UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒


	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~2021

ORor

☐



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38961

A white sign with black text

Description automatically generated with low confidence

Change Healthcare Inc.

(Exact Name of Registrant as Specified in its Charter)


~~Delaware~~		~~82-2152098~~
Delaware	82-2152098
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

~~3055 Lebanon Pike,~~ 424 Church Street, Suite ~~1000~~1400
Nashville, TN		~~37214~~ 37219
(Address of Principal Executive Offices)		(Zip Code)

(615) 932-3000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	~~Trading~~ ~~Symbol(s)~~	Name of each exchange on which registered
Common Stock, par value ~~$.001~~$0.001 per share	CHNG	~~CHNG~~	The Nasdaq Stock Market LLC
6.00% Tangible Equity Units	CHNGU	~~CHNGU~~	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a ~~large accelerated filer,~~Large Accelerated Filer, an ~~accelerated filer,~~Accelerated Filer, a ~~non-accelerated~~ ~~filer,~~Non-Accelerated Filer, a ~~smaller reporting company,~~Smaller Reporting Company, or an ~~emerging growth company.~~Emerging Growth Company. See the definitions of ~~“large accelerated filer,~~“Large Accelerated Filer,” ~~“accelerated filer”~~“Accelerated Filer”, ~~“smaller reporting company”~~“Smaller Reporting Company” and ~~“emerging growth company”~~“Emerging Growth Company” in Rule 12b-2 of the Exchange Act.


Large ~~accelerated filer~~Accelerated Filer		☐ Accelerated Filer		~~Accelerated filer~~ Non-Accelerated Filer	☐ 
Smaller Reporting company		Emerging Growth Company
~~Non-accelerated~~ ~~filer~~ 		☒		~~Smaller reporting company~~	☐

				~~Emerging growth company~~	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock outstanding on October ~~27, 2020: 304,452,260~~22, 2021: 311,495,269

TABLE OF CONTENTS


~~Part~~PART I. Financial Information
Item 1.		Financial Statements	3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	28	21
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	37	33
Item 4.		Controls and Procedures	38	33
~~Part~~PART II. Other Information
Item 1.		Legal Proceedings	38	34
Item 1A.		Risk Factors	38	34
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	38	34
Item 3.		Defaults Upon Senior Securities	38	34
Item 4.		Mine Safety Disclosures	38	35
Item 5.		Other Information	38	35
Item 6.	Exhibits	~~Exhibits~~	38	35
Signatures			40

Part I. Financial Information

Item 1. Financial Statements

Change Healthcare Inc.

Consolidated Statements of Operations

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

   Three Months Ended Six Months Ended
   September 30, September 30,
   2020 2019 2020 2019
Revenue

Solutions revenue
   $ 705,913 $ —   $ 1,354,325 $ —
Postage revenue
   50,023 —   95,795 —


Total revenue
   755,936 —   1,450,120 —
Operating expenses

Cost of operations (exclusive of depreciation and amortization below)
   326,653 —   645,195 —
Research and development
   54,052 —   109,787 —
Sales, marketing, general and administrative
   171,606 1,138 337,080 1,389
Customer postage
   50,023 —   95,795 —
Depreciation and amortization
   146,869 —   285,409 —
Accretion and changes in estimate with related parties, net
   3,564 48,363 9,459 48,363
Gain on sale of businesses
   (176 ) —   (28,270 ) —


Total operating expenses
   752,591 49,501 1,454,455 49,752


Operating income (loss)
   3,345 (49,501 ) (4,335 ) (49,752 )
Non-operating (income) expense

Interest expense, net
   61,627 —   124,294 —
Contingent consideration
   (550 ) —   (3,000 ) —
Loss on extinguishment of debt
   1,489 —   1,489 —
Loss from Equity Method Investment in the Joint Venture
   —   56,179 —   95,732
(Gain) loss on forward purchase contract
   —   2,435 —   2,435
Other, net
   (3,211 ) (560 ) 1,047 (664 )


Total non-operating (income) expense
   59,355 58,054 123,830 97,503


Income (loss) before income tax provision (benefit)
   (56,010 ) (107,555 ) (128,165 ) (147,255 )
Income tax provision (benefit)
   (13,388 ) (13,620 ) (26,849 ) (15,804 )


Net income (loss)
   $ (42,622 ) $ (93,935 ) $ (101,316 ) $ (131,451 )


Net income (loss) per share:

Basic and diluted
   $ (0.13 ) $ (0.66 ) $ (0.32 ) $ (1.20 )
Weighted average common shares outstanding:

Basic and diluted
   320,638,116 142,223,836 320,347,128 109,111,853


	Three Months Ended				Six Months Ended
	September 30,				September 30,
		2021		2020		2021		2020
Revenue
Solutions revenue	$	774,214	$	705,913	$	1,590,862	$	1,354,325
Postage revenue		52,550		50,023		103,758		95,795
Total revenue		826,764		755,936		1,694,620		1,450,120
Operating expenses
Cost of operations (exclusive of depreciation and amortization below)		346,632		326,653		698,695		645,195
Research and development		67,070		54,052		138,310		109,787
Sales, marketing, general and administrative		183,041		171,606		360,997		337,080
Customer postage		52,550		50,023		103,758		95,795
Depreciation and amortization		163,469		146,869		331,681		285,409
Accretion and changes in estimate with related parties, net		2,870		3,564		5,907		9,459
Gain on sale of businesses		—		(176)		—		(28,270)
Total operating expenses		815,632		752,591		1,639,348		1,454,455
Operating income (loss)		11,132		3,345		55,272		(4,335)
Non-operating (income) expense
Interest expense, net		59,466		61,627		118,852		124,294
Loss on extinguishment of debt		2,232		1,489		2,232		1,489
Other, net		2,587		(3,761)		(605)		(1,953)
Total non-operating (income) expense		64,285		59,355		120,479		123,830
Income (loss) before income tax provision (benefit)		(53,153)		(56,010)		(65,207)		(128,165)
Income tax provision (benefit)		(16,749)		(13,388)		(25,198)		(26,849)
Net income (loss)	$	(36,404)	$	(42,622)	$	(40,009)	$	(101,316)

Net income (loss) per share:
Basic and diluted	$	(0.11)	$	(0.13)	$	(0.12)	$	(0.32)
Weighted average common shares outstanding:
Basic and diluted		324,060,460		320,638,116	323,309,280			320,347,128

See accompanying notes to consolidated financial statements.

Change Healthcare Inc.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited and amounts in thousands)

   Three Months Ended Six Months Ended
   September 30, September 30,
   2020 2019 2020 2019
Net income (loss)
   $ (42,622 ) $ (93,935 ) $ (101,316 ) $ (131,451 )
Other comprehensive income (loss):

Foreign currency translation adjustment
   5,221 1,583 11,574 1,809
Changes in fair value of interest rate caps, net of taxes
   (1,996 ) (1,310 ) (6,180 ) (6,741 )
Unrealized gain (loss) on available for sale debt securities of the Joint Venture, net of taxes
   —   1,173 —   1,173


Other comprehensive income (loss)
   3,225 1,446 5,394 (3,759 )


Total comprehensive income (loss)
   $ (39,397 ) $ (92,489 ) $ (95,922 ) $ (135,210 )


	Three Months Ended September 30,				Six Months Ended September 30,
	2021			2020	2021			2020
Net income (loss)	$	(36,404)	$	(42,622)	$	(40,009)	$	(101,316)
Other comprehensive income (loss):
Foreign currency translation adjustment		(2,156)		5,221		1,415		11,574
Changes in fair value of interest rate caps, net of taxes		41		(1,996)		160		(6,180)
Other comprehensive income (loss)		(2,115)		3,225		1,575		5,394
Total comprehensive income (loss)	$	(38,519)	$	(39,397)	$	(38,434)	$	(95,922)

See accompanying notes to consolidated financial statements.

Change Healthcare Inc.

Consolidated Balance Sheets

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

   September 30, March 31,
   2020 2020
Assets

Current assets:

Cash & cash equivalents
   $ 167,477 $ 410,405
Accounts receivable, net
   626,991 740,105
Contract assets, net
   135,388 132,704
Prepaid expenses and other current assets
   125,996 117,967


Total current assets
   1,055,852 1,401,181
Property and equipment, net
   193,904 206,196
Operating lease right-of-use assets, net
   106,790 —
Goodwill
   4,126,481 3,795,325
Intangible assets, net
   4,418,079 4,365,806
Investment in business purchase option
   —   146,500
Other noncurrent assets, net
   309,107 192,372


Total assets
   $ 10,210,213 $ 10,107,380


Liabilities

Current liabilities:

Accounts payable
   $ 47,351 $ 68,169
Accrued expenses
   452,974 390,294
Deferred revenue
   319,115 302,313
Due to related parties, net
   11,606 20,234
Current portion of long-term debt
   30,488 278,779
Current portion of operating lease liabilities
   32,060 —


Total current liabilities
   893,594 1,059,789
Long-term debt, excluding current portion
   4,983,737 4,710,294
Long-term operating lease liabilities
   88,239 —
Deferred income tax liabilities
   627,919 615,904
Tax receivable agreement obligations due to related parties
   98,658 177,826
Tax receivable agreement obligations
   232,009 164,633
Other long-term liabilities
   76,807 93,487


Total liabilities
   7,000,963 6,821,933


Commitments and contingencies

Stockholders’ Equity

Common Stock (par value, $.001), 9,000,000,000 and 9,000,000,000 shares authorized and 304,426,569 and 303,428,142 shares issued and outstanding at September 30, 2020 and March 31, 2020, respectively
   304 303
Preferred stock (par value, $.001), 900,000,000 shares authorized and no shares issued and outstanding at both September 30, 2020 and March 31, 2020
   —   —
Additional paid-in capital
   4,242,721 4,222,580
Accumulated other comprehensive income (loss)
   (1,978 ) (7,372 )
Accumulated deficit
   (1,031,797 ) (930,064 )


Total stockholders’ equity
   3,209,250 3,285,447


Total liabilities and stockholders’ equity
   $ 10,210,213 $ 10,107,380


	September 30,		March 31,
	2021		2021
Assets
Current assets:
Cash & cash equivalents	$	80,414	$	113,101
Accounts receivable, net		704,595		732,614
Contract assets, net		128,010		132,856
Prepaid expenses and other current assets		149,176		140,258
Total current assets		1,062,195		1,118,829
Property and equipment, net		150,579		174,370
Operating lease right-of-use assets, net		80,562		93,412
Goodwill		4,110,823		4,108,792
Intangible assets, net		3,942,164		4,187,072
Other noncurrent assets, net		503,405		430,141
Total assets	$	9,849,728	$	10,112,616

Liabilities
Current liabilities:
Accounts payable	$	64,756	$	57,449
Accrued expenses		463,510		484,293
Deferred revenue		377,270		436,666
Due to related parties, net		11,392		10,766
Current portion of long-term debt		19,152		27,339
Current portion of operating lease liabilities		28,948		30,608
Total current liabilities		965,028		1,047,121
Long-term debt, excluding current portion		4,643,245		4,734,775
Long-term operating lease liabilities		62,001		75,396
Deferred income tax liabilities		578,584		605,291
Tax receivable agreement obligations due to related parties		97,606		103,151
Tax receivable agreement obligations		196,687		229,082
Other long-term liabilities		62,411		65,572
Total liabilities		6,605,562		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 311,311,208 and 306,796,076 shares issued and outstanding at September 30, 2021 and March 31, 2021, respectively		311		307
Preferred stock (par value, $0.001), 900,000,000 shares authorized and 0 shares issued and outstanding at both September 30, 2021 and March 31, 2021		—		—
Additional paid-in capital		4,313,759		4,283,391
Accumulated other comprehensive income (loss)		12,796		11,221
Accumulated deficit		(1,082,700)		(1,042,691)
Total stockholders' equity		3,244,166		3,252,228
Total liabilities and stockholders' equity	$	9,849,728	$	10,112,616

See accompanying notes to consolidated financial statements.

Change Healthcare Inc.

Consolidated Statements of Stockholders’ Equity

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

Accumulated
Additional Other Total
Common Stock Paid-in Accumulated Comprehensive Stockholders’
Shares Amount Capital Deficit Income (Loss) Equity
Balance at March 31, 2019
75,474,654 $ 75 $ 1,153,509 $ (17,841 ) $ (3,256 ) $ 1,132,487
Cumulative effect of accounting change of the Joint Venture-ASC 606
—      —   —   35,797 —   35,797
Cumulative effect of accounting change of the Joint Venture-ASU 2018-02
—   —   —   (422 ) 422 —
Equity compensation expense
—   —   5,862 —   —   5,862
Repurchase of Change Healthcare Inc. common stock
—   —   —   —   —   —
Issuance of Change Healthcare Inc. common stock upon exercise of equity awards
—   —   —   —   —   —
Proceeds from exercise of Change Healthcare Inc. equity based awards
—   —   —   —   —   —
Net income (loss)
—   —   —   (37,517 ) —   (37,517 )
Foreign currency translation adjustment of the Joint Venture
—   —   —   —   226 226
Change in fair value of interest rate caps of the Joint Venture, net of taxes
—   —   —   —   (5,431 ) (5,431 )

Balance at June 30, 2019
75,474,654 $ 75 $ 1,159,371 $ (19,983 ) $ (8,039 ) $ 1,131,424

Issuance of Change Healthcare Inc. common stock upon initial public offering
49,285,713 49 608,630 —   —   608,679
Effect of initial public offering issuance costs on Joint Venture equity
—   —   (4,160 ) —   —   (4,160 )
Issuance of tangible equity units
—   —   232,929 —   —   232,929
Equity compensation expense
—   —   8,585 —   —   8,585
Issuance of Change Healthcare Inc. common stock upon exercise of equity awards
175,439 —   1,139 —   —   1,139
Net income (loss)
—   —   —   (93,935 ) —   (93,935 )
Unrealized gain (loss) on available for sale debt securities of the Joint Venture
—   —   —   —   1,173 1,173
Foreign currency translation adjustment of the Joint Venture
—   —   —   —   1,583 1,583
Change in fair value of interest rate cap, net of taxes of the Joint Venture
—   —   —   —   (1,310 ) (1,310 )

Balance at September 30, 2019
124,935,806 $ 124 $ 2,006,494 $ (113,918 ) $ (6,593 ) $ 1,886,107

Balance at March 31, 2020
303,428,142 $ 303 $ 4,222,580 $ (930,064 ) $ (7,372 ) $ 3,285,447
Cumulative effect of accounting change-ASU 2016-13
—   —   —   (417 ) —   (417 )
Equity compensation expense
—   —   8,780 —   —   8,780
Issuance of common stock under equity compensation plans
341,230 1 2,143 —   —   2,144
Net income (loss)
—   —   —   (58,694 ) —   (58,694 )
Foreign currency translation adjustment
—   —   —   —   6,353 6,353
Change in fair value of interest rate caps, net of taxes
—   —   —   —   (4,184 ) (4,184 )
Other
—   —   (75 ) —   —   (75 )

Balance at June 30, 2020
303,769,372 $ 304 $ 4,233,428 $ (989,175 ) $ (5,203 ) $ 3,239,354

Equity compensation expense
—   —   12,372 —   —   12,372
Issuance of common stock under equity compensation plans
911,961 —   408 —   —   408
Employee tax withholding on vesting of equity compensation awards
(254,764 ) —   (3,131 ) —   —   (3,131 )
Net income (loss)
—   —   —   (42,622 ) —   (42,622 )
Foreign currency translation adjustment
—   —   —   —   5,221 5,221
Change in fair value of interest rate caps, net of taxes
—   —   —   —   (1,996 ) (1,996 )
Other
—   —   (356 ) —   —   (356 )

