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, 2020 and 2019 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, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020.
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, 2019 (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. Our estimates and assumptions consider the economic implications of COVID-19 on our critical and significant accounting estimates. Actual results could differ materially from these estimates.
Change in Presentation
During the first quarter of 2020, we changed our reportable segments from Provider, Veradigm and Unallocated to Core Clinical and Financial Solutions, Data, Analytics and Care Coordination, 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.
Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported prior period financial results.
Significant Accounting Policies
We adopted Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) on January 1, 2020 using the cumulative-effect adjustment transition method. 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. Refer to Note 2 “Revenue from Contracts with Customers” and Note 3 “Accounts Receivable” for further discussion on the impact of adoption.
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“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 adopted ASU 2018-13 on January 1, 2020, and the adoption had no impact on our consolidated financial statements.
9
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 will be effective for all entities as of March 12, 2020 through December 31, 2022. We adopted ASU 2020-04 on March 12, 2020, and the adoption had no impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740)” (“ASU 2019-12”), which is part of the FASB’s overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 simplifies accounting guidance for intraperiod allocations, deferred tax liabilities, year-to-date losses in interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of tax laws or rate changes. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this accounting guidance.
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, 2020 and December 31, 2019, we had capitalized costs to obtain or fulfill a contract of $19.6 million and $20.8 million, respectively, in Prepaid and other current assets and $34.4 million and $32.9 million, respectively, in Other assets. During the three months ended March 31, 2020 and 2019, we recognized $7.5 million and $7.6 million, respectively, of amortization expense related to such capitalized costs. The amortization of these capitalized costs to obtain a contract are included in Selling, general and administrative expense within our consolidated statements of operations.
The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable, 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 based on the origination of performance obligations and elected accounting expedients is presented in the table below:
(In thousands)
|
|
Three Months
Ended
March 31, 2020
|
|
Revenue related to deferred revenue balance at beginning of period
|
|
$
|
140,132
|
|
Revenue related to new performance obligations satisfied during the period
|
|
|
216,990
|
|
Revenue recognized under "right-to-invoice" expedient
|
|
|
58,059
|
|
Reimbursed travel expenses, shipping and other revenue
|
|
|
1,532
|
|
Total revenue
|
|
$
|
416,713
|
|
10
(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
|
|
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 $4.5 billion as of March 31, 2020, of which we expect to recognize approximately 32% over the next 12 months, and the remaining 68% 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)
|
|
2020
|
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
$
|
341,219
|
|
|
$
|
348,636
|
|
Non-recurring revenue
|
|
|
75,494
|
|
|
|
83,413
|
|
Total revenue
|
|
$
|
416,713
|
|
|
$
|
432,049
|
|
|
|
Three Months Ended March 31, 2020
|
|
(In thousands)
|
|
Core Clinical and Financial Solutions
|
|
|
Data, Analytics and Care Coordination
|
|
|
Unallocated Amounts
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
176,800
|
|
|
$
|
76,412
|
|
|
$
|
10,400
|
|
|
$
|
263,612
|
|
Client services
|
|
|
144,739
|
|
|
|
5,650
|
|
|
|
2,712
|
|
|
|
153,101
|
|
Total revenue
|
|
$
|
321,539
|
|
|
$
|
82,062
|
|
|
$
|
13,112
|
|
|
$
|
416,713
|
|
|
|
Three Months Ended March 31, 2019
|
|
(In thousands)
|
|
Core Clinical and Financial Solutions
|
|
|
Data, Analytics and Care Coordination
|
|
|
Unallocated Amounts
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
193,278
|
|
|
$
|
69,357
|
|
|
$
|
12,877
|
|
|
$
|
275,512
|
|
Client services
|
|
|
148,618
|
|
|
|
4,902
|
|
|
|
3,017
|
|
|
|
156,537
|
|
Total revenue
|
|
$
|
341,896
|
|
|
$
|
74,259
|
|
|
$
|
15,894
|
|
|
$
|
432,049
|
|
Contract Assets – Estimate of Credit Losses
We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The new guidance required the recognition of lifetime estimated credit losses expected to occur for contract assets. The guidance also requires we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of the ASU 2016-13 for contract assets was recorded as a debit to retained earnings of $5.3 million as of January 1, 2020.
At adoption, we segmented the contract asset population into pools based on their risk assessment. Risks related to contract assets are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment, and business size. The pools are aligned with management’s review of financial performance. For the three months ended March 31, 2020, no adjustment to the pools was necessary.
