Change Healthcare Inc. (Nasdaq: CHNG), a leading independent
healthcare technology company, today reported financial results for
Change Healthcare LLC (“Change Healthcare”) for the first quarter
of fiscal year 2020 ended June 30, 2019.
“Change Healthcare delivered on our financial objectives and
executed well across several strategic initiatives, advancing
existing and new innovative solutions,” said Neil de Crescenzo,
President and Chief Executive Officer. “The success of our initial
public offering places us in a strong financial position to support
our growth initiatives. Our comprehensive suite of software and
analytics, technology-enabled services, and network solutions
places us in a unique position to partner with payers and providers
to reduce costs, improve quality, and continue to transition
towards value-based care.”
Adoption of the New Revenue Recognition Standard - ASC
606
Change Healthcare adopted the new revenue recognition accounting
standard Accounting Standards Codification ("ASC") 606 effective
April 1, 2019 on a modified retrospective basis. Financial results
for reporting periods during fiscal year 2020 are presented in
compliance with the new revenue recognition standard. Historical
financial results for reporting periods prior to fiscal year 2020
are presented in conformity with the prior revenue recognition
standard ASC 605. This press release includes additional
information to reconcile the impacts of the adoption of the new
revenue recognition standard on Change Healthcare’s financial
results for the quarter ended June 30, 2019. This includes the
presentation of financial results during fiscal year 2020 under ASC
605 for comparison to the prior year.
Fiscal 2020 First Quarter Highlights for Change Healthcare
LLC:
Financial Summary - ASC 606 (standard adopted effective April
1, 2019)
- Total revenue of $855.6 million, including solutions revenue of
$797.1 million
- Net income of $71.9 million, resulting in net income of $0.28
per diluted unit
- Adjusted net income of $141.5 million, resulting in adjusted
net income of $0.56 per diluted unit.
- Adjusted EBITDA of $281.1 million
Financial Summary - ASC 605 for Change Healthcare
LLC:
- Total revenue of $814.0 million, including solutions revenue of
$755.5 million
- Net income of $26.7 million, resulting in net income of $0.11
per diluted unit
- Adjusted net income of $96.2 million, resulting in adjusted net
income of $0.38 per diluted unit.(1)
- Adjusted EBITDA of $233.5 million
(1) Common units of Change Healthcare LLC are equivalent to the
number of outstanding common shares of Change Healthcare Inc. and
membership interests of Change Healthcare LLC held by subsidiaries
of McKesson.
Following our initial public offering, the Securities &
Exchange Commission (“SEC”) provided us with updated feedback
regarding Change Healthcare LLC’s calculation of adjusted net
income. As a result, Change Healthcare LLC will now define and
report adjusted net Income as net income (loss) before amortization
expense from acquired intangible assets, as adjusted to exclude the
impact of certain items that are not reflective of its core
operations, and the tax effects of the foregoing adjustments. Based
on prior feedback reflected in Change Healthcare Inc.’s prospectus
filed with the SEC on June 26, 2019, Change Healthcare LLC did not
distinguish between amortization resulting from acquired intangible
assets and amortization attributable to developed software. As a
result, under the previous formulation, adjusted net income was
defined as net income (loss) before total amortization expense, as
adjusted to exclude the impact of certain items that are not
reflective of its core operations, and the tax effects of the
foregoing adjustments.
Financial Results - ASC 606 (standard adopted effective April
1, 2019)
First Quarter Fiscal 2020
- Solutions revenue was $797.1 million. The primary difference
resulting from the new accounting standard is that more of our
revenue is recognized upon delivery of the related product or
service as compared to over time under the prior revenue
recognition standard.
- Net Income was $71.9 million, resulting in net income of $0.28
per diluted unit. In addition to the revenue impact noted above,
net income under the new accounting standard also was impacted
favorably by an extended recognition period for commissions,
decreasing expenses by $5.9 million.
- Adjusted net Income was $141.5 million, resulting in adjusted
net income of $0.56 per diluted unit.