Balance at September 30, 2020
304,426,569 $ 304 $ 4,242,721 $ (1,031,797 ) $ (1,978 ) $ 3,209,250


								Accumulated
					Additional			Other		Total
	Common Stock				Paid-in	Accumulated		Comprehensive		Stockholders'
	Shares		Amount		Capital	Deficit		Income (Loss)		Equity
Balance at March 31, 2020	303,428,142	$	303	$	4,222,580	$	(930,064)	$	(7,372)	$	3,285,447
Cumulative effect of accounting change-ASU 2016-13	—		—		—		(417)		—		(417)
Equity compensation expense	—		—		8,780		—		—		8,780
Issuance of common stock under equity compensation plans	341,230		1		2,143		—		—		2,144
Net income (loss)	—		—		—		(58,694)		—		(58,694)
Foreign currency translation adjustment	—		—		—		—		6,353		6,353
Change in fair value of interest rate caps, net of taxes	—		—		—		—		(4,184)		(4,184)
Other	—		—		(75)		—		—		(75)
Balance at June 30, 2020	303,769,372	$	304	$	4,233,428	$	(989,175)	$	(5,203)	$	3,239,354
Equity compensation expense	—		—		12,372		—		—		12,372
Issuance of common stock under equity compensation plans	911,961		—		408		—		—		408
Employee tax withholding on vesting of equity compensation awards	(254,764)		—		(3,131)		—		—		(3,131)
Net income (loss)	—		—		—		(42,622)		—		(42,622)
Foreign currency translation adjustment	—		—		—		—		5,221		5,221
Change in fair value of interest rate caps, net of taxes	—		—		—		—		(1,996)		(1,996)
Other	—		—		(356)		—		—		(356)
Balance at September 30, 2020	304,426,569	$	304	$	4,242,721	$	(1,031,797)	$	(1,978)	$	3,209,250

Balance at March 31, 2021	306,796,076	$	307	$	4,283,391	$	(1,042,691)	$	11,221	$	3,252,228
Equity compensation expense	—		—		23,191		—		—		23,191
Issuance of common stock under equity compensation plans	1,948,163		2		1,443		—		—		1,445
Employee tax withholding on vesting of equity compensation awards	(564,116)		(1)		(13,015)		—		—		(13,016)
Net income (loss)	—		—		—		(3,605)		—		(3,605)
Foreign currency translation adjustment	—		—		—		—		3,571		3,571
Change in fair value of interest rate caps, net of taxes	—		—		—		—		119		119
Conversion of tangible equity units	2,497,813		3		(3)		—		—		—
Other	—		—		(80)		—		—		(80)
Balance at June 30, 2021	310,677,936	$	311	$	4,294,927	$	(1,046,296)	$	14,911	$	3,263,853
Equity compensation expense	—		—		23,776		—		—		23,776
Issuance of common stock under equity compensation plans	896,107		—		1,031		—		—		1,031
Employee tax withholding on vesting of equity compensation awards	(262,835)		—		(5,985)		—		—		(5,985)
Net income (loss)	—		—		—		(36,404)		—		(36,404)
Foreign currency translation adjustment	—		—		—		—		(2,156)		(2,156)
Change in fair value of interest rate caps, net of taxes	—		—		—		—		41		41
Conversion of tangible equity units	—		—		—		—		—		—
Other	—		—		10		—		—		10
Balance at September 30, 2021	311,311,208	$	311	$	4,313,759	$	(1,082,700)	$	12,796	$	3,244,166

See accompanying notes to consolidated financial statements.

Change Healthcare Inc.

Consolidated Statements of Cash Flows

(unaudited and amounts in thousands)

   Six Months Ended
   September 30,
   2020 2019
Cash flows from operating activities:

Net income (loss)
   $ (101,316 ) $ (131,451 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Loss from Equity Method Investment in the Joint Venture
   —   95,732
Depreciation and amortization
   285,409 —
Amortization of capitalized software developed for sale
   89 —
Accretion and changes in estimate, net
   11,188 —
Equity compensation
   23,914 —
Deferred income tax expense (benefit)
   (28,590 ) (15,806 )
Amortization of debt discount and issuance costs
   16,551 212
Contingent consideration
   (3,000 ) —
Gain on Sale of Businesses
   (28,270 ) —
Loss on extinguishment of debt
   1,489 —
(Gain) loss on forward purchase contract
   —   2,435
Non-cash lease expense
   14,629 —
Other, net
   7,530 —
Changes in operating assets and liabilities:

Accounts receivable, net
   114,052 —
Contract assets, net
   (3,786 ) —
Prepaid expenses and other
   (48,382 ) (2,136 )
Accounts payable
   (28,666 ) —
Accrued expenses and other liabilities
   27,687 48,640
Deferred revenue
   36,029 —
Due to the Joint Venture, net
   —   2,374


Net cash provided by (used in) operating activities
   296,557 —


Cash flows from investing activities:

Capitalized expenditures
   (126,432 ) —
Acquisitions, net of cash acquired
   (439,483 ) —
Proceeds from sale of businesses
   54,369 —
Investment in the Joint Venture
   —   (609,818 )
Investment in debt and equity securities of the Joint Venture
   —   (278,875 )
Other, net
   1,100 3,621


Net cash provided by (used in) investing activities
   (510,446 ) (885,072 )


Cash flows from financing activities:

Payments on Revolving Facility
   (250,000 ) —
Payments on Term Loan Facility
   (50,000 ) —
Proceeds from issuance of Senior Notes
   325,000 —
Payments under tax receivable agreements with related parties
   (20,691 ) —
Receipts (payments) on derivative instruments
   (14,810 ) —
Employee tax withholding on vesting of equity compensation awards
   (3,131 ) —
Payments on deferred financing obligations
   (6,547 ) —
Payment of senior amortizing notes
   (7,680 ) (3,621 )
Proceeds from exercise of equity awards
   2,584 1,139
Proceeds from initial public offering, net of issuance costs
   —   608,679
Proceeds from issuance of equity component of tangible equity units, net of issuance costs
   —   232,929
Proceeds from issuance of debt component of tangible equity units
   —   47,367
Other, net
   (6,454 ) (1,421 )


Net cash provided by (used in) financing activities
   (31,729 ) 885,072


Effect of exchange rate changes on cash and cash equivalents
   2,690 —


Net increase (decrease) in cash and cash equivalents
   (242,928 ) —


Cash and cash equivalents at beginning of period
   410,405 3,409


Cash and cash equivalents at end of period
   $ 167,477 $ 3,409


		Six Months Ended
		September 30,
		2021		2020
Cash flows from operating activities:
Net income (loss)	$	(40,009)	$	(101,316)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		331,681		285,409
Amortization of capitalized software developed for sale		1,576		89
Accretion and changes in estimate, net		9,087		11,188
Equity compensation		49,911		23,914
Deferred income tax expense (benefit)		(26,560)		(28,590)
Amortization of debt discount and issuance costs		15,820		16,551
Loss on extinguishment of debt		2,232		1,489
Non-cash lease expense		13,958		14,629
Gain on sale of businesses		—		(28,270)
Other, net		7,405		4,530
Changes in operating assets and liabilities:
Accounts receivable, net		27,860		114,052
Contract assets, net		4,154		(3,786)
Prepaid expenses and other assets		(37,833)		(48,382)
Accounts payable		7,644		(28,666)
Accrued expenses and other liabilities		(43,743)		27,687
Deferred revenue		(61,832)		36,029
Net cash provided by (used in) operating activities		261,351		296,557
Cash flows from investing activities:
Capitalized expenditures		(126,828)		(126,432)
Acquisitions, net of cash acquired		—		(439,483)
Proceeds from sale of businesses		—		54,369
Other, net		(1,000)		1,100
Net cash provided by (used in) investing activities		(127,828)		(510,446)
Cash flows from financing activities:
Payments on Term Loan Facility		(100,000)		(50,000)
Payments under tax receivable agreements		(21,537)		(20,691)
Receipts (payments) on derivative instruments		(14,810)		(14,810)
Employee tax withholding on vesting of equity compensation awards		(18,681)		(3,131)
Payments on deferred financing obligations		(8,981)		(6,547)
Payment of senior amortizing notes		(8,048)		(7,680)
Proceeds from exercise of equity awards		5,985		2,584
Payments on Revolving Facility		—		(250,000)
Proceeds from issuance of Senior Notes		—		325,000
Other, net		(253)		(6,454)
Net cash provided by (used in) financing activities		(166,325)		(31,729)
Effect of exchange rate changes on cash and cash equivalents		115		2,690
Net increase (decrease) in cash and cash equivalents		(32,687)		(242,928)
Cash and cash equivalents at beginning of period		113,101		410,405
Cash and cash equivalents at end of period	$	80,414	$	167,477

See accompanying notes to consolidated financial statements.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

1. Nature of Business and Organization

Change Healthcare Inc. (the “Company”, “our” or “we”) is an independent healthcare technology company, focused on accelerating the transformation of the healthcare system through the power of our ~~Healthcare Platform.~~healthcare platform. We provide data and analytics-driven solutions to improve clinical, financial and patient engagement outcomes in the U.S. healthcare system. Our platform and comprehensive suite of software, analytics, technology-enabled services and network solutions drive improved results in the complex workflows of healthcare system payers and providers by enhancing clinical decision making, simplifying billing, collection and payment processes, and enabling a better patient experience.

We are a Delaware corporation originally formed on June 22, 2016, to initially hold an equity investment in Change Healthcare LLC (the “Joint Venture”), a joint venture between the Company and McKesson Corporation (“McKesson”).

~~Amendment of Certificate of Incorporation~~

Effective June 26, 2019 and in contemplation of our initial public offering of common stock, we amended the certificate of incorporation to effect a 126.4 for 1 stock split for all previously issued shares of common stock, to increase the authorized number of common stock, and to authorize shares of preferred stock. Following this amendment, the authorized shares include 9,000,000,000 shares of common stock (par value $.001 per share), one share of Class X stock (par value $.001 per share), and 900,000,000 shares of preferred stock (par value $.001 per share). As a result of the Merger (defined below), the Class X Stock is no longer available for issuance.

~~Initial Public Offering~~

Effective July 1, 2019, we completed our initial public ~~offering of 49,285,713 shares of~~offering. The proceeds from the common stock ~~and a concurrent~~ offering were subsequently contributed to the Joint Venture in exchange for additional units of ~~5,750,000 tangible equity units (“TEUs”) for net proceeds of $608,679 and $278,875, respectively.~~the Joint Venture, which together with the Company’s existing holdings represented an approximate 41% interest in the Joint Venture.

~~McKesson Exit~~

On March 10, 2020, McKesson completed a split-off of its interest in the Joint Venture through an exchange offer of its common stock for shares of PF2 SpinCo, Inc, a Delaware corporation and wholly owned subsidiary of McKesson (“SpinCo”). Immediately following consummation of the exchange offer, SpinCo was merged with and into Change Healthcare Inc. (the “Merger”). As a result, McKesson no longer owns any voting or economic interest in the Joint Venture. Prior to the Merger, we accounted for our investment in the Joint Venture under the equity method of accounting. Subsequent to the Merger, we own 100% of Change Healthcare LLC, and as a result, consolidate the financial statements of Change Healthcare LLC.

~~COVID-19~~ ~~Considerations~~UnitedHealth Group Incorporated

On January 5, 2021, we entered into an Agreement and Plan of Merger (the “UHG Agreement”) with UnitedHealth Group Incorporated (“UnitedHealth Group”), and UnitedHealth Group’s wholly owned subsidiary Cambridge Merger Sub Inc. Pursuant to the UHG Agreement, UnitedHealth Group has agreed to acquire all of the outstanding shares of the Company’s common stock for $25.75 per share in cash (the “UHG Transaction”). On April 13, 2021, our stockholders approved a proposal to adopt the UHG Agreement, thereby satisfying one of the closing conditions contained in the UHG Agreement. The consummation of the transaction remains subject to the satisfaction or, to the extent permitted by law, waiver of other customary closing conditions.

The UHG Agreement contains representations, warranties, covenants, closing conditions and termination rights customary for transactions of this type. Until the earlier of the termination of the UHG Agreement and the consummation of the UHG Transaction, we have agreed to operate our business in the ordinary course and have agreed to certain other operating covenants, as set forth in the UHG Agreement.

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 U.S. Department of Justice (the “DOJ”) in connection with the DOJ’s review of the UHG Transaction. The effect of the Second Request is to extend the waiting period imposed under the HSR Act until the 30th day after substantial compliance by the Company and UnitedHealth Group with the Second Request (or such other date upon which substantial compliance is considered effective), unless the waiting period is terminated earlier by the DOJ or extended by the parties to the UHG Transaction. 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 UHG Transaction 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 (subject to extension in certain limited circumstances relating to the potential unavailability of certain requested data), 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.

COVID-19 Considerations

On March 11, 2020, the World Health Organization declared the ~~current~~ coronavirus (“COVID-19”) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the U.S., federal, state and local governments ~~throughout the country~~ imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures led to weakened conditions in many sectors of the economy, including a decline in healthcare transaction volumes that are integral to our business.

~~We experienced,~~In calendar year 2021, the global economy has, with certain setbacks, begun reopening, and ~~expect~~wider distribution of vaccines will likely encourage greater economic activity. Nevertheless, we are unable to ~~continue~~predict how widely the vaccines will be utilized, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and the extent to ~~experience, an adverse impact on~~which our

business, results of operations, financial ~~results as a result of~~ ~~COVID-19.~~condition or liquidity will ultimately be impacted by COVID-19. However, we are not presently aware of events or circumstances arising from COVID-19 that would require us to revise the carrying value of our assets or liabilities, nor do we expect the impact of COVID-19 to cause us to be unable to comply with our debt covenants or meet our contractual obligations.

2. Significant Accounting Policies

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (“SEC”) Guidelines, Rules and Regulations and, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of results for the unaudited interim periods presented. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. The results of operations for the interim period are not necessarily indicative of the results to be obtained for the full fiscal year. All intercompany accounts and transactions have been eliminated upon consolidation in the unaudited consolidated financial statements.

~~Change Healthcare Inc.~~Revenue

~~Notes to Consolidated Financial Statements~~

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

~~Business Combinations~~

We recognize revenue at an amount that reflects the consideration ~~transferred (i.e., purchase price)~~we expect to be entitled to in exchange for transferring goods or services to a ~~business combination, as well as~~customer, in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). See Note 3, Revenue Recognition, for additional information.

Equity Compensation

We measure stock-based compensation cost based on the ~~acquired business’ identifiable assets, liabilities and noncontrolling interests at their acquisition date fair value. The excess of the consideration transferred over the~~estimated fair value of the ~~identifiable assets, liabilities~~award on the grant date and ~~noncontrolling interest, if any, is recorded as goodwill. Any excess of~~recognize the ~~fair value of the identifiable assets acquired and liabilities assumed~~expense over the ~~consideration transferred,~~requisite service period, typically on a straight-line basis. We recognize stock-based compensation expense for awards with performance conditions if ~~any,~~and when we conclude that it is ~~generally recognized within earnings as of~~probable that the ~~acquisition date.~~

performance conditions will be achieved. The fair value of equity awards is recognized as expense in the ~~consideration transferred, assets, liabilities~~same period and ~~noncontrolling interests is estimated based on one~~in the same manner as if we had paid cash for the goods or ~~a combination~~services. Forfeitures are recognized as they occur. We issue new shares of ~~income, cost or market approaches as determined based on~~common stock upon vesting of equity awards and upon exercise of vested options. We do not intend to repurchase any issued shares of common stock. During the ~~nature~~three months ended September 30, 2021 and 2020 we recognized $23,745 and $14,331 of equity compensation expense, respectively. During the six months ended September 30, 2021 and 2020 we recognized $49,911 and $23,914 of equity compensation expense, respectively. At September 30, 2021, aggregate unrecognized compensation expense related to outstanding awards was $233,469.

