Veradigm (MDRX) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited financial statements and management's discussion and analysis for the first quarter of 2019 Financial Statements (unaudited) Presents unaudited consolidated financial statements for Q1 2019, including balance sheets, operations, and cash flows Consolidated Balance Sheets Total assets increased to $3.24 billion due to new lease accounting, while liabilities rose and equity decreased Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total current assets | $834,333 | $858,965 | | Goodwill | $1,373,996 | $1,373,744 | | Total assets | $3,242,408 | $3,181,484 | | Total current liabilities | $799,619 | $797,730 | | Long-term debt | $766,240 | $647,539 | | Total liabilities | $1,786,291 | $1,601,057 | | Total stockholders' equity | $1,456,117 | $1,580,427 | Consolidated Statements of Operations Total revenue slightly decreased to $432.0 million, operating income improved, and net loss significantly narrowed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Total revenue | $432,049 | $433,722 | | Gross profit | $174,095 | $184,665 | | Income (loss) from operations | $2,645 | $(6,701) | | Loss from continuing operations, net of tax | $(7,977) | $(25,161) | | Net loss attributable to Allscripts stockholders | $(7,553) | $(39,874) | | Net loss per share (basic and diluted) | $(0.04) | $(0.22) | Consolidated Statements of Cash Flows Operating cash flow significantly decreased to $5.8 million due to a tax payment, with cash used in investing and financing Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,816 | $58,308 | | Net cash used in investing activities | $(33,410) | $(149,812) | | Net cash (used in) provided by financing activities | $(9,516) | $72,713 | | Net decrease in cash and cash equivalents | $(36,947) | $(18,726) | Notes to Consolidated Financial Statements Details accounting policies, new lease standard adoption, segment changes, acquisitions, debt, and discontinued operations - The company changed its reportable segments to Provider and Veradigm in Q1 2019[29][111] - Adoption of the new lease accounting standard (ASU 2016-02) on January 1, 2019, recognized $97.4 million in right-of-use assets[30][44][50] - Total contract backlog reached $4.0 billion as of March 31, 2019, with approximately 38% expected within 12 months[40] - Acquired the remaining minority interest in Pulse8, Inc. for $53.8 million on March 1, 2019[53] - Repurchased 6.1 million shares for $64.9 million during the quarter, with $148.1 million remaining for repurchase[66] - Discontinued operations reflect the sale of the Netsmart investment on December 31, 2018[105] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2019 financial performance, covering revenue, operating income, segment results, bookings, backlog, and liquidity First Quarter 2019 Summary Q1 2019 revenue slightly decreased to $432 million, while bookings increased 9% and contract backlog reached $4.0 billion Q1 2019 Key Metrics | Metric | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $432M | $433.7M | (0.4%) | | Bookings | $286M | $263M | 9% | | Contract Backlog | $4.0B | $4.3B | (7.0%) | Overview of Consolidated Results Total revenue slightly decreased to $432.0 million, gross margin declined, but operating income improved and net loss narrowed - Recurring revenue decreased 1.1% to $348.6 million, mainly due to the OneContent business sale[147][148] - Non-recurring revenue increased 2.9% to $83.4 million, driven by higher perpetual software license sales[147][148] - SG&A expenses decreased by $19.7 million (16.4%) due to lower severance, incentive compensation, and legal costs[152] - Recorded a $1.0 million recovery on a previously impaired investment, contrasting with a $5.5 million impairment charge in the prior year[160] Segment Operations Segment realignment to Provider and Veradigm shows Provider revenue decline, while Veradigm revenue surged 54.0% from acquisitions Segment Performance (in thousands) | Segment | Revenue Q1 2019 (in thousands) | Revenue Q1 2018 (in thousands) | % Change | Income from Ops Q1 2019 (in thousands) | Income from Ops Q1 2018 (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Provider | $392,607 | $410,424 | (4.3%) | $100,274 | $107,140 | (6.4%) | | Veradigm | $35,116 | $22,807 | 54.0% | $8,319 | $5,032 | 65.3% | - Provider segment revenue and profit declined primarily due to the sale of OneContent and Strategic Sourcing businesses, which contributed $16 million in Q1 2018 revenue[172] - Veradigm segment growth was driven by the Practice Fusion acquisition in Q2 2018 and organic growth[176] Liquidity and Capital Resources Cash and equivalents stood at $148 million, operating cash flow decreased due to a tax payment, but liquidity remains adequate Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,816 | $58,308 | | Net cash used in investing activities | $(33,410) | $(149,812) | | Net cash (used in) provided by financing activities | $(9,516) | $72,713 | - Net cash used in operating activities for discontinued operations was $30.0 million, primarily for an advance income tax payment on the Netsmart sale gain[187] - Financing activities included $65.1 million for stock repurchases and $54.1 million for the Pulse8 minority interest acquisition[191][192] - Total non-GAAP R&D-related spending was $92.9 million (21.5% of revenue) in Q1 2019, an increase from Q1 2018[199] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported for Q1 2019 compared to the prior Annual Report on Form 10-K - Market risk disclosures remain materially unchanged from the Form 10-K for the year ended December 31, 2018[201] Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2019, with new internal controls implemented for the lease accounting standard - Disclosure controls and procedures were deemed effective as of March 31, 2019[202] - Internal controls were updated for the new lease accounting standard (ASU 2016-02), with no other material changes reported[203] PART II. OTHER INFORMATION This section provides information on legal proceedings, risk factors, equity sales, and exhibits Legal Proceedings Details legal contingencies, including investigations into EIS Business and Practice Fusion, and a ransomware class action lawsuit - Legal proceedings details are incorporated by reference from Note 13, "Contingencies"[206] - Key legal matters include investigations into the EIS Business and Practice Fusion, and a class action lawsuit from a ransomware attack[101][102][103] Risk Factors A material update to risk factors highlights a government investigation into Practice Fusion regarding EHR certification and compliance - A new risk factor concerns the government investigation into Practice Fusion, acquired in February 2018[208] - The investigation involves a grand jury subpoena (March 2019) related to EHR certification, Anti-Kickback Statute, and HIPAA, with potential material adverse effects[208] Unregistered Sales of Equity Securities and Use of Proceeds Details stock repurchase activity, with 6.1 million shares repurchased for $64.9 million in Q1 2019 under the authorized program Stock Repurchase Activity (Q1 2019) | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | Total Cost (thousands) | | :--- | :--- | :--- | :--- | | Jan 2019 | 0 | $0.00 | $0 | | Feb 2019 | 500 | $10.73 | $5,365 | | Mar 2019 | 5,649 | $10.55 | $59,597 | | Total Q1 | 6,149 | $10.56 | $64,962 | - As of March 31, 2019, $148.1 million remained available under the stock repurchase program, authorized through December 31, 2020[209][210] Exhibits Lists exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL data files - Exhibits filed include CEO and CFO certifications, along with XBRL Interactive Data Files[211] Signatures The report is signed by the Chief Financial Officer - The report is signed by Dennis M. Olis, Chief Financial Officer, on May 3, 2019[215]