Veradigm (MDRX) - 2022 Q3 - Quarterly Report

markdown PART I. FINANCIAL INFORMATION [Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements, detailing financial position, performance, and cash flows, with notes Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $492,597 | $132,517 | | Total current assets | $810,770 | $761,342 | | Goodwill | $523,927 | $506,607 | | Long-term assets attributable to discontinued operations | $0 | $793,156 | | **Total assets** | **$1,690,659** | **$2,425,229** | | **Liabilities & Equity** | | | | Total current liabilities | $253,091 | $547,082 | | Long-term debt | $200,326 | $350,062 | | **Total liabilities** | **$513,636** | **$1,017,091** | | **Total stockholders' equity** | **$1,177,023** | **$1,408,138** | Consolidated Statements of Operations For the third quarter of 2022, revenue from continuing operations grew **5.0%** year-over-year to **$151.9 million**, with income from continuing operations at **$10.9 million** Q3 2022 vs Q3 2021 Performance (in thousands) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Total Revenue | $151,922 | $144,668 | | Gross Profit | $83,436 | $69,640 | | Income from Operations | $25,001 | $18,484 | | Income from Continuing Operations | $10,925 | $20,276 | | Net Income (Loss) | $14,528 | $16,180 | Nine Months 2022 vs 2021 Performance (in thousands) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Total Revenue | $445,492 | $419,526 | | Gross Profit | $236,399 | $200,976 | | Income from Operations | $26,217 | $43,031 | | Income from Continuing Operations | $32,658 | $50,719 | | Net (Loss) Income | $(26,641) | $47,163 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash provided by operating activities was **$95.8 million**, a significant improvement from the **$140.5 million** used in the prior-year period Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $95,767 | $(140,473) | | Net cash provided by (used in) investing activities | $603,719 | $(54,872) | | Net cash used in financing activities | $(387,374) | $(125,320) | | **Net increase (decrease) in cash** | **$311,384** | **$(321,145)** | Notes to Consolidated Financial Statements The notes provide detailed explanations of accounting policies and financial statement components, including convertible debt, revenue recognition, acquisitions, divestitures, and stock repurchases - Total unsatisfied performance obligations were **$989 million** as of September 30, 2022, with approximately **41%** expected to be recognized over the next 12 months[38](index=38&type=chunk) - The company acquired Babel Health for a net cash payment of **$24.5 million** on March 25, 2022, included in the Veradigm segment[57](index=57&type=chunk) - The company completed the sale of its Hospitals and Large Physician Practices Business for **$670.0 million** in cash, plus up to **$30.0 million** in contingent consideration, now reported as a discontinued operation[61](index=61&type=chunk) - The company repurchased **9.7 million shares** for **$177.0 million** under its 2022 stock purchase program during the nine months ended September 30, 2022[84](index=84&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results of operations, highlighting key performance drivers and strategic impacts Overview of Consolidated Results For Q3 2022, total revenue increased **5.0%** to **$151.9 million**, and gross profit rose **19.8%** to **$83.4 million**, boosting gross margin to **54.9%** Q3 2022 vs Q3 2021 Financial Summary (in thousands) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $151,922 | $144,668 | 5.0% | | Gross Profit | $83,436 | $69,640 | 19.8% | | Gross Margin % | 54.9% | 48.1% | - | | Income from Operations | $25,001 | $18,484 | 35.3% | | Net Income (Loss) | $14,528 | $16,180 | (10.2%) | - SG&A expenses increased **18.7%** in Q3 2022, primarily due to higher legal costs and full recognition of corporate expenses previously allocated to the divested business[154](index=154&type=chunk) - Interest expense decreased **65.6%** in Q3 2022 due to lower debt levels and the adoption of ASU 2020-06 for convertible notes[158](index=158&type=chunk)[159](index=159&type=chunk) Segment Operations Following the divestiture of the Hospitals and Large Physician Practices business, the company's operations are now primarily focused on the Veradigm segment Veradigm Segment Performance - Q3 2022 vs Q3 2021 (in thousands) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $145,391 | $137,169 | 6.0% | | Gross Profit | $78,801 | $65,696 | 19.9% | | Income from Operations | $27,707 | $17,099 | 62.0% | | Operating Margin % | 19.1% | 12.5% | - | - Veradigm's gross profit and margin increased due to higher revenues, lower contractor usage, and improved hosting infrastructure costs[177](index=177&type=chunk) Liquidity and Capital Resources The company's liquidity position is strong, with cash and cash equivalents of **$494 million** and available borrowing capacity of **$699 million** as of September 30, 2022 - Principal liquidity sources as of September 30, 2022, include **$494 million** in cash and cash equivalents and **$699 million** available under the Revolving Facility[183](index=183&type=chunk) Cash Flow Summary - Nine Months Ended Sep 30, 2022 (in thousands) | Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $95,767 | | Net cash provided by investing activities | $603,719 | | Net cash used in financing activities | $(387,374) | - Future material cash requirements include **$207.9 million** for convertible senior notes, **$19.7 million** for operating leases, and **$38.3 million** in purchase obligations[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company states that there have been no material changes to its market risk disclosures during the nine months ended September 30, 2022 - Market risk disclosures have not changed materially during the nine months ended September 30, 2022[200](index=200&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2022 - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022[202](index=202&type=chunk) - No material changes occurred in internal control over financial reporting during Q3 2022[204](index=204&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal contingencies, including civil investigative demands and a settlement related to a deferred prosecution agreement - The company is subject to a civil investigative demand (CID) related to Horizon Clinicals software, with McKesson indemnifying Allscripts for related government payments and defense[115](index=115&type=chunk) - Practice Fusion settled a claimed breach of its Deferred Prosecution Agreement with the U.S. Attorney's Office for **$200,000**, extending the agreement by 11 weeks[116](index=116&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) The company reports no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - No material changes occurred from the risk factors previously disclosed in the company's Form 10-K[207](index=207&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section discusses the company's stock repurchase activity under its 2022 program, detailing shares repurchased and remaining authorization Stock Repurchase Activity - Q3 2022 | Period (2022) | Total Shares Purchased (thousands) | Average Price Paid Per Share | Total Cost (thousands) | | :--- | :--- | :--- | :--- | | July | 0 | $0.00 | $0 | | August | 1,476 | $17.28 | $25,494 | | September | 481 | $16.87 | $8,126 | | **Total Q3** | **1,957** | **$17.18** | **$33,620** | - Approximately **$73.2 million** remained available for purchase under the 2022 stock repurchase program as of September 30, 2022[210](index=210&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various agreements, CEO and CFO certifications, and Inline XBRL data files