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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-35547

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

36-4392754

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

222 Merchandise Mart, Suite 2024

Chicago, IL 60654

(Address of Principal Executive Offices, Zip Code)

(800) 334-8534

(Registrant's Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

Common Stock, par value $0.01 per share

MDRX

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 1, 2022, there were 109,259,776 shares of the registrant's $0.01 par value common stock outstanding.

 

1


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

FORM 10-Q

For the Fiscal Quarter Ended September 30, 2022

TABLE OF CONTENTS

 

 

 

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

3

Item 1.

 

Financial Statements (unaudited)

 

3

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

Item 4.

 

Controls and Procedures

 

38

PART II. OTHER INFORMATION

 

39

Item 1.

 

Legal Proceedings

 

39

Item 1A.

 

Risk Factors

 

39

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

Item 6.

 

Exhibits

 

40

SIGNATURES

 

41

 

 

 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

September 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

492,597

 

 

$

132,517

 

Restricted cash

 

 

1,307

 

 

 

1,308

 

Accounts receivable, net of allowance of $12,868 and $13,360 as of
   September 30, 2022 and December 31, 2021, respectively

 

 

169,029

 

 

 

171,622

 

Contract assets, net of allowance of $564 and $576 as of September 30, 2022 and December 31, 2021, respectively

 

 

65,453

 

 

 

63,429

 

Prepaid expenses and other current assets

 

 

74,384

 

 

 

60,511

 

Current assets attributable to discontinued operations

 

 

8,000

 

 

 

331,955

 

Total current assets

 

 

810,770

 

 

 

761,342

 

Fixed assets, net

 

 

11,713

 

 

 

9,819

 

Software development costs, net

 

 

78,103

 

 

 

74,688

 

Intangible assets, net

 

 

145,255

 

 

 

149,690

 

Goodwill

 

 

523,927

 

 

 

506,607

 

Deferred taxes, net

 

 

6

 

 

 

0

 

Contract assets - long-term, net of allowance of $1,201 and $1,534 as of September 30, 2022 and December 31, 2021, respectively

 

 

27,957

 

 

 

28,174

 

Right-of-use assets - operating leases

 

 

14,520

 

 

 

18,324

 

Other assets

 

 

78,408

 

 

 

83,429

 

Long-term assets attributable to discontinued operations

 

 

0

 

 

 

793,156

 

Total assets

 

$

1,690,659

 

 

$

2,425,229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(Unaudited)

(In thousands, except per share amounts)

 

September 30, 2022

 

 

December 31, 2021

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

12,609

 

 

$

5,281

 

Accrued expenses

 

 

82,917

 

 

 

54,518

 

Accrued compensation and benefits

 

 

33,857

 

 

 

31,055

 

Deferred revenue

 

 

98,930

 

 

 

120,748

 

Current operating lease liabilities

 

 

6,166

 

 

 

6,133

 

Current liabilities attributable to discontinued operations

 

 

18,612

 

 

 

329,347

 

Total current liabilities

 

 

253,091

 

 

 

547,082

 

Long-term debt

 

 

200,326

 

 

 

350,062

 

Deferred revenue

 

 

3,060

 

 

 

1,839

 

Deferred taxes, net

 

 

8,082

 

 

 

16,625

 

Long-term operating lease liabilities

 

 

12,315

 

 

 

16,754

 

Other liabilities

 

 

36,762

 

 

 

33,823

 

Long-term liabilities attributable to discontinued operations

 

 

0

 

 

 

50,906

 

Total liabilities

 

 

513,636

 

 

 

1,017,091

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock: $0.01 par value, 1,000 shares authorized,
   
no shares issued and outstanding as of September 30, 2022 and December 31, 2021

 

 

0

 

 

 

0

 

Common stock: $0.01 par value, 349,000 shares authorized as of September 30, 2022
   and December 31, 2021;
279,600 and 109,260 shares issued and outstanding
   as of September 30, 2022, respectively;
276,705 and 116,114 shares issued
   and outstanding as of December 31, 2021, respectively

 

 

2,794

 

 

 

2,766

 

Treasury stock: at cost, 170,340 and 160,591 shares as of September 30, 2022 and
   December 31, 2021, respectively

 

 

(1,498,836

)

 

 

(1,321,805

)

Additional paid-in capital

 

 

1,923,559

 

 

 

1,962,386

 

Retained earnings

 

 

753,392

 

 

 

767,556

 

Accumulated other comprehensive loss

 

 

(3,886

)

 

 

(2,765

)

Total stockholders’ equity

 

 

1,177,023

 

 

 

1,408,138

 

Total liabilities and stockholders’ equity

 

$

1,690,659

 

 

$

2,425,229

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

(In thousands, except per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

$

122,811

 

 

$

118,179

 

 

$

360,415

 

 

$

345,253

 

 

Payer & Life Sciences

 

 

29,111

 

 

 

26,489

 

 

 

85,077

 

 

 

74,273

 

 

Total revenue

 

 

151,922

 

 

 

144,668

 

 

 

445,492

 

 

 

419,526

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

 

57,252

 

 

 

61,606

 

 

 

172,595

 

 

 

180,566

 

 

Payer & Life Sciences

 

 

11,234

 

 

 

13,422

 

 

 

36,498

 

 

 

37,984

 

 

Total cost of revenue

 

 

68,486

 

 

 

75,028

 

 

 

209,093

 

 

 

218,550

 

 

    Gross profit

 

 

83,436

 

 

 

69,640

 

 

 

236,399

 

 

 

200,976

 

 

Selling, general and administrative expenses

 

 

32,518

 

 

 

27,392

 

 

 

133,683

 

 

 

87,680

 

 

Research and development

 

 

23,681

 

 

 

21,042

 

 

 

69,851

 

 

 

62,644

 

 

Asset impairment charges

 

 

0

 

 

 

359

 

 

 

0

 

 

 

531

 

 

Amortization of intangible and acquisition-related assets

 

 

2,236

 

 

 

2,363

 

 

 

6,648

 

 

 

7,090

 

 

Income from operations

 

 

25,001

 

 

 

18,484

 

 

 

26,217

 

 

 

43,031

 

 

Interest expense

 

 

(1,246

)

 

 

(3,617

)

 

 

(5,269

)

 

 

(9,709

)

 

Other income, net

 

 

1,655

 

 

 

4,493

 

 

 

3,800

 

 

 

21,819

 

 

Gain on sale of businesses, net

 

 

0

 

 

 

8,363

 

 

 

0

 

 

 

8,363

 

 

Equity in net loss of unconsolidated investments

 

 

(617

)

 

 

(257

)

 

 

(1,222

)

 

 

(321

)

 

Income from continuing operations before income taxes

 

 

24,793

 

 

 

27,466

 

 

 

23,526

 

 

 

63,183

 

 

Income tax (provision) benefit

 

 

(13,868

)

 

 

(7,190

)

 

 

9,132

 

 

 

(12,464

)

 

Income from continuing operations, net of tax

 

 

10,925

 

 

 

20,276

 

 

 

32,658

 

 

 

50,719

 

 

Loss from discontinued operations

 

 

(434

)

 

 

(6,187

)

 

 

(9,252

)

 

 

(6,545

)

 

Gain on sale of discontinued operations

 

 

5,174

 

 

 

0

 

 

 

7,939

 

 

 

647

 

 

Income tax effect on discontinued operations

 

 

(1,137

)

 

 

2,091

 

 

 

(57,986

)

 

 

2,342

 

 

Income (loss) from discontinued operations, net of tax

 

 

3,603

 

 

 

(4,096

)

 

 

(59,299

)

 

 

(3,556

)

 

Net income (loss)

 

$

14,528

 

 

$

16,180

 

 

$

(26,641

)

 

$

47,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.10

 

 

$

0.16

 

 

$

0.29

 

 

$

0.38

 

 

Discontinued operations

 

 

0.03

 

 

 

(0.03

)

 

 

(0.52

)

 

 

(0.03

)

 

Net income (loss) per share - Basic

 

$

0.13

 

 

$

0.13

 

 

$

(0.23

)

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.09

 

 

$

0.15

 

 

$

0.25

 

 

$

0.36

 

 

Discontinued operations

 

 

0.03

 

 

 

(0.03

)

 

 

(0.44

)

 

 

(0.03

)

 

Net income (loss) per share - Diluted

 

$

0.12

 

 

$

0.12

 

 

$

(0.19

)

 

$

0.33

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Net income (loss)

 

$

14,528

 

 

$

16,180

 

 

$

(26,641

)

 

$

47,163

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

59

 

 

 

(805

)

 

 

(808

)

 

 

(285

)

 

Change in fair value of derivatives qualifying as cash flow hedges

 

 

(16

)

 

 

0

 

 

 

(420

)

 

 

(1,509

)

 

Other comprehensive income (loss) before income tax benefit

 

 

43

 

 

 

(805

)

 

 

(1,228

)

 

 

(1,794

)

 

Income tax benefit related to items in other comprehensive income

 

 

5

 

 

 

0

 

 

 

107

 

 

 

390

 

 

Total other comprehensive income (loss)

 

 

48

 

 

 

(805

)

 

 

(1,121

)

 

 

(1,404

)

 

Comprehensive income (loss)

 

$

14,576

 

 

$

15,375

 

 

$

(27,762

)

 

$

45,759

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Number of common shares

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

279,175

 

 

 

276,668

 

 

 

276,705

 

 

 

274,558

 

Common stock issued under stock compensation plans,
    net of shares withheld for employee taxes

 

 

425

 

 

 

29

 

 

 

2,895

 

 

 

2,139

 

Balance at end of period

 

 

279,600

 

 

 

276,697

 

 

 

279,600

 

 

 

276,697

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,790

 

 

$

2,766

 

 

$

2,766

 

 

$

2,745

 

Common stock issued under stock compensation plans,
    net of shares withheld for employee taxes

 

 

4

 

 

 

0

 

 

 

28

 

 

 

21

 

Balance at end of period

 

$

2,794

 

 

$

2,766

 

 

$

2,794

 

 

$

2,766

 

Number of treasury stock shares

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(168,383

)

 

 

(151,657

)

 

 

(160,591

)

 

 

(134,616

)

Issuance of treasury stock

 

 

0

 

 

 

0

 

 

 

0

 

 

 

33

 

Purchase of treasury stock

 

 

(1,957

)

 

 

0

 

 

 

(9,749

)

 

 

(6,397

)

Accelerated share repurchase program

 

 

0

 

 

 

(2,469

)

 

 

0

 

 

 

(13,146

)

Balance at end of period

 

 

(170,340

)

 

 

(154,126

)

 

 

(170,340

)

 

 

(154,126

)

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(1,465,177

)

 

$

(1,174,498

)

 

$

(1,321,805

)

 

$

(870,558

)

Issuance of treasury stock

 

 

0

 

 

 

0

 

 

 

0

 

 

 

465

 

Purchase of treasury stock

 

 

(33,659

)

 

 

0

 

 

 

(177,031

)

 

 

(108,953

)

Accelerated share repurchase program

 

 

0

 

 

 

(38,817

)

 

 

0

 

 

 

(234,269

)

Balance at end of period

 

$

(1,498,836

)

 

$

(1,213,315

)

 

$

(1,498,836

)

 

$

(1,213,315

)

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

1,923,805

 

 

$

1,903,542

 

 

$

1,962,386

 

 

$

1,902,776

 

Stock-based compensation

 

 

4,553

 

 

 

8,777

 

 

 

24,503

 

 

 

25,861

 

Common stock issued under stock compensation plans,
    net of shares withheld for employee taxes

 

 

(4,799

)

 

 

(76

)

 

 

(32,707

)

 

 

(13,988

)

ASU 2020-06 implementation adjustments

 

 

0

 

 

 

0

 

 

 

(38,918

)

 

 

0

 

Accelerated share repurchase program

 

 

0

 

 

 

38,817

 

 

 

0

 

 

 

34,269

 

Issuance of treasury stock

 

 

0

 

 

 

0

 

 

 

0

 

 

 

69

 

Warrants issued

 

 

0

 

 

 

1,037

 

 

 

8,295

 

 

 

3,110

 

Balance at end of period

 

$

1,923,559

 

 

$

1,952,097

 

 

$

1,923,559

 

 

$

1,952,097

 

Retained earnings

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

738,864

 

 

$

664,101

 

 

$

767,556

 

 

$

633,118

 

Net income (loss)

 

 

14,528

 

 

 

16,180

 

 

 

(26,641

)

 

 

47,163

 

ASU 2020-06 implementation adjustments

 

 

0

 

 

 

0

 

 

 

12,477

 

 

 

0

 

Balance at end of period

 

$

753,392

 

 

$

680,281

 

 

$

753,392

 

 

$

680,281

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(3,934

)

 

$

(2,437

)

 

$

(2,765

)

 

$

(1,838

)

Foreign currency translation adjustments, net

 

 

59

 

 

 

(805

)

 

 

(808

)

 

 

(285

)

Unrecognized loss on derivatives qualifying as cash flow hedges, net of tax

 

 

(11

)

 

 

0

 

 

 

(313

)

 

 

(1,119

)

Balance at end of period

 

$

(3,886

)

 

$

(3,242

)

 

$

(3,886

)

 

$

(3,242

)

Total Stockholders’ Equity at beginning of period

 

$

1,196,348

 

 

$

1,393,474

 

 

$

1,408,138

 

 

$

1,666,243

 

Total Stockholders’ Equity at end of period

 

$

1,177,023

 

 

$

1,418,587

 

 

$

1,177,023

 

 

$

1,418,587

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(26,641

)

 

$

47,163

 

Less: Loss from discontinued operations

 

 

(59,299

)

 

 

(3,556

)

Income from continuing operations

 

 

32,658

 

 

 

50,719

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

42,278

 

 

 

49,042

 

Non-cash lease expense, net

 

 

(5,289

)

 

 

(8,822

)

Stock-based compensation expense

 

 

19,901

 

 

 

8,804

 

Deferred taxes

 

 

(2,978

)

 

 