- Adjusted EBITDA was $281.1 million. Adjusted EBITDA as percent
of Solutions revenue for the first quarter of 2020 was 35.3%
Financial Results - ASC 605 (standard before April 1,
2019)
First Quarter Fiscal 2020
- Solutions revenue was $755.5 million, compared to $757.7
million for the first fiscal quarter of 2019. Total revenue for the
current period, which includes Postage revenue, was $814.0 million
compared to $823.3 million in the same period of the prior year.
Growth in both the Software & Analytics and Network Solutions
businesses was more than offset by an unfavorable impact of $9.2
million from divestitures as well as planned contract eliminations
in our Technology-enabled Services business.
- Net Income was $26.7 million, resulting in net income of $0.11
per diluted unit, compared with net income of $12.5 million and net
income of $0.05 per diluted unit, respectively, for the first
fiscal quarter of 2019. The favorable impact of productivity
improvements and growth across our Software & Analytics and
Network Solutions businesses was partially offset by divestitures
as well as planned contract eliminations in our Technology Enabled
Service business. As part of our stated strategy, we are
repositioning certain of our Revenue Cycle Management (“RCM”)
service solutions to better address end-market dynamics, enhance
efficiency and to improve the long-term growth potential of these
solutions.
- Adjusted net income was $96.2 million, resulting in Adjusted
Net Income of $0.38 per diluted unit, compared with adjusted net
income of $97.6 million or $0.39 per diluted unit, respectively,
for the first fiscal quarter of 2019. Adjusted net income reflects
the items noted above.
- Adjusted EBITDA was $233.5 million, compared with $227.8
million for the first fiscal quarter of 2019. Adjusted EBITDA as a
percent of Solutions revenue for the first fiscal quarter of 2020
was 30.9%, compared with 30.1% for the first quarter of 2019. The
favorable impact of productivity improvements and growth across our
Software and Analytics and Network Solutions segment was partially
offset by the unfavorable impact of divestitures as well as planned
contract elimination in our Technology Enabled Services
business.
Change Healthcare LLC Cash Flow and Balance Sheet
Highlights
Net cash provided by operating activities was $84.5 million for
three months ended June 30, 2019, a decrease of 55.7% from $190.9
million for the three months ended June 30, 2018. Free cash flow
was $17.1 million for the three months ended June 30, 2019, a
decrease of 86.4% from $125.7 million for the three months ended
June 30, 2018. Adjusted free cash flow was $60.8 million, a
decrease of $138.5 million year over year.
Net cash provided by operating activities, free cash flow, and
adjusted free cash flow each are affected by pass-thru funds we
receive from certain pharmaceutical industry participants in
advance of our obligation to remit these funds to participating
retail pharmacies. The decrease in cash flow from operations, free
cash flow and adjusted free cash flow primarily resulted from the
inclusion of $154.6 million of such pass-thru funds in the three
months ended June 30, 2018 as compared to $12.3 million for the
three months ended June 30, 2019.
Change Healthcare LLC ended the quarter with over $27.4 million
of cash, cash equivalents and restricted cash and approximately
$5,790.6 million of total long-term debt. Subsequent to quarter
end, Change Healthcare Inc. closed an initial public offering of
common stock and a concurrent offering of tangible equity units
providing approximately $888 million in net proceeds and redeemed
$805 million in Term Loan Facility obligations.
As of June 30, 2019, no amounts had been drawn under the senior
secured revolving line of credit. On July 3, 2019, the company
amended its Revolving Credit Facility to increase the current
commitment amount from $500 million to $785 million and to extend
the maturity to July 3, 2024.
Recent Business Highlights
- Introduced Assurance Reimbursement Management™ Denial
Propensity Scoring and Revenue Performance Advisor Denial
Prevention. With performance enhanced by Claims Lifecycle
Artificial Intelligence, providers of any size now can proactively
identify problem claims that could result in denials, and remediate
potential issues before the claims are filed.
