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Change Healthcare Inc. Reports Third Quarter Fiscal 2022 Financial Results

Change Healthcare Inc. (Nasdaq: CHNG) (the “Company” or “Change Healthcare”), a leading healthcare technology company, today reported financial results for the third quarter of fiscal year 2022 ended December 31, 2021.

“The third quarter results demonstrate the underlying strength and momentum in our business. We continue to execute on our growth strategy and invest to advance our capabilities and support our customers and employees,” said Neil de Crescenzo, president and chief executive officer. “We will continue to invest in innovation and optimize our cost structure, enabling us to deliver better experiences and outcomes for everyone in the healthcare system.”

Fiscal 2022 Third Quarter Highlights:

Financial Summary

  • Total revenue of $866.1 million, including solutions revenue of $811.1 million
  • Net loss of $24.5 million, resulting in net loss of $0.08 per diluted share
  • Adjusted net income of $116.7 million, resulting in adjusted net income of $0.36 per diluted share
  • Adjusted EBITDA of $259.5 million

Recent Business Highlights

  • Introduced The ASAM Criteria Powered by InterQual, a SaaS solution developed through an exclusive partnership with the American Society of Addiction Medicine (ASAM). This software, which seamlessly integrates into existing care-management workflows, significantly reduces the time required for substance use disorder (SUD) patient assessments, increases consistency, and streamlines the prior-authorization process using industry-standard criteria.
  • Announced a first-of-its-kind collaboration with Zasti to help healthcare providers accurately measure and monitor greenhouse gas emissions based on actual care activity.
  • Expanded Stratus Imaging PACS, a cloud-native, zero-footprint Picture Archiving and Communication System, to clinical use. This scalable, cloud-native platform is now being used by StatRad, an award-winning teleradiology service whose 90 radiologists read approximately 1.5 million studies a year and serve hundreds of hospitals across the United States.

Impact of McKesson Exit on Comparability of Results

On March 10, 2020, Change Healthcare Inc. acquired the interest in Change Healthcare LLC (“the Joint Venture”) previously held by McKesson. The transaction resulted in Change Healthcare Inc. acquiring control of the Joint Venture, which was accounted for as a business combination resulting in fair value adjustments to various assets and liabilities, including deferred revenue, goodwill, and intangible assets.

Financial Results for Third Quarter of Fiscal 2022

  • Solutions revenue was $811.1 million, compared to $735.3 million for third quarter of fiscal 2021. Solutions revenue for third quarter of fiscal 2021 included the impact of fair value adjustments to deferred revenue resulting from the McKesson exit, which reduced revenue recognized by $24.2 million. Total revenue, which includes postage revenue, was $866.1 million compared to $785.1 million in the same period of the prior year. Solutions revenue in the current period was positively impacted by volume growth and incremental revenue from COVID-19 vaccines and new sales. Solutions revenue for the prior period reflects the $4.8 million from the Capacity Management business, which was divested in fiscal year 2021.
  • Net loss was $24.5 million, resulting in net loss of $0.08 per diluted share, compared with net income of $2.2 million and $0.01 per diluted share, respectively, for the third quarter of fiscal 2021.
  • Adjusted net income was $116.7 million, resulting in adjusted net income of $0.36 per diluted share, compared with adjusted net income of $110.1 million and $0.34 per diluted share, respectively, for the third quarter of fiscal 2021. Net loss per diluted share and adjusted net income per diluted share for the current period is based on 324 million shares compared to 325 million shares in the prior year period.
  • Adjusted EBITDA was $259.5 million, compared with $233.4 million for the third quarter of fiscal 2021. The results in the current quarter reflect the aforementioned revenue growth, partially offset by investments to support business initiatives.

Cash Flow and Balance Sheet Highlights

Net cash provided by operating activities was $438.8 million and free cash flow was $246.2 million, in each case, for the nine months ended December 31, 2021. For the nine months ended December 31, 2020, net cash provided by operating activities and free cash flow was $487.2 million and $304.3 million, respectively.

Net cash provided by operating activities and free cash flow each are affected by pass-thru funds we receive from certain pharmaceutical industry participants in advance of our obligation to remit these funds to participating retail pharmacies. Such pass-thru funds on hand increased by $16.1 million in the nine months ended December 31, 2021, increasing free cash flow for the period by that amount, and decreased by $10.1 million for the nine months ended December 31, 2020.