11
We utilized a loss-rate method to measure expected credit loss for each pool. The loss rate is calculated using a twenty-four-month lookback period of credit memos and adjustments divided by the average contract asset balance for each pool during that period. We considered current economic conditions, including how the COVID-19 pandemic is impacting the global economy, internal forecasts, cash collection and credit memos written during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data. The March 31, 2020 analysis resulted in no change in the ending estimate of credit losses.
Changes in the estimate of credit losses for contract assets are presented in the table below.
(In thousands)
|
|
Total
|
|
Balance at January 1, 2020
|
|
$
|
5,341
|
|
Current period provision
|
|
|
0
|
|
Balance at March 31, 2020
|
|
$
|
5,341
|
|
Less: Contract assets, short-term
|
|
|
1,068
|
|
Total contract assets, long-term
|
|
$
|
4,273
|
|
3. Accounts Receivable
Trade Accounts Receivable – Estimate of Credit Losses
We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The new guidance required the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable. The guidance also requires we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of the ASU 2016-13 for trade accounts receivable was recorded as a debit to retained earnings of $12.6 million as of January 1, 2020.
At adoption, we segmented the accounts receivable population into pools based on their risk assessment. Risks related to trade accounts receivable are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment, and business size. The pools are aligned with management’s review of financial performance. For the three months ended March 31, 2020, no adjustment to the pools was necessary.
We utilized a loss-rate method to measure expected credit loss for each pool. The loss rate is calculated using a twelve-month lookback period of credit memos and adjustments divided by the average accounts receivable balance for each pool during that period. We considered current economic conditions, including how the COVID-19 pandemic is impacting the global economy, internal forecasts, cash collection and credit memos written during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data.
Changes in the estimate of credit losses for trade accounts receivable are presented in the tables below.
(In thousands)
|
|
Total
|
|
Balance at January 1, 2020
|
|
$
|
36,490
|
|
Current period provision
|
|
|
994
|
|
Write-offs
|
|
|
(1,892
|
)
|
Recoveries
|
|
|
30
|
|
Balance at March 31, 2020
|
|
$
|
35,622
|
|
4. Leases
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 liabilities are 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 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.
12
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 finance leases are not significant. Our leases have remaining lease terms of approximately 1 year to 9 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. Operating costs associated with leased assets are as follows:
(In thousands)
|
|
Three Months Ended
March 31, 2020
|
|
|
Three Months Ended
March 31, 2019
|
|
Operating lease cost (1)
|
|
$
|
6,922
|
|
|
$
|
6,717
|
|
Less: Sublease income
|
|
|
(603
|
)
|
|
|
(802
|
)
|
Total operating lease costs
|
|
$
|
6,319
|
|
|
$
|
5,915
|
|
(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.
|
Supplemental information for operating leases is as follows:
(In thousands)
|
|
Three Months Ended
March 31, 2020
|
|
|
Three Months Ended March 31, 2019
|
|
Operating cash flows from operating leases
|
|
$
|
7,421
|
|
|
$
|
7,287
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
|
$
|
19,913
|
|
|
$
|
124,811
|
|
The balance sheet location and balances for operating leases are as follows:
(In thousands, except lease term and discount rate)
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Right-of-use assets - operating leases
|
|
$
|
110,469
|
|
|
$
|
98,020
|
|
Current operating lease liabilities
|
|
$
|
21,910
|
|
|
$
|
23,137
|
|
Long-term operating lease liabilities
|
|
$
|
108,068
|
|
|
$
|
95,162
|
|
Weighted average remaining lease term (in years)
|
|
|
6
|
|
|
|
6
|
|
Weighted average discount rate
|
|
|
3.6
|
%
|
|
|
4.4
|
%
|
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, 2020.
|
|
March 31, 2020
|
|
(In thousands)
|
|
Operating Leases
|
|
Remainder of 2020
|
|
$
|
20,097
|
|
2021
|
|
|
25,996
|
|
2022
|
|
|
24,355
|
|
2023
|
|
|
22,177
|
|
2024
|
|
|
16,633
|
|
Thereafter
|
|
|
35,831
|
|
Total lease liabilities
|
|
|
145,089
|
|
Less: Amount representing interest
|
|
|
(15,111
|
)
|
Less: Short-term lease liabilities
|
|
|
(21,910
|
)
|
Total long-term lease liabilities
|
|
$
|
108,068
|
|
13
5. Business Combinations
On July 2, 2019, we acquired the Pinnacle and Diabetes Collaborative Registries from the American College of Cardiology (“ACC”) as part of our broader strategic partnership with the ACC. The total purchase price was $19.7 million, consisting of an initial payment of $11.7 million plus up to an aggregate of $8.0 million pending the attainment certain milestones over the next 18 months. The contingent consideration of up to $8.0 million was valued at $5.0 million at the time of closing. As part of this partnership, we will operate Pinnacle and Diabetes Collaborative Registries, which will extend our EHR-enabled ambulatory network to create a large-scale chronic disease network. The business is included in our Data, Analytics and Care Coordination business segment.