4,468

 

Impairment of assets and long-term investments

 

 

0

 

 

 

531

 

Equity in net loss of unconsolidated investments

 

 

1,222

 

 

 

321

 

Gain on sale of businesses, net

 

 

0

 

 

 

(8,363

)

Other income, net

 

 

(1,208

)

 

 

(4,292

)

Changes in operating assets and liabilities (net of businesses acquired):

 

 

 

 

 

 

Accounts receivable and contract assets, net

 

 

72,287

 

 

 

(18,212

)

Prepaid expenses and other assets

 

 

29,698

 

 

 

(4,532

)

Accounts payable

 

 

21,022

 

 

 

(2,628

)

Accrued expenses

 

 

1,054

 

 

 

42,129

 

Accrued compensation and benefits

 

 

(1,921

)

 

 

(10,325

)

Deferred revenue

 

 

(68,065

)

 

 

(4,823

)

Other liabilities

 

 

(21,658

)

 

 

4,528

 

Net cash provided by operating activities - continuing operations

 

 

119,001

 

 

 

98,545

 

Net cash used in operating activities - discontinued operations

 

 

(23,234

)

 

 

(239,018

)

    Net cash provided by (used in) operating activities

 

 

95,767

 

 

 

(140,473

)

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(1,876

)

 

 

(1,050

)

Capitalized software

 

 

(26,207

)

 

 

(26,595

)

Cash paid for business acquisitions, net of cash acquired

 

 

(24,106

)

 

 

0

 

Sale of businesses and other investments, net of cash divested, and distributions received

 

 

672,498

 

 

 

5,380

 

Purchases of equity securities, other investments and related intangible assets, net

 

 

(1,342

)

 

 

(219

)

Net cash provided by (used in) investing activities - continuing operations

 

 

618,967

 

 

 

(22,484

)

Net cash used in investing activities - discontinued operations

 

 

(15,248

)

 

 

(32,388

)

    Net cash provided by (used in) investing activities

 

 

603,719

 

 

 

(54,872

)

Cash flows from financing activities:

 

 

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(32,666

)

 

 

(12,718

)

Credit facility payments

 

 

(200,000

)

 

 

(50,000

)

Credit facility borrowings, net of issuance costs

 

 

22,335

 

 

 

250,000

 

Repurchase of common stock

 

 

(177,031

)

 

 

(308,953

)

Intercompany to/from parent/subsidiaries

 

 

11,685

 

 

 

47,323

 

Payment of acquisition and other financing obligations

 

 

0

 

 

 

(2,400

)

  Net cash used in financing activities - continuing operations

 

 

(375,677

)

 

 

(76,748

)

  Net cash used in financing activities - discontinued operations

 

 

(11,697

)

 

 

(48,572

)

      Net cash used in financing activities

 

 

(387,374

)

 

 

(125,320

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(728

)

 

 

(480

)

Net increase (decrease) in cash and cash equivalents

 

 

311,384

 

 

 

(321,145

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

190,520

 

 

 

537,465

 

Cash, cash equivalents and restricted cash, end of period

 

 

501,904

 

 

 

216,320

 

Less: Cash and cash equivalents attributable to discontinued operations

 

 

(8,000

)

 

 

(72,680

)

Cash, cash equivalents and restricted cash, end of period, excluding discontinued operations

 

$

493,904

 

 

$

143,640

 

 

The accompanying notes are an integral part of these consolidated financial statements.

8


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

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 and nine months ended September 30, 2022 and 2021 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 and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year ending December 31, 2022.

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, 2021, as amended (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 current economic conditions, including macroeconomic and inflationary trends, and the economic impact of the COVID-19 pandemic, on our critical and significant accounting estimates. Actual results could differ materially from these estimates.

Significant Accounting Policies

There have been no changes to our significant accounting policies from those disclosed in our Form 10-K.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions and also requires the application of the if-converted method for calculating diluted earnings per share, whereas the treasury stock method is no longer permitted for convertible instruments. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning after December 15, 2021. We adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method of transition, which resulted in an increase in long-term debt of $26.4 million, a decrease in additional paid-in capital of $38.9 million and an increase to retained earnings of $12.5 million, as of January 1, 2022. Refer to Note 10, “Debt” for additional information.

9


Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued Accounting Standards Update No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which requires contract assets and contract liabilities (deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”, as if it had originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, “Business Combinations”. The new standard should be applied prospectively and is effective for all public business entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The standard is effective for all other entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the effects of the adoption of ASU 2021-08 on our consolidated financial statements.

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) provider revenue and (ii) payer and life sciences revenue. Provider revenue consists of revenue derived from software applications for patient engagement and the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions. Payer and life sciences revenue primarily consists of sales of our integrated data systems solutions and related services to key healthcare stakeholders, including health plans and pharmaceutical companies, to help them improve the quality, efficiency and value of healthcare delivery.

At September 30, 2022 and December 31, 2021, we had capitalized costs to obtain or fulfill a contract of $9.4 million and $8.1 million, respectively, in Prepaid and other current assets and $10.6 million and $11.9 million, respectively, in Other assets. During the three months ended September 30, 2022 and 2021, we recognized $3.0 million and $3.1 million, respectively, of amortization expense related to such capitalized costs. During the nine months ended September 30, 2022 and 2021, we recognized $8.8 million and $9.3 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 tables below:

(In thousands)

 

Three Months
Ended
March 31, 2022

 

 

Three Months
Ended
June 30, 2022

 

 

Three Months
Ended
September 30, 2022

 

Revenue related to deferred revenue balance at beginning of period

 

$

36,151

 

 

$

25,901

 

 

$

22,450

 

Revenue related to new performance obligations satisfied during the period

 

 

45,306

 

 

 

55,990

 

 

 

59,228

 

Revenue recognized under "right-to-invoice" expedient

 

 

61,114

 

 

 

68,877

 

 

 

70,127

 

Reimbursed travel expenses, shipping and other revenue

 

 

101

 

 

 

130

 

 

 

117

 

Total revenue

 

$

142,672

 

 

$

150,898

 

 

$

151,922

 

 

(In thousands)

 

Three Months
Ended
March 31, 2021

 

 

Three Months
Ended
June 30, 2021

 

 

Three Months
Ended
September 30, 2021

 

Revenue related to deferred revenue balance at beginning of period

 

$

29,401

 

 

$

36,770

 

 

$

38,801

 

Revenue related to new performance obligations satisfied during the period

 

 

47,263

 

 

 

41,814

 

 

 

41,013

 

Revenue recognized under "right-to-invoice" expedient

 

 

56,811

 

 

 

62,105

 

 

 

64,531

 

Reimbursed travel expenses, shipping and other revenue

 

 

177

 

 

 

517

 

 

 

323

 

Total revenue

 

$

133,652

 

 

$

141,206

 

 

$

144,668

 

 

10


 

The aggregate amount of contract transaction price related to remaining unsatisfied performance obligations 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 unsatisfied performance obligations equaled $989 million as of September 30, 2022, of which we expect to recognize approximately 41% over the next 12 months, and the remaining 59% 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 and uncertainty of our revenue and cash flows are affected by economic factors. The tables below summarize revenue by type and nature of revenue stream as well as by our reportable segment.

 

 

Three Months Ended September 30, 2022

 

(In thousands)

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Provider

 

$

116,280

 

 

$

6,531

 

 

$

122,811

 

Payer & Life Sciences

 

 

29,111

 

 

 

0

 

 

 

29,111

 

Total revenue

 

$

145,391

 

 

$

6,531

 

 

$

151,922

 

 

 

 

Three Months Ended September 30, 2021

 

(In thousands)

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Provider

 

$

110,680

 

 

$

7,499

 

 

$

118,179

 

Payer & Life Sciences

 

 

26,489

 

 

 

0

 

 

 

26,489

 

Total revenue

 

$

137,169

 

 

$

7,499

 

 

$

144,668

 

 

 

 

Nine Months Ended September 30, 2022

 

(In thousands)

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Provider

 

$

341,229

 

 

$

19,186

 

 

$

360,415

 

Payer & Life Sciences

 

 

85,077

 

 

 

0

 

 

 

85,077

 

Total revenue

 

$

426,306

 

 

$

19,186

 

 

$

445,492

 

 

 

 

Nine Months Ended September 30, 2021

 

(In thousands)

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Provider

 

$

322,715

 

 

$

22,538

 

 

$

345,253

 

Payer & Life Sciences

 

 

74,273

 

 

 

0

 

 

 

74,273

 

Total revenue

 

$

396,988

 

 

$

22,538

 

 

$

419,526

 

Contract Assets – Estimate of Credit Losses

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 required the recognition of lifetime estimated credit losses expected to occur for contract assets and trade receivables. The guidance also required that we pool assets with similar risk characteristics and consider current economic conditions when estimating losses.

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. We also used each customer’s primary business unit in our pooling determination. This assessment provides information of the customer including size, segment and industry. The pools are aligned with management’s current review of financial performance. For the three and nine months ended September 30, 2022, 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 24-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 macroeconomic and inflationary trends and 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 September 30, 2022 analysis resulted in a reduction to the ending estimate of credit losses.

Changes in the estimate of credit losses for contract assets are presented in the table below.

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

Beginning balance

 

$

2,110

 

 

$

2,110

 

Write-offs

 

 

(345

)

 

 

0

 

Ending balance

 

$

1,765

 

 

$

2,110

 

Less: Contract assets, short-term

 

 

564

 

 

 

576

 

Total contract assets, long-term

 

$

1,201

 

 

$

1,534

 

 

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. Refer to Note 2, “Revenue from Contracts with Customers” for information regarding the adoption of ASU 2016-13. No adjustments were made to the pools or historical loss rate data for trade accounts receivable during the nine months ended September 30, 2022.

Changes in the estimate of credit losses for trade accounts receivable are presented in the table below.

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

Beginning balance

 

$

13,360

 

 

$

20,228

 

Current period provision

 

 

1,979

 

 

 

1,432

 

Write-offs

 

 

(2,471

)

 

 

(2,291

)

Ending balance

 

$

12,868

 

 

$

19,369

 

 

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 sheet.

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 the 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 term at the 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.

We have elected the group of practical expedients under Accounting Standards Update No. 2016-02, Leases (Topic 842) (“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 leases, which we have elected to combine through a practical expedient under ASU 2016-02. Non-lease components for our leases typically consist of executory costs, and the practical expedient allows for 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.

12


Our operating leases mainly include office leases, and our finance leases included office and computer equipment leases. As of December 31, 2021, we no longer have finance leases. Our finance leases in 2021 were not significant. Our operating leases have remaining lease terms up to 5 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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating lease cost (1)

 

$

1,466

 

 

$

1,828

 

 

$

4,681

 

 

$

5,652

 

Less: Sublease income

 

 

(98

)

 

 

(61

)

 

 

(196

)

 

 

(218

)

Total operating lease costs

 

$

1,368

 

 

$

1,767

 

 

$

4,485

 

 

$

5,434

 

(1) Operating lease costs are recognized on a straight-line basis and are included in Selling, general and administrative expenses within the consolidated statements of operations.

 

Supplemental cash flow information for operating leases is as follows:

(In thousands)

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

5,213

 

 

$

5,615

 

Right-of-use assets obtained in exchange for operating lease obligations

 

$

273

 

 

$

0

 

 

The balance sheet location and balances for operating leases are as follows:

(In thousands, except lease term and discount rate)

 

September 30, 2022

 

 

December 31, 2021

 

Right-of-use assets - operating leases

 

$

14,520

 

 

$

18,324

 

Current operating lease liabilities

 

$

6,166

 

 

$

6,133

 

Long-term operating lease liabilities

 

$

12,315

 

 

$

16,754

 

Weighted average remaining lease term (in years)

 

 

4

 

 

 

5

 

Weighted average discount rate

 

 

3.3

%

 

 

3.4

%

 

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 September 30, 2022.

 

 

September 30, 2022

 

(In thousands)

 

Operating Leases

 

Remainder of 2022

 

$

1,666

 

2023

 

 

6,421

 

2024

 

 

3,706

 

2025

 

 

3,453

 

2026

 

 

2,835

 

Thereafter

 

 

1,581

 

Total lease liabilities

 

 

19,662

 

Less: Amount representing interest

 

 

(1,181

)

Less: Short-term lease liabilities

 

 

(6,166

)

Total Long-term lease liabilities

 

$

12,315

 

 

5. Business Combinations and Divestitures

Acquisitions

On March 25, 2022, we acquired Babel Health, which engages in the business of designing, developing, selling and operating encounter data submission and reconciliation solutions. The base purchase price was $24.0 million, subject to adjustment for cash and net working capital balances, resulting in $24.5 million in cash paid ($24.0 million in net cash after accounting for the existing cash balance). The allocation of the purchase price is preliminary and subject to change. Accordingly, adjustments may be made to the values of assets and liabilities assumed as the valuation is finalized and additional information is obtained about the facts and circumstances that existed at the acquisition date. We expect to finalize the valuation and complete the purchase consideration allocation within the allowable measurement period. The management platform will provide managed health care plans with a tailored solution for the risk adjustment claims submission process. The business is included in our Veradigm reportable segment.

13


The preliminary purchase price allocation of the fair value of the consideration transferred as of the acquisition date of March 25, 2022 is shown in the table below. The goodwill is expected to be deductible for tax purposes.

 

 

(In thousands)

 

Cash and cash equivalents

 

$

472

 

Accounts receivable, net

 

 

394

 

Prepaid expenses and other current assets

 

 

206

 

Fixed assets

 

 

48

 

Intangible assets

 

 

7,280

 

Goodwill

 

 

17,320

 

Other assets

 

 

217

 

Accounts payable and accrued expenses

 

 

(752

)

Deferred revenue

 

 

(675

)

Net assets acquired

 

$

24,510

 

The following table summarizes the estimated fair values of the identifiable intangible assets and their estimated useful lives:

 

 

Useful Life

 

Fair Value

 

Description

 

(In years)

 

(In thousands)

 

Customer Relationships

 

21

 

$

4,640

 

Technology

 

7

 

 

2,600

 

Tradenames

 

1

 

 

40

 

 

 

 

 

$

7,280

 

We incurred $0.2 million of acquisition costs during the nine months ended September 30, 2022, which are included in Selling, general and administrative expenses in our consolidated statement of operations. The results of operations of Babel Health were not material to our consolidated results of operations for the three and nine months ended September 30, 2022.