Upon closing of the asset or liability and the level of inputs available (i.e., quoted prices in an active market, other observable inputs or unobservable inputs). To the extent our initial accounting for a business combination is incomplete at the end of a reporting period, provisional amounts are reported for those items which are incomplete.

~~In conjunction~~UHG Transaction, existing awards will generally convert to equivalent UHG awards with ~~business combinations, we generally recognize goodwill attributable to the assembled workforce and expected synergies among the operations~~consistent vesting provisions. Certain awards will vest upon closing of the acquired entities and our existing operations. Goodwill is generally deductible for federal income tax purposes when a business combination is treated as an asset purchase and is generally not deductible for federal income tax purposes when a business combination is treated as a stock purchase. See Note 4, ~~Business Combinations~~.UHG Transaction per the terms of the UHG Agreement.

Allowance for Credit Losses

The allowance for credit losses of ~~$28,028~~$22,833 and ~~$22,360~~$24,126 at September 30, ~~2020~~2021 and March 31, ~~2020,~~2021, respectively, ~~were~~was primarily based on historical credit loss experience, current conditions, future expected credit losses, and adjustments for certain asset-specific risk characteristics. The following table summarizes activity related to the allowance for credit losses:



	Six Months Ended September 30,
	2021		2020
Balance at beginning of period	$	24,126	$	22,360
Cumulative effect of accounting change-ASU 2016-13		—		417
Acquisitions and Dispositions ⁽¹⁾		—		(1,493)
Provisions		4,312		11,824
Write-offs		(5,605)		(5,080)
Balance at end of period	$	22,833	$	28,028

   Six Months Ended September 30,
   2020    2019
Balance at beginning of period
   $ 22,360    $ —
Cumulative effect of accounting change-ASU 2016-13
   417    —
Acquisitions and Dispositions ⁽¹⁾
   (1,493 )    —
Provisions
   11,824    —
Write-offs
   (5,080 )    —




Balance at end of period
   $ 28,028    $ —

⁽¹⁾	~~Amount relates primarily to the acquisitions of eRx and PDX and sale of Connected Analytics. See Note 4,~~ ~~Business Combinations~~ ~~and Note 5,~~ ~~Dispositions~~.

~~Leases~~

We determine whether an arrangement contains a lease based on the conveyed rights and obligations at the inception date. If an agreement contains an operating or finance lease, at the commencement date, we record a ~~right-of-use~~ ~~asset and a corresponding lease liability based on the present value of the minimum lease payments.~~

As most of our leases do not provide an implicit borrowing rate, to determine the present value of lease payments, we use the portfolio approach and determine our hypothetical secured borrowing rate based on information available at lease commencement. Further, we make certain estimates and judgements regarding the lease term and lease payments, noted below.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one month to one year or more. Additionally, some of our leases include an option for early termination. We include renewal periods and exclude termination periods from our lease term if, at commencement, we are reasonably certain to exercise the option.

Certain of our lease agreements include rental payments that are adjusted periodically for inflation or passage of time. These step payments are included within our present value calculation as they are known adjustments at commencement. Some of our lease agreements include variable payments that are excluded from our present value calculation. ⁽¹⁾For ~~example, some of our equipment leases include a component which varies based on the asset’s use.~~

~~Additionally, we have lease agreements that include lease and~~ ~~non-lease~~ components, such as equipment leases, which are generally accounted for as a single lease component. For these leases, lease payments include all fixed payments stated within the contract. For other leases, such as office space, lease and ~~non-lease~~ ~~components are accounted for separately. Our lease agreements do not contain any material residual value guarantees that would impact our lease payments.~~

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

~~Recently Adopted Accounting Pronouncements~~

~~Financial Instruments: Credit Losses~~

~~In April 2020, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)~~ ~~No. 2016-13,~~ ~~as amended by ASU~~ ~~No. 2018-19,~~ which requires that a financial asset (or group of financial assets) measured at amortized cost be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance also requires us to pool assets with similar risk characteristics and consider current economic conditions when estimating losses. We adopted this standard using the modified retrospective approach and recorded a cumulative effect to retained earnings of $417 as of April 1, 2020.

~~Fair Value Measurements~~

~~In April 2020, we adopted FASB ASU~~ ~~No. 2018-13,~~ which modifies the disclosure requirements for fair value measurements. Entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies are required to disclose the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. See Note 10, ~~Fair Value Measurements~~.

~~Hosting Arrangement Implementation Costs~~

~~In April 2020, we adopted FASB ASU~~ ~~No. 2018-15,~~ which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain ~~internal-use~~ software. This update also requires that the effects of such capitalized costs be classified in the same respective caption in the statement of operations, balance sheet and cash flows as the underlying hosting arrangement. We adopted this standard prospectively beginning April 1, 2020. This adoption did not have a material impact on our financial statements for the six months ended September 30, ~~2020.~~

~~Leases~~

~~In April~~ 2020, ~~we adopted FASB ASU~~ ~~No. 2016-02,~~ which created Topic 842 – Leases (“ASC 842”). The standard generally requires that all lease obligations be recognized on the balance sheet at the present value of the remaining lease payments with a corresponding ~~right-of-use~~ ~~asset. In July 2018, the FASB issued ASU~~ ~~No. 2018-11~~ ~~which provides companies with the option to apply~~ this ~~cumulative effect adjustment~~amount relates primarily to the ~~opening balance~~sale of ~~retained earnings in the period of adoption.~~Connected Analytics.

Upon adoption, we elected the transition “practical expedients” permitting us not to reassess our prior conclusions about lease identification, lease classification and initial direct costs. Additionally, we elected the practical expedient to not separate lease and ~~non-lease~~ ~~components for equipment lease agreements.~~

~~We adopted ASC 842 using the modified retrospective approach and recorded~~ ~~right-of-use~~ ~~assets of $111,815 and lease liabilities of $125,331, primarily related to operating leases. The recognition of the~~ ~~right-of-use~~ assets in combination with our previously recorded prepaid rent balances resulted in no requirement to adjust the opening balance of retained earnings. Our accounting for finance leases remains substantially unchanged. Adoption of ASC 842 did not materially impact our consolidated statement of operations and had no impact on our consolidated statement of cash flows. See Note 8, ~~Leases~~~~, for additional information.~~

Recently Adopted Accounting Pronouncements

London Interbank Offered Rate (LIBOR) Reform

In March 2020, the FASB issued ASU No. 2020-04, as amended by ASU No. 2021-01, which created Topic 848 – Reference Rate Reform. ASU No. 2020-04 contains optional practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts which may be elected over time as activities occur. Among other things, the ASU intends to ease the transition from LIBOR to an alternative reference rate. During the first quarter of fiscal year 2021, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impacts of ASU No. 2020-04 and may apply other elections as reference rate reform activities progress.

Accounting Pronouncements Not Yet Adopted

~~None~~Derivatives and Convertible Instruments

In August 2020, the FASB issued ASU No. 2020-06 which simplifies the accounting for convertible instruments and amends the guidance addressing the derivatives scope exception for contracts in an entity’s own equity. The standard is scheduled to be effective for us beginning April 1, 2022. Given the forward purchase contracts of our Tangible Equity Units (“TEUs”) qualify for the derivatives scope exception and are currently accounted for under that ~~are expected to have~~guidance, we do not expect a material impact ~~on our financial statements.~~

upon adoption. We will continue to evaluate the impact of this pronouncement prior to adoption.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

3. Revenue Recognition

We generate most of our solutions revenue by using technology solutions (generally Software as a Service (“SaaS”)) to provide services to our customers that automate and simplify business and administrative functions for payers, providers, pharmacies, and channel partners and through the licensing of software, software systems (consisting of software, hardware and maintenance support) and content.

We recognize revenue when the customer obtains control of the good or service through satisfying a performance obligation by transferring the promised good or service to the customer.

~~Principal Revenue Generating Products and Services~~

~~Hosted solutions and SaaS~~—We enter into arrangements whereby we provide the customer access to a Company-owned software solution, which are generally marketed under annual and multi-year arrangements. The customer is only provided “access” (not a license) to the software application. In these arrangements, the customer does not purchase equipment nor does the customer take physical possession of the software. The related revenue is recognized ratably over the contracted term. For fixed fee arrangements, revenue recognition begins after ~~set-up~~ ~~and implementation are complete. For~~ ~~per-transaction~~ fee arrangements, revenue is recognized as transactions are processed beginning on the service start date. Revenue for hosted solutions and SaaS, which is included in solutions revenue, is generated by the Software and Analytics, Network Solutions, and Technology-Enabled Services segments.

~~Transaction processing services~~—We provide transaction processing (such as claims processing) services to hospitals, pharmacies and health systems via a cloud-based (SaaS) platform. The promised service is to stand ready to process transactions for our customers over the contractual period on an as needed basis. Revenue related to these services is recognized over time as transactions are processed and the revenue is recognized over the individual days in which the services are performed. Revenue is recognized as solutions revenue in the Software and Analytics, Network Solutions, and Technology-Enabled Services segments, with the exception of revenue related to postage that is generated through the delivery of certain of these services. Postage revenue is discussed below and is separately presented on the consolidated statement of operations. Any fixed annual fees and implementation fees are recognized ratably over the contract period.

~~Contingent fee services~~—We provide services to customers in which the transaction price is contingent on future occurrences, such as savings generated or amounts collected on behalf of our customers through the delivery of services. In some cases, we perform services in advance of invoicing the customer, thereby creating a contract asset. Revenue in these arrangements is estimated and constrained until we determine that it is probable a significant revenue reversal will not occur, and variable consideration is allocated to the performance obligation for which we earn a contingent fee. We use the expected value method when estimating variable consideration, as we have a large number of contracts with similar characteristics and consider a portfolio of data from other similar contracts to form our estimate of expected value. Revenue for contingent fee services, which is included in solutions revenue, is generated by the Software and Analytics and Technology-Enabled Services segments.

~~Content license subscriptions and time-based software~~—Our content license subscriptions and time-based software arrangements provide a license to use a software for a specified period of time. At the end of the contractual period, the customer either renews the license for an additional term or ceases to use the software. Software licenses are typically delivered to the customer with functionality that allows the customer to benefit from the software on its own or together with readily available resources. As contracts for these solutions generally do not price individual components separately, we allocate the transaction price to the license and ongoing support performance obligations based on standalone selling price, primarily determined by historical value relationships between licenses and ongoing support and updates. Revenue allocated to content license subscriptions and time-based software license agreements is generally recognized at the ~~point-in-time~~ of delivery of the license or the content update upon transfer of control of the underlying license to the customer. Generally, software implementation fees are recognized over the implementation period through an input measure of progress method. Revenue allocated to maintenance and support is recognized ratably over the period covered by the agreements, as passage of time represents a faithful depiction of the transfer of these services. In some cases, software arrangements provide licenses to several software applications that are highly integrated with the implementation services and software updates and cannot function separately. The bundle is a single performance obligation since the individually promised goods and services are not distinct in the context of the contract because the related implementation services significantly modify and customize the software and the updates provided to the integrated software solution are critical to the software’s utility. The related revenue is recognized on a straight-line basis, ratably over the contractual term due to the frequency and criticality of the updates throughout the license period. Revenue for content license subscriptions and time-based software, which is included in solutions revenue, is generated by the Software and Analytics segment.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

~~Perpetual software licenses~~—Our perpetual software arrangements provide a license for a customer to use software in perpetuity. Software licenses are typically delivered to the customer with functionality from which the customer can benefit from the license on its own or together with readily available resources. Perpetual software arrangements are recognized at the time of delivery or through an input measure of progress method over the installation period if the arrangements require significant production or modification or customization of the software. Contracts accounted for through an input measure of progress method are generally measured based on the ratio of labor hours incurred to date to total estimated labor hours to be incurred. Software implementation fees are recognized as the work is performed or under the input method for perpetual software. Hardware revenue is generally recognized upon delivery. Maintenance is recognized ratably over the term of the agreement as passage of time represents a faithful depiction of the transfer of these services. License, implementation, hardware and maintenance revenue for these arrangements, which is included in solutions revenue, is generated by the Software and Analytics and Network Solutions segments.

~~Professional services~~—We provide training and consulting services to our customers, and the services may be fixed fee or time and materials based. Consulting services that fall outside of the standard implementation services vary depending on the scope and complexity of the service requested by the customer. Consulting services are deemed to be capable of being distinct from other products and services, and the services are satisfied either at a point of time or over time based on delivery and are recognized as solutions revenue in the Software and Analytics and Technology-Enabled Services segments. Training services are usually provided as an optional service to enhance the customer’s experience with a software product or provides additional education surrounding the general topic of the solution. Training services are capable of being distinct from other products and services. We treat training services as a distinct performance obligation, and those services are satisfied at a point of time and recognized as solutions revenue in the Software and Analytics and Technology-Enabled Services segments.

~~Postage Revenue~~

Postage revenue is the result of providing delivery services to customers in our payment and communication solutions. Postage revenue is generally billed as a pass-through cost to our customers. The service is part of a combined performance obligation with the printing and handling services provided to the customer because the postage services are not distinct within the context of the contract. We present Postage Revenue separately from Solutions Revenue on the consolidated statements of operations as doing so makes the financial statements more informative for the users. The revenue related to the combined performance obligation of the postage, printing, and handling service is recognized as the transactions are processed, and the revenue is recognized over the individual days in which the services are performed.

Contract Balances

We generally recognize a contract asset when revenue is recognized in advance of invoicing on a customer contract, unless the right to payment for that revenue is unconditional (i.e. requiring no further performance and only the passage of time). If a right to payment is determined to meet the criteria to be considered ‘unconditional’, then we will recognize a receivable.

We did not recognize any impairment loss on accounts receivable or contract assets during the three and six months ended September 30, 2020. Change Healthcare Inc. did not have accounts receivable prior to the Merger.

We record deferred revenue when billings or payments are received from customers in advance of our performance. Deferred revenue is generally recognized when transfer of control to customers occurs. The deferred revenue balance is driven by multiple factors, including the frequency of renewals, invoice timing, invoice duration and fair value adjustments as a result of the Merger. As of September 30, ~~2020,~~2021, we expect ~~92%~~94% of the deferred revenue balance to be recognized in one year or ~~less, and approximately $202,837~~less. Approximately $273,517 of the balance at the beginning ~~period balance~~of fiscal year 2022 was recognized during the six months ended September 30, ~~2020.~~

~~Costs to Obtain or Fulfill a Contract~~

~~At September 30, 2020, we had capitalized costs to obtain a contract~~2021. Approximately $202,837 of ~~$4,505 in prepaid and other current assets and $16,131 in other noncurrent assets. At September 30, 2020, we had capitalized costs to fulfill a contract~~the balance at the beginning of ~~$5,425 in prepaid and other current assets and $10,250 in other noncurrent assets. Amortization of such capitalized costs to obtain or fulfill a contract were immaterial for~~fiscal year 2021 was recognized during the ~~three and~~ six months ended September 30, 2020. Change Healthcare Inc. did not have costs to obtain or fulfill a contract prior to the Merger, and therefore did not record amortization of such capitalized costs during the three and six months ended September 30, 2019.

Remaining Performance Obligations

The aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) for executed contracts includes deferred revenue and other revenue yet to be recognized from non-cancellable contracts. As of September 30, ~~2020, the total~~2021, remaining performance obligations ~~approximated $1,500,164,~~totaled $1,380,210, of which ~~approximately 48%~~51% is expected to be recognized over the next ~~twelve~~12 months, and the remaining ~~52% thereafter.~~49% thereafter.