On June 10, 2019, we acquired the assets of a business engaged in the development, implementation, customization, marketing, licensing and sale of a specialty prescription drug platform including software that collects, saves and transmits information required to fill a prescription. The drug platform and software will enable healthcare providers, pharmacists and payors to digitally interact with one another to fill a prescription. The business is included in our Data, Analytics and Care Coordination business segment.
On March 1, 2019, we acquired all of the outstanding minority interests 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). 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.
6. 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: Quoted prices for similar instruments in active markets with inputs that are observable, either directly or indirectly. Our Level 2 derivative financial instruments include foreign currency forward contracts valued based upon observable values of spot and forward foreign currency exchange rates.
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. Our Level 3 instruments include the 1.25% Call Option asset and the 1.25% embedded cash conversion option liability that are not actively traded. The changes in unobservable inputs to the valuation pricing model used to value these instruments is not material to our consolidated results of operations. Level 3 instruments also include the fair value of contingent consideration related to completed acquisitions. The fair values are based on discounted cash flow analyses reflecting the likelihood of achieving specified performance measures or events and captures the contractual nature of the contingencies, commercial risk or time value of money.
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, 2020
|
|
|
December 31, 2019
|
|
(In thousands)
|
|
Classifications
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
1.25% Call Option
|
|
Other assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
84
|
|
|
$
|
84
|
|
Total assets
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
84
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
derivative assets
|
|
Accrued
expenses
|
|
$
|
0
|
|
|
$
|
473
|
|
|
$
|
0
|
|
|
$
|
473
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Contingent consideration
- current
|
|
Accrued
expenses
|
|
|
0
|
|
|
|
0
|
|
|
|
14,757
|
|
|
|
14,757
|
|
|
|
0
|
|
|
|
0
|
|
|
|
17,116
|
|
|
|
17,116
|
|
Contingent consideration
- long-term
|
|
Other liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
2,415
|
|
|
|
2,415
|
|
|
|
0
|
|
|
|
0
|
|
|
|
2,415
|
|
|
|
2,415
|
|
1.25% Embedded
cash conversion
option
|
|
Other liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
1
|
|
|
|
1
|
|
|
|
0
|
|
|
|
0
|
|
|
|
185
|
|
|
|
185
|
|
Total liabilities
|
|
|
|
$
|
0
|
|
|
$
|
473
|
|
|
$
|
17,173
|
|
|
$
|
17,646
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,716
|
|
|
$
|
19,716
|
|
14
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at March 31, 2020 are summarized as follows:
(In thousands)
|
|
Contingent Consideration
|
|
|
1.25% Notes Call Spread Overlay
|
|
Balance at December 31, 2019
|
|
$
|
19,531
|
|
|
$
|
(101
|
)
|
Additions
|
|
|
461
|
|
|
|
0
|
|
Payments/write-downs
|
|
|
(2,820
|
)
|
|
|
0
|
|
Fair value adjustments
|
|
|
0
|
|
|
|
100
|
|
Balance at March 31, 2020
|
|
$
|
17,172
|
|
|
$
|
(1
|
)
|
The following table summarizes the quantitative information about our Level 3 fair value measurements at March 31, 2020:
|
|
March 31, 2020
|
|
(In thousands, except the discount rate)
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Ranges of Inputs
|
|
Weighted Average (1)
|
|
Financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
17,172
|
|
|
Discounted cash flow
|
|
Discount rate
|
|
4% to 5%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
$0 to $62,500
|
|
$
|
31,250
|
|
|
|
|
|
|
|
|
|
Registry members
|
|
0 to 1,551
|
|
|
776
|
|
|
|
|
|
|
|
|
|
Patient data volume
|
|
0 to 52,845
|
|
|
26,422
|
|
|
|
|
|
|
|
|
|
Projected year of payment
|
|
2020 to 2021
|
|
|
|
|
Total financial instruments
|
|
$
|
17,172
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The weighted average is calculated based upon the absolute fair value of the instruments.
|
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, 2020
|
|
|
Cost
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Equity method investments (1)
|
|
|
5
|
|
|
$
|
7,407
|
|
|
$
|
11,531
|
|
|
$
|
11,332
|
|
Cost less impairment
|
|
|
9
|
|
|
|
43,874
|
|
|
|
33,278
|
|
|
|
32,462
|
|
Total long-term equity investments
|
|
|
14
|
|
|
$
|
51,281
|
|
|
$
|
44,809
|
|
|
$
|
43,794
|
|
(1)
|
Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.
|
As of March 31, 2020, it is not possible 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.
