Veradigm (MDRX) - 2020 Q4 - Annual Report

PART I Business Allscripts provides healthcare IT solutions, divested CarePort and EPSi for over $1.7 billion in 2020, and maintained a $4.1 billion contract backlog - In 2020, Allscripts completed two major divestitures: selling its CarePort Health business to WellSky Corp. for $1.35 billion and its EPSi business to Strata Decision Technology for $365 million, both now reported as discontinued operations[15][16] - The company extended its strategic alliance with Microsoft for five years, designating Microsoft as the cloud provider for its Sunrise™ EHR platform to co-develop cloud-based health IT solutions[17] - Allscripts operates through two primary reportable segments: Core Clinical and Financial Solutions (EHRs, financial management, managed services) and Data, Analytics and Care Coordination (payer and life sciences solutions via its Veradigm unit)[42][44] Contract Backlog as of December 31, 2020 | Metric | Value | Note | | :--- | :--- | :--- | | Total Contract Backlog | $4.1 billion | Represents the value of executed contracts not yet recognized as revenue | | Revenue Recognition in 2021 | ~35% | Estimated portion of the backlog to be recognized as revenue in the upcoming year | - As of December 31, 2020, the company had approximately 8,400 employees, with the majority located in the United States (58.9%) and India (36.4%)[54] Risk Factors The company identifies significant risks including the COVID-19 pandemic's impact, intense industry competition, complex regulatory environment, potential product failures, security breaches, client reliance, and the Practice Fusion DOJ settlement - The COVID-19 pandemic has negatively impacted revenue by causing delays in software deals and professional services implementations, and by reducing patient volumes for its clients[70] - The company operates in a highly competitive market and faces pressure from industry consolidation, which may decrease the number of potential clients and increase pricing pressure[73][76] - Significant risk is associated with the failure of its subsidiary, Practice Fusion, to comply with the terms of its settlement agreements with the U.S. Department of Justice (DOJ), which involved a criminal fine of $25.3 million, a forfeiture of $959,700, and a civil settlement of $118.6 million[101][103][104] - The business model depends on maintaining relationships with existing clients, with one client accounting for 12% of revenue for the year ended December 31, 2020[93] - The company is exposed to information security risks, including a ransomware attack in 2018 that impacted two data centers and a more recent incident involving unauthorized access to personally identifiable information[97] - The company's debt agreements contain restrictive covenants and require it to maintain specified financial ratios, a breach of which could result in an event of default and acceleration of debt[161] Unresolved Staff Comments The company reports no unresolved staff comments from the U.S. Securities and Exchange Commission - None[177] Properties Allscripts' corporate headquarters is in Chicago, Illinois, leasing approximately 1.1 million square feet of office space globally as of December 31, 2020 - As of December 31, 2020, the company leased 1.1 million square feet of building space worldwide[178] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 22, "Contingencies," in the consolidated financial statements - Refer to Note 22, "Contingencies," to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K[179] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[180] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Allscripts' common stock trades on Nasdaq under "MDRX"; the Board approved a new $300 million stock repurchase program in November 2020, leading to 18.2 million shares repurchased in Q4, with no current intent to pay cash dividends - On November 18, 2020, the Board approved a new stock purchase program authorizing the repurchase of up to $300 million of common stock through December 31, 2021, replacing the 2018 program[184] - In November 2020, the company entered into Accelerated Share Repurchase (ASR) agreements for a total of $200 million, receiving an initial delivery of 11.7 million shares in December 2020[185] Share Repurchases in Q4 2020 | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2020 | 0 | $0.00 | | Nov 2020 | 6,535 | $12.16 | | Dec 2020 | 11,696 | N/A | | Total Q4 | 18,231 | $12.16 | - The company currently does not intend to declare or pay cash dividends on its common stock[191] Selected Financial Data This section presents a five-year summary of key consolidated financial data, showing 2020 revenue of $1.50 billion, a net income of $700.4 million primarily from discontinued operations, and reduced long-term debt Selected Consolidated Statements of Operations Data (2018-2020) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | $1,502,700 | $1,632,611 | $1,617,841 | | Gross profit | $565,695 | $610,287 | $621,391 | | Loss from operations | $(130,880) | $(99,689) | $(168,384) | | Income from discontinued operations, net