Divestitures

On May 2, 2022, we completed the sale of our Hospitals and Large Physician Practices business, including the Sunrise and TouchWorks solutions (the “Hospitals and Large Physician Practices Business”) to Altera Digital Health Inc. (formerly known as Harris Dawn Holdings Inc.), a Delaware corporation (“Altera”), a wholly-owned subsidiary of Constellation Software Inc., an Ontario corporation, pursuant to a purchase agreement (the “Altera Purchase Agreement”) by which Altera purchased substantially all of the assets of the Hospitals and Large Physician Practices Business. The total consideration for the Hospitals and Large Physician Practices Business was $670.0 million in cash paid at closing, with up to an additional $30.0 million of contingent consideration based on the Hospitals and Large Physician Practices Business’s revenue through calendar year 2023. Certain assets relating to the Hospitals and Large Physician Practices Business were excluded from the transaction and retained by the Company, as described in the Altera Purchase Agreement. In addition, Altera assumed certain liabilities related to the Hospitals and Large Physician Practices Business under the terms of the Altera Purchase Agreement. We realized a pre-tax gain upon the sale of $7.9 million, which is included in the Gain on sale of discontinued operations line in our consolidated statements of operations for the nine months ended September 30, 2022. The divestiture was treated as a discontinued operation as of June 30, 2022. Refer to Note 15, “Discontinued Operations” for additional information regarding the historical assets, liabilities and results of operations of the Hospitals and Large Physician Practices Business.

On August 23, 2021, we completed the sale of substantially all of the assets of our 2bPrecise business to a third party for a non-controlling interest in the combined entity. We realized a pre-tax gain upon the sale of $8.4 million, which was included in the Gain on sale of businesses, net line in our consolidated statements of operations for the year ended December 31, 2021. The historical 2bPrecise business is presented in our “Unallocated Amounts” category.

On December 31, 2020, we completed the sale of substantially all of the assets of our CarePort business to a subsidiary of WellSky Corp., a Delaware corporation (“WellSky”), pursuant to a purchase agreement (the “CarePort Purchase Agreement”). The total consideration for CarePort was $1.35 billion, which was subject to certain adjustments for liabilities assumed by WellSky and net working capital as described in the CarePort Purchase Agreement. We realized a pre-tax gain upon the sale of $933.9 million, which was included in the Gain on sale of discontinued operations line in our consolidated statements of operations for the year ended December 31, 2020. For the year ended December 31, 2021, we recorded a $0.6 million gain that primarily related to net working capital adjustments in the Gain on sale of discontinued operations line in our consolidated statements of operations. The divestiture was treated as a discontinued operation as of December 31, 2020. Refer to Note 15, “Discontinued Operations” for additional information.

14


On October 15, 2020, we completed the sale of substantially all of the assets of our EPSiTM business (“EPSi”) to Strata Decision Technology LLC, an Illinois limited liability company (“Strata”), and Roper Technologies, Inc., a Delaware corporation, pursuant to a purchase agreement (the “EPSi Purchase Agreement”). The total consideration for EPSi was $365.0 million, which was subject to certain adjustments for liabilities assumed by Strata and net working capital as described in the EPSi Purchase Agreement. We realized a pre-tax gain upon the sale of $222.6 million, which was included in the Gain on sale of discontinued operations line in our consolidated statements of operations for the year ended December 31, 2020. The divestiture was treated as a discontinued operation as of December 31, 2020. Refer to Note 15, “Discontinued Operations” for additional information.

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 instrument reflects the fair value of contingent consideration related to a completed acquisition. The fair value is based on a discounted cash flow analysis 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

 

September 30, 2022

 

 

December 31, 2021

 

(In thousands)

 

Classifications

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Foreign exchange
   derivative assets

 

Prepaid expenses
   and other
   current assets

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

352

 

 

$

0

 

 

$

352

 

Total assets

 

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

352

 

 

$

0

 

 

$

352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange
   derivative assets

 

Accrued
  expenses

 

$

0

 

 

$

70

 

 

$

0

 

 

$

70

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

Contingent consideration
     - current

 

Accrued
  expenses

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

19

 

 

 

19

 

Total liabilities

 

 

 

$

0

 

 

$

70

 

 

$

0

 

 

$

70

 

 

$

0

 

 

$

0

 

 

$

19

 

 

$

19

 

 

The changes in our Level 3 liability measured at fair value on a recurring basis at September 30, 2022 is summarized as follows:

(In thousands)

 

Contingent Consideration

 

Balance at December 31, 2021

 

$

19

 

Payments

 

 

(19

)

Balance at September 30, 2022

 

$

0

 

 

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 September 30, 2022

 

 

Cost

 

 

September 30, 2022

 

 

December 31, 2021

 

Equity method investments (1)

 

 

5

 

 

$

8,190

 

 

$

12,053

 

 

$

12,260

 

Cost with adjustments

 

 

7

 

 

 

47,114

 

 

 

49,099

 

 

 

49,293

 

Total long-term equity investments

 

 

12

 

 

$

55,304

 

 

$

61,152

 

 

$

61,553

 

(1) Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.

 

15


During the three months ended September 30, 2021, we divested one of our businesses to a new third-party in exchange for a non-controlling interest in the combined entity, which is a cost method investment. The divestiture resulted in an $8.4 million gain, which is included in the Gain on sale of businesses, net line in our consolidated statements of operations for the three and nine months ended September 30, 2021. During the nine months ended September 30, 2021, one of our third-party cost method investments converted its notes and we received 475 thousand shares in such third party as a result of the conversion. We also revalued our existing investment based on the note conversion share price. The note conversion and the revaluation of the existing investment resulted in a $9.7 million gain, which is included in the Other income, net line in our consolidated statements of operations for the nine months ended September 30, 2021.

As of September 30, 2022, it is not practicable to estimate the fair value of our non-marketable cost and equity method investments, primarily because of their illiquidity and restricted marketability. The factors we considered in trying to determine fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations, the issuer’s subsequent or planned raises of capital and observable price changes in orderly transactions.

Impairment of Long-term Investments

Each quarter, management performs an assessment of each of our investments on an individual basis to determine if there have been any declines in fair value. Based on our assessment, we determined no impairment charges were necessary for the nine months ended September 30, 2022.

Long-term Financial Liabilities

Our long-term financial liabilities include amounts outstanding under our Senior Secured Credit Facility (as described in Note 10, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. Refer to Note 10, “Debt,” for further information regarding our long-term financial liabilities.

7. Stockholders' Equity

Stock-based Compensation Expense

Stock-based compensation expense recognized during the three and nine months ended September 30, 2022 and 2021 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 and nine months ended September 30, 2022 and 2021.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

$

283

 

 

$

213

 

 

$

821

 

 

$

709

 

Payer & Life Sciences

 

 

46

 

 

 

52

 

 

 

71

 

 

 

158

 

Total cost of revenue

 

 

329

 

 

 

265

 

 

 

892

 

 

 

867

 

Selling, general and administrative expenses

 

 

3,831

 

 

 

2,079

 

 

 

17,629

 

 

 

6,967

 

Research and development

 

 

552

 

 

 

828

 

 

 

2,278

 

 

 

2,834

 

Total stock-based compensation expense

 

$

4,712

 

 

$

3,172

 

 

$

20,799

 

 

$

10,668

 

 

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 and nine months ended September 30, 2022 and 2021.

16


We granted stock-based awards as follows:

 

 

Three Months Ended September 30, 2022

 

 

Nine Months Ended September 30, 2022

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

Grant Date

 

 

 

 

 

Grant Date

 

(In thousands, except per share amounts)

 

Shares

 

 

Fair Value

 

 

Shares

 

 

Fair Value

 

Service-based restricted stock units

 

 

14

 

 

$

15.82

 

 

 

1,260

 

 

$

18.41

 

Performance-based restricted stock units with a service condition

 

 

0

 

 

$

0.00

 

 

 

243

 

 

$

18.56

 

Market-based restricted stock units with a service condition

 

 

0

 

 

$

0.00

 

 

 

258

 

 

$

21.90

 

 

 

 

14

 

 

$

15.82

 

 

 

1,761

 

 

$

18.94

 

 

During the nine months ended September 30, 2022 and the year ended December 31, 2021, 2.9 million and 2.2 million shares of common stock, respectively, were issued in connection with the release of restrictions on stock-based 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 nine months ended September 30, 2022 and 2021 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 nine months ended September 30, 2022 and 2021 were 1.6 million and 900 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.

Stock Repurchases

On November 18, 2020, we announced that our Board of Directors approved a stock purchase program (the “2020 Program”) under which we were authorized to repurchase up to $300 million of our common stock through December 31, 2021. The 2020 Program replaced a previous program that was fully utilized. During the nine months ended September 30, 2021, we repurchased 5.6 million shares of our common stock under the 2020 Program for a total of $101.5 million, net of commissions. This was inclusive of the 1.6 million shares we received at final settlement of the accelerated share repurchase program we entered into on November 30, 2020. Please refer to Part II, Item 8 of our Form 10-K for further details on this accelerated share repurchase program.

On May 26, 2021, we announced that our Board of Directors approved a stock purchase program (the “2021 Program”) under which we were authorized to repurchase up to $350 million of our common stock. The 2021 Program replaced the 2020 Program that was fully utilized and did not have a termination date. During the three months ended September 30, 2021, we received 2.4 million shares of our common stock for a total of $38.8 million at final settlement of the accelerated share repurchase program we entered into on June 14, 2021. During the nine months ended September 30, 2021, we repurchased 13.9 million shares of our common stock under the 2021 Program for a total of $241.7 million, net of commissions. This was inclusive of the shares we received at initial and final settlement of the accelerated share repurchase program entered into on June 14, 2021. Please refer to Part II, Item 8 of our Form 10-K for further details on this accelerated share repurchase program.

On January 24, 2022, we announced that our Board of Directors approved a stock purchase program (the “2022 Program”) under which we may repurchase up to $250 million of our common stock, with no termination date. The 2022 Program replaced the 2021 Program that was fully utilized. During the three months ended September 30, 2022, we repurchased 1.9 million shares of our common stock under the 2022 Program for a total of $33.7 million, net of commissions. During the nine months ended September 30, 2022, we repurchased 9.7 million shares of our common stock under the 2022 Program for a total of $177.0 million, net of commissions.

The approximate dollar value of shares of our common stock that may yet be purchased under the 2022 Program was $73.2 million as of September 30, 2022. 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.

17


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 numerator includes net income (loss) and any interest expense related to the 0.875% Convertible Senior Notes, net of tax, and the denominator includes both the weighted-average shares of common stock outstanding and dilutive common stock equivalents. Dilutive common stock equivalents consist of restricted stock unit awards and warrants calculated under the treasury stock method, as well as convertible notes calculated under the if-converted method.

The calculations of earnings (loss) per share are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Basic earnings (loss) per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

10,925

 

 

$

20,276

 

 

$

32,658

 

 

$

50,719

 

Income (loss) from discontinued operations, net of tax

 

 

3,603

 

 

 

(4,096

)

 

 

(59,299

)

 

 

(3,556

)

Net income (loss)

 

$

14,528

 

 

$

16,180

 

 

$

(26,641

)

 

$

47,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

110,206

 

 

 

123,892

 

 

 

113,419

 

 

 

133,517

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings from continuing operations per Common Share

 

$

0.10

 

 

$

0.16

 

 

$

0.29

 

 

$

0.38

 

Basic earnings (loss) from discontinued operations per Common Share

 

 

0.03

 

 

 

(0.03

)

 

 

(0.52

)

 

 

(0.03

)

Net earnings (loss) per Common Share

 

$

0.13

 

 

$

0.13

 

 

$

(0.23

)

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations, net of tax

 

$

10,925

 

 

$

20,276

 

 

$

32,658

 

 

$

50,719

 

Effect of assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

Plus: Interest expense, net of tax, associated with 0.875% Convertible Senior Notes

 

 

506

 

 

 

0

 

 

 

1,519

 

 

 

0

 

Income from continuing operations, net of tax after the effect of assumed conversions

 

$

11,431

 

 

$

20,276

 

 

$

34,177

 

 

$

50,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations, net of tax

 

$

3,603

 

 

$

(4,096

)

 

$

(59,299

)

 

$

(3,556

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

110,206

 

 

 

123,892

 

 

 

113,419

 

 

 

133,517

 

Plus: Dilutive effect of restricted stock unit awards, convertible notes and warrants

 

 

18,665

 

 

 

7,460

 

 

 

20,861

 

 

 

8,564

 

Weighted-average common shares outstanding assuming dilution

 

 

128,871

 

 

 

131,352

 

 

 

134,280

 

 

 

142,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings from continuing operations per Common Share

 

$

0.09

 

 

$

0.15

 

 

$

0.25

 

 

$

0.36

 

Diluted (loss) earnings from discontinued operations per Common Share

 

 

0.03

 

 

 

(0.03

)

 

 

(0.44

)

 

 

(0.03

)

Net earnings (loss) per Common Share

 

$

0.12

 

 

$

0.12

 

 

$

(0.19

)

 

$

0.33

 

 

Shares of common stock underlying the following restricted stock unit awards, convertible notes and warrants are not included in the computation of diluted earnings per share as the effect of including such restricted stock unit awards, convertible notes and warrants in the computation would be anti-dilutive:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Shares subject to anti-dilutive restricted stock unit awards, convertible notes and warrants excluded from calculation

 

 

1,452

 

 

 

1,504

 

 

 

180

 

 

 

1,502

 

 

18


9. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:

 

 

September 30, 2022

 

 

December 31, 2021

 

 

 

Gross

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Intangible

 

 

Carrying

 

 

Accumulated

 

 

Intangible

 

(In thousands)

 

Amount

 

 

Amortization

 

 

Assets, Net

 

 

Amount

 

 

Amortization

 

 

Assets, Net

 

Intangibles subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proprietary technology

 

$

252,083

 

 

$

(232,475

)

 

$

19,608

 

 

$

249,483

 

 

$

(227,408

)

 

$

22,075

 

Customer contracts and relationships

 

 

402,125

 

 

 

(328,478

)

 

 

73,647

 

 

 

397,445

 

 

 

(321,830

)

 

 

75,615

 

Total

 

$

654,208

 

 

$

(560,953

)

 

$

93,255

 

 

$

646,928

 

 

$

(549,238

)

 

$

97,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Registered trademarks

 

 

 

 

 

 

 

$

52,000

 

 

 

 

 

 

 

 

$

52,000

 

Goodwill

 

 

 

 

 

 

 

 

523,927

 

 

 

 

 

 

 

 

 

506,607

 

Total

 

 

 

 

 

 

 

$

575,927

 

 

 

 

 

 

 

 

$

558,607

 

 

Changes in the carrying amounts of goodwill by reportable segment for the nine months ended September 30, 2022 were as follows:

(In thousands)

 

Veradigm

 

 

Unallocated

 

 

Total

 

Balance as of December 31, 2021

 

$

467,630

 

 

$

38,977

 

 

$

506,607

 

Additions

 

 

17,320

 

 

 

0

 

 

 

17,320

 

Balance as of September 30, 2022

 

$

484,950

 

 

$

38,977

 

 

$

523,927

 

 

There were no accumulated impairment losses associated with goodwill as of September 30, 2022 and December 31, 2021.