Recovery 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 and is recognized in the Recovery of long-term investments.
Long-term Financial Liabilities
Our long-term financial liabilities include amounts outstanding under our senior secured credit facility (as defined in Note 10, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. The carrying amount of our 1.25% Cash Convertible Senior Notes (the “1.25% Notes”) approximates fair value as of March 31, 2020, since the effective interest rate on the 1.25% Notes approximates current market rates. Refer to Note 10, “Debt,” for further information regarding our long-term financial liabilities.
15
7. Stockholders' Equity
Stock-based Compensation Expense
Stock-based compensation expense recognized during the three months ended March 31, 2020 and 2019 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, 2020 and 2019.
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
575
|
|
|
$
|
513
|
|
Client services
|
|
|
1,091
|
|
|
|
1,093
|
|
Total cost of revenue
|
|
|
1,666
|
|
|
|
1,606
|
|
Selling, general and administrative expenses
|
|
|
7,042
|
|
|
|
8,325
|
|
Research and development
|
|
|
2,395
|
|
|
|
2,877
|
|
Total stock-based compensation expense
|
|
$
|
11,103
|
|
|
$
|
12,808
|
|
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, 2020 and 2019.
We granted stock-based awards as follows:
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
(In thousands, except per share amounts)
|
|
Shares
|
|
|
Fair Value
|
|
Service-based restricted stock units
|
|
|
397
|
|
|
$
|
8.19
|
|
Market-based restricted stock units with a service
condition
|
|
|
595
|
|
|
$
|
8.19
|
|
|
|
|
992
|
|
|
$
|
8.19
|
|
During the three months ended March 31, 2020 and the year ended December 31, 2019, 0.9 million and 1.7 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
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 vested during the three months ended March 31, 2020 and 2019 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 cash 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 withheld for the three months ended March 31, 2020 and 2019 were 407 thousand and 508 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 settlements 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.
16
Stock Repurchases
On August 2, 2018, we announced that our Board of Directors approved a stock purchase program (the “2018 Program”) under which we may repurchase up to $250 million of our common stock through December 31, 2020. We repurchased 1.5 million of our common stock under the 2018 Program for a total of $9.7 million during the three months ended March 31, 2020. The approximate dollar value of shares that may yet be purchased under the 2018 Program is $92.1 million as of March 31, 2020. 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. 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.
8. 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.
The calculations of earnings (loss) per share are as follows:
|
|
Three Months Ended
March 31,
|
|
(In thousands, except per share amounts)
|
|
2020
|
|
|
2019
|
|
Basic earnings (loss) per Common Share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,354
|
)
|
|
$
|
(7,977
|
)
|
Net loss attributable to non-controlling interests
|
|
|
0
|
|
|
|
424
|
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders
|
|
$
|
(20,354
|
)
|
|
$
|
(7,553
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
162,461
|
|
|
|
169,957
|
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders per Common Share
|
|
$
|
(0.13
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per Common Share:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,354
|
)
|
|
$
|
(7,977
|
)
|
Net loss attributable to non-controlling interests
|
|
|
0
|
|
|
|
424
|
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders
|
|
$
|
(20,354
|
)
|
|
$
|
(7,553
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
162,461
|
|
|
|
169,957
|
|
Plus: Dilutive effect of stock options, restricted stock unit
awards and warrants
|
|
|
0
|
|
|
|
0
|
|
Weighted-average common shares outstanding assuming
dilution
|
|
|
162,461
|
|
|
|
169,957
|
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders per Common Share
|
|
$
|
(0.13
|
)
|
|
$
|
(0.04
|
)
|
Due to the net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders for the three months ended March 31, 2020 and 2019, 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.
