- Revenue growth driven by continued momentum in core business
and investment in expanded capabilities
- Total revenue of $884M, including solutions revenue of $831M;
solutions revenue growth of 1.8% driven by increased volume and new
sales
Change Healthcare Inc. (Nasdaq: CHNG) (the “Company” or “Change
Healthcare”), a leading healthcare technology company, today
reported financial results for the first quarter of fiscal year
2023 ended June 30, 2022.
“Our first quarter growth, despite headwinds from lower
COVID-related activities and customer attrition related to the
extended merger process, demonstrates the underlying momentum in
the business,” said Neil de Crescenzo, president and chief
executive officer. “We believe our sales pipeline and continued
investments in innovation establish a strong foundation for growth
as we move through fiscal 2023.”
Fiscal 2023 First Quarter Highlights:
Recent Business Highlights
- Released InterQual® 2022, which includes new criteria for
emergent trends, restructured and interactive criteria to
streamline workflows, and artificial intelligence (AI) to drive
proactive insights and efficiency.
- Launched Patient Engagement suite, which combines Luma Health’s
Patient Success Platform™ solution with Change Healthcare’s revenue
cycle management solutions to give patients and providers a
cohesive experience that spans the entire healthcare journey.
Financial Results for First Quarter of
Fiscal 2023
Q1 2023
Q1 2022
Total Revenue1
$884.5 million
$867.9 million
Solutions Revenue1
$831.3 million
$816.6 million
Net Income (Loss)
$(23.2) million
$(3.6) million
Diluted EPS2
$(0.07)
$(0.01)
Adjusted EBITDA
$280.2 million
$282.7 million
Adjusted Net Income
$123.8 million
$133.0 million
Adjusted Diluted EPS2
$0.38
$0.41
1. Total Revenue and Solutions Revenue for
first quarter of fiscal 2022 included the impact of fair value
adjustments to deferred revenue resulting from the McKesson exit,
which reduced revenue recognized by $4.5 million.
2. Diluted EPS and Adjusted Diluted EPS for the current period are
based on 327 million shares compared to 323 million shares in the
first quarter of fiscal 2022.
Solutions revenue in the first quarter grew 1.8% compared to the
first quarter of fiscal 2022, driven by volume growth and new
sales. Adjusted EBITDA declined 0.9% over the same period, impacted
by investments to support business initiatives, wage inflation and
negative mix, partially offset by the aforementioned revenue
growth.
Cash Flow and Balance Sheet Highlights
Net cash provided by operating activities was $83.3 million and
free cash flow was $3.8 million, in each case, for the three months
ended June 30, 2022. For the three months ended June 30, 2021, net
cash provided by operating activities and free cash flow were
$110.1 million and $44.1 million, respectively.
Net cash provided by operating activities and 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. Such
pass-thru funds on hand decreased by $7.1 million in the three
months ended June 30, 2022, decreasing free cash flow for the
period by that amount, and increased by $7.3 million for the three
months ended June 30, 2021.
The Company ended the quarter with approximately $94.0 million
of cash and cash equivalents, and approximately $4,491.3 million of
total debt. During the first quarter, the Company repaid $100.0
million of its Senior Notes, and repaid an additional $50 million
subsequent to the end of the quarter.
Segments
During the first quarter of fiscal year 2023, the Company made
certain changes in the way it manages its business and how it views
operating results. Specifically, the Company made the following
changes:
- Established the Enterprise Imaging business as a standalone
reportable segment under its own general manager, reporting
directly to the Company’s chief executive officer. This business
was previously presented within the Software & Analytics
reportable segment.
- Shifted responsibility for certain products from one reportable
segment to another to better align the Company’s portfolio of
service offerings, which will impact the Technology-Enabled
Services, Network Solutions, and Software & Analytics
reportable segments.
The Company now reports its financial results in four reportable
segments: Software and Analytics, Network Solutions, Enterprise
Imaging and Technology-Enabled Services. Segment information for
historical periods has been retrospectively restated in the
accompanying materials to reflect the new organizational
structure.
Guidance
Due to the proposed transaction with OptumInsight, we will no
longer be providing financial guidance.
Update on Proposed Merger with OptumInsight
On January 5, 2021, OptumInsight, a diversified health services
company and part of UnitedHealth Group, and Change Healthcare
agreed to combine (the “Merger”). Under the terms of the merger
agreement, UnitedHealth Group, through a wholly-owned subsidiary,
will acquire all of the outstanding shares of Change Healthcare
common stock for $25.75 per share in cash. The Boards of Directors
of both UnitedHealth Group and Change Healthcare have unanimously
approved the terms of the Merger, and Change Healthcare
stockholders voted to approve the Merger on April 13, 2021. The
closing of the Merger is subject to applicable regulatory approval
and other customary closing conditions.