- Awarded a six-year contract by CommonWell Health Alliance® to
continue to provide clinical interoperability services, including
patient identification, record locator services, and document
retrieval to improve patient access and care delivery.
- Introduced the first patient liability solution across the
entire patient journey. Developed in partnership with our
customers, our Patient Liability Management suite combines revenue
cycle management solutions with expert advisory and patient
engagement services. The resulting synchronized and engaging
patient experience increases collections while improving patient
satisfaction.
- Introduced InterQual 2019, our latest edition of the industry's
flagship clinical decision support solution. Among the new features
is support for ‘Hospital in the Home' programs, which are
increasingly used as alternatives to some acute inpatient stays.
This latest edition also advances the technology in InterQual
AutoReview™ with Episode Day One review functionality.
Full Year Fiscal 2020 Outlook and 2021 Guidance - ASC
606
Change Healthcare expects Full-Year Fiscal 2020 Solutions
Revenue growth of 1-2% including the impact of the sale of our
extended care business and planned contract exits in our
Technology-enabled Services business; Adjusted EBITDA growth of 6%
- 8% and Adjusted Net Income Growth of 9% -11%.
For Fiscal year 2021, the Company expects Solutions Revenue
growth of 4%-6%, Adjusted EBITDA growth of 6%-8%.
Second Quarter Fiscal 2020 Guidance - ASC 606
Change Healthcare expects Second Quarter Fiscal 2020 Solutions
Revenue in the range of $710 million - $730 million; Adjusted
EBITDA in the range of $210 million - $220 million and; Adjusted
Net Income in the range of $80 million - $90 million.
While fiscal first quarter revenue increased as a result of ASC
606 implementation, full year revenue is not expected to differ
materially between the two accounting standards. Hence, the
acceleration of revenue to the first quarter of the fiscal year
will reduce the quarterly reported revenue in subsequent Fiscal
2020 reported results versus the prior revenue recognition
standard. The impact from extended recognition periods for
commission expense as a result of the adoption of ASC 606 is
expected to be favorable about $4 million per quarter pre-tax for
the remainder of fiscal 2020.
A reconciliation of the forward-looking second-quarter and
full-year fiscal 2020 Adjusted EBITDA outlook to net income cannot
be provided without unreasonable effort because of the inherent
difficulty of accurately forecasting the occurrence and financial
impact of the various adjusting items necessary for such
reconciliation that have not yet occurred, are out of our control,
or cannot be reasonably predicted. For the same reasons, Change
Healthcare LLC is unable to assess the probable significance of the
unavailable information, which could have a material impact on its
future GAAP financial results.
Conference Call and Webcast Information
Change Healthcare will host a conference call on August 14, 2019
at 8:00 a.m. ET. Investors and other interested parties are invited
to listen to the conference call by dialing 1-(877) 279-0788 in the
U.S.; 1-(270) 215-9894 from abroad, including the conference ID
number: 5461017; or via a live, audio webcast on the Company's
website at https://ir.changehealthcare.com/.
A webcast replay will be available for on-demand listening
shortly after the completion of the call until the first-quarter
fiscal 2021 earnings call, at the aforementioned URL. In addition,
a digital audio playback will be available until 11:00 a.m. Eastern
Time on Wednesday, August 21, 2019, by dialing 1-855-859-2056 or
1-404-537-3406 and referencing confirmation 5461017.
About Change Healthcare
Change Healthcare (Nasdaq: CHNG) is a leading independent
healthcare technology company that provides data and
analytics-driven solutions to improve clinical, financial and
patient engagement outcomes in the U.S. healthcare system. We are a
key catalyst of a value-based healthcare system, accelerating the
journey toward improved lives and healthier communities. Learn more
at changehealthcare.com.