10. Debt

Debt outstanding, excluding lease obligations, consists of the following:

 

 

September 30, 2022

 

 

December 31, 2021

 

(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)

 

$

207,911

 

 

$

3,875

 

 

$

204,036

 

 

$

167,853

 

 

$

(9,057

)

 

$

176,910

 

Senior Secured Credit Facility

 

 

0

 

 

 

3,710

 

 

 

(3,710

)

 

 

175,000

 

 

 

1,848

 

 

 

173,152

 

Total debt

 

$

207,911

 

 

$

7,585

 

 

$

200,326

 

 

$

342,853

 

 

$

(7,209

)

 

$

350,062

 

(1) As of September 30, 2022, the principal balance is recognized in debt. As of December 31, 2021, the principal balance is $207,911 thousand; $167,853 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 September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Interest expense

 

$

816

 

 

$

1,742

 

 

$

3,406

 

 

$

4,109

 

Amortization of discounts and debt issuance costs

 

 

430

 

 

 

1,875

 

 

 

1,863

 

 

 

5,600

 

Total interest expense

 

$

1,246

 

 

$

3,617

 

 

$

5,269

 

 

$

9,709

 

 

Interest expense related to the 0.875% Convertible Senior Notes included in the table above consists of the following:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Coupon interest

 

$

454

 

 

$

454

 

 

$

1,364

 

 

$

1,364

 

Amortization of discounts and debt issuance costs

 

 

228

 

 

 

1,479

 

 

 

684

 

 

 

4,412

 

Total interest expense related to the 0.875% Convertible Senior Notes

 

$

682

 

 

$

1,933

 

 

$

2,048

 

 

$

5,776

 

 

19


Allscripts Senior Secured Credit Facility

On April 29, 2022, Allscripts and Allscripts Healthcare LLC entered into a Third Amended and Restated Credit Agreement (the “Third Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent and other lenders party thereto, amending and restating the then-existing agreement (the “Second Amended Credit Agreement”). The Third Amended Credit Agreement provides for a $700.0 million senior secured revolving facility (the “Revolving Facility”). A total of up to $50.0 million of the Revolving Facility is available for the issuance of letters of credit, up to $25.0 million of the Revolving Facility is available for swingline loans, and up to $100.0 million of the Revolving Facility can be borrowed under certain foreign currencies. Proceeds from the borrowings under the Third Amended Credit Agreement were used for the refinancing of loans under the Second Amended Credit Agreement.

As of September 30, 2022, $0.8 million in letters of credit were outstanding under the Third Amended Credit Agreement. No amounts under the Revolving Facility were outstanding under the Third Amended Credit Agreement as of September 30, 2022. We were in compliance with all covenants under the Third Amended Credit Agreement as of September 30, 2022.

As of September 30, 2022, we had $699.2 million available borrowing capacity, net of any outstanding letters of credit, under the Revolving Facility. There can be no assurance that we will be able to draw on the full available balance of the 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 semi-annual 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 and are to be accreted into interest expense through January 1, 2027 using the interest method.

In June 2020, we paid $7.7 million to repurchase $10.1 million of the aggregate principal amount of the 0.875% Convertible Senior Notes, which resulted in a $0.5 million gain. In connection with the repurchase, the capped call transaction was partially terminated, and we received $0.3 million, which resulted in a recognition of $0.8 million in equity to offset the capped call fees and a $0.5 million loss.

On January 1, 2022, we adopted ASU 2020-06 using the modified retrospective transition method. The guidance simplifies the accounting for convertible instruments by removing major separation models required under GAAP. The guidance also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions. As a result of the adoption of ASU 2020-06, the liability and equity components of the 0.875% Convertible Senior Notes are to be presented as a single liability as of January 1, 2022. Therefore, as of January 1, 2022, we decreased Additional paid-in capital by $38.9 million, which represented the $40.1 million equity component, offset by the $1.1 million in combined discounts and issuance costs. We increased Retained earnings by $12.5 million to reverse the accretion of interest expense related to the equity component that was recorded from December 2019 through December 2021. We also increased Long-term debt by $26.4 million, which represents the difference between the reduction to Additional paid-in capital and the increase in Retained earnings. The capped call fees remain in Additional paid-in capital within our consolidated balance sheet.

The 0.875% Convertible Senior Notes became convertible at the option of the holders during the first quarter of 2022. However, as of September 30, 2022, none of the 0.875% Convertible Senior Notes have been converted. The remaining principal amount of the 0.875% Convertible Senior Notes at September 30, 2022 totaled $207.9 million. The carrying value of the capped call fees at September 30, 2022 was $16.4 million.

Future Debt Payments

The following table summarizes future debt principal payment obligations as of September 30, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Total

 

 

Remainder
of 2022

 

 

2023

 

 

2024

 

 

2025

 

 

2026

 

 

Thereafter

 

0.875% Convertible Senior Notes (1)

 

$

207,911

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

207,911

 

Total debt

 

$

207,911

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

207,911

 

(1) Amount represents the face value of the 0.875% Convertible Senior Notes.

20


11. Income Taxes

We account for income taxes under FASB ASC 740, “Income Taxes” (“ASC 740”). We calculate the quarterly tax provision consistent with the guidance provided by ASC 740, 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 September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except effective tax rate)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Income from continuing operations before income taxes

 

$

24,793

 

 

$

27,466

 

 

$

23,526

 

 

$

63,183

 

Income tax (provision) benefit

 

$

(13,868

)

 

$

(7,190

)

 

$

9,132

 

 

$

(12,464

)

Effective tax rate

 

 

55.9

%

 

 

26.2

%

 

 

38.8

%

 

 

19.7

%

NM - We define “NM” as not meaningful for percentages greater than 200%.

 

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 including a windfall benefit of $12.6 million for the nine months ended September 30, 2022 and a windfall benefit of $4.6 million for the nine months ended September 30, 2021. Our effective tax rates for the three and nine months ended September 30, 2022, compared with the prior year comparable periods, differ primarily due to the release of valuation allowance of $11.2 million in both the three and nine months ended September 30, 2022. In addition, the permanent items, credits and the impact of foreign earnings had more impact on the pre-tax income of $24.8 million and $23.5 million in the three and nine months ended September 30, 2022, compared to the impact of these items on a pre-tax income of $27.5 million and $63.2 million for the three and nine months ended September 30, 2021.

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 nine months ended September 30, 2022, we released valuation allowances of $11.2 million related to U.S. deferred tax assets.

Our unrecognized income tax benefits were $31.7 million and $30.3 million as of September 30, 2022 and December 31, 2021, 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.

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:

 

 

September 30, 2022

 

 

 

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

 

$

70

 

Total derivatives

 

 

 

$

0

 

 

 

 

$

70

 

 

 

 

December 31, 2021

 

 

 

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

 

$

352

 

 

Accrued expenses

 

$

0

 

Total derivatives

 

 

 

$

352

 

 

 

 

$

0

 

 

21


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 September 30, 2022, there were three forward contracts outstanding that when entered into were staggered to mature monthly starting in October 2022 and ending in December 2022. 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 2022. As of September 30, 2022, the notional amount for each of the outstanding forward contracts was 50 million INR, or the equivalent of $0.6 million, based on the exchange rate between the United States dollar and the INR in effect as of September 30, 2022. These amounts also approximate the forecasted future INR expenses we target to hedge in any one month in the future. As of September 30, 2022, we estimate that $0.1 million of net unrealized derivative losses included in accumulated other comprehensive income (loss) (“AOCI”) will be reclassified into income within the next 12 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 income (loss):

 

 

Amount of Gain (Loss) Recognized
in OCI

 

 

 

 

Amount of Gain (Loss) Reclassified from AOCI into Income

 

(In thousands)

 

Three Months
Ended
September 30, 2022

 

 

Nine Months
Ended
September 30, 2022

 

 

Location of Gain (Loss) Reclassified
from AOCI into Income

 

Three Months
Ended
September 30, 2022

 

 

Nine Months
Ended
September 30, 2022

 

Foreign exchange contracts

 

$

(76

)

 

$

(379

)

 

Cost of Revenue

 

$

(21

)

 

$

15

 

 

 

 

 

 

 

 

 

Selling, general and
   administrative expenses

 

 

(14

)

 

 

9

 

 

 

 

 

 

 

 

 

Research and development

 

 

(25

)

 

 

17

 

 

 

 

Amount of Gain (Loss) Recognized
in OCI

 

 

 

 

Amount of Gain (Loss) Reclassified from AOCI into Income

 

(In thousands)

 

Three Months
Ended
September 30, 2021

 

 

Nine Months
Ended
September 30, 2021

 

 

Location of Gain (Loss) Reclassified
from AOCI into Income

 

Three Months
Ended
September 30, 2021

 

 

Nine Months
Ended
September 30, 2021

 

Foreign exchange contracts

 

$

0

 

 

$

121

 

 

Cost of Revenue

 

$

0

 

 

$

611

 

 

 

 

 

 

 

 

 

Selling, general and
   administrative expenses

 

 

0

 

 

 

351

 

 

 

 

 

 

 

 

 

Research and development

 

 

0

 

 

 

668

 

 

13. Accumulated Other Comprehensive Loss

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.

(In thousands)

 

Foreign Currency Translation Adjustments

 

 

Unrealized Net Gains (Losses) on Foreign Exchange Contracts

 

 

Total

 

Balance as of December 31, 2021 (1)

 

$

(3,026

)

 

$

261

 

 

$

(2,765

)

Other comprehensive (loss) income before
    reclassifications

 

 

(808

)

 

 

(282

)

 

 

(1,090

)

Net (gains) losses reclassified from accumulated
   other comprehensive loss

 

 

0

 

 

 

(31

)

 

 

(31

)

Net other comprehensive income (loss)

 

 

(808

)

 

 

(313

)

 

 

(1,121

)

Balance as of September 30, 2022 (2)

 

$

(3,834

)

 

$

(52

)

 

$

(3,886

)

(1) Net of taxes of $91 thousand for unrealized net gains on foreign exchange contract derivatives.

(2) Net of taxes of $18 thousand for unrealized net losses on foreign exchange contract derivatives.

 

22


(In thousands)

 

Foreign Currency Translation Adjustments

 

 

Unrealized Net Gains (Losses) on Foreign Exchange Contracts

 

 

Total

 

Balance as of December 31, 2020 (1)

 

$

(2,957

)

 

$

1,119

 

 

$

(1,838

)

Other comprehensive (loss) income before
    reclassifications

 

 

(285

)

 

 

90

 

 

 

(195

)

Net (gains) losses reclassified from accumulated
   other comprehensive loss

 

 

0

 

 

 

(1,209

)

 

 

(1,209

)

Net other comprehensive income (loss)

 

 

(285

)

 

 

(1,119

)

 

 

(1,404

)

Balance as of September 30, 2021

 

$

(3,242

)

 

$

0

 

 

$

(3,242

)

(1) Net of taxes of $390 thousand for unrealized net gains 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 September 30,

 

 

 

2022

 

 

2021

 

(In thousands)

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

59

 

 

$

0

 

 

$

59

 

 

$

(805

)

 

$

0

 

 

$

(805

)

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (losses) gains arising during the period

 

 

(76

)

 

 

20

 

 

 

(56

)

 

 

0

 

 

 

0

 

 

 

0

 

Net losses (gains) reclassified into income

 

 

60

 

 

 

(15

)

 

 

45

 

 

 

0

 

 

 

0

 

 

 

0

 

Net change in unrealized (losses) gains on foreign exchange contracts

 

 

(16

)

 

 

5

 

 

 

(11

)

 

 

0

 

 

 

0

 

 

 

0

 

Other comprehensive income (loss)

 

$

43

 

 

$

5

 

 

$

48

 

 

$

(805

)

 

$

0

 

 

$

(805

)

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

(In thousands)

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

(808

)

 

$

0

 

 

$

(808

)

 

$

(285

)

 

$

0

 

 

$

(285

)

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (losses) gains arising during the period

 

 

(379

)

 

 

97

 

 

 

(282

)

 

 

121

 

 

 

(31

)

 

 

90

 

Net (gains) losses reclassified into income

 

 

(41

)

 

 

10

 

 

 

(31

)

 

 

(1,630

)

 

 

421

 

 

 

(1,209

)

Net change in unrealized (losses) gains on foreign exchange contracts

 

 

(420

)

 

 

107

 

 

 

(313

)

 

 

(1,509

)

 

 

390

 

 

 

(1,119

)

Other comprehensive (loss) income

 

$

(1,228

)

 

$

107

 

 

$

(1,121

)

 

$

(1,794

)

 

$

390

 

 

$

(1,404

)

 

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, the ultimate disposition of pending legal proceedings or claims will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, if one or more of these legal proceedings were resolved against or settled by us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that and subsequent reporting periods could be materially adversely affected. Additionally, the resolution of a legal proceeding against us could prevent us from offering our products and services to current or prospective clients or cause us to incur increased compliance costs, either of which could further adversely affect our operating results.