The Company ended the quarter with approximately $96.0 million of cash and cash equivalents, and approximately $4,587.9 million of total debt. During the third quarter, the Company repaid $80.0 million on its Term Loan Facility.

Update on Proposed Merger with OptumInsight

On January 5, 2021, OptumInsight, a diversified health services company and part of UnitedHealth Group, and Change Healthcare agreed to combine (the “Merger”). Under the terms of the merger agreement, UnitedHealth Group, through a wholly-owned subsidiary, will acquire all of the outstanding shares of Change Healthcare common stock for $25.75 per share in cash. The Boards of Directors of both UnitedHealth Group and Change Healthcare have unanimously approved the terms of the Merger. At a special meeting held April 13, 2021, Change Healthcare stockholders voted to approve the Merger. Of the approximately 222 million shares voted, 99.9% voted in favor of the adoption of the merger agreement. The closing of the Merger is subject to applicable regulatory approval and other customary closing conditions.

As previously disclosed, on March 24, 2021, the Company and UnitedHealth Group each received a request for additional information and documentary materials (collectively, the “Second Request”) from the Department of Justice (“DOJ”) in connection with the DOJ’s review of the Merger, and on August 7, 2021, the parties entered into a timing agreement (the “Timing Agreement”) with the DOJ pursuant to which they agreed not to consummate the Merger before 120 days following the date on which both parties certified substantial compliance with the Second Request.

Both the Company and UnitedHealth Group have now certified substantial compliance with the Second Request. On November 1, 2021, the Company and UnitedHealth Group entered into an amendment to the Timing Agreement with the DOJ pursuant to which they agreed not to consummate the Merger before 12:01 a.m. Eastern Time on February 22, 2022, unless they have received written notice from the DOJ prior to such date that the DOJ has closed its investigation. The parties have been working cooperatively with the DOJ and will continue to do so.

On December 9, 2021, UnitedHealth Group delivered written notice to the Company that it was exercising its unilateral right to extend the Outside Date (as defined in the merger agreement) to April 5, 2022.

Guidance

Due to the proposed transaction with OptumInsight, we will no longer be providing financial guidance.

Webcast Information

Change Healthcare will host a conference call on Thursday, February 3, 2022, at 8:00 a.m. ET. Due to the previously announced transaction with OptumInsight, the Company will not be taking questions during the conference call.

Investors and other interested parties are invited to listen to the conference call via the Company's website at https://ir.changehealthcare.com/. The webcast will be available for on-demand listening at the aforementioned URL until February 3, 2023.

About Change Healthcare

Change Healthcare (Nasdaq: CHNG) is a leading healthcare technology company, focused on insights, innovation, and accelerating the transformation of the U.S. healthcare system through the power of the Change Healthcare platform. We provide data and analytics-driven solutions to improve clinical, financial, administrative, and patient engagement outcomes in the U.S. healthcare system. Learn more at changehealthcare.com.

CHNG-IR

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and businesses of Change Healthcare. Some of these statements can be identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “could,” “should,” “may,” “plan,” “project,” “predict” and similar expressions. Change Healthcare cautions readers of this press release that such “forward looking statements,” including without limitation, those relating to the timing of the proposed merger and Change Healthcare’s future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this press release or in other statements attributable to Change Healthcare, are necessarily estimates reflecting the judgment of Change Healthcare’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the “forward looking statements.”