CHNG-IR
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of federal securities laws. Any statements made in this
quarterly report that are not statements of historical fact,
including statements about our beliefs and expectations, are
forward-looking statements. Forward-looking statements include
information concerning possible or assumed future results of
operations, including descriptions of our business plans and
strategies. These statements often include words such as
“anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,”
“estimate,” “target,” “project,” “should,” “could,” “would,” “may,”
“will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,”
“predicts,” and the negatives of these words and other similar
expressions. Forward-looking statements involve known and unknown
risks, uncertainties, including factors disclosed in the
Registration Statement on Form S-1 (No. 333-230345) in the section
entitled “Risk Factors,” and other factors that may cause our
actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Given these
uncertainties, you should not place undue reliance on any
forward-looking statements in this release. All forward-looking
statements are based on information currently available to Change
Healthcare and are qualified in their entirety by this cautionary
statement. The statements herein speak only as of the date such
statements were first made. Except to the extent required by law,
Change Healthcare assumes no obligation to update any such
forward-looking statements or other statements included in this
release.
Non-GAAP Financial Measures
In the Company’s earnings releases, prepared remarks, conference
calls, slide presentations and webcasts, there may be use or
discussion of non-GAAP financial measures. We believe such measures
provide supplemental information to investors with regard to our
operating performance and assist investors’ ability to compare our
financial results to those of other companies in the same industry.
The GAAP financial measure most directly comparable to each
non-GAAP financial measure used or discussed, and a reconciliation
of the differences between the comparable GAAP financial measure
and each non-GAAP financial measure are included in this press
release after the consolidated financial statements. These non-GAAP
financial measures are calculated and presented on the basis of
methodologies other than in accordance with generally accepted
accounting principles in the United States of America (“GAAP”).
These non-GAAP financial measures should be considered only as
supplemental to, and not as superior to, financial measures
prepared in accordance with GAAP and may be defined and calculated
differently by others in the same industry.
Change Healthcare Inc.
Statements of Operations
(unaudited and amounts in thousands, except share and per share
amounts)
Three Months Ended
June 30,
2019
2018
Revenue
$
—
$
—
Operating expenses
General and administrative
251
31
Total operating expenses
251
31
Operating income (loss)
(251
)
(31
)
Non-operating (income) expense
Loss from Equity Method Investment in the
Joint Venture
39,554
22,766
(Gain) Loss on Sale of Interests in the
Joint Venture
—
(464
)
Management fee income
(104
)
(31
)
Total non-operating (income)
expense
39,450
22,271
Income (loss) before income tax
provision (benefit)
(39,701
)
(22,302
)
Income tax provision (benefit)
(2,184
)
(4,801
)
Net income (loss)
$
(37,517
)
$
(17,501
)
Net income (loss) per share:
Basic
$
(0.50
)
$
(0.23
)
Diluted
$
(0.50
)
$
(0.23
)
Weighted average common shares
outstanding:
Basic
75,474,654
75,604,775
Diluted
75,474,654
75,604,775
Change Healthcare Inc.
Balance Sheets (unaudited and
amounts in thousands, except share and per share amounts)
June 30,
March 31,
2019
2019
Assets
Current Assets:
Cash
$
3,409
$
3,409
Due from the Joint Venture
574
373
Income taxes receivable
1,601
1,781
Total current assets
5,584
5,563
Dividend receivable
48,807
81,264
Investment in the Joint Venture
1,253,535
1,211,996
Total assets
$
1,307,926
$
1,298,823
Liabilities and stockholders'
equity
Current liabilities:
Accrued expenses
$
343
$
176
Due to the Joint Venture
6,167
6,167
Total current liabilities
6,510
6,343
Deferred income tax liabilities
169,992
159,993
Commitments and contingencies (see Note
4)
Stockholders' Equity:
Common Stock (par value, $.001),
9,000,000,000 and 252,800,000 shares authorized and 75,474,654 and
75,474,654 shares issued and outstanding at June 30, 2019 and March
31, 2019, respectively
75
75
Class X common stock (par value, $.001), 1
and 1 share authorized and no shares issued and outstanding at June
30, 2019 and March 31, 2019, respectively
—
—
Preferred stock (par value, $.001),
900,000,000 and 0 shares authorized and no shares issued and
outstanding at June 30, 2019 and March 31, 2019, respectively
—
—
Additional paid-in capital
1,159,371
1,153,509
Accumulated other comprehensive income
(loss)
(8,039
)
(3,256
)
Retained earnings (deficit)
(19,983
)
(17,841
)
Total stockholders' equity
1,131,424
1,132,487
Total liabilities and stockholders'
equity
$
1,307,926
$
1,298,823
Change Healthcare Inc.