of tax | $833,026 | $55,809 | $451,023 | | Net income (loss) | $700,407 | $(182,602) | $407,807 | | Diluted EPS (Continuing ops) | $(0.83) | $(1.43) | $(0.22) | | Diluted EPS (Discontinued ops) | $5.23 | $0.33 | $2.29 | Selected Consolidated Balance Sheet Data (as of Dec 31) | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Cash, cash equivalents and marketable securities | $537,465 | $137,539 | $184,795 | | Total assets | $2,917,618 | $3,205,739 | $3,181,484 | | Long-term debt | $167,587 | $551,004 | $647,539 | | Total stockholders' equity | $1,666,243 | $1,285,188 | $1,580,427 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2020 financial performance, highlighting an 8% revenue decline due to COVID-19, a significant net income boost from divestitures, and a strong liquidity position with $538 million cash and a stable $4.1 billion contract backlog Results of Operations Total revenue decreased 8.0% to $1.50 billion in 2020 due to lower non-recurring revenue, while gross margin slightly improved, and a significant $833.0 million income from discontinued operations offset a loss from continuing operations Revenue Breakdown (2019 vs 2020) | Revenue Type | 2020 (in thousands) | 2019 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Recurring revenue | $1,222,731 | $1,278,456 | (4.4%) | | Non-recurring revenue | $279,969 | $354,155 | (20.9%) | | Total revenue | $1,502,700 | $1,632,611 | (8.0%) | Gross Profit and Margin (2019 vs 2020) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Gross Profit | $565.7 M | $610.3 M | | Gross Margin % | 37.6% | 37.4% | - Asset impairment charges increased significantly to $75.0 million in 2020 from $10.8 million in 2019, primarily related to write-offs of a customer relationship intangible asset ($23.1 million), capitalized software ($31.2 million), and deferred private cloud hosting costs ($34.3 million)[274] - Income from discontinued operations was $833.0 million in 2020, including a $1.157 billion pre-tax gain on the sale of the CarePort and EPSi businesses[292] Segment Operations In 2020, Core Clinical and Financial Solutions revenue decreased by 8.9% to $1.25 billion, increasing its operating loss, while Data, Analytics and Care Coordination revenue was flat, with an improved operating loss Core Clinical and Financial Solutions Performance (2019 vs 2020) | Metric (in thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $1,254,249 | $1,377,147 | (8.9%) | | Gross Profit | $434,288 | $473,033 | (8.2%) | | Loss from Operations | $(116,139) | $(80,465) | 44.3% | Data, Analytics and Care Coordination Performance (2019 vs 2020) | Metric (in thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $261,321 | $262,664 | (0.5%) | | Gross Profit | $131,407 | $137,254 | (4.3%) | | Loss from Operations | $(14,741) | $(19,224) | (23.3%) | Liquidity and Capital Resources As of December 31, 2020, Allscripts had strong liquidity with $538 million cash and $899 million available credit, with operating cash flow impacted by a $147 million DOJ settlement payment, and investing activities boosted by $1.71 billion from divestitures - As of December 31, 2020, principal sources of liquidity consisted of $538 million in cash and cash equivalents and $899 million of available borrowing capacity under the Revolving Facility[316] Cash Flow Summary (2019 vs 2020) | (In thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(106,715) | $46,254 | | Net cash provided by (used in) investing activities | $1,615,188 | $(161,056) | | Net cash (used in) provided by financing activities | $(1,109,759) | $67,343 | - Operating cash flow in 2020 was negatively impacted by $147 million in payments related to the DOJ settlement for the Practice Fusion investigation[318] - Investing cash flow was primarily driven by $1.71 billion in cash received from the sales of the CarePort and EPSi businesses[322][323] - Financing activities included significant debt repayments and share repurchases, including a $200 million accelerated share repurchase program[327][328] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency fluctuations, with minimal interest rate risk in 2020 and foreign currency risk mitigated by hedging Indian Rupee expenses - Interest rate risk was minimal as of year-end 2020, with no debt outstanding under the Senior Secured Credit Facility[343] - The company is exposed to foreign currency risk, particularly with the Indian Rupee (INR), and utilizes forward contracts to hedge a portion of forecasted INR-denominated expenses[344] Financial Statements and Supplementary Data This section includes audited consolidated financial statements for 2020, an unqualified auditor's opinion from Grant Thornton LLP, and details the significant impact of CarePort and EPSi divestitures presented as discontinued operations - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the financial statements and internal control over financial reporting[348][360] - The auditor identified "Revenue Recognition - Determination of distinct performance obligations and application of stand-alone selling prices" as a critical audit matter due