The 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)
|
|
2020
|
|
|
2019
|
|
Shares subject to anti-dilutive stock options, restricted stock
unit awards and warrants excluded from calculation
|
|
|
48,032
|
|
|
|
26,738
|
|
17
9. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
$
|
546,047
|
|
|
$
|
(446,033
|
)
|
|
$
|
100,014
|
|
|
$
|
546,373
|
|
|
$
|
(437,640
|
)
|
|
$
|
108,733
|
|
Customer contracts and relationships
|
|
|
701,322
|
|
|
|
(495,027
|
)
|
|
|
206,295
|
|
|
|
702,034
|
|
|
|
(488,625
|
)
|
|
|
213,409
|
|
Total
|
|
$
|
1,247,369
|
|
|
$
|
(941,060
|
)
|
|
$
|
306,309
|
|
|
$
|
1,248,407
|
|
|
$
|
(926,265
|
)
|
|
$
|
322,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered trademarks
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,361,115
|
|
|
|
|
|
|
|
|
|
|
|
1,362,017
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,413,115
|
|
|
|
|
|
|
|
|
|
|
$
|
1,414,017
|
|
Changes in the carrying amounts of goodwill by reportable segment for the three months ended March 31, 2020 were as follows:
(In thousands)
|
|
Core Clinical and Financial Solutions
|
|
|
Data, Analytics and Care Coordination
|
|
|
Unallocated Amounts
|
|
|
Total
|
|
Balance as of December 31, 2019
|
|
|
769,995
|
|
|
|
517,359
|
|
|
|
74,663
|
|
|
|
1,362,017
|
|
Foreign exchange translation
|
|
|
(902
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(902
|
)
|
Balance as of March 31, 2020
|
|
$
|
769,093
|
|
|
$
|
517,359
|
|
|
$
|
74,663
|
|
|
$
|
1,361,115
|
|
There are $39.2 million in accumulated impairment losses associated with our goodwill as of March 31, 2020 and December 31, 2019.
10. Debt
Debt outstanding, excluding lease obligations, consists of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
(In thousands)
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
0.875% Convertible Senior Notes (1)
|
|
$
|
177,942
|
|
|
$
|
3,185
|
|
|
$
|
174,757
|
|
|
$
|
177,942
|
|
|
$
|
4,697
|
|
|
$
|
173,245
|
|
1.25% Cash Convertible
Senior Notes
|
|
|
345,000
|
|
|
|
3,776
|
|
|
|
341,224
|
|
|
|
345,000
|
|
|
|
7,552
|
|
|
|
337,448
|
|
Senior Secured Credit Facility
|
|
|
540,000
|
|
|
|
4,796
|
|
|
|
535,204
|
|
|
|
410,000
|
|
|
|
5,224
|
|
|
|
404,776
|
|
Total debt
|
|
$
|
1,062,942
|
|
|
$
|
11,757
|
|
|
$
|
1,051,185
|
|
|
$
|
932,942
|
|
|
$
|
17,473
|
|
|
$
|
915,469
|
|
Less: Debt payable within
one year
|
|
|
371,519
|
|
|
|
768
|
|
|
|
370,751
|
|
|
|
364,653
|
|
|
|
188
|
|
|
|
364,465
|
|
Total long-term debt, less
current maturities
|
|
$
|
691,423
|
|
|
$
|
10,989
|
|
|
$
|
680,434
|
|
|
$
|
568,289
|
|
|
$
|
17,285
|
|
|
$
|
551,004
|
|
(1)
|
Principal balance is $218,000 thousand; $177,942 thousand is recognized in debt and $40,058 thousand is recognized in additional paid-in capital
|
Interest expense consists of the following:
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Interest expense
|
|
$
|
6,507
|
|
|
$
|
6,229
|
|
Amortization of discounts and debt issuance costs
|
|
|
5,716
|
|
|
|
3,955
|
|
Total interest expense
|
|
$
|
12,223
|
|
|
$
|
10,184
|
|
18
Interest expense related to 0.875% Convertible Senior Notes and the 1.25% Cash Convertible Senior Notes, included in the table above, consisted of the following:
|
|
Three Months Ended
March 31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Coupon interest
|
|
$
|
1,555
|
|
|
$
|
1,078
|
|
Amortization of discounts and debt issuance costs
|
|
|
5,288
|
|
|
|
3,577
|
|
Total interest expense related to the convertible notes
|
|
$
|
6,843
|
|
|
$
|
4,655
|
|
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, 2020, $325.0 million under the Term Loan, $215.0 million under the Revolving Facility, and $1.0 million in letters of credit were outstanding under the Second Amended Credit Agreement.
As of March 31, 2020, the interest rate on the borrowings under the Second Amended Credit Agreement was LIBOR plus 1.75%, which totaled 2.74%. We were in compliance with all covenants under the Second Amended Credit Agreement as of March 31, 2020.
On August 7, 2019, we entered into a First Amendment to the Second Amended Credit Agreement in order to remain compliant with the covenants of our Second Amended Credit Agreement. The First Amendment provided the financial flexibility to settle the U.S. Department of Justice’s investigations as discussed in Note 14, “Contingencies” while maintaining our compliance with the covenants of our Second Amended Credit Agreement. None of the original terms of our Second Amended Credit Agreement relating to scheduled future principal payments, applicable interest rates and margins or borrowing capacity under our Revolving Facility were amended. In connection with this amendment, we incurred fees and other costs totaling $0.8 million, of which a majority was capitalized.