Statements of Cash Flows
(unaudited and amounts in thousands)
Three Months Ended
June 30,
2019
2018
Cash flows from operating
activities:
Net income (loss)
$
(37,517
)
$
(17,501
)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Loss from Equity Method Investment in the
Joint Venture
39,554
22,766
Deferred income tax expense (benefit)
(2,184
)
(4,801
)
(Gain) Loss on Sale of Interests in the
Joint Venture
—
(464
)
Changes in operating assets and
liabilities:
Due from the Joint Venture
(201
)
(31
)
Income taxes receivable
180
(208
)
Accrued expenses
168
31
Due to the Joint Venture
—
208
Net cash provided by (used in)
operating activities
—
—
Cash flows from investing
activities:
Proceeds from sale of interests in Joint
Venture
—
4,782
Net cash provided by (used in)
investing activities
—
4,782
Cash flows from financing
activities:
Payments to acquire common stock
—
(4,782
)
Net cash provided by (used in)
financing activities
—
(4,782
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
—
—
Cash, cash equivalents and restricted cash
at beginning of period
3,409
—
Cash, cash equivalents and restricted
cash at end of period
$
3,409
$
—
Change Healthcare LLC
Consolidated Statements of
Operations (unaudited and amounts in thousands, except unit and per
unit amounts)
Three Months Ended
June 30,
2019
2018
Revenue:
Solutions revenue
$
797,072
$
757,705
Postage revenue
58,484
65,558
Total revenue
855,556
823,263
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
326,947
337,430
Research and development
49,339
55,324
Sales, marketing, general and
administrative
193,273
206,914
Customer postage
58,484
65,558
Depreciation and amortization
71,316
68,527
Accretion and changes in estimate with
related parties, net
3,880
3,824
Total operating expenses
703,239
737,577
Operating income (loss)
152,317
85,686
Non-operating (income) and
expense
Interest expense, net
83,406
78,549
Contingent consideration
(791
)
272
Other, net
(3,778
)
(5,532
)
Total non-operating (income) and
expense
78,837
73,289
Income (loss) before income tax
provision (benefit)
73,480
12,397
Income tax provision (benefit)
1,565
(109
)
Net income (loss)
$
71,915
$
12,506
Net income (loss) per common
unit(1):
Basic
$
0.29
$
0.05
Diluted
$
0.28
$
0.05
Weighted average common units
outstanding(1):
Basic
251,469,846
251,599,967
Diluted
253,124,478
253,447,527
(1) Common units of Change Healthcare LLC are equivalent to the
number of outstanding common shares of Change Healthcare Inc. and
membership interests of Change Healthcare LLC held by subsidiaries
of McKesson.