In this balance, we do not include the value of unsatisfied performance obligations related to those contracts for which we recognize revenue at the amount for which we have the right to invoice for services performed. Additionally, this balance does not include revenue related to performance obligations that are part of a contract with an original expected duration of one year or less. Lastly, this balance does not include variable consideration allocated to the individual goods or services in a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer. Examples includes variable fees associated with transaction processing and contingent fee services.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

Disaggregated Revenue

We disaggregate the revenue from contracts with customers by operating segment as we believe doing so best depicts how the nature, amount, timing and uncertainty of revenues are affected by economic factors. See Note ~~19,~~16, Segment Reporting, for ~~the~~ total revenue disaggregated by operating segment for the three and six months ended September 30, 2021 and 2020.

In addition to disaggregating revenue by operating segment, we disaggregate ~~revenue~~ between revenue that is recognized over time and revenue that is recognized at a point in time. ~~Approximately~~For the three and six months ended September 30, 2021, 98% and 96% of revenue was recognized over time, respectively, and 2% and 4% of revenue was recognized at a point in time, respectively. For the three and six months ended September 30, 2020, 97% and 94% of revenue was recognized over time, respectively, and ~~approximately~~ 3% and 6% of revenue was recognized at a point in time, ~~for the three and six months ended September 30, 2020,~~ respectively.

4. Business Combinations

Fiscal Year 2021 Transactions

eRx Network Holdings, Inc.

On May 1, 2020, we exercised our option to purchase and completed the acquisition of 100% of the ownership interest in eRx Network Holdings, Inc. (“eRx”), a leading provider in comprehensive, innovative and secure data-driven solutions for pharmacies. At the time of the acquisition, all outstanding eRx equity awards were canceled and holders of eRx stock options and vested eRx stock appreciation rights were able to elect to receive consideration in the form of a cash payment or vested stock appreciation rights of the Company. ~~See Note 17,~~ ~~Incentive Compensation Plans~~~~, for additional information.~~

Prior to the acquisition, we held an option to purchase eRx which we accounted for as an equity investment. Therefore, our acquisition of eRx was accounted for as a business combination achieved in stages under the acquisition method in accordance with Accounting Standards Codification 805, Business Combinations (“ASC 805”). Accordingly, at the acquisition, we remeasured our business purchase option to fair value and recognized a loss of ~~$6,000. As a result of working capital adjustments made during the second quarter of fiscal year 2021, we recognized an additional loss on investment of $300~~$6,000 which is recorded ~~within~~in Other, net on our consolidated statement of ~~operations.~~operations for the six months ended September 30, 2020.

The following table summarizes information related to this acquisition as of the acquisition date. The fair values of the assets acquired and the liabilities assumed were determined based on information available to the Company using primarily an income-based approach. During the second quarter of fiscal year 2021, we continued to make purchase price allocation adjustments to refine the fair value of assets acquired, including goodwill. These refinements primarily included an increase to the determined fair value of customer relationships and a decrease to the determined fair value of technology-based intangible assets. There were no material impacts to the consolidated statement of operations as a result of the adjustments. Additional information is being gathered to finalize the amounts with respect to deferred taxes. Accordingly, the measurement of the deferred tax assets acquired and deferred tax liabilities assumed may change upon finalization of the Company’s valuations and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. We consider our accounting for the ~~other~~ assets acquired and liabilities assumed in the eRx acquisition to be complete.

   eRx
Cash paid at closing
   $ 249,359
Fair value of eRx purchase option
   140,200
Fair value of vested stock appreciation rights
   5,097
Cash paid for canceled eRx equity awards
   5,891


Total Consideration Fair Value at Acquisition Date
   $ 400,547


Allocation of the Consideration Transferred:

Cash
   $ 54,108
Accounts receivable, net of allowance of $326
   12,747
Prepaid expenses and other current assets
   609
Goodwill
   224,452
Identifiable intangible assets:

Customer relationships (life 17 years)
   131,200
Internally developed technology (life 9-12 years)
   29,700
Other noncurrent assets
   20
Accounts payable
   (2,543 )
Accrued expenses and other current liabilities
   (10,976 )
Deferred income tax liabilities
   (38,770 )


Total consideration transferred
   $ 400,547


	eRx
Cash paid at closing	$	249,359
Fair value of eRx purchase option		140,500
Fair value of vested stock appreciation rights		5,097
Cash paid for canceled eRx equity awards		5,891
Total Consideration Fair Value at Acquisition Date	$	400,847

Allocation of the Consideration Transferred:
Cash	$	54,108
Accounts receivable		12,747
Prepaid expenses and other current assets		609
Goodwill		225,156
Identifiable intangible assets:
Customer relationships (life 17 years)		131,200
Technology-based intangible assets (life 9-12 years)		29,700
Other noncurrent assets		20
Accounts payable		(2,543)
Accrued expenses and other current liabilities		(10,933)
Deferred income tax liabilities		(39,217)
Total consideration transferred	$	400,847

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

The goodwill recognized, all of which is assigned to the Network Solutions segment, is primarily attributable to expected synergies of the combined businesses and the acquisition of an assembled workforce knowledgeable of the healthcare and information technology industries. The goodwill is not expected to be deductible for tax purposes. See Note 6, Goodwill.

Acquisition costs related to the purchase of eRx were not material.

PDX, Inc.

On June 1, 2020, we completed the cash purchase of 100% of the ownership interest in PDX, Inc. (“PDX”), a company focused on delivering ~~patient centric~~patient-centric and innovative technologies for pharmacies and health systems. We accounted for this transaction as a business combination using the acquisition method.

The fair values of the assets acquired and the liabilities assumed were determined based on information available to the Company using primarily an income-based approach. During the second quarter of fiscal year 2021, we continued to make purchase price allocation adjustments to refine the fair value of assets acquired, including goodwill. These refinements primarily included an increase to the determined fair value of customer relationships and decreases to the determined fair values of technology-based intangible assets and deferred revenue. There were no material impacts to the consolidated statement of operations as a result of the adjustments. Additional information is being gathered to finalize the amounts with respect to deferred taxes. Accordingly, the measurement of the deferred tax assets acquired and deferred tax liabilities assumed may change upon finalization of the Company’s valuations and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. We consider our accounting for the ~~other~~ assets acquired and liabilities assumed in the PDX acquisition to be complete.

After customary working capital adjustments, transaction fees and other adjustments, the total consideration fair value at the acquisition date was $198,291. The following table summarizes the allocation of consideration transferred:

   PDX
Cash
   $ 755
Accounts receivable, net of allowance of $1,092
   5,739
Prepaid expenses and other current assets
   2,251
Property and equipment
   840
Goodwill
   98,830
Identifiable intangible assets:

Customer relationships (life 18 years)
   74,300
Technology-based intangible assets (life 10-11 years)
   25,300
Other noncurrent assets
   690
Accounts payable
   (3,882 )
Deferred revenue, current
   (2,946 )
Accrued expenses and other current liabilities
   (3,364 )
Other noncurrent liabilities
   (222 )


Total consideration transferred
   $ 198,291


	PDX
Cash	$	755
Accounts receivable		5,739
Prepaid expenses and other current assets		2,251
Property and equipment		840
Goodwill		98,830
Identifiable intangible assets:
Customer relationships (life 18 years)		74,300
Technology-based intangible assets (life 10-11 years)		25,300
Other noncurrent assets		690
Accounts payable		(3,882)
Deferred revenue, current		(2,946)
Accrued expenses and other current liabilities		(3,364)
Other long-term liabilities		(222)
Total consideration transferred	$	198,291

The goodwill recognized, all of which is assigned to the Network Solutions segment, is primarily attributable to expected synergies of the combined businesses and the acquisition of an assembled workforce knowledgeable of the healthcare and information technology industries. The goodwill is expected to be deductible for tax purposes. See Note 6, Goodwill.

Acquisition costs related to the purchase of PDX were not material.

~~Nucleus.io~~

In August 2020, we completed the acquisition of Nucleus.io, a leader in the development of advanced, fully enabled, cloud-native imaging and workflow technology. We acquired Nucleus.io for total consideration of $35,120 and accounted for the acquisition as a business combination. The consideration transferred was primarily allocated to technology-based intangible assets of $11,700 and goodwill of $22,341. The goodwill recognized is assigned to the Software and Analytics segment. The preliminary values of the consideration transferred, assets acquired and liabilities assumed in the acquisition, including the related tax effects, are subject to change upon receipt of a final valuation and working capital settlement.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

~~Fiscal Year 2020 Transactions~~

~~The Merger~~

~~On March 10, 2020, the Company combined with SpinCo in a~~ ~~two-step all-stock~~ “Reverse Morris Trust” transaction that involved a separation of SpinCo from McKesson followed by the merger of SpinCo with and into the Company, with the Company as the surviving company. As a result of the Merger, the Joint Venture became a wholly owned subsidiary of the Company.

McKesson accepted 15,426,537 shares of its own common stock, par value $0.01 in exchange for all 175,995,192 issued and outstanding shares of SpinCo common stock, par value $0.001 per share (the “SpinCo Common Stock”). All shares of SpinCo Common Stock were then converted into an equal number of shares of common stock of the Company, par value $0.001, which the Company issued to the former holders of SpinCo Common Stock, together with cash in lieu of any fractional shares.

Prior to the Merger, we accounted for our investment in the Joint Venture under the equity method of accounting. Therefore, the acquisition of control of the Joint Venture was accounted for as a business combination achieved in stages under the acquisition method in accordance with ASC 805. Accordingly, we remeasured our previously held equity interest in the Joint Venture to fair value by reference to the publicly traded price of the common shares issued to SpinCo shareholders in exchange for the remaining 58% equity interest in the Joint Venture. Upon remeasurement, we recognized a loss on investment of $230,229. The loss represents the amount by which the carrying value of our investment in the Joint Venture exceeded the fair value of our 42% interest immediately prior to the Merger.

The fair values of the assets acquired and the liabilities assumed were determined based on information available to the Company. Additional information is being gathered to finalize the provisional measurements with respect to deferred taxes. Accordingly, the measurement of the deferred tax assets acquired and deferred tax liabilities assumed may change upon finalization of the Company’s valuations and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date. During the first quarter of fiscal year 2021, we increased the estimated fair value of our deferred tax liability by $1,604 which also impacted goodwill. There was no impact to the consolidated statement of operations as a result of the adjustment. We consider our accounting for the other assets acquired and liabilities assumed in the Merger to be complete.

~~The following table summarizes information related to this acquisition as of the acquisition date:~~

Net Assets acquired

Cash
   $ 330,665
Accounts receivable, net of allowance of $22,059
   718,895
Contract assets
   132,704
Prepaid and other current assets
   115,265
Investment in business purchase option
   146,500
Property and equipment, net
   206,751
Goodwill
   4,362,252
Other noncurrent assets
   169,539
Identified intangible assets:

Customer relationships (life 12-16 years)
   3,056,000
Tradenames (life 18 years)
   146,000
Technology-based intangible assets (life 6-12 years)
   1,188,000
Drafts and accounts payable
   (60,637 )
Accrued expenses
   (559,456 )
Deferred revenue, current
   (292,528 )
Current portion of long-term debt
   (28,969 )
Other current liabilities
   (22,732 )
Long-term debt, excluding current portion
   (4,713,565 )
Deferred income tax liabilities
   (579,680 )
Tax receivable agreement obligations with related parties
   (176,586 )
Other long-term liabilities
   (102,675 )


Net Assets acquired
   $ 4,035,743


Summary of purchase consideration:

Fair value of shares issued to SpinCo shareholders

(175,995,192 shares at $12.47 per share):

Common Stock, $0.001 par value
   $ 176
Additional paid-in capital
   2,194,484
Fair value of Joint Venture equity interest previously held
   1,589,040
Fair value of Joint Venture equity interest previously held through TEUs
   216,764
Settlement of dividend receivable
   42,778
Repayment of advances to member
   (7,499 )


Purchase consideration
   $ 4,035,743

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

The goodwill recognized in the Merger is primarily attributable to expected synergies of the combined businesses and the acquisition of an assembled workforce knowledgeable of the healthcare and information technology industries in which we operate. The majority of the goodwill is not expected to be deductible for tax purposes.

~~Acquisition costs related to the Merger were not material.~~

5. Dispositions

Connected Analytics

On May 1, 2020, we completed the sale of our Connected Analytics business, which was included in our Software and Analytics segment, for total consideration of $55,000, subject to a customary working capital adjustment, including a $25,000 note receivable from the buyer which was recorded within Other noncurrent assets, net on the consolidated balance ~~sheet.~~sheet at June 30, 2020. The net book value of the Connected Analytics business prior to the sale was ~~$23,093~~$23,428, which includes primarily net accounts receivable of ~~$16,575,~~$16,636, goodwill of $21,705 and deferred revenue of ~~$17,133.~~$17,083. In connection with this transaction, we recognized a pre-tax gain on disposal of ~~$24,608~~$24,337 during the year ended March 31, 2021, which iswas included within Gain on sale of businesses on the consolidated statement of operations. In July 2020, we received $25,000 plus interest from the buyer in satisfaction of the outstanding note receivable.

Capacity Management

On December 2, 2020, we completed the sale of our Capacity Management business, which was included in our Software and Analytics segment, for total consideration of $67,500, subject to a customary working capital adjustment. The net book value of the Capacity Management business prior to the sale was $31,690, which includes primarily net accounts receivable of $14,991, goodwill of $26,944 and deferred revenue of $15,230. In connection with this transaction, we recognized a pre-tax gain on disposal of $31,690 during the year ended March 31, 2021.

6. Goodwill

The following table presents the changes in the carrying amount of goodwill:



	Software and Analytics		Network Solutions		Technology-Enabled Services		Total
Balance at March 31, 2021	$	1,758,302	$	1,970,739	$	379,752	$	4,108,792
Acquisitions		—		—		—		—
Dispositions		—		—		—		—
Effects of foreign currency		2,173		—		—		2,173
Adjustments		(142)		—		—		(142)
Balance at September 30, 2021	$	1,760,333	$	1,970,739	$	379,752	$	4,110,823

   Software and
Analytics    Network Solutions    Technology-Enabled
Services    Total
Balance at March 31, 2020
   $ 1,770,118    $ 1,645,831    $ 379,376    $ 3,795,325
Acquisitions ⁽¹⁾
   23,191    324,143    133    347,467
Dispositions
   (24,073 )    —      —      (24,073 )
Effects of foreign currency
   7,762    —      —      7,762








Balance at September 30, 2020
   $ 1,776,998    $ 1,969,974    $ 379,509    $ 4,126,481

⁽¹⁾~~Amounts relate primarily~~

7. Long-Term Debt

Long-term debt consists of the following:


	September 30, 2021		March 31, 2021
Senior Credit Facilities
$5,100,000 Term Loan Facility, due March 1, 2024, net of unamortized discount of $71,287 and $87,698 at September 30, 2021 and March 31, 2021, respectively (effective interest rate of 4.42% and 4.42%, respectively)	$	3,321,963	$	3,405,552
$785,000 Revolving Facility, expiring July 3, 2024, and bearing interest at a variable interest rate		—		—
Senior Notes
$1,325,000 5.75% Senior Notes due March 1, 2025, net of unamortized discount of $6,124 and $6,921 at September 30, 2021 and March 31, 2021, respectively (effective interest rate of 5.90% and 5.90%, respectively)		1,318,876		1,318,079
Tangible Equity Unit Senior Amortizing Note
$47,367 Senior Amortizing Notes due June 30, 2022, net of unamortized discount of $120 and $293 at September 30, 2021 and March 31, 2021, respectively (effective interest rate of 7.44% and 7.44%, respectively)		12,470		20,345
Other		9,088		18,138
Less current portion		(19,152)		(27,339)
Long-term debt, excluding current portion	$	4,643,245	$	4,734,775

Our long-term indebtedness includes a senior secured term loan facility (the “Term Loan Facility”) and a revolving credit facility (the “Revolving Facility”; together with the Term Loan Facility, the “Senior Credit Facilities”). The Senior Credit Facilities provide us with the right at any time to ~~the acquisitions of eRx, PDX and Nucleus.io. See Note 4,~~ ~~Business Combinations~~.

