenue Cycle before income taxes
|
|
|
5,966
|
|
Income tax provision
|
|
|
(1,551
|
)
|
Income from discontinued operations, net of tax for Horizon
Clinicals and Series2000 Revenue Cycle
|
|
$
|
4,415
|
|
15. Business Segments
We primarily derive our revenues from sales of our proprietary software (either as a direct license sale or under a subscription delivery model), which also serves as the basis for our recurring service contracts for software support and maintenance and certain transaction-related services. In addition, we provide various other client services, including installation, and managed services such as outsourcing, private cloud hosting and revenue cycle management.
During the three months ended March 31, 2019, we realigned our reporting structure as a result of the divestiture of our investment in Netsmart on December 31, 2018, the evolution of the healthcare IT industry and our increased focus on the payer and life sciences market. As a result, we changed the presentation of our reportable segments to Provider and Veradigm. The new Provider segment is comprised of our core integrated clinical software applications, financial management and patient engagement solutions targeted at clients across the entire continuum of care. The new Veradigm segment primarily focuses on the payer and life sciences market. These changes to our reportable segments had no impact on operating segments. The segment disclosures below for the three months ended March 31, 2018, have been revised to conform to the current year presentation.
As of March 31, 2019, we had eight operating segments, which are aggregated into two reportable segments. The Provider reportable segment includes the Hospitals and Health Systems, Ambulatory, CarePort, FollowMyHealth
®
, EPSi
TM
, EIS-Classics and 2bPrecise strategic business units, each of which represents a separate operating segment. This reportable segment derives its revenue from the sale of integrated clinical software applications, financial management an
d patient engagement solutions, which primarily include EHR-related software, connectivity and coordinated care solutions, financial and practice management software, related installation, support and maintenance, outsourcing, private cloud hosting, revenue cycle management, training and electronic claims administration services. The Veradigm reportable segment is comprised of the Veradigm business unit, which represents a separate operating segment. This reportable segment provides data-driven clinical insights with actionable tools for clinical workflow, research, analytics and media. Its solutions, targeted at key healthcare stakeholders, help improve the quality, efficiency and value of healthcare delivery.
26
Our Chief Operating Decision Maker (“CODM”) use
s segment revenues, gross profit and income from operations as measures of performance and to make decisions about the allocation of resources. In determining these performance measures, we do not include in revenue the amortization of acquisition-related
deferred revenue adjustments, which reflect the fair value adjustments to deferred revenue acquired in a business combination. We also exclude the amortization of intangible assets, stock-based compensation expense, expenses not reflective of our core busi
ness and transaction-related costs, and non-cash asset impairment charges from the operating segment data provided to our CODM. Expenses not reflective of our core business relate to certain severance, product consolidation, legal, consulting and other cha
rges incurred in connection with activities that are considered one-time. Accordingly, these amounts are not included in our reportable segment results and are included in an “Unallocated Amounts” category within our segment disclosure. The “Unallocated Am
ounts” category also includes (i) corporate general and administrative expenses (including marketing expenses) and certain research and development expenses related to common solutions and resources that benefit all of our business units, all of which are
centrally managed, and (ii) revenue and the associated cost from the resale of certain ancillary products, primarily hardware. We do not track our assets by segment.
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Provider
|
|
$
|
392,607
|
|
|
$
|
410,424
|
|
Veradigm
|
|
|
35,116
|
|
|
|
22,807
|
|
Unallocated Amounts
|
|
|
4,326
|
|
|
|
491
|
|
Total revenue
|
|
$
|
432,049
|
|
|
$
|
433,722
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
Provider
|
|
$
|
165,818
|
|
|
$
|
185,729
|
|
Veradigm
|
|
|
22,434
|
|
|
|
15,130
|
|
Unallocated Amounts
|
|
|
(14,157
|
)
|
|
|
(16,194
|
)
|
Total gross profit
|
|
$
|
174,095
|
|
|
$
|
184,665
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
Provider
|
|
$
|
100,274
|
|
|
$
|
107,140
|
|
Veradigm
|
|
|
8,319
|
|
|
|
5,032
|
|
Unallocated Amounts
|
|
|
(105,948
|
)
|
|
|
(118,873
|
)
|
Total income (loss) from operations
|
|
$
|
2,645
|
|
|
$
|
(6,701
|
)
|
16. Supplemental Disclosures
Supplemental Consolidated Statements of Cash Flows Information
The majority of the restricted cash balance as of March 31, 2019 and 2018 represents the remaining balance of the escrow account established as part of the acquisition of Netsmart in 2016 to be used by Netsmart to facilitate the integration of Allscripts’ former Homecare
TM
business.
|
|
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
137,167
|
|
|
$
|
111,999
|
|
Restricted cash
|
|
|
10,681
|
|
|
|
12,668
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
147,848
|
|
|
$
|
124,667
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2019
|
|
|
2018
|
|
Supplemental non-cash information:
|
|
|
|
|
|
|
|
|
Accretion of redemption preference on redeemable convertible non-controlling
interest - discontinued operation
|
|
$
|
0
|
|
|
$
|
12,149
|
|
Contribution of assets in exchange for equity interest
|
|
$
|
0
|
|
|
$
|
4,000
|
|
27