23


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 related to the Horizon Clinicals software. In August 2018, McKesson received an additional CID (together with the May 2017 CID, the “McKesson CIDs”), related to the Paragon software. The McKesson CIDs request documents and information related to the certification McKesson obtained in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program. McKesson has agreed, with respect to the McKesson 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. In October 2021, Allscripts received a CID seeking information about its acquisition of the EIS Business from McKesson and the Horizon Clinicals software. McKesson has agreed to assume defense of this CID. In May 2022, Allscripts completed the sale of substantially all of the assets of its Hospitals and Large Physician Practices Business to Altera. This divestiture included the sale of the Paragon software; however, the divestiture did not include the Horizon Clinicals software or liabilities arising from the McKesson CIDs.

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 (the “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 required Practice Fusion to, among other things, 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, all of which, as of December 31, 2020, were paid in full. The Deferred Prosecution Agreement required Practice Fusion to retain an “Oversight Organization” to oversee the Practice Fusion’s implementation of certain compliance measures and ongoing compliance efforts. On August 17, 2021, Practice Fusion’s initial Oversight Organization resigned, and on August 25, 2021, Practice Fusion received a notice from the U.S. Attorney’s Office for the District of Vermont stating Practice Fusion was in breach of the Deferred Prosecution Agreement due to such resignation. On September 17, 2021, Practice Fusion engaged a new Oversight Organization. On March 18, 2022, Practice Fusion reached a settlement with the U.S. Attorney’s Office concerning this claim, pursuant to which Practice Fusion agreed to pay $200,000 to the United States and extend the Deferred Prosecution Agreement by 11 weeks; Practice Fusion did not admit liability for any breach of the Deferred Prosecution Agreement. The settlement of $200,000 was paid by Practice Fusion on April 5, 2022.

15. Discontinued Operations

Hospitals and Large Physician Practices Discontinued Operation

On May 2, 2022, we sold substantially all of the assets of the Hospitals and Large Physician Practices Business. The Hospitals and Large Physician Practices Business sale represented a strategic shift that had a major effect on our operations and financial results. As of September 30, 2022, we reported the Hospitals and Large Physician Practices Business as discontinued operations. Prior to the sale, the Hospitals and Large Physician Practices Business was part of the former Hospitals and Large Physician Practices reportable segment.

24


The following table summarizes the major classes of assets and liabilities of the Hospitals and Large Physician Practices Business as reported on the consolidated balance sheets as of September 30, 2022 and December 31, 2021:

(In thousands)

 

September 30, 2022

 

 

December 31, 2021

 

Carrying amounts of major classes of assets associated with Hospitals and Large Physician Practices included as part of discontinued operations:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,000

 

 

$

55,834

 

Restricted cash

 

 

0

 

 

 

861

 

Accounts receivable, net of allowance of $16,584 as of December 31, 2021

 

 

0

 

 

 

155,447

 

Contract assets, net of allowance of $492 as of December 31, 2021

 

 

0

 

 

 

61,382

 

Prepaid expenses and other current assets

 

 

0

 

 

 

58,431

 

Total current assets attributable to discontinued operations

 

 

8,000

 

 

 

331,955

 

 

 

 

 

 

 

 

Fixed assets, net

 

 

0

 

 

 

38,083

 

Software development costs, net

 

 

0

 

 

 

97,416

 

Intangible assets, net

 

 

0

 

 

 

86,240

 

Goodwill

 

 

0

 

 

 

467,871

 

Deferred taxes, net

 

 

0

 

 

 

6,607

 

Contract assets - long-term, net of allowance of $739 as of December 31, 2021

 

 

0

 

 

 

28,623

 

Right-of-use assets - operating leases

 

 

0

 

 

 

50,585

 

Other assets

 

 

0

 

 

 

17,731

 

Total long-term assets attributable to discontinued operations

 

$

0

 

 

$

793,156

 

 

 

 

 

 

 

 

Carrying amounts of major classes of liabilities associated with Hospitals and Large Physician Practices included as part of discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

17,687

 

 

$

11,555

 

Accrued expenses

 

 

0

 

 

 

38,007

 

Income tax payable

 

 

925

 

 

 

0

 

Accrued compensation and benefits

 

 

0

 

 

 

61,167

 

Deferred revenue

 

 

0

 

 

 

205,152

 

Current operating lease liabilities

 

 

0

 

 

 

13,466

 

Total current liabilities attributable to discontinued operations

 

 

18,612

 

 

 

329,347

 

 

 

 

 

 

 

 

Deferred revenue long-term

 

 

0

 

 

 

2,568

 

Long-term operating lease liabilities

 

 

0

 

 

 

48,068

 

Other liabilities

 

 

0

 

 

 

270

 

Total long-term liabilities attributable to discontinued operations

 

$

0

 

 

$

50,906

 

 

25


The following table summarizes the major income and expense line items of the Hospitals and Large Physician Practices Business as reported in the consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021. The activity during the three months ended September 30, 2022 relates to certain adjustments made in connection with the sale of the Hospitals and Large Physician Practices Business, primarily relating to net working capital adjustments that impacted the gain on the sale of the discontinued operations.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Major income and expense line items related to Hospitals and Large Physician Practices:

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

$

(8

)

 

$

224,605

 

 

$

284,791

 

 

$

691,813

 

Total revenue

 

 

(8

)

 

 

224,605

 

 

 

284,791

 

 

 

691,813

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

 

32

 

 

 

145,487

 

 

 

189,530

 

 

 

442,234

 

Total cost of revenue

 

 

32

 

 

 

145,487

 

 

 

189,530

 

 

 

442,234

 

Gross (loss) profit

 

 

(40

)

 

 

79,118

 

 

 

95,261

 

 

 

249,579

 

Selling, general and administrative expenses

 

 

369

 

 

 

51,384

 

 

 

68,900

 

 

 

151,895

 

Research and development

 

 

25

 

 

 

24,498

 

 

 

32,011

 

 

 

83,288

 

Asset impairment charges

 

 

0

 

 

 

6,160

 

 

 

0

 

 

 

11,232

 

Amortization of intangible assets

 

 

0

 

 

 

3,455

 

 

 

3,538

 

 

 

10,376

 

Loss from discontinued operations for Hospitals and Large Physician Practices

 

 

(434

)

 

 

(6,379

)

 

 

(9,188

)

 

 

(7,212

)

Other income, net

 

 

0

 

 

 

206

 

 

 

12

 

 

 

674

 

Gain on sale of discontinued operations

 

 

5,174

 

 

 

0

 

 

 

7,939

 

 

 

0

 

Equity in net (loss) income of unconsolidated investments

 

 

0

 

 

 

0

 

 

 

(76

)

 

 

0

 

Income (loss) from discontinued operations for Hospitals and Large Physician Practices before income taxes

 

 

4,740

 

 

 

(6,173

)

 

 

(1,313

)

 

 

(6,538

)

Income tax (provision) benefit

 

 

(1,137

)

 

 

2,091

 

 

 

(57,986

)

 

 

2,511

 

Income (loss) from discontinued operations, net of tax for Hospitals and Large Physician Practices

 

$

3,603

 

 

$

(4,082

)

 

$

(59,299

)

 

$

(4,027

)

EPSi and CarePort Discontinued Operations

During 2020, we implemented a strategic initiative to sell two of our businesses, EPSi and CarePort. Since both businesses were part of the same strategic initiative and were sold within the same period, the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results. As of December 31, 2020, these businesses were reported together as discontinued operations.

On October 15, 2020, we completed the sale of our EPSi business. Prior to the sale, EPSi was part of the “Unallocated Amounts” category as it did not meet the requirements to be a reportable segment nor the criteria to be aggregated into our two reportable segments at this time. On its own, the divestiture of the EPSi business did not represent a strategic shift that had a major effect on our operations and financial results. However, the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results. Therefore, EPSi was treated as a discontinued operation.

On December 31, 2020, we completed the sale of our CarePort business. Prior to the sale, CarePort was part of the former Data, Analytics and Care Coordination reportable segment. On its own, the divestiture of the CarePort business represented a strategic shift that had a major effect on our operations and financial results.

26


The following table summarizes the major income and expense line items of EPSi and CarePort as reported in the consolidated statements of operations for the three and nine months ended September 30, 2021. The activity during the three and nine months ended September 30, 2021 relates to certain adjustments made in connection with the sale of EPSi and CarePort, primarily relating to net working capital adjustments that impacted the gain on the sale of the discontinued operations.

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

September 30, 2021

 

 

September 30, 2021

 

Major income and expense line items related to EPSi and CarePort:

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

Provider

 

$

6

 

 

$

6

 

Total revenue

 

 

6

 

 

 

6

 

Cost of revenue:

 

 

 

 

 

 

Provider

 

 

19

 

 

 

(29

)

Total cost of revenue

 

 

19

 

 

 

(29

)

Gross (loss) profit

 

 

(13

)

 

 

35

 

Selling, general and administrative expenses

 

 

2

 

 

 

76

 

Research and development

 

 

0

 

 

 

(32

)

Loss from discontinued operations for EPSi and CarePort

 

 

(15

)

 

 

(9

)

Other income, net

 

 

1

 

 

 

2

 

Gain on sale of discontinued operations

 

 

0

 

 

 

647

 

(Loss) income from discontinued operations for EPSi and CarePort before income taxes

 

 

(14

)

 

 

640

 

Income tax provision

 

 

0

 

 

 

(169

)

(Loss) income from discontinued operations, net of tax for EPSi and CarePort

 

$

(14

)

 

$

471

 

 

16. Business Segments

Our two primary revenue streams are (i) provider revenue and (ii) payer and life sciences revenue. We primarily derive our provider 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. Payer and life sciences revenue primarily consists of sales of our integrated data systems solutions and related services to key healthcare stakeholders, including health plans and pharmaceutical companies, to help them improve the quality, efficiency and value of healthcare delivery.

As of January 1, 2022, we had three operating segments: (i) Hospitals and Large Physician Practices, (ii) Veradigm and (iii) Certain Products (as defined below). The Hospitals and Large Physician Practices and Veradigm operating segments were equivalent to the two reportable segments described below.

The Hospitals and Large Physician Practices segment derived its revenue from the sale of integrated clinical and financial management solutions, which primarily included EHR-related software, related installation, support and maintenance, outsourcing and private cloud hosting. The Veradigm segment derived its revenue from payer and life sciences solutions, which are mainly targeted at payers, life sciences companies and other key healthcare stakeholders. Additionally, revenue was derived from software applications for patient engagement and the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions. These solutions enabled clients to transition, analyze and coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community. The “Unallocated Amounts” category consisted of the 2bPrecise business, certain products that were shifted from the previous Core Clinical and Financial Solutions reportable segment due to the organizational changes (“Certain Products”), transfer pricing revenues and certain corporate-related expenses. The amounts included in the “Unallocated Amounts” category for 2bPrecise and Certain Products did not meet the requirements to be reportable segments nor the criteria to be aggregated into the two reportable segments.

On March 2, 2022, we entered into a purchase agreement to sell substantially all of the assets of our Hospitals and Large Physician Practices Business. As of March 31, 2022, the assets and liabilities related to the purchase agreement were classified as held for sale on our consolidated balance sheet. We also classified the related assets and liabilities in discontinued operations, as the Hospitals and Large Physician Practices Business disposition represented a strategic shift that had a major effect on our operations and financial results. As a result of the transaction, we realigned our reporting structure. As of March 31, 2022, we had two operating segments: (i) Veradigm and (ii) Certain Products. The Veradigm operating segment was the equivalent to our one reportable segment. On May 2, 2022, we completed the sale of the Hospitals and Large Physician Practices Business. As of September 30, 2022, our two operating segments and one reportable segment remain unchanged from the end of the first quarter of 2022. The prior period segment disclosures below have been revised to conform to the current period presentation.

27


Our chief operating decision maker uses segment revenues, gross profit and income (loss) from operations as measures of performance and to make decisions about the allocation of resources. We do not track our assets by segment.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Veradigm

 

$

145,391

 

 

$

137,169

 

 

$

426,306

 

 

$

396,988

 

Unallocated Amounts

 

 

6,531

 

 

 

7,499

 

 

 

19,186

 

 

 

22,538

 

Total revenue

 

$

151,922

 

 

$

144,668

 

 

$

445,492

 

 

$

419,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

Veradigm

 

$

78,801

 

 

$

65,696

 

 

$

223,405

 

 

$

187,960

 

Unallocated Amounts

 

 

4,635

 

 

 

3,944

 

 

 

12,994

 

 

 

13,016

 

Total gross profit

 

$

83,436

 

 

$

69,640

 

 

$

236,399

 

 

$

200,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

Veradigm

 

$

27,707

 

 

$

17,099

 

 

$

69,796

 

 

$

46,607

 

Unallocated Amounts

 

 

(2,706

)

 

 

1,385

 

 

 

(43,579

)

 

 

(3,576

)

Total income (loss) from operations

 

$

25,001

 

 

$

18,484

 

 

$

26,217

 

 

$

43,031

 

 

17. Supplemental Disclosures

Supplemental Consolidated Statements of Cash Flows Information

The majority of the restricted cash balance as of September 30, 2022 and 2021 represents lease deposits.