Factors that could cause Change Healthcare’s actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to, the inability to complete the proposed merger due to the failure to satisfy conditions to completion of the proposed merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; risks related to disruption of management’s attention from Change Healthcare’s ongoing business operations due to the transaction; the effect of the announcement of the proposed merger on Change Healthcare’s relationships with its customers, operating results and business generally; the risk that the proposed merger will not be consummated in a timely manner; exceeding the expected costs of the merger; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; macroeconomic and industry trends and adverse developments in the debt, consumer credit and financial services markets; uncertainty and risks related to the impact of the COVID-19 pandemic (including the rise of COVID-19 variant strains such as the Delta and Omicron variants) on the national and global economy, Change Healthcare’s business, suppliers, customers, and employees; Change Healthcare’s ability to retain or renew existing customers and attract new customers; Change Healthcare’s ability to connect a large number of payers and providers; Change Healthcare’s ability to provide competitive services and prices while maintaining its margins; further consolidation in end-customer markets; Change Healthcare’s ability to effectively manage costs; Change Healthcare’s ability to effectively develop and maintain relationships with channel partners; Change Healthcare’s ability to timely develop new services and the market’s willingness to adopt new services; Change Healthcare’s ability to deliver services timely without interruption; a decline in transaction volume in the U.S. healthcare industry; Change Healthcare’s ability to maintain access to its data sources; Change Healthcare’s ability to maintain the security and integrity of its data; Change Healthcare’s ability to retain and recruit key management personnel and other talent (including while the proposed merger is pending); Change Healthcare’s ability to manage and expand its operations and keep up with rapidly changing technologies; the ability of outside service providers and key vendors to fulfill their obligations to Change Healthcare; risks related to international operations; Change Healthcare’s ability to protect and enforce its intellectual property, trade secrets and other forms of unpatented intellectual property; Change Healthcare’s ability to defend its intellectual property from infringement claims by third parties; government regulation and changes in the regulatory environment; changes in local, state, federal and international laws and regulations, including related to taxation; economic and political instability in the U.S. and international markets where Change Healthcare operates; litigation or regulatory proceedings; losses against which Change Healthcare does not insure; Change Healthcare’s ability to make acquisitions and integrate the operations of acquired businesses; Change Healthcare’s ability to make timely payments of principal and interest on its indebtedness; Change Healthcare’s ability to satisfy covenants in the agreements governing its indebtedness; Change Healthcare’s ability to maintain liquidity; our adoption of new, or amendments to existing, accounting standards, and other risks. For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Change Healthcare’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on May 27, 2021 as such factors may be updated from time to time in our periodic filings with the SEC.

Change Healthcare’s forward-looking statements speak only as of the date of this press release or as of the date they are made. Change Healthcare disclaims any intent or obligation to update any “forward looking statement” made in this press release to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Non-GAAP Financial Measures

In the Company’s earnings releases, prepared remarks, conference calls, slide presentations and webcasts, there may be use or discussion of non-GAAP financial measures. We believe such measures provide supplemental information to investors with regards to our operating performance and assist investors’ ability to compare our financial results to those of other companies in the same industry. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between the comparable GAAP financial measure and each non-GAAP financial measure are included in this press release after the consolidated financial statements. These non-GAAP financial measures are calculated and presented on the basis of methodologies other than in accordance with GAAP. These non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP and may be defined and calculated differently by others in the same industry.

 
 
 
 

Consolidated Statements of Operations

(unaudited and amounts in thousands, except share and per share amounts)

 

 

 

Three Months Ended December 31,

 

 

2021

 

2020

Revenue:

 

 

 

 

 

 

Solutions revenue

 

$

811,148

 

 

$

735,264

 

Postage revenue

 

 

54,917

 

 

 

49,877

 

Total revenue

 

 

866,065

 

 

 

785,141

 

Operating expenses:

 

 

 

 

 

 

Cost of operations (exclusive of depreciation and amortization below)

 

 

354,107

 

 

 

332,373

 

Research and development

 

 

67,314

 

 

 

58,323

 

Sales, marketing, general and administrative

 

 

187,275

 

 

 

161,959

 

Customer postage

 

 

54,917

 

 

 

49,877

 

Depreciation and amortization

 

 

170,782

 

 

 

151,143

 

Accretion and changes in estimate with related parties, net

 

 

2,960

 

 

 

956

 

Gain on sale of businesses

 

 

 

 

 

(32,217

)

Total operating expenses

 

 

837,355

 

 

 

722,414

 

Operating income (loss)

 

 

28,710

 

 

 

62,727

 

Non-operating (income) and expense

 

 

 

 

 

 

Interest expense, net

 

 

58,433

 

 

 

61,439

 

Loss on extinguishment of debt

 

 

1,653

 

 

 

6,145

 

Other, net

 

 

3,211

 

 

 

(2,491

)

Total non-operating (income) and expense

 

 

63,297

 

 

 

65,093

 

Income (loss) before income tax provision (benefit)

 

 

(34,587

)

 

 

(2,366

)

Income tax provision (benefit)

 

 

(10,115

)

 

 

(4,562

)

Net income (loss)

 

$

(24,472

)

 

$

2,196

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

Basic

 

$

(0.08

)

 

$

0.01

 

Diluted

 

$

(0.08

)

 

$

0.01

 

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

324,381,353

 

 

 

321,013,595

 

Diluted (1)

 

 

324,381,353

 

 

 

324,815,524

 

(1)

For the three months ended December 31, 2020, diluted shares outstanding includes the dilutive impact of tangible equity units and equity compensation arrangements.