As of March 31, 2020, we had $684.0 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 or if we are unable to maintain compliance with applicable covenants.
0.875% Convertible Senior Notes
The issuance in December 2019 of the combined $218.0 million aggregate principal amount of the 0.875% Convertible Senior Notes resulted in $0.7 million in debt issuance costs, which were paid in January 2020. We have separately recorded liability and equity components of the 0.875% Convertible Senior Notes, including any discounts and issuance costs, by allocating the proceeds from the issuance between the liability component and the embedded conversion option, or equity component. This allocation was completed by first estimating an interest rate at the time of issuance for similar notes that do not include an embedded conversion option. The interest rate of 1.95% was used to compute the initial fair value of the liability component, which totaled $177.9 million at the time of issuance. The excess of the initial proceeds received from the 0.875% Convertible Senior Notes and the $177.9 million liability component was allocated to the equity component, which totaled $40.1 million at the time of issuance before deducting any paid capped call fees. The equity component of $40.1 million, the $17.2 million in paid capped call fees and an allocation of $1.1 million in combined discounts and issuance costs were recorded in Additional paid-in capital within the consolidated balance sheets in December 2019. These were recorded as a discount that will be accreted into interest expense through January 1, 2027 using the interest method. The carrying value of the combined equity component, net of capped call fees, issuance costs and accretion, totaled $20.0 million as of March 31, 2020.
1.25% Cash Convertible Senior Notes
As of March 31, 2020, the if-converted value of the 1.25% Notes did not exceed the 1.25% Notes’ principal amount.
19
The following table summarizes future debt payment obligations as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Remainder
of 2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
0.875% Convertible Senior Notes (1)
|
|
$
|
218,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
218,000
|
|
1.25% Cash Convertible Senior Notes (2)
|
|
|
345,000
|
|
|
|
345,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Term Loan
|
|
|
325,000
|
|
|
|
22,500
|
|
|
|
30,000
|
|
|
|
37,500
|
|
|
|
235,000
|
|
|
|
0
|
|
|
|
0
|
|
Revolving Facility (3)
|
|
|
215,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
215,000
|
|
|
|
0
|
|
|
|
0
|
|
Total debt
|
|
$
|
1,103,000
|
|
|
$
|
367,500
|
|
|
$
|
30,000
|
|
|
$
|
37,500
|
|
|
$
|
450,000
|
|
|
$
|
0
|
|
|
$
|
218,000
|
|
(1)
|
Amount represents face value of the 0.875% Convertible Senior Notes, which includes both the liability and equity portion.
|
(2)
|
Assumes no cash conversions of the 1.25% Notes prior to their maturity on July 1, 2020.
|
(3)
|
Assumes no additional borrowings after March 31, 2020, payment of any required periodic installments of principal and that all drawn amounts are repaid upon maturity.
|
11. 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, except effective tax rate)
|
|
2020
|
|
|
2019
|
|
Loss from continuing operations before income taxes
|
|
$
|
(20,701
|
)
|
|
$
|
(6,045
|
)
|
Income tax benefit (provision)
|
|
$
|
347
|
|
|
$
|
(1,932
|
)
|
Effective tax rate
|
|
|
1.7
|
%
|
|
|
(32.0
|
%)
|
Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate primarily due 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, 2020, compared with the prior year comparable period, differs primarily due to the fact that the permanent items, credits and the impact of foreign earnings had less impact on the pre-tax loss of $20.7 million in the three months ended March 31, 2020, compared to the impacts of these items on a pre-tax loss of $6.0 million for the three months ended March 31, 2019.
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, 2020, we recorded valuation allowances of $1.6 million related to U.S. and foreign net operating loss carryforwards.
Our unrecognized income tax benefits were $21.6 million and $20.6 million as of March 31, 2020 and December 31, 2019, 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 considering changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law.