~~7. Equity Method Investment in Change Healthcare LLC~~

~~Prior to the Merger, the Company accounted for its investment~~request additional term loan tranches and/or term loan increases, increases in the ~~Joint Venture using the equity method~~revolving commitments and/or additional revolving credit facilities. Our long-term indebtedness also includes 5.75% senior notes due March 1, 2025 (the “Senior Notes”) with interest payable semi-annually on March 1 and September 1 of accounting. During the three and six months ended September 30, 2019, the Company recorded a proportionate share of the loss from this investment of $56,179 and $95,732, respectively, which included transaction and integration expenses incurred by the Joint Venture and basis adjustments, including amortization expenses, associated with equity method intangible assets. These amounts are in Loss from Equity Method Investment in the Joint Venture in the consolidated statements of operations.

each year.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

Following completion of the Merger, we consolidate the Joint Venture and no longer account for our ownership interest as an equity method investment. Summarized statement of operations information of the Joint Venture prior to the Merger is as follows:

   Three Months Ended    Six Months Ended
   September 30, 2019    September 30, 2019
Total revenue
   $ 795,811    $ 1,651,367
Cost of operations (exclusive of depreciation and amortization)
   $ 331,234    $ 658,181
Customer postage
   $ 57,110    $ 115,594
Net income (loss)
   $ (130 )    $ 71,785

~~8. Leases~~

We lease office space, other facilities, office equipment for internal use, vehicles and bulk invoice pricing and mailing related equipment for customer solutions. Our lease portfolio includes both operating and finance leases with original terms ranging from one to 15 years.

~~Statement of Operations Information~~

~~The components of lease cost are as follows:~~

      Three Months Ended    Six Months Ended

Statement of Operations Location
   September 30, 2020    September 30, 2020
Operating lease cost
   (1)    $ 11,686    $ 22,158
Finance lease cost

Amortization expense

Depreciation and amortization
   123    202
Interest expense

Interest expense, net
   34    67
Short-term lease cost
   (1)    244    486
Variable lease cost
   (1)    1,909    3,751
Sublease income

Other, net
   (355 )    (662 )




Total lease cost
      $ 13,641    $ 26,002

⁽¹⁾	~~Cost classification varies depending on the leased asset. Costs are primarily included within sales, marketing, general and administrative and cost of operations.~~

~~Balance Sheet Information~~

~~Right-of-use~~ ~~assets and lease liabilities are as follows:~~

Balance Sheet Location
   September 30, 2020
Right-of-use assets

Operating leases
   Operating lease right-of-use assets, net    $ 106,790
Finance leases
   Property and equipment, net    2,085


Total right-of-use assets
      $ 108,875


Lease liabilities

Current liabilities

Operating leases
   Current portion of operating lease liabilities    $ 32,060
Finance leases
   Current portion of long-term debt    588
Noncurrent liabilities

Operating leases
   Long-term operating lease liabilities    88,239
Finance leases
   Long-term debt, excluding current portion    1,554


Total lease liabilities
      $ 122,441

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

~~Cash Flow Information~~

~~Supplemental cash flow information is as follows:~~

   Six Months Ended September 30, 2020
   Operating Leases    Finance Leases
Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows
   $ 20,747    $ 67
Financing cash flows
   $ —      $ 298
Non-cash activities

Right-of-use assets obtained in exchange for lease liabilities⁽¹⁾
   $ 11,733    $ 363

⁽¹⁾	~~Amounts exclude the impact of adopting ASC 842. See Note 2,~~ ~~Significant Accounting Policies~~.

~~Maturity of Lease Liabilities~~

~~Maturities of lease liabilities by fiscal year as~~As of September 30, ~~2020 are as follows:~~2021, we were in compliance with all of the applicable covenants under the Senior Credit Facilities and the Senior Notes.

   Operating Leases    Finance Leases    Total
Remainder of 2021
   $ 20,646    $ 366    $ 21,012
2022
   36,889    664    37,553
2023
   27,680    485    28,165
2024
   19,139    468    19,607
2025
   14,027    390    14,417
2026 and thereafter
   25,484    —      25,484






Total lease liabilities, undiscounted
   143,865    2,373    146,238
Less: Imputed interest
   23,566    231    23,797






Total lease liabilities
   $ 120,299    $ 2,142    $ 122,441

~~Maturities~~In the second quarter of ~~lease liabilities by~~ fiscal year as2022, we repaid $100,000 on our Term Loan Facility and recognized a loss on extinguishment of ~~March 31, 2020 were as follows:~~$2,232 in our consolidated statement of operations.

   Operating Leases    Finance Leases    Total
2021
   $ 40,476    $ 468    $ 40,944
2022
   34,750    468    35,218
2023
   23,761    468    24,229
2024
   15,393    468    15,861
2025
   10,780    390    11,170
2026 and thereafter
   15,850    —      15,850






Total lease liabilities, undiscounted
   $ 141,010    $ 2,262    $ 143,272

~~Other Information~~

~~Other information related to our leases as of September 30, 2020 is as follows:~~

   Operating Leases Finance Leases
Weighted-average remaining lease term
   4.88 years 3.88 years
Weighted-average discount rate
   7.40 % 6.55 %

9.8. Interest Rate Cap Agreements

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage exposures to a wide variety of business and operational risks through management of core business activities. We manage economic

risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial ~~instruments~~instrument contracts to manage differences in the amount, timing and duration of known or expected cash receipts and known or expected cash payments principally related to existing borrowings.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate cap agreements as part of our interest rate risk management strategy. Payments and receipts related to interest rate cap agreements are included in cash flows from financing activities in the consolidated statements of cash flows.

In August 2018, the Joint Venture executed annuitized interest rate cap agreements with notional amounts of $500,000, accreting to $1,500,000 to limit the exposure of the variable component of interest rates under the Term Loan Facility or future variable rate indebtedness to a maximum of 1.0%. The interest rate cap agreements became effective August 31, 2018, accreted to $1,500,000 in March 2020 and expire December 31, 2021. Upon completion of the Merger, these agreements were redesignated as cash flow hedges of the Company.

In March 2020, we executed additional annuitized interest rate cap agreements with notional amounts totaling $1,000,000 to limit the exposure of the variable component of the interest rates under the Term Loan Facility or future variable rate indebtedness to a maximum of 1.0%. Each interest rate cap agreement became effective March 31, 2020 and expires March 31, 2024.

At September 30, ~~2020,~~2021, each of our outstanding interest rate cap agreements were designated as cash flow hedges of interest rate risk and were determined to be highly effective.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. We estimate that ~~$1,604~~ $2,007will be reclassified as an increase to interest expense within one year.

~~Fair Value~~

The fair value of derivative instruments ~~at September 30, 2020 and March 31, 2020~~ is as follows:


		Fair Values of Derivative Financial Instruments							Fair Values of Derivative Financial Instruments
		Asset (Liability)							Asset (Liability)
Derivative financial instruments designated as hedging instruments:		Balance Sheet Location	September 30, 2020			March 31, 2020			Balance Sheet Location	September 30, 2021		March 31, 2021
Interest rate cap agreements		Prepaid and other current assets	$	—		$	—		Other noncurrent assets, net	$	8	$	—
Interest rate cap agreements		Accrued expenses		(28,961	)		(28,131	)	Accrued expenses		(8,666)		(22,360)
Interest rate cap agreements	��	Other long-term liabilities		(10,374	)		(19,277	)	Other long-term liabilities		(53)		(365)

Total			$	(39,335	)	$	(47,408	)		$	(8,711)	$	(22,725)

~~See Note 10,~~ ~~Fair Value Measurements~~~~, for additional information.~~

Effect of Derivative Instruments on the Statement of Operations

The effect of the derivative instruments on the consolidated statements of operations and other comprehensive income (loss) is as follows:

   Three Months Ended
September 30,    Six Months Ended
September 30,
Derivative financial instruments in cash flow hedging relationships:    2020    2019    2020    2019
Gain/(loss) related to derivative financial instruments recognized in other comprehensive income (loss)
   $ (2,277 )    $ —      $ (6,737 )    $ —








Gain/(loss) related to portion of derivative financial instruments reclassified from accumulated other comprehensive income (loss) to interest expense
   $ 281    $ —      $ 557    $ —


	Three Months Ended ‎				Six Months Ended ‎
	September 30,				September 30,
Derivative financial instruments in cash flow hedging relationships:	2021		2020		2021		2020
Gain (loss) related to derivative financial instruments recognized in other comprehensive income (loss)	$	(502)	$	(2,277)	$	(796)	$	(6,737)
(Gain) loss related to portion of derivative financial instruments reclassified from accumulated other comprehensive (income) loss to interest expense	$	543	$	281	$	956	$	557

Credit Risk-Related Contingent Features

We have agreements with each of our derivative counterparties providing that if we default on any of our indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then we also could be declared in default on our derivative obligations.

As of September 30, ~~2020,~~2021, the termination value of derivative financial instruments in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was ~~$40,314.~~$8,857. If we had ~~breached~~defaulted on any of ~~these provisions~~our indebtedness at September 30, ~~2020,~~2021, we could have been required to settle our obligations under the agreements at this termination value. We do not offset any derivative financial instruments and the derivative financial instruments are not subject to collateral posting requirements.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

~~10.~~9. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

~~Assets~~The following table summarizes our assets and liabilities ~~that are~~ measured at fair value on a recurring basis, ~~consist of derivative financial instruments and contingent consideration obligations. The following tables summarize these items,~~ aggregated by the level in the fair value hierarchy within which those measurements fall:

      Quoted in    Significant Other    Significant
   Balance at    Identical Markets    Observable Inputs    Unobservable Inputs
Description    September 30, 2020    (Level 1)    (Level 2)    (Level 3)
Interest rate cap agreements
   $ (39,335 )    $ —      $ (39,335 )    $ —
Contingent consideration obligation
   —      —      —      —








Total
   $ (39,335 )    $ —      $ (39,335 )    $ —


				Quoted in		Significant Other			Significant					Quoted in		Significant Other		Significant
	Balance at			Identical Markets		Observable Inputs			Unobservable Inputs					Identical Markets		Observable Inputs		Unobservable Inputs
Description	March 31, 2020			(Level 1)		(Level 2)			(Level 3)
												Total		(Level 1)		(Level 2)		(Level 3)
Balance at September 30, 2021:
Interest rate cap agreements	$	(47,408	)	$	—	$	(47,408	)	$	—		$	(8,711)	$	—	$	(8,711)	$	—
Contingent consideration obligation		(3,000	)		—		—			(3,000	)

Total	$	(50,408	)	$	—	$	(47,408	)	$	(3,000	)	$	(8,711)	$	—	$	(8,711)	$	—

Balance at March 31, 2021:
Interest rate cap agreements												$	(22,725)	$	—	$	(22,725)	$	—
Total												$	(22,725)	$	—	$	(22,725)	$	—

Derivative Financial Instruments

The valuation of our derivative financial instruments is determined using widely accepted valuation techniques, including a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, including interest rate ~~curves.~~curves and implied volatilities. The fair value of the interest rate cap agreements is determined using the market standard methodology of ~~netting~~discounting the ~~discounted~~ future ~~fixed cash payments (or receipts) and the discounted~~ expected ~~variable~~ cash receipts ~~(or payments) using~~that would occur if variable interest rates rise above the ~~overnight index swap~~strike rate asof the ~~discount rate.~~caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we ~~considered~~consider the impact of netting and any applicable credit ~~enhancements and measured~~enhancements. We measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilize Level 3 inputs to evaluate the likelihood of both our own default and counterparty default. As of September 30, ~~2020,~~2021, we determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives and therefore, the ~~derivatives. As a result, the derivative~~ valuations are classified in Level 2 of the fair value hierarchy.

Contingent Consideration

~~The~~Prior to December 31, 2020, the valuation of our contingent consideration ~~obligations~~obligation was determined using a discounted cash flow method that involved a Monte Carlo simulation. This analysis reflects the contractual terms of the purchase agreements (i.e., minimum and maximum payments, length of earn-out periods, manner of calculating amounts due, etc.) and utilizes assumptions with regard to future cash flows that were determined using a Monte Carlo simulation which were then discounted to present value using an appropriate discount rate. Significant increases ~~with respect to assumptions as to~~in future revenue assumptions would have resulted in a higher fair value measurement while an increase in the discount rate would have resulted in a lower fair value measurement. The measurement period ended December 31, 2020 at which point no obligations remained and the contingent consideration was reduced to 0.

The table below presents a reconciliation of the fair value of the liabilities that use significant unobservable inputs (Level 3):

   Three Months Ended September 30,    Six Months Ended September 30,
   2020    2019    2020    2019
Balance at beginning of period
   $ (550 )    $ —      $ (3,000 )    $ —
Gain/(loss) included in contingent consideration
   550    —      3,000    —








Balance at end of period
   $ —      $ —      $ —      $ —


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance at beginning of period	$	—	$	(550)	$	—	$	(3,000)
Gain (loss) included in Other, net		—		550		—		3,000
Balance at end of period	$	—	$	—	$	—	$	—

~~Change Healthcare Inc.~~15

~~Notes to Consolidated Financial Statements~~

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

Assets and Liabilities Measured at Fair Value upon Initial Recognition

The carrying ~~amounts~~amount and the fair ~~values~~value of financial instruments held as of September 30, ~~2020~~2021 and March 31, ~~2020~~2021 were as follows:


	September 30, 2021				March 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents	$	80,414	$	80,414	$	113,101	$	113,101
Senior Credit Facilities (Level 2)	$	3,321,963	$	3,389,178	$	3,405,552	$	3,488,883
Senior Notes (Level 2)	$	1,318,876	$	1,338,250	$	1,318,079	$	1,351,500
Debt component of tangible equity units (Level 2)	$	12,470	$	12,896	$	20,345	$	21,435

   September 30, 2020    March 31, 2020
   Carrying Amount    Fair Value    Carrying Amount    Fair Value
Cash and cash equivalents
   $ 167,477    $ 167,477    $ 410,405    $ 410,405
Accounts receivable
   $ 626,991    $ 626,991    $ 740,105    $ 740,105
Investment in business purchase option
   $ —      $ —      $ 146,500    $ 146,500
Senior Credit Facilities (Level 2)
   $ 3,648,824    $ 3,678,387    $ 3,682,457    $ 3,452,687
Senior Notes (Level 2)
   $ 1,317,305    $ 1,315,063    $ 997,772    $ 950,000
Debt component of tangible equity units (Level 2)
   $ 28,058    $ 28,624    $ 35,431    $ 34,806

~~Additionally,~~As described in Note 4, Business Combinations, the assets acquired and liabilities assumed as part of business acquisitions were recorded at fair value upon initial recognition. ~~See Note 4,~~ ~~Business Combinations~~~~, for additional information.~~

~~11. Long-Term Debt~~

~~Our long-term indebtedness~~10. Tangible Equity Units

In July 2019, we completed our offering of 5,750,000 TEUs. Total proceeds, net of underwriting discounts, were $278,875. Each TEU, which has a stated amount of $50, is comprised of a stock purchase contract and a senior secured term loan facility (the “Term Loan Facility”), a revolving credit facility (the “Revolving Facility”; together with the Term Loan Facility, the “Senior Credit Facilities”), and 5.75% senior notesamortizing note due ~~2025 (the “Senior Notes”).~~

~~Long-term debt as of September~~June 30, ~~2020 and March 31, 2020, consisted~~2022. Unless settled earlier, each purchase contract will automatically settle on June 30, 2022. Holders of the ~~following:~~

   September 30, 2020    March 31, 2020
Senior Credit Facilities

$5,100,000 Term Loan Facility, due March 1, 2024, net of unamortized discount of $109,426 and $125,793 at September 30, 2020 and March 31, 2020, respectively (effective interest rate of 4.42% and 4.42%, respectively)
   $ 3,648,824    $ 3,682,457
$785,000 Revolving Facility, expiring July 3, 2024, and bearing interest at a variable interest rate ⁽¹⁾
   —      250,000
Senior Notes

$1,325,000 5.75% Senior Notes due March 1, 2025, net of unamortized discount of $7,695 and $2,228 at September 30, 2020 and March 31, 2020, respectively (effective interest rate of 5.90% and 5.80%, respectively)
   1,317,305    997,772
Tangible Equity Unit Senior Amortizing Note

$47,367 Senior Amortizing Notes due June 30, 2022, net of unamortized discount of $535 and $842 at September 30, 2020 and March 31, 2020, respectively (effective interest rate of 7.44% and 7.44%, respectively)
   28,058    35,431
Other
   20,038    23,413
Less current portion
   (30,488 )    (278,779 )




Long-term debt
   $ 4,983,737    $ 4,710,294

⁽¹⁾	~~The weighted average interest rate at March 31, 2020 was 3.25%.~~

~~Change Healthcare Inc.~~

~~Notes~~purchase contracts may elect to ~~Consolidated Financial Statements~~

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

~~Senior Credit Facilities~~

Inearly settle prior to June ~~2020, we repaid our outstanding Revolving Facility balance~~30, 2022, at the minimum settlement rate of $250,000. The Revolving Facility has a total borrowing capacity of $785,000 less outstanding letters of credit which totaled $5,016 and $5,118 at September 30, 2020 and March 31, 2020, respectively, leaving $779,984 and $529,882 available for borrowing, respectively.