 

 

September 30,

 

(In thousands)

 

2022

 

 

2021

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

492,597

 

 

$

142,333

 

Restricted cash

 

 

1,307

 

 

 

1,307

 

Total cash, cash equivalents and restricted cash

 

$

493,904

 

 

$

143,640

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

Supplemental non-cash information:

 

 

 

 

 

 

Sale of 2bPrecise business in exchange for a non-controlling interest in the combined entity

 

$

0

 

 

$

11,768

 

Issuance of treasury stock to commercial partner

 

$

0

 

 

$

534

 

 

28


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical fact or pattern, including statements regarding the potential impacts of the COVID-19 pandemic and steps we have taken or plan to take in response thereto, statements related to the effect of macroeconomic trends, statements regarding evolving patient care models, statements regarding legislative, administrative and regulatory actions on our business and opportunities related to accumulated patient data, statements regarding our expected future investment in research and development efforts and statements regarding our operations following the sale of the Hospitals and Large Physician Practices Business. Forward-looking statements can also be identified by the use of words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance. Actual results could differ significantly from those set forth in the forward-looking statements, and reported results should not be considered an indication of future performance or events. Certain factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to: our ability to achieve the margin targets associated with our profitability initiatives within the contemplated time periods, if at all; the continued impact of the COVID-19 pandemic, including the impacts of our responses and the responses by governments and other businesses to the pandemic, on our business, our employees, our clients and our suppliers; security breaches resulting in unauthorized access to our or our clients’ computer systems or data, including denial-of-services ransomware or other Internet-based attacks; the failure by Practice Fusion to comply with the terms of the settlement agreements with the U.S. Department of Justice (the “DOJ”); the costs and burdens of compliance by Practice Fusion with the terms of its settlement agreements with the DOJ; additional investigations and proceedings from governmental entities or third parties other than the DOJ related to the same or similar conduct underlying the DOJ’s investigations into Practice Fusion’s business practices; our ability to recover from third parties (including insurers) any amounts paid in connection with Practice Fusion’s settlement agreements with the DOJ and related inquiries; the expected financial results of businesses acquired by us; the successful integration of businesses acquired by us; the anticipated and unanticipated expenses and liabilities related to businesses acquired by us, including the civil investigation by the U.S. Attorney’s Office involving our Enterprise Information Solutions business; other risks associated with investments and acquisitions; risks associated with the disposition of the Hospitals and Large Physician Practices Business; our failure to compete successfully; consolidation in our industry; current and future laws, regulations and industry initiatives; increased government involvement in our industry; the failure of markets in which we operate to develop as quickly as expected; our or our customers’ failure to see the benefits of government programs; changes in interoperability or other regulatory standards; our ability to maintain and expand our business with existing clients or effectively transition clients to newer products; the effects of the realignment of our sales, services and support organizations; market acceptance of our products and services; the unpredictability of the sales and implementation cycles for our products and services; our ability to manage future growth; our ability to introduce new products and services; our ability to establish and maintain strategic relationships; the performance of our products; our ability to protect our intellectual property rights; the outcome of legal proceedings involving us; our ability to hire, retain and motivate key personnel; performance by our content and service providers; liability for use of content; price reductions; our ability to license and integrate third-party technologies; risks related to global operations; variability of our quarterly operating results; risks related to our outstanding indebtedness; changes in tax rates or laws; business disruptions; our ability to maintain proper and effective internal controls; asset and long-term investment impairment charges; inflationary pressures and macroeconomic volatility; and the other factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended (our “Form 10-K”) under the heading “Risk Factors” and elsewhere. The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements” in this Form 10-Q, as well as our Form 10-K filed with the Securities and Exchange Commission (the “SEC”). We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Each of the terms “we,” “us,” “our,” “Company,” or “Allscripts” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and/or its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.

Overview

Our Business Overview and Regulatory Environment

We deliver information technology (“IT”) solutions and services to help healthcare organizations achieve optimal clinical, financial and operational results. We sell our solutions to physicians, hospitals, governments, health systems, health plans, life sciences companies, retail clinics, retail pharmacies, pharmacy benefit managers, insurance companies, employer wellness clinics and post-acute organizations, such as home health and hospice agencies. We help our clients improve the quality and efficiency of health care with solutions that include electronic health records (“EHRs”), information connectivity, private cloud hosting, outsourcing, analytics, patient access and population health management. We derive our revenues primarily from sales of our proprietary software (either as a perpetual license sale or under a subscription delivery model), support and maintenance services, and managed services, such as outsourcing, private cloud hosting and revenue cycle management.

29


Our solutions empower healthcare professionals with the data, insights and connectivity to other caregivers they need to succeed in an industry that is rapidly changing from fee-for-service models to fee-for-value advanced payment models. We believe we offer some of the most comprehensive solutions in our industry today. Healthcare organizations can effectively manage patients and patient populations across all care settings using a combination of our physician, hospital, health system, post-acute care and population health management products and services. We believe these solutions will help transform health care as the industry seeks new ways to manage risk, improve quality and reduce costs.

Globally, healthcare providers continue to face the challenges of caring for an aging population with an increasing number of patients with chronic diseases, as well as the ongoing novel coronavirus (“COVID-19”) crisis. At the same time, practitioners worldwide are also under growing pressure to demonstrate the delivery of high-quality care at lower costs and to fully embrace expectations of efficient, patient-centered information exchange. Congressional oversight of EHRs and health information technology has increased in recent years. This increased oversight has impacted and could continue to impact our clients and our business. The passage of the 21st Century Cures Act in December 2016 assuaged some concerns about interoperability and possible U.S. Food and Drug Administration oversight of EHRs, and the ensuing regulations on data blocking and interoperability were released by the Department of Health and Human Services (“HHS”) in March 2020 and became applicable under Office of the National Coordinator for Health Information Technology oversight in April 2021. Additional regulatory clarity will come with the final rule expected shortly from the HHS Office of the Inspector General, as well as a rule from HHS that will outline disincentives for providers who may be engaged in blocking behaviors. Some aspects of the new regulations are having a significant effect on our business processes and how our clients must exchange patient information. In particular, Allscripts must complete development work to satisfy the revised and new certification criterion, and we and our clients will continue making adjustments to business practices associated with information exchange and provision of Electronic Health Information.

Following several high-profile ransomware and other cybersecurity attacks both in and outside the healthcare industry, as well as increased conversation about the expanding use of patient health data outside of HIPAA-covered environments, including through consumer applications, policy makers have taken action affecting Allscripts and our clients and are currently considering additional legislative and regulatory vehicles to expand privacy protections. Allscripts remains committed to working to securely protect the patient data within our system and complying with requirements associated with the transmission of patient data to both HIPAA- and non-HIPAA-covered entities.

Please refer to the section entitled “Our Business Overview and Regulatory Environment” in Part II, Item 7 of our Form 10-K for additional information.

Impacts of COVID-19

The global outbreak of COVID-19 continues to cause volatile economic activity around the world, and the degrees of any economic recovery in various jurisdictions have not been linear. We have been carefully monitoring the COVID-19 pandemic and its impact on our global operations. We are conducting business with certain modifications to employee travel and employee work locations, and have implemented certain cost reduction initiatives, among other modifications. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, partners and stockholders.

Allscripts, along with other health IT vendors, was asked by the White House, HHS, the Centers for Disease Control and Prevention, and state and local governments to support public health efforts to contain the pandemic by expanding COVID-19 reporting options available to our clients. Our technology has been instrumental to the provision of high-quality care, aiding not only public health surveillance but also in clinical decision support interventions to aid in triage, diagnosis and treatment; information exchange as patients are moved from site to site and/or discharged; predictive analytics based on local data for surge anticipation and vaccine management; and research based on real-world data informing the world’s evolving understanding of post-acute sequelae of COVID-19 (known colloquially as Long COVID). Allscripts and our clients may also be affected by changed requirements at the federal, state or local levels as efforts to modernize public health systems, including technologies (e.g., telehealth), are implemented following the inclusion of associated appropriations within COVID-19-related bills that passed in 2020, 2021 and 2022.

The COVID-19 pandemic negatively impacted revenue for the three and nine months ended September 30, 2022, as projects and buying decisions from the prior year were delayed due in part to the pandemic. However, the negative impacts on our business in the first, second and third quarters of 2022 were minimal compared to the prior year periods. The extent to which the COVID-19 pandemic will continue to impact the Company’s results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted. Future developments include resurgences or additional “waves” of outbreaks of COVID-19 in various jurisdictions (including new lineages of the virus), the impact of COVID-19 on economic activity, the actions taken by health authorities and policy makers to contain its impacts on public health and the global economy, and the availability, effectiveness and public acceptance of vaccines.

Changes in Macroeconomic Conditions

A potential economic recession and uncertainty in financial markets have resulted in changes in market conditions and produced market volatility. The impact of inflation and rising interest rates may affect the financial performance of the customers we serve and influence customer demand.

30


Third Quarter 2022 Summary

During the third quarter of 2022, we continued to make progress on our key strategic, financial and operational imperatives, which are aimed at driving higher client satisfaction, increasing operating margins and improving our competitive position by expanding the depth and breadth of our products. Additionally, we believe there are still opportunities to continue to improve our operating leverage and further streamline our operations, and such efforts are ongoing.

Total revenue for the third quarter of 2022 was $152 million, an increase of $7 million compared to the third quarter of 2021. For the three months ended September 30, 2022, provider revenue and payer & life sciences revenue were $123 million and $29 million, respectively, compared with $118 million and $27 million, respectively, during the three months ended September 30, 2021. Gross profit for the third quarter of 2022 was $83 million, an increase of $14 million compared to the third quarter of 2021. Gross margin increased to 54.9% in the third quarter of 2022 compared to a 48.1% gross margin in the third quarter of 2021.

Overview of Consolidated Results

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

$

122,811

 

 

$

118,179

 

 

 

3.9

%

 

$

360,415

 

 

$

345,253

 

 

 

4.4

%

Payer & Life Sciences

 

 

29,111

 

 

 

26,489

 

 

 

9.9

%

 

 

85,077

 

 

 

74,273

 

 

 

14.5

%

Total revenue

 

 

151,922

 

 

 

144,668

 

 

 

5.0

%

 

 

445,492

 

 

 

419,526

 

 

 

6.2

%

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

 

57,252

 

 

 

61,606

 

 

 

(7.1

%)

 

 

172,595

 

 

 

180,566

 

 

 

(4.4

%)

Payer & Life Sciences

 

 

11,234

 

 

 

13,422

 

 

 

(16.3

%)

 

 

36,498

 

 

 

37,984

 

 

 

(3.9

%)

Total cost of revenue

 

 

68,486

 

 

 

75,028

 

 

 

(8.7

%)

 

 

209,093

 

 

 

218,550

 

 

 

(4.3

%)

Gross profit

 

 

83,436

 

 

 

69,640

 

 

 

19.8

%

 

 

236,399

 

 

 

200,976

 

 

 

17.6

%

Gross margin %

 

 

54.9

%

 

 

48.1

%

 

 

 

 

 

53.1

%

 

 

47.9

%

 

 

 

Selling, general and administrative expenses

 

 

32,518

 

 

 

27,392

 

 

 

18.7

%

 

 

133,683

 

 

 

87,680

 

 

 

52.5

%

Research and development

 

 

23,681

 

 

 

21,042

 

 

 

12.5

%

 

 

69,851

 

 

 

62,644

 

 

 

11.5

%

Asset impairment charges

 

 

0

 

 

 

359

 

 

 

(100.0

%)

 

 

0

 

 

 

531

 

 

 

(100.0

%)

Amortization of intangible and acquisition-related assets

 

 

2,236

 

 

 

2,363

 

 

 

(5.4

%)

 

 

6,648

 

 

 

7,090

 

 

 

(6.2

%)

Income from operations

 

 

25,001

 

 

 

18,484

 

 

 

35.3

%

 

 

26,217

 

 

 

43,031

 

 

 

(39.1

%)

Interest expense

 

 

(1,246

)

 

 

(3,617

)

 

 

(65.6

%)

 

 

(5,269

)

 

 

(9,709

)

 

 

(45.7

%)

Other income, net

 

 

1,655

 

 

 

4,493

 

 

 

(63.2

%)

 

 

3,800

 

 

 

21,819

 

 

 

(82.6

%)

Gain on sale of businesses, net

 

 

0

 

 

 

8,363

 

 

 

(100.0

%)

 

 

0

 

 

 

8,363

 

 

 

(100.0

%)

Equity in net loss of unconsolidated investments

 

 

(617

)

 

 

(257

)

 

 

140.1

%

 

 

(1,222

)

 

 

(321

)

 

NM

 

Income from continuing operations before income taxes

 

 

24,793

 

 

 

27,466

 

 

 

(9.7

%)

 

 

23,526

 

 

 

63,183

 

 

 

(62.8

%)

Income tax (provision) benefit

 

 

(13,868

)

 

 

(7,190

)

 

 

92.9

%

 

 

9,132

 

 

 

(12,464

)

 

 

(173.3

%)

Effective tax rate

 

 

55.9

%

 

 

26.2

%

 

 

 

 

 

38.8

%

 

 

19.7

%

 

 

 

Income from continuing operations, net of tax

 

 

10,925

 

 

 

20,276

 

 

 

(46.1

%)

 

 

32,658

 

 

 

50,719

 

 

 

(35.6

%)

Loss from discontinued operations

 

 

(434

)

 

 

(6,187

)

 

 

(93.0

%)

 

 

(9,252

)

 

 

(6,545

)

 

 

41.4

%

Gain on sale of discontinued operations

 

 

5,174

 

 

 

0

 

 

 

100.0

%

 

 

7,939

 

 

 

647

 

 

NM

 

Income tax effect on discontinued operations

 

 

(1,137

)

 

 

2,091

 

 

 

(154.4

%)

 

 

(57,986

)

 

 

2,342

 

 

NM

 

Income (loss) from discontinued operations, net of tax

 

 

3,603

 

 

 

(4,096

)

 

 

188.0

%

 

 

(59,299

)

 

 

(3,556

)

 

NM

 

Net income (loss)

 

$

14,528

 

 

$

16,180

 

 

 

(10.2

%)

 

$

(26,641

)

 

$

47,163

 

 

 

(156.5

%)

NM – We define “NM” as not meaningful for increases or decreases greater than 200%.