Change Healthcare LLC
Consolidated Balance Sheets
(unaudited and amounts in thousands)
June 30,
March 31,
2019
2019
Assets
Current assets:
Cash and cash equivalents
$
27,122
$
47,718
Restricted cash
264
1,176
Accounts receivable, net of allowance for
doubtful accounts
727,205
759,502
Contract assets
145,054
—
Prepaid expenses and other current
assets
159,489
172,067
Total current assets
1,059,134
980,463
Property and equipment, net
194,027
197,263
Goodwill
3,284,979
3,284,266
Intangible assets, net
1,284,369
1,320,161
Other noncurrent assets, net
480,463
421,985
Total assets
$
6,302,972
$
6,204,138
Liabilities and members'
deficit
Current liabilities:
Drafts and accounts payable
$
48,855
$
98,550
Accrued expenses
332,750
316,179
Deferred revenues
361,663
437,636
Due to related parties, net
28,359
34,629
Current portion of long-term debt
7,085
2,789
Total current liabilities
778,712
889,783
Long-term debt, excluding current
portion
5,783,537
5,787,150
Deferred income tax liabilities
107,255
106,099
Tax receivable agreement obligations to
related parties
196,696
212,698
Other long-term liabilities
121,655
113,194
Commitments and contingencies (see Note
6)
Members' deficit
(684,883
)
(904,786
)
Total liabilities and members'
deficit
$
6,302,972
$
6,204,138
Change Healthcare LLC
Consolidated Statements of
Cash Flows (unaudited and amounts in thousands)
Three Months Ended
June 30,
2019
2018
Cash flows from operating
activities:
Net income (loss)
$
71,915
$
12,506
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization
71,316
68,527
Amortization of capitalized software
developed for sale
3,452
3,760
Accretion and changes in estimate, net
3,880
3,824
Equity compensation
5,862
5,300
Deferred income tax expense (benefit)
1,158
(613
)
Amortization of debt discount and issuance
costs
5,524
5,470
Contingent consideration
(791
)
272
Other
(460
)
(215
)
Changes in operating assets and
liabilities:
Accounts receivable
7,748
16,996
Contract assets
(3,049
)
—
Prepaid expenses and other
(16,338
)
(28,733
)
Accounts payable
(33,954
)
(7,647
)
Accrued expenses, deferred revenue and
other liabilities
(25,524
)
115,602
Due to related party, net
(6,269
)
(4,196
)
Net cash provided by (used in)
operating activities
84,470
190,853
Cash flows from investing
activities:
Capitalized expenditures
(67,414
)
(65,166
)
Net cash provided by (used in)
investing activities
(67,414
)
(65,166
)
Cash flows from financing
activities:
Payments under tax receivable agreements
with related parties
(27,227
)
(25,096
)
Payments on Term Loan Facility
(12,750
)
(12,750
)
Receipts (payments) on derivative
instruments
2,112
1,013
Payments of deferred financing
obligations
—
(2,035
)
Capital contribution from Members from
exercise of equity awards
—
205
Repurchase of equity awards
—
(4,838
)
Advances to Member and Other
—
(208
)
Other
(759
)
598
Net cash provided by (used in)
financing activities
(38,624
)
(43,111
)
Effect of exchange rate changes on cash
and cash equivalents
60
(812
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
(21,508
)
81,764
Cash, cash equivalents and restricted cash
at beginning of period
48,894
50,011
Cash, cash equivalents and restricted
cash at end of period
$
27,386
$
131,775
Change Healthcare LLC
Reconciliation of Net Income
(Loss) to Adjusted EBITDA
Three Months Ended June
30,
Unaudited and amounts in thousands
2019
2018
As Reported
Impacts from Adoption
Without Adoption (ASC
605)
As Reported (ASC 605)
Net income (loss)
$
71,915
$
(45,257
)
$
26,658
$
12,506
Net interest expense
83,406
—
83,406
78,549
Income tax provision (benefit)