~~Senior Notes Issuance~~

On April 21, 2020, we issued an additional $325,000 aggregate principal amount of 5.75% Senior Notes due 2025 (the “Notes”) and incurred issuance costs of $5,364. The Notes were issued as part of the same series as the $1,000,000 Senior Notes issued in February 2017.

~~Term Loan Repayment~~

~~In September 2020, we repaid $50,000 on our Term Loan Facility and recognized a loss on extinguishment of $1,489 in our consolidated statement of operations.~~

~~12. Net Income (Loss) Per Share~~

~~The following table sets forth the computation of basic and diluted net income (loss) per share~~3.2051 shares of common ~~stock:~~stock per purchase contract, resulting in the holder receiving the minimum number of shares for that purchase contract.

   Three Months Ended September 30,    Six Months Ended September 30,
   2020    2019    2020    2019
Numerator:

Net income (loss)
   $ (42,622 )    $ (93,935 )    $ (101,316 )    $ (131,451 )
Denominator:

Weighted average common shares outstanding
   304,172,412    123,794,511    303,881,424    99,897,191
Minimum shares issuable under purchase contracts
   16,465,704    18,429,325    16,465,704    9,214,662








Total weighted average shares outstanding
   320,638,116    142,223,836    320,347,128    109,111,853








Basic and diluted net income (loss) per share
   $ (0.13 )    $ (0.66 )    $ (0.32 )    $ (1.20 )

~~Due to their antidilutive effect,~~In the ~~following securities have been excluded from diluted net income (loss) per share:~~

   Three Months Ended
September 30,    Six Months Ended
September 30,
   2020    2019    2020    2019
Dilutive shares issuable under purchase contracts
   1,446,935    3,685,750    2,369,987    1,842,875
Time-Vesting Options
   681,938    1,156,510    636,267    1,405,556
Restricted Share Units
   778,123    908,745    875,084    454,373
Deferred Stock Units
   61,858    —        55,567    —

~~13. Tax Receivable Agreements~~

~~Upon~~event of certain types of changes in control (including the consummation of the ~~Merger, we assumed obligations related~~UHG Transaction) or other specified Reorganization Events (as defined in the TEU agreements), each outstanding purchase contract will convert to ~~certain tax receivable agreements (collectively,~~a contract entitling the ~~“tax receivable agreements”) entered into by the Joint Venture with its current and former owners. Depending on whether the respective tax receivable agreements were assumed as part~~holder to receive cash or other assets that holders of the ~~Merger~~Company’s common stock are entitled to receive in the Reorganization Event. The amount of cash or ~~became effective after the Merger, the liabilities related~~other assets each holder is entitled to ~~the tax receivable agreements are subject to differing accounting models as explained below.~~

Under the tax receivable agreements assumed in connection with the Merger, we are obligated to make payments to certain former stockholders as well to affiliates of The Blackstone Group, L.P. and Hellman & Friedman LLC, some of whom are considered related parties. The cash payments made are equal to 85% of the applicable cash savings realized or expected to be realized for the applicable tax receivable agreements. The tax receivable agreements were measured at their fair value as part of the Merger and are recognized at their initial fair value plus recognized accretion to datefollowing a Reorganization Event is based on the ~~consolidated balance sheet. Accretion recorded during~~Applicable Market Value and the ~~period pertaining to related party payments is recorded separately to Accretion and changes~~corresponding settlement rate in ~~estimate with related parties, net, whereas~~ ~~non-related~~ party accretion is recorded within Sales, marketing, general and administrative in the consolidated statement of operations. As the payments are due to both current and former owners, we have separately presented the estimated aggregated payments due to related parties in future fiscal years in the table below.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

~~McKesson Tax Receivable Agreement~~

In connection with the closing of the Transactions, we along with the Joint Venture, the subsidiaries of McKesson that served as members of the Joint Venture (“McK Members”), and McKesson entered into a tax receivable agreement (the “McKesson Tax Receivable Agreement”). The McKesson Tax Receivable Agreement generally requires payment to affiliates of McKesson of 85% of certain cash tax savings realized (or, in certain circumstances, deemed to be realized) in periods ending on or after the date on which McKesson ceases to own at least 20% of the Joint Venture as a result of (i) certain amortizable tax basis in assets transferred to the Joint Ventureeffect at the Contribution Agreement Closing and (ii) imputed interest deductions and certain other tax attributes arising from payments under the McKesson Tax Receivable Agreement. Following the McKesson exit and based on anticipated amortization allocations, we recorded an obligation for the McKesson Tax Receivable estimated payments, which represents a loss contingency under ASC 450 and is included in the other long-term liabilities on the consolidated balance sheet. Future changes in this value will be reflected within pretax income or loss.time.

~~Based on facts and circumstances~~The following table summarizes TEU activity:


		Tangible Equity Units
Outstanding at March 31, 2020		5,137,345
Issued		—
Conversions		—
Outstanding at September 30, 2020		5,137,345
Outstanding at March 31, 2021		4,833,645
Issued		—
Conversions		(779,325)
Outstanding at September 30, 2021		4,054,320

11. Tax Receivable Agreements

As of September 30, 2021, we estimate the aggregate payments due under our tax receivable agreements in future fiscal years to be as follows:


	Related Party Tax Receivable Agreements			Other Tax Receivable Agreements			McKesson Tax Receivable Agreement			Related Party ‎Tax Receivable Agreements		McKesson ‎Tax Receivable Agreement		Other ‎Tax Receivable Agreements		Total
Remainder of 2021	$	—		$	—		$	—
2022		11,606			10,788			128
Remainder of 2022										$	—	$	—	$	—	$	—
2023		47,521			19,947			18,306			11,392		24,748		10,761		46,901
2024		30,544			15,366			19,905			10,626		16,478		10,295		37,399
2025		15,381			10,977			23,150			37,213		20,052		16,557		73,822
2026											46,623		57,196		19,350		123,169
Thereafter		73,666			58,755			103,144			63,323		39,785		49,777		152,885

Gross expected payments		178,718			115,833			164,633			169,177		158,259		106,740		434,176
Less: Amounts representing discount		(68,454	)		(37,541	)		—			(60,179)		—		(32,803)		(92,982)

Total tax receivable agreement obligation		110,264			78,292			164,633
Less: Current portion due (included in accrued expenses)		(11,606	)		(10,788	)		(128	)

Tax receivable agreement long-term obligation	$	98,658		$	67,504		$	164,505

Total tax receivable agreement obligations											108,998		158,259		73,937		341,194
Less: Current portion due											(11,392)		(24,748)		(10,761)		(46,901)
Tax receivable agreement long-term obligations										$	97,606	$	133,511	$	63,176	$	294,293

The timing and/or amount of aggregate payments due may vary based on a number of factors, including the amount of net operating losses and income tax rates. The amount of aggregate payments shown above do not reflect any potential impacts from the UHG Transaction.

~~14.~~12. Income Taxes

The following table summarizes income tax information:


													Three Months Ended				Six Months Ended
	Three Months Ended September 30,						Six Months Ended September 30,						September 30,				September 30,
	2020			2019			2020			2019				2021		2020		2021		2020
Income tax provision (benefit)	$	(13,388	)	$	(13,620	)	$	(26,849	)	$	(15,804	)	$	(16,749)	$	(13,388)	$	(25,198)	$	(26,849)
Effective tax rate		23.9	%		12.7	%		20.9	%		10.7	%		31.5%		23.9%		38.6%		20.9%

~~Three and Six Months Ended September 30, 2020 and 2019~~

Fluctuations in our reported income tax rates from the statutory rate are primarily due to the impacts of ~~our acquisition~~equity compensation, transaction costs, and ~~divestiture activity,~~ benefits recognized ~~as a result of~~for certain incentive tax credits resulting from research and experimental expenditures in the three and ~~discrete items recognized~~six months ended September 30, 2021 and our acquisition and divestiture activity in the three and six months ended September 30, 2020. ~~For~~

13. Net Income (Loss) Per Share

The following table sets forth the ~~three and six months ended September 30, 2019, fluctuations in our reported~~computation of net income tax rates from the statutory rate are primarily due to benefits recognized as a result of certain incentive tax credits resulting from research and experimental expenditures and discrete items recognized in the quarters.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited and amounts in thousands, except share and~~(loss) per share ~~amounts)~~of common stock:

~~15.~~


	Three Months Ended ‎September 30,				Six Months Ended ‎September 30,
Basic net income (loss) per share:	2021		2020		2021		2020
Numerator:
Net income (loss)	$	(36,404)	$	(42,622)	$	(40,009)	$	(101,316)
Denominator:
Weighted average common shares outstanding		311,065,959		304,172,412		309,980,392		303,881,424
Minimum shares issuable under purchase contracts		12,994,501		16,465,704		13,328,888		16,465,704
Total weighted average shares outstanding		324,060,460		320,638,116		323,309,280		320,347,128
Basic and diluted net income (loss) per share	$	(0.11)	$	(0.13)	$	(0.12)	$	(0.32)

Due to their antidilutive effect, the following securities have been excluded from diluted net income (loss) per share:


	Three Months Ended ‎September 30,				Six Months Ended ‎September 30,
	2021		2020		2021		2020
Restricted Share Units		3,797,124		778,123		4,769,824		875,084
Time-Vesting Options		1,655,445		681,938		1,787,769		636,267
Deferred Stock Units		137,410		61,858		136,509		55,567
Dilutive shares issuable under purchase contracts		—		1,446,935		—		2,369,987

14. Legal Proceedings

We are subject to various claims with customers and vendors, pending and potential legal actions for damages, investigations relating to governmental laws and regulators and other matters arising out of the normal conduct of its business.

UHG Transaction Proceedings

Following the announcement of the UHG Transaction, nine lawsuits challenging the UHG Transaction were filed in various jurisdictions. The first lawsuit, a putative class action alleging breaches of fiduciary duty, was filed in Tennessee Chancery Court, and was voluntarily dismissed without prejudice on March 17, 2021. The remaining eight lawsuits were filed in federal court between March 18, 2021 and April 7, 2021. The operative complaints in those actions named us and our ~~business.~~Board of Directors as defendants and alleged, among other things, that the proxy statement filed in conjunction with the UHG Transaction was materially incomplete and misleading in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder (“Section 14(a) Actions”). All of the Section 14(a) Actions were dismissed without prejudice by April 23, 2021.

We also received written demands from purported stockholders relating to the UHG Transaction. One of the stockholders who made a written demand subsequently filed a complaint against us in the Delaware Court of Chancery on April 13, 2021 pursuant to 8. Del. C. § 220, seeking certain books and records relating to the UHG Transaction. That action, which is captioned Waterford Township Policy & Fire Retirement System v. Change Healthcare, Inc., 2021-0317, remains pending and the parties have agreed to stay our deadline to respond to the operative pleading.

Government Subpoenas and Investigations

From time to time, we may receive subpoenas or requests for information from various government agencies. We generally respond to such subpoenas and requests in a cooperative, thorough and timely manner. These responses sometimes require time and effort and can result in incurring considerable costs. Such subpoenas and requests also can lead to the assertion of claims or the commencement of civil or criminal proceedings against us and other members of the health care industry, as well as to settlements.

Other Matters

In the ordinary course of business, we are involved in various other claims and legal proceedings. While the ultimate resolution of these matters has yet to be determined, we do not believe that it is reasonably possible that their outcomes will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.

~~16. Accumulated Other Comprehensive Income (Loss)~~

15. Related Party Transactions

Term Loans Held by Related Party

Affiliates of The Blackstone Group, L.P. (“Blackstone”) were significant stockholders at our inception and continue to hold a material interest in the Company. Certain investment funds managed by GSO Capital Partners LP (the “GSO-managed funds”) held a portion of the term loans under our Senior Credit Facilities. GSO Advisor Holdings LLC (“GSO Advisor”) is the general partner of GSO Capital Partners LP and Blackstone, indirectly through its subsidiaries, holds all of the issued and outstanding equity interests of GSO Advisor. As of September 30, 2021 and March 31, 2021, the GSO-managed funds held $286,096 and $162,189, respectively, in principal amount of the Senior Credit Facilities (none of which is classified within current portion of long-term debt).

Transactions with Blackstone Portfolio Companies

We provide various services to, and purchase services from, certain Blackstone portfolio companies under contracts that were executed in the normal course of business. The following is a summary of the accumulated other comprehensive income (loss) activity for the six months ended September 30, 2020 and 2019. Prior to the Merger, the activity in accumulated other comprehensive income (loss) reflects the proportionate share of the Joint Venture’s accumulated other comprehensive income (loss), net of taxes.