On February 24, 2022, the Department of Justice (“DOJ”) and
certain other parties commenced litigation to block the Merger, and
the Company continues to support UnitedHealth Group in working
toward closing the Merger. Trial for that action commenced on
August 1, 2022.
On April 4, 2022, the parties to the merger agreement entered
into a waiver pursuant to which, among other things, Change
Healthcare and UnitedHealth Group each waived its right to
terminate the merger agreement until the earlier of (i)the tenth
business day following a final order issued by the U.S. District
Court for the District of Columbia with respect to the complaint
filed by the DOJ that prohibits the consummation of the Merger and
(ii) December 31, 2022. OptumInsight will pay a $650 million fee to
Change Healthcare in the event the Merger is unable to be completed
because of the decision issued by the U.S. District Court for the
District of Columbia upon completion of the trial that commenced on
August 1, 2022.
Additionally, the Company will be permitted to declare and pay a
one-time special dividend of up to $2.00 in cash per each issued
and outstanding share of its common stock, with a record date and
payment date to be determined in the sole discretion of the
Company’s Board of Directors (or a committee thereof). The Company
expects to pay the dividend at or about the time of closing the
Merger.
On April 22, 2022, UnitedHealth Group, as seller, entered into
an equity purchase agreement and related agreements relating to the
sale of the Company’s claims editing business to an affiliate of
investment funds of TPG Capital for a base purchase price in cash
equal to $2.2 billion (subject to customary adjustments).
Consummation of the transaction is contingent on a number of
conditions, including the consummation of the Merger.
Webcast Information
Change Healthcare will host a conference call on Thursday,
August 4, 2022, at 8:00 a.m. ET. Due to the previously announced
transaction with OptumInsight, the Company will not be taking
questions during the conference call.
Investors and other interested parties are invited to listen to
the conference call via the Company's website at
https://ir.changehealthcare.com/. The webcast will be available for
on-demand listening at the aforementioned URL until August 4,
2023.
About Change Healthcare
Change Healthcare (Nasdaq: CHNG) is a leading healthcare
technology company, focused on insights, innovation, and
accelerating the transformation of the U.S. healthcare system
through the power of the Change Healthcare platform. We provide
data and analytics-driven solutions to improve clinical, financial,
administrative, and patient engagement outcomes in the U.S.
healthcare system. Learn more at changehealthcare.com.
CHNG-IR
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
with respect to the financial condition, results of operations and
businesses of Change Healthcare. Some of these statements can be
identified by terms and phrases such as “anticipate,” “believe,”
“intend,” “estimate,” “expect,” “continue,” “could,” “should,”
“may,” “plan,” “project,” “predict” and similar expressions. Change
Healthcare cautions readers of this press release that such
“forward looking statements,” including without limitation, those
relating to the timing of the proposed merger and Change
Healthcare’s future business prospects, revenue, working capital,
liquidity, capital needs, interest costs and income, wherever they
occur in this press release or in other statements attributable to
Change Healthcare, are necessarily estimates reflecting the
judgment of Change Healthcare’s senior management and involve a
number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the “forward looking
statements.”