Revenue

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provider

 

$

122,811

 

 

$

118,179

 

 

 

3.9

%

 

$

360,415

 

 

$

345,253

 

 

 

4.4

%

Payer & Life Sciences

 

 

29,111

 

 

 

26,489

 

 

 

9.9

%

 

 

85,077

 

 

 

74,273

 

 

 

14.5

%

Total revenue

 

$

151,922

 

 

$

144,668

 

 

 

5.0

%

 

$

445,492

 

 

$

419,526

 

 

 

6.2

%

 

31


Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Provider revenue consists of revenue derived from software applications for patient engagement and the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions. Payer and life sciences revenue primarily consists of sales of our integrated data systems solutions and related services to key healthcare stakeholders, including health plans and pharmaceutical companies, to help them improve the quality, efficiency and value of healthcare delivery.

Provider revenue increased for the three and nine months ended September 30, 2022 compared to the prior year comparable periods, reflecting increases in transaction-related, subscription and upfront software revenues. Payer and life sciences revenue increased for the three and nine months ended September 30, 2022 compared to the prior year comparable periods, primarily due to an increase in subscription revenues and transaction-related revenues.

The percentage of provider and payer and life sciences revenue of our total revenue was 81% and 19%, respectively, during the three and nine months ended September 30, 2022 and 82% and 18%, respectively, during the three and nine months ended September 30, 2021.

Gross Profit

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Total cost of revenue

 

$

68,486

 

 

$

75,028

 

 

 

(8.7

%)

 

$

209,093

 

 

$

218,550

 

 

 

(4.3

%)

Gross profit

 

$

83,436

 

 

$

69,640

 

 

 

19.8

%

 

$

236,399

 

 

$

200,976

 

 

 

17.6

%

Gross margin %

 

 

54.9

%

 

 

48.1

%

 

 

 

 

 

53.1

%

 

 

47.9

%

 

 

 

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Gross profit and margin increased during the three and nine months ended September 30, 2022 compared with the prior year comparable periods, primarily due to increases in revenues, lower contractor usage and improvements to our hosting infrastructure costs.

Selling, General and Administrative Expenses

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Selling, general and administrative expenses

 

$

32,518

 

 

$

27,392

 

 

 

18.7

%

 

$

133,683

 

 

$

87,680

 

 

 

52.5

%

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Selling, general and administrative expenses increased during the three and nine months ended September 30, 2022, compared with the prior year comparable periods, primarily due to higher legal costs and increases in stock-based compensation expense. In addition, certain corporate expenses that remained after the disposition of the Hospitals and Large Physician Practices business are being fully recognized in 2022, whereas in 2021 those comparable expenses were allocated between Veradigm and the Hospitals and Large Physician Practices businesses.

Research and Development

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Research and development

 

$

23,681

 

 

$

21,042

 

 

 

12.5

%

 

$

69,851

 

 

$

62,644

 

 

 

11.5

%

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Research and development expenses increased during the three and nine months ended September 30, 2022 compared with the prior year comparable periods, primarily due to the increased investment in Veradigm products for both provider and payer and life sciences.

Asset impairment charges

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Asset impairment charges

 

$

0

 

 

$

359

 

 

 

(100.0

%)

 

$

0

 

 

$

531

 

 

 

(100.0

%)

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Asset impairment charges for the three and nine months ended September 30, 2021 were due to the write-off of deferred costs related to our private cloud hosting operations.

32


Amortization of Intangible and Acquisition-related Assets

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Amortization of intangible and acquisition-related assets

 

$

2,236

 

 

$

2,363

 

 

 

(5.4

%)

 

$

6,648

 

 

$

7,090

 

 

 

(6.2

%)

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

The decrease in amortization expense for the three and nine months ended September 30, 2022, compared with the prior year comparable periods, was due to normal amortization expense and certain intangible assets being fully amortized in 2021.

Interest Expense

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Interest expense

 

$

1,246

 

 

$

3,617

 

 

 

(65.6

%)

 

$

5,269

 

 

$

9,709

 

 

 

(45.7

%)

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Interest expense decreased during the three and nine months ended September 30, 2022 compared with the prior year comparable periods, primarily due to lower outstanding debt levels in the current year and the absence of accreted interest expense in the current year for the equity component of the 0.875% Convertible Senior Notes. As of January 1, 2022, we adopted Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”, which required us to remove the equity component from Additional paid-in capital. Refer to Note 10, “Debt” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information.

Other Income, Net

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Other income, net

 

$

1,655

 

 

$

4,493

 

 

 

(63.2

%)

 

$

3,800

 

 

$

21,819

 

 

 

(82.6

%)

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Other income, net for the three and nine months ended September 30, 2022 and 2021 consisted of a combination of interest income and miscellaneous receipts and expenses. Income during the three months ended September 30, 2021 was primarily due to a $1.4 million distribution received from a third-party cost method investment and a $1.6 million gain as a result of the sale of a third-party cost method investment. In addition to the items previously mentioned, the income during the nine months ended September 30, 2021 included a $5.0 million distribution received from the Practice Fusion escrow account related to the settlement agreements with the DOJ, a $9.7 million gain as a result of a note conversion, the revaluation of our existing investment with a third-party cost method investment, and a $1.4 million distribution received from a third-party cost method investment.

Gain on Sale of Businesses, Net

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Gain on sale of businesses, net

 

$

0

 

 

$

8,363

 

 

 

(100.0

%)

 

$

0

 

 

$

8,363

 

 

 

(100.0

%)

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Gain on sale of businesses, net during the three and nine months ended September 30, 2021 consisted of a gain of $8.4 million from the divestiture of our 2bPrecise business.

Equity in Net Loss of Unconsolidated Investments

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

Equity in net loss of unconsolidated investments

 

$

(617

)

 

$

(257

)

 

 

140.1

%

 

$

(1,222

)

 

$

(321

)

 

NM

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Equity in net loss of unconsolidated investments represents our share of the equity earnings (or losses) of our investments in third parties accounted for under the equity method of accounting based on a one quarter lag.

Income Taxes

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Income tax (provision) benefit

 

$

(13,868

)

 

$

(7,190

)

 

 

92.9

%

 

$

9,132

 

 

$

(12,464

)

 

 

(173.3

%)

Effective tax rate

 

 

55.9

%

 

 

26.2

%

 

 

 

 

 

38.8

%

 

 

19.7

%

 

 

 

NM - We define “NM” as not meaningful for percentages greater than 200%

33


Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

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 including a windfall benefit of $12.6 million for the nine months ended September 30, 2022 and a windfall benefit of $4.6 million for the nine months ended September 30, 2021. Our effective tax rate for the three and nine months ended September 30, 2022, compared with the prior year comparable periods, differs primarily due to the release of valuation allowance of $11.2 million in the three and nine months ended September 30, 2022. In addition, the permanent items, credits and the impact of foreign earnings had more impact on the pre-tax income of $24.8 million and $23.5 million in the three and nine months ended September 30, 2022, respectively, compared to the impact of these items on a pre-tax income of $27.5 million and $63.2 million for the three and nine months ended September 30, 2021, respectively.

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 nine months ended September 30, 2022, we released valuation allowances of $11.2 million related to U.S. deferred tax assets.

Discontinued Operations

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Loss from discontinued operations

 

$

(434

)

 

$

(6,187

)

 

 

(93.0

%)

 

$

(9,252

)

 

$

(6,545

)

 

 

41.4

%

Gain on sale of discontinued operations

 

 

5,174

 

 

 

0

 

 

 

100.0

%

 

 

7,939

 

 

 

647

 

 

NM

 

Income tax effect on discontinued operations

 

 

(1,137

)

 

 

2,091

 

 

 

(154.4

%)

 

 

(57,986

)

 

 

2,342

 

 

NM

 

Income (loss) from discontinued operations, net of tax

 

$

3,603

 

 

$

(4,096

)

 

 

188.0

%

 

$

(59,299

)

 

$

(3,556

)

 

NM

 

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

On May 2, 2022, we completed the sale of our Hospitals and Large Physician Practices business, including the Sunrise and TouchWorks solutions (the “Hospitals and Large Physician Practices Business”) to Altera Digital Health Inc. (formerly known as Harris Dawn Holdings Inc.), a Delaware corporation (“Altera”), a wholly-owned subsidiary of Constellation Software Inc., an Ontario corporation, pursuant to a purchase agreement (the “Altera Purchase Agreement”) by which Altera purchased substantially all of the assets of the Hospitals and Large Physician Practices Business. The Hospitals and Large Physician Practices Business sale represented a strategic shift that had a major effect on our operations and financial results. As of June 30, 2022, we reported the Hospitals and Large Physician Practices Business as discontinued operations.

On October 15, 2020 and December 31, 2020, we completed the sale of the EPSi and CarePort businesses, respectively. Prior to the sale of EPSi, it was part of the “Unallocated Amounts” category as it did not meet the requirements to be a reportable segment nor the criteria to be aggregated into our two reportable segments at the time. Prior to the sale of CarePort, it was part of the former Data, Analytics and Care Coordination reportable segment. Both businesses were part of the same strategic initiative and were sold within the same period, and given that the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results, we reported them together as discontinued operations for all periods presented.

The loss from discontinued operations for the three and nine months ended September 30, 2022 represents the operating statement activity related to the Hospitals and Large Physician Practices Business. The gain on sale of discontinued operations for the three and nine months ended September 30, 2022 is a result of the sale of the Hospitals and Large Physician Practices Business. The income tax effect on discontinued operations for the three and nine months ended September 30, 2022 represents the income tax expense related to the Hospitals and Large Physician Practices Business. The three months ended September 30, 2022 included certain adjustments made in connection with the sale of the Hospitals and Large Physician Practices Business, primarily relating to net working capital adjustments that impacted the gain on the sale of the discontinued operations.

The loss from discontinued operations for the three months ended September 30, 2021 and the income from discontinued operations for the nine months ended September 30, 2021 primarily represent the operating statement activity related to the Hospitals and Large Physician Practices Business. The gain on sale of discontinued operations for the nine months ended September 30, 2021 represents the net working capital adjustments to the gain from the sale of CarePort. The income tax effect on discontinued operations for the three and nine months ended September 30, 2021 primarily represents the income tax expense related to the Hospitals and Large Physician Practices Business. Refer to Note 15, “Discontinued Operations” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further information regarding discontinued operations.

34


Segment Operations

On March 2, 2022, we entered into a purchase agreement to sell substantially all of the assets of our Hospitals and Large Physician Practices Business. As of March 31, 2022, the operating segment was classified in discontinued operations as the disposition represented a strategic shift that had a major effect on our operations and financial results. Therefore, we changed our reportable segments, which previously included Hospitals and Large Physician Practices. As of March 31, 2022, we had two operating segments: (i) Veradigm and (ii) Certain Products. The Veradigm operating segment was the equivalent to our one reportable segment. On May 2, 2022, we completed the sale of the Hospitals and Large Physician Practices Business. As of September 30, 2022, our two operating segments and one reportable segment remained unchanged from the end of the first quarter of 2022. The segment disclosures below for the three and nine months ended September 30, 2021 have been revised to conform to the current period presentation. Refer to Note 16 “Business Segments” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further discussion on the impact of the change.

Overview of Segment Results

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Veradigm

 

$

145,391

 

 

$

137,169

 

 

 

6.0

%

 

$

426,306

 

 

$

396,988

 

 

 

7.4

%

Unallocated Amounts

 

 

6,531

 

 

 

7,499

 

 

 

(12.9

%)

 

 

19,186

 

 

 

22,538

 

 

 

(14.9

%)

Total revenue

 

$

151,922

 

 

$

144,668

 

 

 

5.0

%

 

$

445,492

 

 

$

419,526

 

 

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Veradigm

 

$

78,801

 

 

$

65,696

 

 

 

19.9

%

 

$

223,405

 

 

$

187,960

 

 

 

18.9

%

Unallocated Amounts

 

 

4,635

 

 

 

3,944

 

 

 

17.5

%

 

 

12,994

 

 

 

13,016

 

 

 

(0.2

%)

Total gross profit

 

$

83,436

 

 

$

69,640

 

 

 

19.8

%

 

$

236,399

 

 

$

200,976

 

 

 

17.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Veradigm

 

$

27,707

 

 

$

17,099

 

 

 

62.0

%

 

$

69,796

 

 

$

46,607

 

 

 

49.8

%

Unallocated Amounts

 

 

(2,706

)

 

 

1,385

 

 

NM

 

 

 

(43,579

)

 

 

(3,576

)

 

NM

 

Total income from operations

 

$

25,001

 

 

$

18,484

 

 

 

35.3

%

 

$

26,217

 

 

$

43,031

 

 

 

(39.1

%)

Veradigm

Our Veradigm segment derives its revenue from payer and life sciences solutions, which are mainly targeted at payers, life sciences companies and other key healthcare stakeholders. Additionally, revenue is derived from software applications for patient engagement and the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions. These solutions enable clients to transition, analyze, coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Revenue

 

$

145,391

 

 

$

137,169

 

 

 

6.0

%

 

$

426,306

 

 

$

396,988

 

 

 

7.4

%

Gross profit

 

$

78,801

 

 

$

65,696

 

 

 

19.9

%

 

$

223,405

 

 

$

187,960

 

 

 

18.9

%

Gross margin %

 

 

54.2

%

 

 

47.9

%

 

 

 

 

 

52.4

%

 

 

47.3

%

 

 

 

Income from operations

 

$

27,707

 

 

$

17,099

 

 

 

62.0

%

 

$

69,796

 

 

$

46,607

 

 

 

49.8

%

Operating margin %

 

 

19.1

%

 

 

12.5

%

 

 

 

 

 

16.4

%

 

 

11.7

%

 

 

 

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Veradigm revenue increased for the three and nine months ended September 30, 2022 compared with the prior year comparable periods, due to increases in subscription, upfront software and transaction-related revenues. The increase was partially offset by decreases in maintenance and client services revenues.