 
 
 
 
 

Consolidated Statements of Operations

(unaudited and amounts in thousands, except share and per share amounts)

 

 

 

Nine Months Ended December 31,

 

 

2021

 

2020

Revenue:

 

 

 

 

 

 

Solutions revenue

 

$

2,402,009

 

 

$

2,089,589

 

Postage revenue

 

 

158,675

 

 

 

145,672

 

Total revenue

 

 

2,560,684

 

 

 

2,235,261

 

Operating expenses:

 

 

 

 

 

 

Cost of operations (exclusive of depreciation and amortization below)

 

 

1,052,802

 

 

 

977,568

 

Research and development

 

 

205,624

 

 

 

168,110

 

Sales, marketing, general and administrative

 

 

548,272

 

 

 

499,039

 

Customer postage

 

 

158,675

 

 

 

145,672

 

Depreciation and amortization

 

 

502,463

 

 

 

436,552

 

Accretion and changes in estimate with related parties, net

 

 

8,867

 

 

 

10,414

 

Gain on sale of businesses

 

 

 

 

 

(60,487

)

Total operating expenses

 

 

2,476,703

 

 

 

2,176,868

 

Operating income (loss)

 

 

83,981

 

 

 

58,393

 

Non-operating (income) and expense

 

 

 

 

 

 

Interest expense, net

 

 

177,284

 

 

 

185,733

 

Loss on extinguishment of debt

 

 

3,885

 

 

 

7,634

 

Other, net

 

 

2,605

 

 

 

(4,443

)

Total non-operating (income) and expense

 

 

183,774

 

 

 

188,924

 

Income (loss) before income tax provision (benefit)

 

 

(99,793

)

 

 

(130,531

)

Income tax provision (benefit)

 

 

(35,313

)

 

 

(31,411

)

Net income (loss)

 

$

(64,480

)

 

$

(99,120

)

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

Basic and diluted

 

$

(0.20

)

 

$

(0.31

)

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic and diluted

 

 

323,668,343

 

 

 

320,570,092

 

 
 
 
 
 

Consolidated Balance Sheets

(unaudited and amounts in thousands, except share and per share amounts)

 

 

 

December 31, 2021

 

March 31, 2021

Assets

   

Current assets:

   

Cash and cash equivalents

 

$

96,011

 

 

$

113,101

 

Accounts receivable, net

 

 

781,530

 

 

 

732,614

 

Contract assets, net

 

 

126,487

 

 

 

132,856

 

Prepaid expenses and other current assets

 

 

149,234

 

 

 

140,258

 

Total current assets

 

 

1,153,262

 

 

 

1,118,829

 

Property and equipment, net

 

 

144,179

 

 

 

174,370

 

Operating lease right-of-use assets, net

 

 

72,374

 

 

 

93,412

 

Goodwill

 

 

4,114,682

 

 

 

4,108,792

 

Intangible assets, net

 

 

3,821,383

 

 

 

4,187,072

 

Other noncurrent assets, net

 

 

542,100

 

 

 

430,141

 

Total assets

 

$

9,847,980

 

 

$

10,112,616

 

Liabilities

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

87,477

 

 

$

57,449

 

Accrued expenses

 

 

473,470

 

 

 

484,293

 

Deferred revenue

 

 

431,239

 

 

 

436,666

 

Due to related parties, net

 

 

11,392

 

 

 

10,766

 

Current portion of long-term debt

 

 

15,009

 

 

 

27,339

 

Current portion of operating lease liabilities

 

 

24,513

 

 

 

30,608

 

Total current liabilities

 

 

1,043,100

 

 

 

1,047,121

 

Long-term debt, excluding current portion

 

 

4,572,865

 

 

 

4,734,775

 

Long-term operating lease liabilities

 

 

56,956

 

 

 

75,396

 

Deferred income tax liabilities

 

 

563,828

 

 

 

605,291

 

Tax receivable agreement obligations to related parties

 

 

100,565

 

 

 

103,151

 

Tax receivable agreement obligations

 

 

198,210

 