20
12. 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, 2020
|
|
|
|
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
|
|
$
|
0
|
|
|
Accrued expenses
|
|
$
|
473
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
0
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
1
|
|
Total derivatives
|
|
|
|
$
|
0
|
|
|
|
|
$
|
474
|
|
|
|
December 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
|
|
$
|
0
|
|
|
Accrued expenses
|
|
$
|
0
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
84
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
185
|
|
Total derivatives
|
|
|
|
$
|
84
|
|
|
|
|
$
|
185
|
|
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 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 percentage of forecasted monthly INR expenses over time. As of March 31, 2020, there were 9 forward contracts outstanding that were staggered to mature monthly starting in April 2020 and ending in December 2020. 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 2020. As of March 31, 2020, the notional amount for each of the outstanding forward contracts was 280 million INR, or the equivalent of $3.7 million, based on the exchange rate between the United States dollar and the INR in effect as of March 31, 2020. These amounts also approximate the forecasted future INR expenses we target to hedge in any one month in the future. As of March 31, 2020, we estimate that $0.5 million of net unrealized derivative losses included in accumulated other comprehensive income (“AOCI”) will be reclassified into income within the next nine 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, 2020
|
|
|
Location of Gain (Loss) Reclassified
from AOCI into Income
|
|
Three Months
Ended
March 31, 2020
|
|
Foreign exchange
contracts
|
|
$
|
(473
|
)
|
|
Cost of Revenue
|
|
$
|
0
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
0
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
0
|
|
21
|
|
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
|
|
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)
|
|
2020
|
|
|
2019
|
|
1.25% Call Option
|
|
$
|
(84
|
)
|
|
$
|
(6,074
|
)
|
1.25% Embedded cash conversion option
|
|
|
184
|
|
|
|
6,449
|
|
Net income included in Other income, net
|
|
$
|
100
|
|
|
$
|
375
|
|
13. 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, 2019 (1)
|
|
$
|
(4,392
|
)
|
|
$
|
0
|
|
|
$
|
(4,392
|
)
|
Other comprehensive income (loss) before
reclassifications
|
|
|
(2,512
|
)
|
|
|
(351
|
)
|
|
|
(2,863
|
)
|
Net other comprehensive loss
|
|
|
(2,512
|
)
|
|
|
(351
|
)
|
|
|
(2,863
|
)
|
Balance as of March 31, 2020 (2)
|
|
$
|
(6,904
|
)
|
|
$
|
(351
|
)
|
|
$
|
(7,255
|
)
|
(1) Net of taxes of $149 thousand arising from the revaluation of tax effects included in AOCI.
(2) Net of taxes of $122 thousand for unrealized net losses on foreign exchange contract derivatives.
22
(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 income
|
|
|
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 AOCI.
(2) Net of taxes of $102 thousand for unrealized net losses on foreign exchange contract derivatives.
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,
|
|
|
|
2020
|
|
|
2019
|
|
(In thousands)
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation adjustments
|
|
$
|
(2,512
|
)
|
|
$
|
0
|
|
|
$
|
(2,512
|
)
|
|
$
|
695
|
|
|
$
|
0
|
|
|
$
|
695
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses) gains arising during the period
|
|
|
(473
|
)
|
|
|
122
|
|
|
|
(351
|
)
|
|
|
151
|
|
|
|
(40
|
)
|
|
|
111
|
|
Net losses (gains) reclassified into income
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(19
|
)
|
|
|
5
|
|
|
|
(14
|
)
|
Net change in unrealized (losses) gains on foreign exchange contracts
|
|
|
(473
|
)
|
|
|
122
|
|
|
|
(351
|
)
|
|
|
132
|
|
|
|
(35
|
)
|
|
|
97
|
|
Net (loss) gain on cash flow hedges
|
|
|
(473
|
)
|
|
|
122
|
|
|
|
(351
|
)
|
|
|
132
|
|
|
|
(35
|
)
|
|
|
97
|
|
Other comprehensive (loss) income
|
|
$
|
(2,985
|
)
|
|
$
|
122
|
|
|
$
|
(2,863
|
)
|
|
$
|
827
|
|
|
$
|
(35
|
)
|
|
$
|
792
|
|
14. 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, as appropriate, in these matters.
No less than quarterly, we review the status of each significant 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, except as set forth below with respected to the expected resolution of the Practice Fusion investigations, 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 additional 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.
The Enterprise Information Solutions business (the “EIS Business”) acquired from McKesson Corporation (“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 services marketed, sold or licensed by the EIS Business as of or prior to the closing of the acquisition.