   Available    Foreign Currency       Accumulated
Other
   For Sale    Translation    Cash Flow    Comprehensive
   Debt Security    Adjustment    Hedge    Income (Loss)
Balance at March 31, 2019
   $ —      $ (1,565 )    $ (1,691 )    $ (3,256 )
Cumulative effect of accounting change of the Joint Venture-ASU 2018-02
   —      —      422    422
Change associated with foreign currency translation
   —      226    —      226
Change associated with current period hedging
   —      —      (5,117 )    (5,117 )
Reclassification into earnings
   —      —      (314 )    (314 )








Balance at June 30, 2019
   $ —      $ (1,339 )    $ (6,700 )    $ (8,039 )
Unrealized gain (loss) on available for sale debt securities of the Joint Venture
   1,173    —      —      1,173
Change associated with foreign currency translation
   —      1,583    —      1,583
Change associated with current period hedging
   —      —      (1,509 )    (1,509 )
Reclassification into earnings
   —      —      199    199








Balance at September 30, 2019
   $ 1,173    $ 244    $ (8,010 )    $ (6,593 )








Balance at March 31, 2020
   $ —      $ (7,084 )    $ (288 )    $ (7,372 )
Change associated with foreign currency translation
   —      6,353    —      6,353
Change associated with current period hedging
   —      —      (4,459 )    (4,459 )
Reclassification into earnings
   —      —      275    275








Balance at June 30, 2020
   $ —      $ (731 )    $ (4,472 )    $ (5,203 )
Change associated with foreign currency translation
   —      5,221    —      5,221
Change associated with current period hedging
   —      —      (2,277 )    (2,277 )
Reclassification into earnings
   —      —      281    281








Balance at September 30, 2020
   $ —      $ 4,490    $ (6,468 )    $ (1,978 )

~~Effective April 1, 2019, the Joint Venture adopted FASB ASU~~ ~~No. 2018-02,~~ which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The adoption of this update resulted in a reclassification between accumulative other comprehensive income (loss) and accumulated earnings (deficit).

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(unaudited~~revenue recognized and amounts ~~in thousands, except share~~paid related to service provided to and ~~per share amounts)~~from Blackstone portfolio companies:

~~17. Incentive Compensation Plans~~

~~Long Term Incentive Plan Awards~~


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenue recognized related to services provided	$	1,678	$	838	$	3,448	$	1,881
Amount paid related to services received	$	4,688	$	4,166	$	8,941	$	9,458

Employer Healthcare Program Agreement with Equity Healthcare

Effective January 1, 2014, we entered into an employer health program agreement with Equity Healthcare LLC (“Equity Healthcare”), an affiliate of Blackstone, whereby Equity Healthcare provides certain negotiating, monitoring and other services in connection with ~~the Omnibus Incentive Plan, during the six months ended September 30, 2020,~~our health benefit plans. In consideration for Equity Healthcare’s services, we ~~granted to our employees and directors one or~~pay a ~~combination~~fee of ~~time-vesting restricted stock units and cash settled restricted stock units under vesting terms that generally vary from one to four years from the date of grant.~~$1.00 per participating employee per month.

~~Restricted Stock Units~~ (“RSUs”) – We granted 307,485 and 5,724,801 RSUs during the three and six months ended September 30, 2020, respectively. The RSUs are subject to either a graded vesting schedule over four years or a ~~one-year~~ ~~cliff vesting schedule, depending on the terms of the specific award. Upon vesting, the RSUs are exchanged for shares of common stock.~~

~~Cash Settled Restricted Stock Units~~ ~~(“CSRSUs”) – We granted 0 and 172,524 CSRSUs during the three and six months ended September 30, 2020, respectively. The CSRSUs vest 100% upon the~~ ~~one-year~~ ~~anniversary of the date of grant. Upon vesting, we are required to pay cash in settlement of such CSRSUs based on their fair value at the date such CSRSUs vest.~~

We recognized compensation expense related to these awards granted during the three and six months ended September 30, 2020 of $4,635 and $5,453, respectively. At September 30, 2020, aggregate unrecognized compensation expense related to these awards was $62,674.

eRx ~~Awards~~

Upon completion of the eRx acquisition all outstanding eRx equity awards were canceled. Holders of eRx stock options and vested eRx stock appreciation rights were able to elect to receive consideration in the form of a cash payment or vested stock appreciation rights of the Company. For those individuals with unvested eRx equity awards, we elected to issue replacement awards with vesting and exercisability terms generally identical to the existing eRx awards which were replaced. These replacement awards granted under the Omnibus Incentive Plan consisted of unvested restricted share units (“eRx RSUs”) and unvested stock appreciation rights (“eRx SARs”) with terms identical to the original eRx awards. The awards vest subject to the employee’s continued employment through the date when Blackstone has sold at least 25% of the maximum number of shares held by it (i.e., a liquidity event) and achieved specified rates of return that vary by award. Upon vesting, we are required to pay cash in settlement of such eRx awards based on their fair value at the date of such vesting. During the three and six months ended September 30, 2020, we recognized compensation expense related to eRx awards granted under the Omnibus Incentive Plan of $1,400 and $1,468, respectively. At September 30, 2020, aggregate unrecognized compensation expense related to these awards was $1,476.

~~18. Related Party Transactions~~

~~eRx~~Network Option Agreement

Prior to the creation of the Joint Venture, we entered into an option agreement to acquire eRx (the “Option Agreement”). Under the terms of the Option Agreement, the option to acquire eRx would only become exercisable at any such time that McKesson owns (directly or indirectly), in the aggregate, less than 5% of the outstanding units of the Joint Venture. Subsequent to the Merger, the Option became exercisable and was exercised on May 1, 2020. See Note 4, Business Combinations, for additional information.

Transition Services Agreements

In connection with the creation of the Joint Venture, we entered into transition services agreements with eRx. Under the agreements, we provided certain transition services to eRx in exchange for specified fees. Prior to the acquisition of eRx, we recognized $283 ~~and $0~~ in transition fee income during the six months ended September 30, ~~2020 and 2019, respectively. We recognized $0 in transition fee income during the three months ended September 30, 2020 and 2019.~~2020. The amounts received are included in Other, net in the consolidated statement of operations.

~~Employer Healthcare Program Agreement with Equity Healthcare~~

~~Term Loans Held by Related Party~~

~~Certain investment funds managed by GSO Capital Partners LP (the~~ ~~“GSO-managed~~ funds”) held a portion of the term loans under our Senior Credit Facilities. GSO Advisor Holdings LLC (“GSO Advisor”) is the general partner of GSO Capital Partners LP and Blackstone, indirectly through its subsidiaries, holds all of the issued and outstanding equity interests of GSO Advisor. As of September 30, 2020 and March 31, 2020, the ~~GSO-managed~~ ~~funds held $171,805 and $151,301, respectively, in principal amount of the Senior Credit Facilities (none of which is classified within current portion of long-term debt).~~

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

~~Transactions with Blackstone Portfolio Companies~~

   Three Months Ended September 30,    Six Months Ended September 30,
   2020    2019    2020    2019
Revenue recognized related to services provided
   $ 838    $ —      $ 1,881    $ —
Amount paid related to services received
   $ 4,166    $ —      $ 9,458    $ —

~~19.~~16. Segment Reporting

Management views the Company’s operating results based on ~~three~~3 reportable segments: ~~(a)~~ Software and Analytics, ~~(b)~~ Network Solutions and ~~(c)~~ Technology-Enabled Services.

Software and Analytics

The Software and Analytics segment provides solutions for revenue cycle management, provider network management, payment accuracy, value-based payments, clinical decision support, consumer engagement, risk adjustment and quality performance, and imaging and clinical workflow.

Network Solutions

The Network Solutions segment provides solutions for financial, administrative, clinical and pharmacy transactions, electronic payments and aggregation and analytics of clinical and financial data.

Technology-Enabled Services

The Technology-Enabled Services segment provides solutions for financial and administrative management, value-based care, communication and payment, pharmacy benefits administration and healthcare consulting.

Postage and Eliminations

Postage and eliminations includes pass-through postage costs, as well as eliminations to remove inter-segment revenue and expenses and consolidating adjustments to classify certain rebates paid to channel partners as a reduction of revenue. These administrative costs are excluded from the adjusted EBITDA measure for each respective reportable segment.

~~Change Healthcare Inc.~~

~~Notes to Consolidated Financial Statements~~

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

Segment Results

Revenue and adjusted EBITDA for each of the reportable segments for the three and six months ended September 30, 2021 and 2020 are shown below. Information is reflected in the manner utilized by management to make operating decisions, assess performance and allocate resources. Such amounts include allocations of corporate shared services functions that are essential to the core operations of the reportable segments. Segment assets and related depreciation expenses are not presented to management for purposes of operational decision making, and therefore are not included in the accompanying tables.

   Three Months Ended    Six Months Ended
   September 30, 2020    September 30, 2020
Segment Revenue

Software and Analytics
   $ 354,860    $ 746,449
Network Solutions
   184,095    326,921
Technology-Enabled Services
   231,817    419,523
Postage and Eliminations ⁽¹⁾
   24,073    51,136
Purchase Accounting Adjustment ⁽²⁾
   (38,909 )    (93,909 )




Net Revenue
   $ 755,936    $ 1,450,120




Segment Adjusted EBITDA

Software and Analytics
   $ 117,393    $ 261,325
Network Solutions
   94,508    165,011
Technology-Enabled Services
   19,940    2,360




Adjusted EBITDA
   $ 231,841    $ 428,696




Reconciliation of income (loss) before tax provision (benefit) to Adjusted EBITDA

Income (loss) before income tax provision (benefit)
   $ (56,010 )    $ (128,165 )
Amortization of capitalized software developed for sale
   12    89
Depreciation and amortization
   146,869    285,409
Interest expense
   61,627    124,294
Equity compensation
   14,331    23,914
Acquisition accounting adjustments
   34,686    83,225
Acquisition and divestiture-related costs
   2,337    7,458
Integration and related costs
   7,536    17,894
Strategic initiatives, duplicative and transition costs
   3,765    8,845
Severance costs
   3,172    7,876
Accretion and changes in estimate, net
   5,293    11,188
Impairment of long-lived assets and other
   7,447    13,760
Gain on sale of businesses
   (176 )    (28,270 )
Contingent consideration
   (550 )    (3,000 )
Loss on Extinguishment of Debt
   1,489    1,489
Other non-routine, net
   13    2,690




Adjusted EBITDA
   $ 231,841    $ 428,696

⁽¹⁾	~~Revenue for the Postage and Eliminations segment includes postage revenue of $50,023 and $95,795 for the three and six months ended September 30, 2020, respectively.~~

⁽²⁾	~~Amount reflects the impact to deferred revenue resulting from the Merger which reduced revenue recognized during the period.~~


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Segment Revenue
Software and Analytics	$	363,423	$	354,860	$	783,740	$	746,449
Network Solutions		215,600		184,095		425,061		326,921
Technology-Enabled Services		231,928		231,817		457,450		419,523
Postage and Eliminations ⁽¹⁾		19,091		24,073		36,109		51,136
Purchase Accounting Adjustment ⁽²⁾		(3,278)		(38,909)		(7,740)		(93,909)
Net Revenue	$	826,764	$	755,936	$	1,694,620	$	1,450,120
Segment Adjusted EBITDA
Software and Analytics	$	112,318	$	117,393	$	272,683	$	261,325
Network Solutions		112,986		94,508		222,474		165,011
Technology-Enabled Services		21,158		19,940		34,033		2,360
Adjusted EBITDA	$	246,462	$	231,841	$	529,190	$	428,696

Reconciliation of income (loss) before tax provision (benefit) to Adjusted EBITDA
Income (loss) before income tax provision (benefit)	$	(53,153)	$	(56,010)	$	(65,207)	$	(128,165)
Amortization of capitalized software developed for sale		859		12		1,576		89
Depreciation and amortization		163,469		146,869		331,681		285,409
Interest expense		59,466		61,627		118,852		124,294
Equity compensation		23,745		14,331		49,911		23,914
Acquisition accounting adjustments		(1,653)		34,686		(2,212)		83,225
Acquisition and divestiture-related costs		13,765		2,337		20,159		7,458
Integration and related costs		5,933		7,536		17,301		17,894
Strategic initiatives, duplicative and transition costs		14,644		3,765		24,572		8,845
Severance costs		7,303		3,172		12,023		7,876
Accretion and changes in estimate, net		4,355		5,293		9,087		11,188
Impairment of long-lived assets and other		81		7,447		1,692		13,760
Loss on extinguishment of debt		2,232		1,489		2,232		1,489
Gain on sale of businesses		—		(176)		—		(28,270)
Contingent consideration		—		(550)		—		(3,000)
Other non-routine, net		5,416		13		7,523		2,690
Adjusted EBITDA	$	246,462	$	231,841	$	529,190	$	428,696

⁽¹⁾Revenue for the Postage and Eliminations segment includes postage revenue of $52,550 and $50,023 for the three months ended September 30, 2021 and 2020, respectively, and $103,758 and $95,795 for the six months ended September 30, 2021 and 2020, respectively.

⁽²⁾Amount reflects the impact to deferred revenue resulting from the Merger which reduced revenue recognized during the period.

17. Accumulated Other Comprehensive Income (Loss)

The following is a summary of the accumulated other comprehensive income (loss) activity. Prior to the Merger, the ~~Company had minimal operations outside~~activity in accumulated other comprehensive income (loss) reflects the Company’s proportionate share of the ~~investment in the~~ Joint Venture and the Company’s standalone operating results were not utilized by management to make operating decisions, assess performance, or allocate resources. As such, the Company reported its results as a single reportable segment for the three and six months ended September 30, 2019.Venture’s accumulated other comprehensive income (loss), net of taxes.

~~20.~~


	Foreign Currency				Accumulated Other
	Translation		Cash Flow		Comprehensive
	Adjustment		Hedge		Income (Loss)
Balance at March 31, 2020	$	(7,084)	$	(288)	$	(7,372)
Change associated with foreign currency translation		6,353		—		6,353
Change associated with current period hedging		—		(4,459)		(4,459)
Reclassification into earnings		—		275		275
Balance at June 30, 2020	$	(731)	$	(4,472)	$	(5,203)
Change associated with foreign currency translation		5,221		—		5,221
Change associated with current period hedging		—		(2,277)		(2,277)
Reclassification into earnings		—		281		281
Balance at September 30, 2020	$	4,490	$	(6,468)	$	(1,978)
Balance at March 31, 2021	$	14,130	$	(2,909)	$	11,221
Change associated with foreign currency translation		3,571		—		3,571
Change associated with current period hedging		—		(294)		(294)
Reclassification into earnings		—		413		413
Balance at June 30, 2021	$	17,701	$	(2,790)	$	14,911
Change associated with foreign currency translation		(2,156)		—		(2,156)
Change associated with current period hedging		—		(502)		(502)
Reclassification into earnings		—		543		543
Balance at September 30, 2021	$	15,545	$	(2,749)	$	12,796

18. Subsequent Events

In October ~~2020, the Company~~2021, we made a voluntary repayment on the Term Loan Facility of ~~$75.0 million~~$60,000 and recorded a loss on extinguishment of debt of approximately ~~$2.2 million.~~$1,261.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. The MD&A is provided as a supplement to, and should be read in conjunction with, ~~our~~the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2020,~~2021, as well as the Company’s unaudited ~~consolidated~~ financial statements and the ~~related~~accompanying notes presented in Item 1 of this Quarterly Report ~~for the quarter ended September 30, 2020 (“Quarterly Report”).~~on Form 10-Q.

In addition to historical data, the discussion contains forward-looking statements about the business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed ~~below~~ in Cautionary Notice Regarding Forward-Looking Statements and Part II, ~~Item 1A,~~ Item1A, Risk Factors.

Overview

We are a leading independent healthcare technology company, focused on accelerating the transformation of the healthcare system through the power of our ~~Healthcare Platform.~~healthcare platform. We provide data and analytics-driven solutions to improve clinical, financial, administrative, and patient engagement outcomes in the U.S. healthcare system.

Our platform and comprehensive suite of software, analytics, technology enabled services and network solutions drive improved results in the complex workflows of healthcare system payers and providers by enhancing clinical decision making, simplifying billing, collection and payment processes, and enabling a better patient experience.

Our ~~Healthcare Platform~~healthcare platform supports one of the largest clinical and financial healthcare networks in the U.S. With insights gained from our ~~pervasive network, extensive~~experience, applications and analytics portfolio and our services operations, we have designed analytics solutions that include industry-leading and trusted franchises supported by extensive intellectual property and regularly updated content.