 

 

229,082

 

Other long-term liabilities

 

 

64,861

 

 

 

65,572

 

Total liabilities

 

 

6,600,385

 

 

 

6,860,388

 

Commitments and contingencies

 

 

 

 

Stockholders' Equity

 

 

 

 

Common Stock (par value, $0.001), 9,000,000,000 and 9,000,000,000 shares authorized and 311,716,514 and 306,796,076 shares issued and outstanding at December 31, 2021 and March 31, 2021, respectively

 

 

312

 

 

 

307

 

Preferred stock (par value, $0.001), 900,000,000 shares authorized and no shares issued and outstanding at both December 31, 2021 and March 31, 2021

 

 

 

 

 

 

Additional paid-in capital

 

 

4,333,371

 

 

 

4,283,391

 

Accumulated other comprehensive income (loss)

 

 

21,084

 

 

 

11,221

 

Accumulated deficit

 

 

(1,107,172

)

 

 

(1,042,691

)

Total stockholders' equity

 

 

3,247,595

 

 

 

3,252,228

 

Total liabilities and stockholders' equity

 

$

9,847,980

 

 

$

10,112,616

 

 
 
 
 
 

Consolidated Statements of Cash Flows

(unaudited and amounts in thousands)

 

 

 

Nine Months Ended December 31,

 

 

2021

 

2020

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

 

$

(64,480

)

 

$

(99,120

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

502,463

 

 

 

436,552

 

Amortization of capitalized software developed for sale

 

 

2,510

 

 

 

550

 

Accretion and changes in estimate, net

 

 

13,570

 

 

 

8,429

 

Equity compensation

 

 

74,718

 

 

 

34,858

 

Deferred income tax expense (benefit)

 

 

(41,357

)

 

 

(33,905

)

Amortization of debt discount and issuance costs

 

 

23,563

 

 

 

24,587

 

Loss on extinguishment of debt

 

 

3,885

 

 

 

7,634

 

Non-cash lease expense

 

 

20,440

 

 

 

21,930

 

Gain on sale of businesses

 

 

 

 

 

(60,487

)

Other, net

 

 

14,235

 

 

 

4,681

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(49,081

)

 

 

28,331

 

Contract assets, net

 

 

8,118

 

 

 

5,201

 

Prepaid expenses and other assets

 

 

(50,602

)

 

 

(69,609

)

Accounts payable

 

 

24,008

 

 

 

(15,785

)

Accrued expenses and other liabilities

 

 

(37,159

)

 

 

68,708

 

Deferred revenue

 

 

(6,039

)

 

 

124,679

 

Net cash provided by (used in) operating activities

 

 

438,792

 

 

 

487,234

 

Cash flows from investing activities:

 

 

 

 

 

 

Capitalized expenditures

 

 

(192,629

)

 

 

(182,929

)

Acquisitions, net of cash acquired

 

 

 

 

 

(439,483

)

Proceeds from sale of businesses

 

 

 

 

 

117,124

 

Other, net

 

 

(662

)

 

 

1,100

 

Net cash provided by (used in) investing activities

 

 

(193,291

)

 

 

(504,188

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on Term Loan Facility

 

 

(180,000

)

 

 

(265,000

)

Payments under tax receivable agreements

 

 

(21,537

)

 

 

(20,691

)

Receipts (payments) on derivative instruments

 

 

(22,255

)

 

 

(22,255

)

Employee tax withholding on vesting of equity compensation awards

 

 

(23,320

)

 

 

(3,425

)

Payments on deferred financing obligations

 

 

(10,125

)

 

 

(9,081

)

Payment of senior amortizing notes

 

 

(12,188

)

 

 

(11,599

)

Proceeds from exercise of equity awards

 

 

6,812

 

 

 

4,158

 

Payments on Revolving Facility

 

 

 

 

 

(250,000

)

Proceeds from issuance of Senior Notes

 

 

 

 

 

325,000

 

Other, net

 

 

(310

)

 

 

(6,650

)

Net cash provided by (used in) financing activities

 

 

(262,923

)

 

 

(259,543

)

Effect of exchange rate changes on cash and cash equivalents

 

 

332

 

 

 

3,449

 

Net increase (decrease) in cash and cash equivalents

 

 

(17,090

)

 

 

(273,048

)

Cash and cash equivalents at beginning of period

 

 

113,101

 