1,565
(2,251
)
(686
)
(109
)
Depreciation and amortization
71,316
—
71,316
68,527
Amortization of capitalized software
developed for sale
3,452
—
3,452
3,760
EBITDA
231,654
(47,508
)
184,146
163,233
Adjustments to EBITDA:
Equity compensation
5,862
—
5,862
5,300
Acquisition accounting adjustments
373
—
373
1,985
Acquisition and divestiture-related
costs
658
—
658
4,188
Integration and related costs
25,725
—
25,725
20,951
Strategic initiatives, duplicative and
transition costs
3,569
—
3,569
10,774
Severance costs
7,170
—
7,170
7,676
Costs related to recently issued
accounting standards
—
—
—
3,741
Accretion and changes in estimate with
related parties, net
3,880
—
3,880
3,824
Management fees and related costs
2,648
—
2,648
2,677
Impairment of long-lived assets and
other
(840
)
—
(840
)
1,017
Contingent consideration
(791
)
—
(791
)
272
Other non-routine, net
1,148
—
1,148
2,149
EBITDA Adjustments
49,402
49,402
64,554
Adjusted EBITDA
$
281,056
$
(47,508
)
$
233,548
$
227,787
Change Healthcare LLC
Reconciliation of Net Income
(Loss) to Adjusted Net Income (Loss)
Three Months Ended June
30,
Unaudited and amounts in thousands
2019
2018
As Reported
Impacts from Adoption
Without Adoption (ASC
605)
As Reported (ASC 605)
Net income (loss)
$
71,915
$
(45,257
)
$
26,658
$
12,506
Amortization expense resulting from
acquisition method adjustments
34,648
—
34,648
37,943
EBITDA Adjustments
49,402
—
49,402
64,554
Tax effect of EBITDA Adjustments and
amortization expense
(14,465
)
—
(14,465
)
(17,401
)
Adjusted Net Income
$
141,500
$
(45,257
)
$
96,243
$
97,602
Adjusted net income (loss) per diluted
unit(1)
$
0.56
$
0.38
$
0.39
(1) Common units of Change Healthcare LLC are equivalent to the
number of outstanding common shares of Change Healthcare Inc. and
membership interests of Change Healthcare LLC held by subsidiaries
of McKesson.
Change Healthcare LLC
Segment Results
Three Months Ended June
30,
Unaudited and amounts in thousands
2019
2018
As Reported
Impacts from Adoption
Without Adoption (ASC
605)
As Reported (ASC 605)
Segment revenue
Software and Analytics
$
437,344
$
(41,627
)
$
395,717
$
396,402
Network Solutions
141,612
—
141,612
136,603
Technology-enabled Services
243,990
96
244,086
249,995
Corporate and Eliminations
32,610
—
32,610
40,263
Net revenue
$
855,556
$
(41,531
)
$
814,025
$
823,263
Segment Adjusted EBITDA
Software and Analytics
$
202,314
$
(45,985
)
$
156,329
$
142,637
Network Solutions
84,973
(518
)
84,455
82,237
Technology-enabled Services
45,151
(757
)
44,394
49,972
Corporate and Eliminations
(51,382
)
(248
)
(51,630
)
(47,059
)
Total Adjusted EBITDA
$
281,056
$
(47,508
)
$
233,548
$
227,787
Change Healthcare LLC
Reconciliation of Cash
Provided by (Used in) Operating Activities to Free Cash Flow
and
Adjusted Free Cash
Flow
Three Months Ended
Unaudited and amounts in thousands
June 30,
2019
2018
Cash provided by (used in) operating
activities (1)
$
84,470
$
190,853
Capital expenditures
(67,414
)
(65,166
)
Free Cash Flow
17,056
125,687
Adjustments to Free Cash Flow
(2):
Integration and related costs
25,725
20,951
Strategic initiatives, duplicative and
transition costs
3,569
10,774
Severance costs
7,170
7,676
Costs related to recently issued
accounting standards
—
3,741
Integration capital expenditures
7,247
30,479
Adjusted Free Cash Flow
$
60,767
$
199,308
(1) Includes pass-thru cash of $12.3 million and $154.6 million
for the three months ended June 30, 2019 and 2018, respectively.
(2) All operating costs and integration capital expenditures in the
table are presented on an as-incurred basis.