Factors that could cause Change Healthcare’s actual results to
differ materially from those expressed or implied in such
forward-looking statements include, but are not limited to, the
inability to complete the proposed merger due to the failure to
satisfy the conditions to the completion of the proposed merger,
including that a governmental entity may prohibit, delay or refuse
to grant approval for the consummation of the transaction; risks
related to disruption of management’s attention from Change
Healthcare’s ongoing business operations due to the transaction;
the effect of the announcement of the proposed merger on Change
Healthcare’s operations, results and business generally; the risk
that the proposed merger will not be consummated in a timely
manner, exceeding the expected costs of the merger; the occurrence
of any event, change or other circumstances that could give rise to
the termination of the merger agreement; macroeconomic and industry
trends and adverse developments in the debt, consumer credit and
financial services markets; uncertainty and risks related to the
impact of the COVID-19 pandemic (including the rise of COVID-19
variant strains such as the Delta and Omicron variants) on the
national and global economy, Change Healthcare’s business,
suppliers, customers, and employees; Change Healthcare’s ability to
retain and recruit key management personnel and other talent
(including while the proposed merger is pending); Change
Healthcare’s ability to retain or renew existing customers and
attract new customers; Change Healthcare’s ability to connect a
large number of payers and providers; Change Healthcare’s ability
to provide competitive services and prices while maintaining its
margins; further consolidation in Change Healthcare’s end-customer
markets; Change Healthcare’s ability to effectively manage its
costs; Change Healthcare’s ability to effectively develop and
maintain relationships with its channel partners; Change
Healthcare’s ability to timely develop new services and improve
existing solutions; Change Healthcare’s ability to deliver services
timely without interruption; a decline in transaction volume in the
U.S. healthcare industry; Change Healthcare’s ability to maintain
access to its data sources; Change Healthcare’s ability to maintain
the security and integrity of its data; Change Healthcare’s
reliance on key management personnel; Change Healthcare’s ability
to manage and expand its operations and keep up with rapidly
changing technologies; the ability of outside service providers and
key vendors to fulfill their obligations to Change Healthcare;
risks related to international operations; Change Healthcare’s
ability to protect and enforce its intellectual property, trade
secrets and other forms of unpatented intellectual property; Change
Healthcare’s ability to defend its intellectual property from
infringement claims by third parties; government regulation and
changes in the regulatory environment; changes in local, state,
federal and international laws and regulations, including related
to taxation; economic and political instability in the U.S. and
international markets where Change Healthcare operates; the
economic impact of escalating global tensions, including the
conflict between Russia and Ukraine, and the adoption or expansion
of economic sanctions or trade restrictions; litigation or
regulatory proceedings; losses against which Change Healthcare does
not insure; Change Healthcare’s ability to make acquisitions and
integrate the operations of acquired businesses; Change
Healthcare’s ability to make timely payments of principal and
interest on its indebtedness; Change Healthcare’s ability to
satisfy covenants in the agreements governing its indebtedness;
Change Healthcare’s ability to maintain liquidity; the potential
dilutive effect of future issuance of shares of Change Healthcare’s
common stock; the impact of anti-takeover provisions in Change
Healthcare’s organizational documents and under Delaware law, which
may discourage or delay acquisition attempts, and other risks. For
a more detailed discussion of these factors, see the information
under the captions “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in
Change Healthcare’s most recent Annual Report on Form 10-K filed
with the Securities and Exchange Commission (“SEC”) on May 26, 2022
as such factors may be updated from time to time in our periodic
filings with the SEC.
Change Healthcare’s forward-looking statements speak only as of
the date of this press release or as of the date they are made.
Change Healthcare disclaims any intent or obligation to update any
“forward looking statement” made in this press release to reflect
changed assumptions, the occurrence of unanticipated events or
changes to future operating results over time.
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 regards to our
operating performance and assist investors’ ability to compare our
financial results to those of other companies in the same industry.
The GAAP financial measure most directly comparable to each
non-GAAP financial measure used or discussed, and a reconciliation
of the differences between the comparable GAAP financial measure
and each non-GAAP financial measure are included in this press
release after the consolidated financial statements. These non-GAAP
financial measures are calculated and presented on the basis of
methodologies other than in accordance with GAAP. These non-GAAP
financial measures should be considered only as supplemental to,
and not as superior to, financial measures prepared in accordance
with GAAP and may be defined and calculated differently by others
in the same industry.