Gross profit and gross margin increased during the three and nine months ended September 30, 2022 compared with the prior year comparable periods, primarily due to increases in revenues, lower contractor usage and improvements to our hosting infrastructure costs.

Income from operations and operating margin increased during the three and nine months ended September 30, 2022 compared with the prior year comparable periods, primarily due to the increase in gross profit. The increases were partially offset due to higher research and development costs related to the increased investment in Veradigm products for both provider and payer and life sciences and the decrease in capitalized software costs.

35


Unallocated Amounts

The “Unallocated Amounts” category consists of the 2bPrecise business, certain products that were shifted from the previous Core Clinical and Financial Solutions reportable segment due to the organizational changes (“Certain Products”) and certain corporate-related expenses. The amounts included in the “Unallocated Amounts” category for 2bPrecise and Certain Products do not meet the requirements to be reportable segments nor the criteria to be aggregated into our Veradigm reportable segment.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Revenue

 

$

6,531

 

 

$

7,499

 

 

 

(12.9

%)

 

$

19,186

 

 

$

22,538

 

 

 

(14.9

%)

Gross profit

 

$

4,635

 

 

$

3,944

 

 

 

17.5

%

 

$

12,994

 

 

$

13,016

 

 

 

(0.2

%)

Gross margin %

 

 

71.0

%

 

 

52.6

%

 

 

 

 

 

67.7

%

 

 

57.8

%

 

 

 

(Loss) income from operations

 

$

(2,706

)

 

$

1,385

 

 

NM

 

 

$

(43,579

)

 

$

(3,576

)

 

NM

 

Operating margin %

 

 

(41.4

%)

 

 

18.5

%

 

 

 

 

NM

 

 

 

(15.9

%)

 

 

 

Three and Nine Months Ended September 30, 2022 Compared with the Three and Nine Months Ended September 30, 2021

Revenue decreased during the three and nine months ended September 30, 2022, compared with the prior year comparable periods, primarily due to a decrease in upfront software revenues.

Gross profit increased during the three months ended September 30, 2022, compared with the prior year comparable period, primarily due to a decrease in cost of revenues as certain corporate bonus expense previously recorded to the “Unallocated Amounts” category was recorded to the Veradigm segment in 2022. The increase in gross profit was partially offset by a decrease in revenues. Gross profit was essentially flat during the nine months ended September 30, 2022, compared with the prior year comparable period. Gross margin increased during the nine months ended September 30, 2022, compared with the prior year comparable period, primarily due to the decrease in revenues being partially offset by a decrease in cost of revenues as certain corporate bonus expense previously recorded to the “Unallocated Amounts” category was recorded to the Veradigm segment in 2022.

Loss from operations increased during the three and nine months ended September 30, 2022, compared with the prior year comparable periods, primarily due to higher legal costs, increases in stock-based compensation expense and changes attributed to corporate allocations from 2021 to 2022.

Liquidity and Capital Resources

The primary factors that influence our liquidity include, but are not limited to, the amount and timing of our revenues, cash collections from our clients, capital expenditures and investments in research and development efforts, including investments in or acquisitions of third parties, and divestitures. As of September 30, 2022, our principal sources of liquidity consisted of cash and cash equivalents of $494 million and available borrowing capacity of $699 million under our Revolving Facility. The change in our cash and cash equivalents balance is reflective of the following:

Operating Cash Flow Activities

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

$ Change

 

Net (loss) income

 

$

(26,641

)

 

$

47,163

 

 

$

(73,804

)

Less: Loss from discontinued operations

 

 

(59,299

)

 

 

(3,556

)

 

 

(55,743

)

    Income from continuing operations

 

 

32,658

 

 

 

50,719

 

 

 

(18,061

)

Non-cash adjustments to net (loss) income

 

 

53,926

 

 

 

41,689

 

 

 

12,237

 

Cash impact of changes in operating assets and liabilities

 

 

32,417

 

 

 

6,137

 

 

 

26,280

 

    Net cash provided by operating activities -
        continuing operations

 

 

119,001

 

 

 

98,545

 

 

 

20,456

 

    Net cash used in operating activities -
        discontinued operations

 

 

(23,234

)

 

 

(239,018

)

 

 

215,784

 

    Net cash provided by (used in) operating activities

 

$

95,767

 

 

$

(140,473

)

 

$

236,240

 

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Net cash provided by operating activities – continuing operations increased during the nine months ended September 30, 2022 compared with the prior year comparable period. Income from continuing operations for the nine months ended September 30, 2022 included a deferred tax benefit. However, during the nine months ended September 30, 2021 we recorded higher income from operations, a $8.4 million gain from the divestiture of our 2bPrecise business and higher other income, which included a distribution received from the Practice Fusion escrow account related to the settlement agreements with the DOJ, the investment gain and distribution received from our third-party cost method investments. Non-cash adjustments to net (loss) income increased primarily due to higher stock-based compensation expense and the absence of the gain from the sale of our 2bPrecise business. The increase was partially offset due to the change in deferred taxes and lower depreciation and amortization expense. The increase in cash impact of changes in operating assets and liabilities for the nine months ended September 30, 2022 was primarily a result of working capital changes.

36


Net cash used in operating activities – discontinued operations decreased for the nine months ended September 30, 2022 primarily due to the absence of the tax payment relating to the gain from the sale of CarePort on December 31, 2020, which was paid in the second quarter of 2021.

Investing Cash Flow Activities

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

$ Change

 

Capital expenditures

 

$

(1,876

)

 

$

(1,050

)

 

$

(826

)

Capitalized software

 

 

(26,207

)

 

 

(26,595

)

 

 

388

 

Cash paid for business acquisitions, net of cash acquired

 

 

(24,106

)

 

 

0

 

 

 

(24,106

)

Sale of businesses and other investments, net of cash divested, and distributions received

 

 

672,498

 

 

 

5,380

 

 

 

667,118

 

Purchases of equity securities, other investments and related intangible assets, net

 

 

(1,342

)

 

 

(219

)

 

 

(1,123

)

    Net cash provided by (used in) investing activities -
        continuing operations

 

 

618,967

 

 

 

(22,484

)

 

 

641,451

 

    Net cash used in investing activities -
        discontinued operations

 

 

(15,248

)

 

 

(32,388

)

 

 

17,140

 

    Net cash provided by (used in) investing activities

 

$

603,719

 

 

$

(54,872

)

 

$

658,591

 

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

The change from net cash used in operating activities - continuing operations for the nine months ended September 30, 2021 to net cash provided by operating activities - continuing operations for the nine months ended September 30, 2022 was primarily due to the cash received as a result of the sale of the Hospitals and Large Physician Practices Business, which was partially offset by cash paid for the Babel Health acquisition.

Net cash used in investing activities – discontinued operations during the nine months ended September 30, 2022 and 2021 primarily reflects spending for capitalized software costs related to the Hospitals and Large Physician Practices Business.

Financing Cash Flow Activities

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

$ Change

 

Taxes paid related to net share settlement of equity awards

 

$

(32,666

)

 

$

(12,718

)

 

$

(19,948

)

Credit facility payments

 

 

(200,000

)

 

 

(50,000

)

 

 

(150,000

)

Credit facility borrowings, net of issuance costs

 

 

22,335

 

 

 

250,000

 

 

 

(227,665

)

Repurchase of common stock

 

 

(177,031

)

 

 

(308,953

)

 

 

131,922

 

Intercompany to/from parent/subsidiaries

 

 

11,685

 

 

 

47,323

 

 

 

(35,638

)

Payment of acquisition and other financing obligations

 

 

0

 

 

 

(2,400

)

 

 

2,400

 

    Net cash used in financing activities -
        continuing operations

 

 

(375,677

)

 

 

(76,748

)

 

 

(298,929

)

    Net cash used in financing activities -
        discontinued operations

 

 

(11,697

)

 

 

(48,572

)

 

 

36,875

 

      Net cash used in financing activities

 

$

(387,374

)

 

$

(125,320

)

 

$

(262,054

)

Nine Months Ended September 30, 2022 Compared with the Nine Months Ended September 30, 2021

Net cash used in financing activities - continuing operations increased for the nine months ended September 30, 2022 primarily due to higher credit facility payments and lower credit facility borrowings in 2022. The increase was partially offset due to lower share repurchases of common stock.

Net cash used in financing activities - discontinuing operations during both the nine months ended September 30, 2022 and 2021 primarily reflects the cash for operations for the Hospitals and Large Physician Practices Business.

Future Capital Requirements

We enter into obligations with third parties in the ordinary course of business. These future cash obligations will be funded from future cash flows from the sale of our products and services. The material cash requirements include the following contractual and other obligations.

Debt Obligations

As of September 30, 2022, we had outstanding convertible senior notes in an aggregate principal amount of $207.9 million, which is fully due on the convertible senior notes’ maturity date. As of September 30, 2022, we had no outstanding borrowings under the Revolving Facility.

37


Non-cancelable Operating Leases

We have lease arrangements for certain facilities. As of September 30, 2022, we had fixed lease payment obligations of $19.7 million, with $6.7 million payable within the next 12 months.

Purchase Obligations

Purchase obligations consist of minimum purchase commitments for Microsoft services, computer equipment, maintenance, consulting and other commitments. As of September 30, 2022, we had purchase obligations of $38.3 million, with approximately $14.6 million payable within the next 12 months.

Letters of Credit

As of September 30, 2022, we had $0.8 million letters of credit outstanding under the Third Amended Credit Agreement.

Income Taxes

Our liability for uncertain tax positions was $31.7 million as of September 30, 2022. It is uncertain the amount that is payable within the next 12 months for liabilities that may result from this exposure, as we cannot predict, with reasonable reliability, the outcome of discussions with the respective taxing jurisdictions, which may or may not result in cash settlements.

Other Matters Affecting Future Capital Requirements

Our total investment in research and development is expected to increase in 2022, as compared to 2021, as the Company plans to make continued investments in expanding the capabilities and functionality of our Veradigm provider, payer and life sciences solutions. Our total spending consists of research and development costs directly recorded to expense, which are offset by the capitalization of eligible development costs.

We believe that our cash and cash equivalents of $494 million as of September 30, 2022, our future cash flows, our borrowing capacity under our Revolving Facility and access to capital markets, taken together, provide adequate resources to meet future operating needs as well as scheduled payments of short and long-term debt. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of this Form 10-Q. We will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies and the repurchase of our common stock under our stock repurchase program, any of which might impact our liquidity requirements or cause us to borrow additional amounts under our Revolving Facility or issue additional equity or debt securities.

Critical Accounting Estimates

There were no material changes to our critical accounting estimates from those previously disclosed in our Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Form 10-K have not changed materially during the nine months ended September 30, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Form 10-Q.

Based on management’s evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are designed to, and were effective as of September 30, 2022 to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2022, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

We hereby incorporate by reference Note 14, “Contingencies,” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes during the nine months ended September 30, 2022 from the risk factors as previously disclosed in our Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 24, 2022, we announced that our Board of Directors approved a stock purchase program (the “2022 Program”) under which we may repurchase up to $250 million of our common stock, with no termination date. The 2022 Program replaced a previous program approved by our Board in 2021.

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.

The following table summarizes the stock repurchase activity during the three months ended September 30, 2022 and the approximate dollar value of shares that may yet be purchased under the 2022 Program:

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Approximate

 

 

 

 

 

 

 

 

 

Of Shares

 

 

Dollar Value

 

 

 

 

 

 

 

 

 

Purchased

 

 

Of Shares

 

 

 

 

 

 

 

 

 

As Part Of

 

 

That May Yet

 

 

 

Total

 

 

Average

 

 

Publicly

 

 

Be Purchased

 

 

 

Number

 

 

Price

 

 

Announced

 

 

Under The

 

 

 

Of Shares

 

 

Paid Per

 

 

Plans Or

 

 

Plans Or

 

Period (Based on Settlement Date)

 

Purchased

 

 

Share(1)

 

 

Programs

 

 

Programs

 

07/01/22—07/31/22

 

 

0

 

 

$

0.00

 

 

 

0

 

 

$

106,784

 

08/01/22—08/31/22

 

 

1,476

 

 

$

17.28

 

 

 

1,476

 

 

$

81,290

 

09/01/22—09/30/22

 

 

481

 

 

$

16.87

 

 

 

481

 

 

$

73,164

 

 

 

 

1,957

 

 

$

17.18

 

 

 

1,957

 

 

 

 

(1)
Excludes broker commissions in the case of open market transactions, if any.

 

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Item 6. Exhibits

Exhibit Number

 

 

Exhibit Description

 

Filed Herewith

 

Furnished Herewith

10.1

 

 

Form of Restricted Stock Unit Award Agreement for CEO Awards Program

 

X

 

 

 

 

 

 

 

 

 

 

31.1

 

 

Rule 13a - 14(a) Certification of Chief Executive Officer

 

X

 

 

 

 

 

 

 

 

 

 

31.2

 

 

Rule 13a - 14(a) Certification of Chief Financial Officer

 

X

 

 

 

 

 

 

 

 

 

 

32.1

 

 

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

 

 

 

X

 

 

 

 

 

 

 

 

101.INS

 

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline document

 

X

 

 

 

 

 

 

 

 

 

 

101.SCH

 

 

Inline XBRL Taxonomy Extension Schema

 

X

 

 

 

 

 

 

 

 

 

 

101.CAL

 

 

Inline XBRL Taxonomy Extension Calculation Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

101.LAB

 

 

Inline XBRL Taxonomy Extension Label Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

101.PRE

 

 

Inline XBRL Taxonomy Extension Presentation Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

101.DEF

 

 

Inline XBRL Taxonomy Definition Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

104

 

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL and included in Exhibit 101.

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

 

 

By:

 

/s/ Leah S. Jones

 

 

Leah S. Jones

 

 

Chief Financial Officer

 

 

(Duly Authorized Officer)

Date: November 7, 2022

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