to the complexity and judgment required[354][356] Note 2. Revenue from Contracts with Customers Revenue is disaggregated into software delivery, support, maintenance, and client services, with a total contract backlog of $4.1 billion as of December 31, 2020, with 35% expected in 2021 Disaggregation of Revenue by Type | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Recurring revenue | $1,222,731 | $1,278,456 | $1,313,281 | | Non-recurring revenue | $279,969 | $354,155 | $304,560 | | Total revenue | $1,502,700 | $1,632,611 | $1,617,841 | - The total contract backlog as of December 31, 2020, was $4.1 billion, with approximately 35% expected to be recognized as revenue over the next 12 months[427] Note 5. Business Combinations and Divestitures In 2020, Allscripts completed the sales of CarePort for $1.35 billion (pre-tax gain $933.9 million) and EPSi for $365.0 million (pre-tax gain $222.6 million), both treated as discontinued operations - Completed the sale of the CarePort business on December 31, 2020, for $1.35 billion, resulting in a pre-tax gain of $933.9 million[459] - Completed the sale of the EPSi business on October 15, 2020, for $365.0 million, resulting in a pre-tax gain of $222.6 million[460] Note 8. Goodwill and Intangible Assets As of December 31, 2020, the company had $974.7 million in goodwill and $286.6 million in net intangible assets, with no goodwill impairment in 2020, contrasting with a $25.7 million charge in 2019 Goodwill and Intangible Assets (Net) | (In thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Goodwill | $974,729 | $974,110 | | Intangible Assets, Net | $286,602 | $367,128 | - The annual goodwill impairment test as of October 1, 2020, resulted in no impairment charges[489] - In 2019, a goodwill impairment charge of $25.7 million was recognized related to the Hospitals and Health Systems (HHS) reporting unit[490] Note 10. Debt As of December 31, 2020, total net debt significantly reduced to $167.6 million from $915.5 million in 2019, primarily due to repayments of the Senior Secured Credit Facility and 1.25% Notes, with no outstanding borrowings on the Revolving Facility Debt Outstanding (Net Carrying Amount) | (In thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | 0.875% Convertible Senior Notes | $167,587 | $173,245 | | 1.25% Cash Convertible Senior Notes | $0 | $337,448 | | Senior Secured Credit Facility | $0 | $404,776 | | Total Long-Term Debt | $167,587 | $551,004 | - The 1.25% Notes with a principal of $345.0 million matured and were paid in full on July 1, 2020[388][529] - As of December 31, 2020, there were no amounts outstanding under the Term Loan or the $900 million Revolving Facility, with $898.9 million of available borrowing capacity[523][525] Note 22. Contingencies This note details legal matters including an EIS business civil investigative demand indemnified by McKesson and the Practice Fusion DOJ settlement for approximately $145 million, which has been fully paid - The acquired EIS Business is subject to a civil investigative demand related to EHR certification, for which Allscripts is indemnified by the seller, McKesson[617] - On January 27, 2020, the Practice Fusion subsidiary entered into settlement agreements with the DOJ, resolving investigations into violations of the Anti-Kickback Statute and False Claims Act, requiring payments of a $25.3 million criminal fine, a $0.96 million forfeiture, and a $118.6 million civil settlement, all of which have been paid[618] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[623] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2020, a conclusion audited by Grant Thornton LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[625] - Management concluded that internal control over financial reporting was effective as of December 31, 2020, which was audited by Grant Thornton LLP[627] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for its 2021 annual meeting of stockholders[631] Executive Compensation Information on executive compensation, including the Compensation Discussion and Analysis, is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for its 2021 annual meeting of stockholders[632] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership of beneficial owners, management, and equity compensation plans is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for its 2021 annual meeting of stockholders[633] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for its 2021 annual meeting of stockholders[634] Principal Accountant Fees and Services Information on fees paid to the principal accountant and audit committee pre-approval policies is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item is incorporated by reference from the registrant's definitive proxy statement for its 2021 annual meeting of stockholders[635] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section contains the list of financial statements, financial statement schedules (Schedule II—Valuation and Qualifying Accounts), and all exhibits filed with the Form 10-K[637][638][641] Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[646]