Consolidated Statements of
Operations
(unaudited and amounts in
thousands, except share and per share amounts)
Three Months Ended June
30,
2022
2021
Revenue:
Solutions revenue
$
831,343
$
816,648
Postage revenue
53,126
51,208
Total revenue
884,469
867,856
Operating expenses:
Cost of operations (exclusive of
depreciation and amortization below)
357,096
352,063
Research and development
74,197
71,240
Sales, marketing, general and
administrative
197,886
177,955
Customer postage
53,126
51,208
Depreciation and amortization
171,722
168,211
Accretion and changes in estimate with
related parties, net
3,189
3,037
Total operating expenses
857,216
823,714
Operating income (loss)
27,253
44,142
Non-operating (income) and
expense
Interest expense, net
56,870
59,386
Loss on extinguishment of debt
390
—
Other, net
2,472
(3,189)
Total non-operating (income) and
expense
59,732
56,197
Income (loss) before income tax
provision (benefit)
(32,479)
(12,055)
Income tax provision (benefit)
(9,311)
(8,450)
Net income (loss)
$
(23,168)
$
(3,605)
Net income (loss) per common
share:
Basic and diluted
$
(0.07)
$
(0.01)
Weighted average common shares
outstanding:
Basic and diluted
326,562,482
322,546,171
Consolidated Balance
Sheets
(unaudited and amounts in
thousands, except share and per share amounts)
June 30, 2022
March 31, 2022
Assets
Current assets:
Cash and cash equivalents
$
94,009
$
252,298
Accounts receivable, net
717,684
720,122
Contract assets, net
130,351
162,828
Prepaid expenses and other current
assets
204,357
177,659
Total current assets
1,146,401
1,312,907
Property and equipment, net
126,781
141,340
Operating lease right-of-use assets,
net
61,423
65,680
Goodwill
4,101,659
4,112,904
Intangible assets, net
3,587,019
3,699,603
Other noncurrent assets, net
613,698
600,061
Total assets
$
9,636,981
$
9,932,495
Liabilities
Current liabilities:
Accounts payable
$
85,208
$
104,273
Accrued expenses
383,368
461,506
Deferred revenue
409,952
469,098
Due to related parties, net
29,560
13,057
Current portion of long-term debt
4,708
10,006
Current portion of operating lease
liabilities
20,009
21,726
Total current liabilities
932,805
1,079,666
Long-term debt, excluding current
portion
4,486,565
4,580,087
Long-term operating lease liabilities
48,580
52,286
Deferred income tax liabilities
555,616
563,606
Tax receivable agreement obligations to
related parties
79,503
104,863
Tax receivable agreement obligations
174,445
202,762
Other long-term liabilities
68,581
73,118
Total liabilities
6,346,095
6,656,388
Commitments and contingencies
Stockholders' Equity
Common Stock (par value, $0.001),
9,000,000,000 and 9,000,000,000 shares authorized and 313,131,714
and 306,796,076 shares issued and outstanding at June 30, 2022 and
March 31, 2022, respectively
327
313
Preferred stock (par value, $0.001),
900,000,000 shares authorized and no shares issued and outstanding
at both June 30, 2022 and March 31, 2022
—
—
Additional paid-in capital
4,384,631
4,340,759
Accumulated other comprehensive income
(loss)
29,177
35,116
Accumulated deficit
(1,123,249)
(1,100,081)
Total stockholders' equity
3,290,886
3,276,107
Total liabilities and stockholders'
equity
$
9,636,981
$
9,932,495
Consolidated Statements of
Cash Flows
(unaudited and amounts in
thousands)
Three Months Ended June
30,
2022
2021
Cash flows from operating
activities:
Net income (loss)
$
(23,168)
$
(3,605)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization
171,722
168,211
Amortization of capitalized software
developed for sale
1,302
717
Accretion and changes in estimate, net
4,800
4,732
Equity compensation
49,961
26,166
Deferred income tax expense (benefit)
(10,411)
(8,989)
Amortization of debt discount and issuance
costs
7,770
7,910
Loss on extinguishment of debt
390
—
Non-cash lease expense
5,681
7,007
Other, net
3,916
249
Changes in operating assets and
liabilities:
Accounts receivable, net
1,991
(11,773)
Contract assets, net
30,028
(3,090)
Prepaid expenses and other assets
(20,811)
(25,029)
Accounts payable
(2,481)
34,722
Accrued expenses and other liabilities
(75,394)
(53,649)
Deferred revenue
(61,981)
(33,472)
Net cash provided by (used in)
operating activities
83,315
110,107
Cash flows from investing
activities:
Capitalized expenditures
(79,535)
(66,006)
Other, net
—
(1,000)
Net cash provided by (used in)
investing activities
(79,535)
(67,006)
Cash flows from financing
activities:
Payments on Senior Notes
(100,000)
—
Payments under tax receivable
agreements
(48,462)
(21,537)
Receipts (payments) on derivative
instruments