 

 

410,405

 

Cash and cash equivalents at end of period

 

$

96,011

 

 

$

137,357

 

 
 
 
 
 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(unaudited and amounts in thousands)

 

 

 

Three Months Ended December 31,

 

 

2021

 

2020

Net income (loss)

 

$

(24,472

)

 

$

2,196

 

Income tax provision (benefit)

 

 

(10,115

)

 

 

(4,562

)

Income (loss) before income tax provision (benefit)

 

 

(34,587

)

 

 

(2,366

)

Amortization of capitalized software developed for sale

 

 

935

 

 

 

460

 

Depreciation and amortization

 

 

170,782

 

 

 

151,143

 

Interest expense, net

 

 

58,433

 

 

 

61,439

 

Equity compensation

 

 

24,807

 

 

 

10,944

 

Acquisition accounting adjustments

 

 

(4,864

)

 

 

20,601

 

Acquisition and divestiture-related costs

 

 

8,707

 

 

 

2,661

 

Integration and related costs

 

 

5,894

 

 

 

9,688

 

Strategic initiatives, duplicative and transition costs

 

 

13,492

 

 

 

4,324

 

Severance costs

 

 

2,640

 

 

 

2,591

 

Accretion and changes in estimate, net

 

 

4,482

 

 

 

(2,759

)

Impairment of long-lived assets and other

 

 

2,537

 

 

 

658

 

Loss on extinguishment of debt

 

 

1,653

 

 

 

6,145

 

Gain on sale of business

 

 

 

 

 

(32,217

)

Other non-routine, net

 

 

4,628

 

 

 

112

 

Adjusted EBITDA

 

$

259,539

 

 

 

233,424

 

 
 
 
 
 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(unaudited and amounts in thousands)

 

 

 

Nine Months Ended December 31,

 

 

2021

 

2020

Net income (loss)

 

$

(64,480

)

 

$

(99,120

)

Income tax provision (benefit)

 

 

(35,313

)

 

 

(31,411

)

Income (loss) before income tax provision (benefit)

 

 

(99,793

)

 

 

(130,531

)

Amortization of capitalized software developed for sale

 

 

2,510

 

 

 

550

 

Depreciation and amortization

 

 

502,463

 

 

 

436,552

 

Interest expense, net

 

 

177,284

 

 

 

185,733

 

Equity compensation

 

 

74,718

 

 

 

34,858

 

Acquisition accounting adjustments

 

 

(7,077

)

 

 

103,826

 

Acquisition and divestiture-related costs

 

 

28,867

 

 

 

10,119

 

Integration and related costs

 

 

23,195

 

 

 

27,581

 

Strategic initiatives, duplicative and transition costs

 

 

38,064

 

 

 

13,169

 

Severance costs

 

 

14,663

 

 

 

10,467

 

Accretion and changes in estimate, net

 

 

13,570

 

 

 

8,429

 

Impairment of long-lived assets and other

 

 

4,230

 

 

 

14,418

 

Loss on extinguishment of debt

 

 

3,885

 

 

 

7,634

 

Gain on sale of business

 

 

 

 

 

(60,487

)

Contingent consideration

 

 

 

 

 

(3,000

)

Other non-routine, net

 

 

12,149

 

 

 

2,801

 

Adjusted EBITDA

 

$

788,728

 

 

 

662,119

 

 
 
 
 
 

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)

(unaudited and amounts in thousands, except share and per share amounts)

 

 

 

Three Months Ended December 31,

 

 

2021

 

2020

Net income (loss)

 

$

(24,472

)

 

$

2,196

 

Amortization expense resulting from acquisition method adjustments

 

 

124,833

 

 

 

117,075

 

EBITDA adjustments

 

 

63,976

 

 

 

22,748

 

Tax effect of EBITDA adjustments and amortization expense

 

 

(47,680

)

 

 

(31,945

)

Adjusted net income (loss)

 

$

116,657

 

 

 

110,074

 

 

 

 

 

 

 

 

Adjusted net income (loss) per diluted share

 

$

0.36

 

 

 

0.34

 

 

 

 

 

Nine Months Ended December 31,

 

 

2021

 

2020

Net income (loss)

 

$

(64,480

)

 

$

(99,120

)

Amortization expense resulting from acquisition method adjustments

 

 

373,612

 

 

 

345,972

 