Change Healthcare LLC
Consolidated Statements of
Operations (unaudited and amounts in thousands, except share and
per share amounts)
Reconciliation of the Impacts
from the Adoption of the New Revenue Recognition Standard
Three months ended June
30,
2019
2018
As Reported
Impacts from Adoption
Without Adoption (ASC
605)
As Reported (ASC 605)
Revenue:
Solutions revenue
$
797,072
$
(41,531
)
$
755,541
$
757,705
Postage revenue
58,484
—
58,484
65,558
Total revenue
855,556
(41,531
)
814,025
823,263
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
326,947
808
327,755
337,430
Research and development
49,339
—
49,339
55,324
Sales, marketing, general and
administrative
193,273
5,169
198,442
206,914
Customer postage
58,484
—
58,484
65,558
Depreciation and amortization
71,316
—
71,316
68,527
Accretion and changes in estimate with
related parties, net
3,880
—
3,880
3,824
Total operating expenses
703,239
5,977
709,216
737,577
Operating income (loss)
152,317
(47,508
)
104,809
85,686
Non-operating (income) and
expense
Interest expense, net
83,406
—
83,406
78,549
Contingent consideration
(791
)
—
(791
)
272
Other, net
(3,778
)
—
(3,778
)
(5,532
)
Total non-operating (income) and
expense
78,837
—
78,837
73,289
Income (loss) before income tax
provision (benefit)
73,480
(47,508
)
25,972
12,397
Income tax provision (benefit)
1,565
(2,251
)
(686
)
(109
)
Net income (loss)
$
71,915
$
(45,257
)
$
26,658
$
12,506
Net income (loss) per common
unit(1):
Basic
$
0.29
$
0.11
$
0.05
Diluted
$
0.28
$
0.11
$
0.05
(1) Common units of Change Healthcare LLC are equivalent to the
number of outstanding common shares of Change Healthcare Inc. and
membership interests of Change Healthcare LLC held by subsidiaries
of McKesson.
Change Healthcare LLC
Consolidated Balance Sheets
(unaudited and amounts in thousands)
Reconciliation of the Impacts
from the Adoption of the New Revenue Recognition Standard
June 30, 2019
March 31, 2019
As Reported
Impacts from Adoption
Without Adoption (ASC
605)
As Reported (ASC 605)
Assets
$
$
$
$
Current assets:
Cash and cash equivalents
27,122
—
27,122
47,718
Restricted cash
264
—
264
1,176
Accounts receivable, net of allowance for
doubtful accounts
727,205
24,428
751,633
759,502
Contract assets
145,054
(145,054
)
—
—
Prepaid expenses and other current
assets
159,489
20,084
179,573
172,067
Total current assets
1,059,134
(100,542
)
958,592
980,463
Property and equipment, net
194,027
—
194,027
197,263
Goodwill
3,284,979
—
3,284,979
3,284,266
Intangible assets, net
1,284,369
—
1,284,369
1,320,161
Other noncurrent assets, net
480,463
(40,335
)
440,128
421,985
Total assets
$
6,302,972
$
(140,877
)
$
6,162,095
$
6,204,138
Liabilities and members'
deficit
Current liabilities:
Drafts and accounts payable
$
48,855
$
(62
)
$
48,793
$
98,550
Accrued expenses
332,750
—
332,750
316,179
Deferred revenues
361,663
66,023
427,686
437,636
Due to related parties, net
28,359
—
28,359
34,629
Current portion of long-term debt
7,085
—
7,085
2,789
Total current liabilities
778,712
65,961
844,673
889,783
Long-term debt, excluding current
portion
5,783,537
—
5,783,537
5,787,150
Deferred income tax liabilities
107,255
—
107,255
106,099
Tax receivable agreement obligations to
related parties
196,696
—
196,696
212,698
Other long-term liabilities
121,655
566
122,221
113,194
Commitments and contingencies
Members' deficit
(684,883
)
(207,404
)
(892,287
)
(904,786
)
Total liabilities and members'
deficit
$
6,302,972
$
(140,877
)
$
6,162,095
$
6,204,138
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190813005689/en/
Kerry Kelly External Communications 339-236-2756
Kerry.Kelly@changehealthcare.com Evan Smith Investor Relations
404-338-2225 Evan.Smith@changehealthcare.com
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