(410)
(7,364)
Employee tax withholding on vesting of
equity compensation awards
(6,407)
(13,015)
Payments on deferred financing
obligations
(2,331)
(6,796)
Payment of senior amortizing notes
(4,254)
(3,965)
Proceeds from exercise of equity
awards
1,274
5,225
Other, net
(58)
(116)
Net cash provided by (used in)
financing activities
(160,648)
(47,568)
Effect of exchange rate changes on cash
and cash equivalents
(1,421)
470
Net increase (decrease) in cash and
cash equivalents
(158,289)
(3,997)
Cash and cash equivalents at beginning of
period
252,298
113,101
Cash and cash equivalents at end of
period
$
94,009
$
109,104
Reconciliation of Net Income
(Loss) to Adjusted EBITDA
(unaudited and amounts in
thousands)
Three Months Ended June
30,
2022
2021
Net income (loss)
$
(23,168)
$
(3,605)
Income tax provision (benefit)
(9,311)
(8,450)
Income (loss) before income tax provision
(benefit)
(32,479)
(12,055)
Amortization of capitalized software
developed for sale
1,302
717
Depreciation and amortization
171,722
168,211
Interest expense, net
56,870
59,386
Equity compensation
49,961
26,166
Acquisition accounting adjustments
(4,613)
(559)
Acquisition and divestiture-related
costs
17,944
6,394
Integration and related costs
1,428
11,368
Strategic initiatives, duplicative and
transition costs
5,629
9,928
Severance costs
2,482
4,720
Accretion and changes in estimate, net
4,800
4,732
Impairment of long-lived assets and
other
1,161
1,612
Loss on extinguishment of debt
390
—
Other non-routine, net
3,583
2,108
Adjusted EBITDA
$
280,180
$
282,728
Reconciliation of Net Income
(Loss) to Adjusted Net Income (Loss)
(unaudited and amounts in
thousands, except share and per share amounts)
Three Months Ended June
30,
2022
2021
Net income (loss)
$
(23,168)
$
(3,605)
Amortization expense resulting from
acquisition method adjustments
113,194
124,314
EBITDA adjustments
82,765
66,469
Tax effect of EBITDA adjustments and
amortization expense
(49,012)
(54,222)
Adjusted net income (loss)
$
123,779
$
132,956
Adjusted net income (loss) per diluted
share
$
0.38
$
0.41
Segment Results
(unaudited and amounts in
thousands)
Three Months Ended June
30,
$
%
2022
2021
Change
Change
Segment revenue
Software and Analytics
$
344,927
$
337,823
$
7,104
2.1
%
Network Solutions
223,283
218,264
5,019
2.3
%
Enterprise Imaging
83,085
82,396
689
0.8
%
Technology-Enabled Services
213,169
216,776
(3,607)
(1.7)
%
Postage and Eliminations (1)
20,005
17,058
2,947
17.3
%
Purchase Accounting Adjustment (2)
—
(4,461)
4,461
(100.0)
%
Net Revenue
$
884,469
$
867,856
$
16,613
1.9
%
Segment adjusted EBITDA
Software and Analytics
$
144,973
$
137,028
$
7,945
5.8
%
Network Solutions
111,433
113,617
(2,184)
(1.9)
%
Enterprise Imaging
18,648
19,960
(1,312)
(6.6)
%
Technology-Enabled Services
5,126
12,123
(6,997)
(57.7)
%
Adjusted EBITDA
$
280,180
$
282,728
$
(2,548)
(0.9)
%
(1)
Revenue for Postage and Eliminations
includes postage revenue of $53.1 million for the three months
ended June 30, 2022 and $51.2 million for the three months ended
June 30, 2021.
(2)
Amount reflects the impact to deferred
revenue resulting from the McKesson exit which reduced revenue
recognized during the three months ended June 30, 2021.
Reconciliation of Cash
Provided by (Used in) Operating Activities to Free Cash Flow and
Adjusted Free Cash Flow
(unaudited and amounts in
thousands)
Three Months Ended June
30,
2022
2021
Cash provided by (used in) operating
activities (1)
$
83,315
$
110,107
Capital expenditures
(79,535)
(66,006)
Free cash flow
3,780
44,101
Adjustments to free cash flow
(2):
Integration and related costs
1,428
11,368
Strategic initiatives, duplicative and
transition costs
5,629
9,928
Severance costs
2,482
4,720
Integration and strategic capital
expenditures
845
6,395
Adjusted free cash flow
$
14,164
$
76,512
(1)
Includes cash used by pass-thru funds of
$7.1 million for the three months ended June 30, 2022 and cash
provided by pass-thru funds of $7.3 million for the three months
ended June 30, 2021.
(2)
All operating costs and integration and
strategic capital expenditures are presented on an as-incurred
basis.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220803005069/en/
David Elliott Enterprise Strategy & Investor Relations
205-907-5540 daelliott@changehealthcare.com
Katherine Wojtecki External Communications 630-624-9142
Katherine.Wojtecki@changehealthcare.com
Change Healthcare (NASDAQ:CHNG)
Historical Stock Chart
From Jan 2025 to Feb 2025
Change Healthcare (NASDAQ:CHNG)
Historical Stock Chart
From Feb 2024 to Feb 2025