23
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 June 2019, Practice Fusion received from the U.S. Department of Justice (the “DOJ”) seven additional requests for documents and information through four additional CIDs and three Health Insurance Portability and Accountability Act (“HIPAA”) subpoenas. The document and information requests received by Practice Fusion related 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 (“AKS”) and HIPAA as it relates to certain business practices engaged in by Practice Fusion. In March 2019, Practice Fusion received a grand jury subpoena in connection with a criminal investigation related to Practice Fusion’s compliance with the AKS. On August 6, 2019, Practice Fusion reached an agreement in principle with the DOJ to resolve all of the DOJ’s outstanding civil and criminal investigations, including the investigation by the U.S. Attorney’s Office for the District of Vermont, and we announced that on January 27, 2020, Practice Fusion entered into a deferred prosecution agreement and various civil settlement agreements, including with the Medicaid programs for each U.S. state, the District of Columbia and Puerto Rico (collectively, the “Settlement Agreements”) resolving the investigations conducted by the DOJ and the U.S. Attorney’s Office. The Settlement Agreements require Practice Fusion to, among other matters, pay a criminal fine of $25.3 million, a forfeiture payment of $959,700 and a civil settlement of $118.6 million, which includes $5.2 million designated for the state Medicaid program expenditures. The terms of Settlement Agreements resolved, among other things, allegations that Practice Fusion, long before its acquisition by Allscripts and concerning conduct about which Allscripts was unaware at the time of the acquisition, violated the AKS through the manner by which a sponsored Clinical Decision Support arrangement was sold to an opioid manufacturer and other AKS allegations made by the DOJ against Practice Fusion, as well as False Claims Act allegations pertaining to Meaningful Use payments the federal government made to users of Practice Fusion’s EHR system. In April 2020, Practice Fusion amended its civil settlement agreement with the DOJ by revising the timing of certain of the payments required to be made by Practice Fusion. Pursuant to the amendment, the Federal settlement amounts that were otherwise owed in the Company’s second and third fiscal quarters were reduced by half, and the balance of the Federal settlement amount owed by Practice Fusion will become due in January 2021.
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 first quarter of 2020, we realigned our reporting structure to organize the Company around strategic business units to maximize delivery of client commitments, operational effectiveness and competitiveness. As a result, we have three operating segments, (i) Core Clinical and Financial Solutions, (ii) Data, Analytics and Care Coordination and (iii) EPSiTM. The Core Clinical and Financial Solutions and Data, Analytics and Care Coordination operating segments are the equivalent to the reportable segments. The new reportable segments are (i) Core Clinical and Financial Solutions and (ii) Data, Analytics and Care Coordination. The new Core Clinical and Financial Solutions segment derives its revenue from the sale of integrated clinical software applications and financial management solutions, which primarily include EHR-related software, financial and practice management software, related installation, support and maintenance, outsourcing, private cloud hosting and revenue cycle management. The new Data, Analytics and Care Coordination segment derives its revenue from the sale of patient engagement, care coordination, and payer and life sciences solutions, which are mainly targeted at hospitals, health systems, other care facilities, payers, life sciences companies and other key healthcare stakeholders. These solutions enable clients to transition, analyze, coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community. The EPSiTM operating segment is included in the “Unallocated Amounts” category as it does not meet the requirements to be a reportable segment nor the criteria to be aggregated into the two reportable segments. The segment disclosures below for the three months ended March 31, 2019 have been revised to conform to the current year presentation.
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Our Chief Operating Decision Maker (“CODM”) uses segment revenues, gross profit and income (loss) from operations as measures of performance and to make decisions about the allocation of resources. The “Unallocated Amounts” category also includes (i) corporate general and administrative expenses (including marketing expenses) 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)
|
|
2020
|
|
|
2019
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Core Clinical and Financial Solutions
|
|
$
|
321,539
|
|
|
$
|
341,896
|
|
Data, Analytics and Care Coordination
|
|
|
82,062
|
|
|
|
74,259
|
|
Unallocated Amounts
|
|
|
13,112
|
|
|
|
15,894
|
|
Total revenue
|
|
$
|
416,713
|
|
|
$
|
432,049
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
Core Clinical and Financial Solutions
|
|
$
|
102,414
|
|
|
$
|
119,337
|
|
Data, Analytics and Care Coordination
|
|
|
51,889
|
|
|
|
50,120
|
|
Unallocated Amounts
|
|
|
2,658
|
|
|
|
4,638
|
|
Total gross profit
|
|
$
|
156,961
|
|
|
$
|
174,095
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
Core Clinical and Financial Solutions
|
|
$
|
27,534
|
|
|
$
|
42,498
|
|
Data, Analytics and Care Coordination
|
|
|
19,361
|
|
|
|
17,696
|
|
Unallocated Amounts
|
|
|
(56,095
|
)
|
|
|
(57,549
|
)
|
Total income (loss) from operations
|
|
$
|
(9,200
|
)
|
|
$
|
2,645
|
|
16. Supplemental Disclosures
Supplemental Consolidated Statements of Cash Flows Information
The majority of the restricted cash balance as of March 31, 2020 and 2019 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 HomecareTM business.
|
|
March 31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
204,308
|
|
|
$
|
137,167
|
|
Restricted cash
|
|
|
7,824
|
|
|
|
10,681
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
212,132
|
|
|
$
|
147,848
|
|
|
|
|
|
|
|
|
|
|
25