EBITDA adjustments

 

 

206,264

 

 

 

169,815

 

Tax effect of EBITDA adjustments and amortization expense

 

 

(151,491

)

 

 

(121,911

)

Adjusted net income (loss)

 

$

363,905

 

 

 

294,756

 

 

 

 

 

 

 

 

Adjusted net income (loss) per diluted share

$

1.12

 

0.92

 
 
 
 
 

Segment Results

(unaudited and amounts in thousands)

 

 

 

Three Months Ended December 31,

 

 

2021

 

2020

Segment revenue

 

 

 

 

 

 

 

Software and Analytics

 

$

386,020

 

 

 

372,212

 

Network Solutions

 

 

226,963

 

 

 

192,588

 

Technology-Enabled Services

 

 

232,760

 

 

 

222,514

 

Postage and Eliminations (1)

 

 

20,322

 

 

 

22,006

 

Purchase Accounting Adjustment (2)

 

 

 

 

 

(24,179

)

Net revenue

 

$

866,065

 

 

 

785,141

 

 

 

 

 

 

 

 

 

Segment adjusted EBITDA

 

 

 

 

 

 

 

Software and Analytics

 

$

125,131

 

 

 

120,779

 

Network Solutions

 

 

120,735

 

 

 

103,847

 

Technology-Enabled Services

 

 

13,673

 

 

 

8,798

 

Postage and Eliminations

 

 

 

 

 

 

Total adjusted EBITDA

 

$

259,539

 

 

 

233,424

 

 

 

 

 

Nine Months Ended December 31,

 

 

2021

 

2020

Segment revenue

 

 

 

 

 

 

Software and Analytics

 

$

1,169,760

 

 

 

1,118,661

 

Network Solutions

 

 

652,023

 

 

 

519,509

 

Technology-Enabled Services

 

 

690,210

 

 

 

642,037

 

Postage and Eliminations (1)

 

 

56,431

 

 

 

73,142

 

Purchase Accounting Adjustment (2)

 

 

(7,740

)

 

 

(118,088

)

Net revenue

 

$

2,560,684

 

 

 

2,235,261

 

 

 

 

 

 

 

 

Segment adjusted EBITDA

 

 

 

 

 

 

Software and Analytics

 

$

397,814

 

 

 

382,103

 

Network Solutions

 

 

343,208

 

 

 

268,858

 

Technology-Enabled Services

 

 

47,706

 

 

 

11,158

 

Postage and Eliminations

 

 

 

 

 

 

Total adjusted EBITDA

 

$

788,728

 

 

 

662,119

 

(1)

Revenue for Postage and Eliminations includes postage revenue of $54.9 million for the three months ended December 31, 2021 and $49.9 million for the three months ended December 31, 2020. Revenue for Postage and Eliminations includes postage revenue of $158.7 million for the nine months ended December 31, 2021 and $145.7 million for the nine months ended December 31, 2020.

(2)

Amount reflects the impact to deferred revenue resulting from the McKesson exit which reduced revenue recognized during the nine months ended December 31, 2021 and the three and nine months ended December 31, 2020.

 
 
 
 
 

Reconciliation of Cash Provided by (Used in) Operating Activities to Free Cash Flow and Adjusted Free Cash Flow

(unaudited and amounts in thousands)

 

 

 

Nine Months Ended December 31,

 

 

2021

 

2020

Cash provided by (used in) operating activities (1)

 

$

438,792

 

 

$

487,234

 

Capital expenditures

 

 

(192,629

)

 

 

(182,929

)

Free cash flow

 

 

246,163

 

 

 

304,305

 

Adjustments to free cash flow (2):

 

 

 

 

 

 

Integration and related costs

 

 

23,195

 

 

 

27,581

 

Strategic initiatives, duplicative and transition costs

 

 

38,064

 

 

 

13,169

 

Severance costs

 

 

14,663

 

 

 

10,467

 

Integration and strategic capital expenditures

 

 

22,942

 

 

 

9,494

 

Adjusted free cash flow

 

$

345,027

 

 

$

365,016

 

(1)

Includes cash provided by pass-thru funds of $16.1 million for the nine months ended December 31, 2021 and cash used by pass-thru funds of $10.1 million for the nine months ended December 31, 2020.

(2)

All operating costs and integration and strategic capital expenditures are presented on an as-incurred basis.

 
 

 

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