Veradigm (MDRX) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Allscripts reported a net loss on decreased revenue for H1 2020, with total assets of $3.19 billion, positive operating cash flow, and a new credit loss standard adoption Consolidated Balance Sheets As of June 30, 2020, total assets slightly decreased to $3.19 billion, while total liabilities increased to $1.95 billion, leading to a decrease in stockholders' equity Consolidated Balance Sheet Highlights (In thousands) | (In thousands) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $869,801 | $841,262 | | Total assets | $3,188,838 | $3,205,739 | | Total current liabilities | $1,111,282 | $1,210,690 | | Total liabilities | $1,945,909 | $1,920,551 | | Total stockholders' equity | $1,242,929 | $1,285,188 | Consolidated Statements of Operations For Q2 2020, total revenue decreased to $406.2 million, resulting in a net loss of $7.6 million, a significant improvement from the prior year's larger loss Consolidated Statements of Operations Highlights (In thousands) | (In thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $406,223 | $444,460 | $822,936 | $876,509 | | Gross profit | $164,484 | $184,122 | $321,445 | $358,217 | | (Loss) income from operations | $(4,746) | $4,743 | $(13,946) | $7,388 | | Net loss | $(7,605) | $(149,930) | $(27,959) | $(157,907) | | Net loss per share - Diluted | $(0.05) | $(0.90) | $(0.17) | $(0.94) | Consolidated Statements of Cash Flows Net cash provided by operating activities was $18.9 million for H1 2020, with decreased cash used in investing and increased cash provided by financing activities Consolidated Statements of Cash Flows Highlights (In thousands) | (In thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $18,938 | $(1,910) | | Net cash used in investing activities | $(40,706) | $(77,519) | | Net cash provided by financing activities | $89,765 | $42,630 | | Net increase (decrease) in cash and cash equivalents | $67,659 | $(36,656) | Notes to Consolidated Financial Statements Key notes detail the adoption of a new credit loss standard, $4.4 billion in contract backlog, debt structure, and significant subsequent events including a business sale - The company adopted ASU 2016-13 for credit losses on January 1, 2020, recording a debit to retained earnings of $5.3 million for contract assets and $12.6 million for trade accounts receivable[29][43][48] - Total contract backlog was $4.4 billion as of June 30, 2020, with approximately 33% expected to be recognized as revenue over the next 12 months[38] - On July 30, 2020, the company signed an agreement to sell its EPSiTM business to Strata Decision Technology LLC for $365.0 million[131] - On July 1, 2020, the 1.25% Cash Convertible Senior Notes matured, and the company borrowed $345.0 million from its senior secured revolving credit facility to repay them in full[130] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the COVID-19 pandemic's negative impact on Q2 2020 revenue, leading to cost reductions, while maintaining stable contract backlog and strong liquidity Overview The company, a healthcare IT solutions provider, faced negative revenue impacts from the COVID-19 pandemic, leading to cost-saving measures, while navigating regulatory changes - The COVID-19 pandemic negatively impacted revenue for the three and six months ended June 30, 2020, causing delays in deals with upfront software revenue and professional services implementations[155] - In April 2020, the company implemented cost actions that included headcount reductions and temporary salary measures to navigate the uncertain environment caused by the pandemic[155] - Regulatory drivers such as the 21st Century Cures Act, MACRA, and new ONC rules on interoperability and information blocking continue to shape the healthcare IT market and influence product demand[137][141][142] Results of Operations Q2 2020 saw an 8.6% decrease in total revenue to $406.2 million, a contracted gross margin, and a shift from operating income to a $4.7 million operating loss Key Financial Results (In thousands) | (In thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | % Change | | :--- | :--- | :--- | :--- | | Total revenue | $406,223 | $444,460 | (8.6%) | | Gross profit | $164,484 | $184,122 | (10.7%) | | (Loss) income from operations | $(4,746) | $4,743 | NM | - Non-recurring revenue decreased by 24.6% in Q2 2020 compared to Q2 2019, primarily due to lower upfront software revenues and project delays impacting client services[164][167] - Research and development expenses decreased by 23.9% in Q2 2020 YoY, primarily due to the impact of cost reduction initiatives[171][172] - Selling, general and administrative expenses increased by 8.6% in Q2 2020 YoY, mainly due to higher severance costs related to cost reduction initiatives[170] Segment Operations In Q2 2020, Core Clinical and Financial Solutions revenue declined 10.5% with a widened operating loss, while Data, Analytics and Care Coordination revenue decreased 3.2% with reduced operating income Segment Performance (In thousands) | (In thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Revenue | | | | Core Clinical and Financial Solutions | $311,099 | $347,782 | | Data, Analytics and Care Coordination | $85,161 | $87,985 | | (Loss) income from operations | | | | Core Clinical and Financial Solutions | $(16,033) | $(11,734) | | Data, Analytics and Care Coordination | $7,267 | $12,534 | - Core Clinical and Financial Solutions revenue decreased primarily due to lower upfront software revenues, attrition, and project delays[186] - Data, Analytics and Care Coordination gross profit and margin decreased due to higher costs incurred to support the growth of the segment[192] Liquidity and Capital Resources As of June 30, 2020, the company maintained strong liquidity with $205 million in cash and $689 million available credit, supported by $18.9 million in operating cash flow - As of June 30, 2020, liquidity consisted of $205 million in cash and cash equivalents and $689 million available borrowing capacity under the revolving credit facility[198] - The company increased credit facility borrowings during the first half of 2020 to enhance financial flexibility in response to potential uncertainties from the COVID-19 pandemic[198][205] Cash Flow Summary (In thousands) | (In thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $18,938 | $(1,910) | | Net cash used in investing activities | $(40,706) | $(77,519) | | Net cash provided by financing activities | $89,765 | $42,630 | Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported for the six months ended June 30, 2020, from those in the prior annual report - Market risk disclosures have not changed materially during the six months ended June 30, 2020, from those previously disclosed in the Form 10-K[212] Controls and Procedures The company's disclosure controls and procedures were effective as of June 30, 2020, with new internal controls implemented for the credit loss accounting standard - The company's disclosure controls and procedures were evaluated and found to be effective as of June 30, 2020[213] - Internal controls related to the new credit loss accounting standard were implemented, but no other changes have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[214] PART II. OTHER INFORMATION Legal Proceedings This section incorporates by reference Note 14 of the financial statements for details on contingencies and legal proceedings, including the Practice Fusion settlement - The company incorporates by reference Note 14, "Contingencies," of the Notes to Consolidated Financial Statements for information regarding legal proceedings[217] Risk Factors The COVID-19 pandemic is identified as a significant risk factor, adversely impacting business operations, revenue, and financial condition due to deal and implementation delays - The COVID-19 pandemic is identified as a significant risk factor that has materially and adversely impacted the business, results of operations, and financial condition[218] - The pandemic has caused delays in deals with upfront software revenue and professional services implementations as healthcare clients prioritize resources, and the continuing magnitude of this effect is unpredictable[219] Unregistered Sales of Equity Securities and Use of Proceeds On June 29, 2020, the company issued 89,690 shares of common stock to a commercial partner in an unregistered sale under a commercial agreement - On June 29, 2020, the Company issued 89,690 shares of common stock to a commercial partner in an unregistered sale pursuant to a commercial agreement[221] Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments, certifications, and XBRL data files