~~Recent Developments~~

~~Senior Notes Issuance~~

~~On April 21, 2020, we issued $325.0 million aggregate principal amount of 5.75% Senior Notes due 2025~~We were originally formed to hold an equity investment in Change Healthcare LLC (the ~~“Notes”). The Notes were issued as part of the same series as the $1,000.0 million Senior Notes issued in February 2017. See Note 11,~~ ~~Long-Term~~~~Debt~~~~, for additional information.~~

~~eRx Network Holdings, Inc.~~

~~On May 1, 2020, we exercised our option to purchase and completed the acquisition of eRx Network Holdings, Inc. (“eRx”~~“Joint Venture”), a ~~leading provider~~joint venture between the Company and McKesson Corporation (“McKesson”). On March 10, 2020, McKesson completed a split-off of its interest in ~~comprehensive, innovative~~the Joint Venture (“the Merger”). As a result, we own 100% and ~~secure data-driven solutions for pharmacies. We acquired 100%~~consolidate the financial statements of Change Healthcare LLC.

Recent Developments

The UHG Transaction

On January 5, 2021, we entered into an Agreement and Plan of Merger (the “UHG Agreement”) with UnitedHealth Group Incorporated (“UnitedHealth Group”), and UnitedHealth Group’s wholly owned subsidiary Cambridge Merger Sub Inc. Pursuant to the UHG Agreement, UnitedHealth Group has agreed to acquire all of the ~~ownership interest~~outstanding shares of the Company’s common stock for ~~$212.9 million plus~~$25.75 per share in cash on(the “UHG Transaction”). On April 13, 2021, our stockholders approved a proposal to adopt the ~~balance sheet~~UHG Agreement, thereby satisfying one of the closing conditions contained in the UHG Agreement. The consummation of the transaction remains subject to the satisfaction or, to the extent permitted by law, waiver of other customary closing conditions.

The UHG Agreement contains representations, warranties, covenants, closing conditions and ~~accounted~~termination rights customary for transactions of this type. Until the earlier of the termination of the UHG Agreement and the consummation of the transaction, we have agreed to operate our business in the ordinary course and have agreed to certain other operating covenants, as set forth in the UHG Agreement.

On March 24, 2021, the Company and UnitedHealth Group each received a ~~business combination. See Note 4,~~ ~~Business Combinations~~request for additional ~~information.~~

~~PDX, Inc.~~

~~On June 1, 2020, we completed~~information and documentary materials (collectively, the ~~purchase~~“Second Request”) from the U.S. Department of ~~PDX, Inc. (“PDX”~~Justice (the “DOJ”)~~, a company focused on delivering patient centric and innovative technologies for pharmacies and health systems. We acquired 100%~~ in connection with the DOJ’s review of the ~~ownership interest for~~UHG Transaction. The effect of the Second Request is to extend the waiting period imposed under the HSR Act until the 30th day after substantial compliance by the Company and UnitedHealth Group with the Second Request (or such other date upon which substantial compliance is considered effective), unless the waiting period is terminated earlier by the DOJ or extended by the parties to the UHG Transaction. On August 7, 2021, the parties entered into a ~~purchase price~~timing agreement (the “Timing Agreement”) with the DOJ pursuant to which they agreed not to consummate the UHG Transaction 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 (subject to extension in certain limited circumstances relating to the potential unavailability of ~~$208.0 million and accounted for this transaction as a business combination. See Note 4,~~ ~~Business Combinations~~ ~~for additional information.~~

~~Connected Analytics~~

On May 1, 2020, we completed the sale of our Connected Analytics business, which was included in our Software and Analytics segment, for total consideration of $55.0 million, subject to a customary working capital adjustment, including a $25.0 million note receivablecertain requested data), unless they have received written notice from the ~~buyer. In connection~~DOJ prior to such date that the DOJ has closed its investigation. The parties have been working cooperatively with ~~this transaction, we recognized a gain on disposal of $24.5 million. See Note 5,~~ ~~Dispositions~~ ~~for additional information.~~the DOJ and will continue to do so.

~~Nucleus.io~~

Term Loan Repayment

In ~~September 2020,~~the second quarter of fiscal year 2022, we repaid ~~$50.0~~$100 million on our Term Loan Facility and recognized a loss on extinguishment of ~~$1.5~~$2.2 million in our consolidated statement of operations. ~~See Note 11,~~ ~~Long-Term~~~~Debt~~~~, for additional information.~~

Key Components of Our Results of Operations

Prior to the Merger described below, the Company had minimal operations outside of the investment in the Joint Venture, and the Company’s standalone operating results were not utilized by management to make operating decisions, assess performance, or allocate resources. As such, the prior period did not include meaningful operating results and only a single reportable segment for the three and six months ended September 30, 2019. For reference, the financial results of the Joint Venture’s reportable segments for fiscal years 2019 and 2020 have been included in Exhibit 99.1.

Qualified McKesson Exit

Prior to the Merger, we accounted for our investment in the Joint Venture using the equity method of accounting. Subsequent to the Merger, we own 100% of the Joint Venture and consolidate its results of operations. ~~As a result, our consolidated results in periods prior to the Merger are not comparable to our results following the Merger.~~

~~Change Healthcare Inc.~~We accounted for the Merger as a business combination achieved in stages in accordance with ~~Financial Accounting Standards Board (“FASB”)~~ Accounting Standards Codification ~~(“ASC”)~~ 805, Business Combinations(“ASC 805”).

As a result of the accounting for ~~these transactions~~this transaction and the change in basis of accounting, our consolidated results ~~in periods following the Merger are not comparable~~reflect fair value adjustments to the consolidated results of the Joint Venture in periods prior to the Merger. The following are certain of the more significant changes resulting from the Merger that affect the comparability of financial resultsvarious assets and ~~operations:~~

~~Increased tangible~~liabilities, including deferred revenue, goodwill, and intangible ~~assets resulting from adjusting the basis of the assets to their fair value, which also results in increased depreciation and amortization expense.~~

~~Decrease in long-term debt as a result of adjustments to state the long-term debt at its fair value.~~

~~Decreased deferred revenue as a result of recognizing deferred revenue only to the extent that contractual obligations remain to be fulfilled. These decreases result in decreased solutions revenue.~~

Income previously attributable to the Joint Venture and not subject to U.S. federal income taxes and most state and local income taxes is now subject to such taxes, resulting in an increase in Change Healthcare Inc.’s effective tax rate compared with the historical effective tax rate of the Joint Venture.

~~Segments~~assets.

Segments

We report our financial results in ~~the following~~ three reportable segments: Software and Analytics, Network Solutions and Technology-Enabled Services.

•The Software and Analytics segment provides solutions for revenue cycle management, provider network management,

payment accuracy, value-based payments, clinical decision support, consumer engagement, risk adjustment and quality performance, and imaging and clinical workflow.

•The Network Solutions segment provides solutions for financial, administrative, clinical and pharmacy transactions, electronic payments and aggregation and analytics of clinical and financial data.

•The Technology-Enabled Services segment provides solutions for financial and administrative management, value-based care, communication and payment, pharmacy benefits administration and healthcare consulting.

During the first quarter of fiscal year 2021, management decided to allocate all administrative and certain other corporate expenses to the respective reportable segments. Prior to the Merger, the Company had minimal operations outside of the investment in the Joint Venture, and the Company’s standalone operating results were not utilized by management to make operating decisions, assess performance, or allocate resources. As such, the Company reported its results as a single reportable segment for the three and six months ended September 30, 2019. For reference, the financial results of the Joint Venture’s reportable segments for fiscal years 2019 and 2020 have been recast to reflect the allocation of administrative and corporate expenses described above and are included in Exhibit 99.1.

Factors Affecting Results of Operations

The following are certain key factors that affect, will affect, or have recently affected, our results of operations:

Macroeconomic and Industry Trends

~~The~~While conditions have improved since the onset of the COVID-19 pandemic, the spread of COVID-19 ~~both globally and in the U.S.,~~ has driven lower healthcare utilization as a result of the significant reduction in, or in some cases temporary elimination of, elective medical procedures and healthcare visits, without a corresponding increase in COVID-19 related transactions. A portion of our business is tied to overall volume of activity in the healthcare system, and therefore, we have been adversely impacted by this industry trend. Further, weakened economic conditions or a recession could reduce the amounts patients are willing or able to spend on healthcare services. As a result, patients may elect to delay or forgo seeking healthcare services. Additionally, ~~higher~~ unemployment rates ~~compared~~continue to be higher than prior to the ~~prior fiscal year are likely to cause~~onset of the COVID-19 pandemic, which has caused commercial payer membership to decline and ~~continue~~continues to impact healthcare utilization and transaction volumes.

In response to COVID-19, we initiated a number of actions with our employees’ health being our first priority. We also focused on serving our customers and introducing new products and services to address their previously unexpected ~~but now urgent~~ needs related to COVID-19. ~~To ensure our business continuity~~ While the availability of approved COVID-19 vaccines and their impact on the ~~safety and welfare of our team members, we moved the majority of our employees to work from home, shifted to a virtual meeting environment, suspended all~~ ~~non-critical~~ ~~business travel, and expanded telehealth and~~ ~~COVID-19~~ related paid time off coverage to all employees. We also completed a comprehensive review of our cost structure to balance costs with interim variability in our revenue and have actively aligned our staffing level, primarily in our Technology-Enabled Services segment to address lower interim volume. Starting in March 2020, we initiated hiring freezes, began contractor reductions and made other staffing reductions, primarily in the form of furloughs to provide us with greater flexibility to scale back up as volumes recover. These actions somewhat offset the negative impacts of ~~COVID-19~~ ~~described above in the first six months of fiscal year 2021, and we expect to continue to see the impact of these actions throughout the remainder of the fiscal year.~~

~~While lower healthcare utilization will impact our results negatively this year,~~economy has been encouraging, we cannot predict the length of time it may take for normal healthcare volumes to return and the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted by COVID-19. However, we continue to assess its impact on our business and are actively managing our response as the pandemic evolves. We believe the solutions we provide our customers will be as important, if not more, post-COVID-19.

Acquisitions and Divestitures

WePrior to entering into the UHG Agreement, we actively ~~evaluate~~evaluated opportunities to improve and expand our business through targeted acquisitions that are consistent with our strategy. As the UHG Agreement places certain restrictions on the types of acquisitions we can engage in without UnitedHealth Group’s consent, we anticipate such activity to be more limited prior to the expected closing of the UHG Transaction. On occasion, and subject to the restrictions set forth in the UHG Agreement, we may also ~~may~~ dispose of certain components of our business that no longer fit within our overall strategy. Because of the acquisition and divestiture activity as well as the shifting revenue mix of our business due to this activity, our results of operations may not be directly comparable among periods. See Note 4, Business Combinations, and Note 5, Dispositions, for details of recent activity.

Results of Operations

Three ~~and Six~~ Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

   Three Months Ended    Six Months Ended
(amounts in millions) ⁽¹⁾    September 30, 2020    September 30, 2020
Revenue

Solutions revenue
   $ 705.9    $ 1,354.3
Postage revenue
   50.0    95.8




Total revenue
   755.9    1,450.1
Operating expenses

Cost of operations (exclusive of depreciation and amortization below)
   $ 326.7    $ 645.2
Research and development
   54.1    109.8
Sales, marketing, general and administrative
   171.6    337.1
Customer postage
   50.0    95.8
Depreciation and amortization
   146.9    285.4
Accretion and changes in estimate with related parties, net
   3.6    9.5
Gain on sale of businesses
   (0.2 )    (28.3 )




Total operating expenses
   $ 752.6    $ 1,454.5




Operating income (loss)
   $ 3.3    $ (4.3 )
Non-operating (income) expense

Interest expense, net
   61.6    124.3
Contingent consideration
   (0.6 )    (3.0 )
Loss on extinguishment of debt
   1.5    1.5
Other, net
   (3.2 )    1.0




Total non-operating (income) expense
   $ 59.4    $ 123.8
Income (loss) before income tax provision (benefit)
   (56.0 )    (128.2 )
Income tax provision (benefit)
   (13.4 )    (26.8 )




Net income (loss)
   $ (42.6 )    $ (101.3 )

⁽¹⁾	~~As a result of displaying amounts in millions, rounding differences may exist in the table above.~~


	Three Months Ended September 30,				$		%
(amounts in millions) ⁽¹⁾	2021		2020		Change		Change
Revenue
Solutions revenue	$	774.2	$	705.9	$	68.3	9.7	%
Postage revenue		52.6		50.0		2.6	5.1	%
Total revenue		826.8		755.9		70.9	9.4	%
Operating expenses
Cost of operations (exclusive of depreciation and amortization below)	$	346.6	$	326.7	$	19.9	6.1	%
Research and development		67.1		54.1		13.0	24.0	%
Sales, marketing, general and administrative		183.0		171.6		11.4	6.7	%
Customer postage		52.6		50.0		2.6	5.1	%
Depreciation and amortization		163.5		146.9		16.6	11.3	%
Accretion and changes in estimate with related parties, net		2.9		3.6		(0.7)	(20.3)	%
Gain on sale of businesses		—		(0.2)		0.2	NMF
Total operating expenses	$	815.6	$	752.6	$	63.0	8.4	%
Operating income (loss)	$	11.1	$	3.3	$	7.8	237.3	%
Non-operating (income) expense
Interest expense, net		59.5		61.6		(2.1)	(3.5)	%
Loss on extinguishment of debt		2.2		1.5		0.7	48.8	%
Other, net		2.6		(3.8)		6.4	NMF
Total non-operating (income) expense	$	64.3	$	59.4	$	4.9	8.2	%
Income (loss) before income tax provision (benefit)		(53.2)		(56.0)		2.8	(5.1)	%
Income tax provision (benefit)		(16.7)		(13.4)		(3.3)	NMF
Net income (loss)	$	(36.4)	$	(42.6)	$	6.2	(14.5)	%

~~Revenue~~

⁽¹⁾As a result of displaying amounts in millions, rounding differences may exist in the table above.

Revenue

Solutions revenue

Solutions revenue ~~was $705.9 million and $1,354.3~~increased $68.3 million for the three ~~and six~~ months ended September 30, ~~2020, respectively.~~2021, compared with the same period in the prior year. Factors affecting solutions revenue are described in the various segment discussions below.

Postage revenue

Postage revenue ~~was $50.0~~increased $2.6 million ~~and $95.8 million~~ for the three ~~and six~~ months ended September 30, ~~2020, respectively.~~ 2021, compared with the same period in the prior year. See “Customer ~~Postage”~~postage” below for additional information.

Operating Expenses

Cost of operations (exclusive of depreciation and amortization)

Cost of operations ~~was $326.7 million and $645.2~~increased $19.9 million for the three ~~and six~~ months ended September 30, ~~2020, respectively. Cost of operations reflects lower staffing~~2021, compared with the same period in the prior year. The increase is primarily attributable to revenue-related expenses.

Research and ~~materials costs associated~~development

Research and development expense increased $13.0 million for the three months ended September 30, 2021, compared with ~~decreased utilization as a result of~~ ~~COVID-19,~~ ~~partially offset by incremental costs associated with recent acquisitions.~~the same period in the prior year. The increase is primarily attributable to investments in product development.

Sales, marketing, general and administrative

Sales, marketing, general and administrative expense ~~was $171.6 million and $337.1~~increased $11.4 million for the three ~~and six~~ months ended September 30, ~~2020, respectively. Sales, marketing, general and administrative expense reflects lower costs~~2021, compared with the same period in the prior year, which is primarily attributable to legal fees related to a ~~one-time~~ ~~change in benefits policy, reduced healthcare benefits as a result of lower employee healthcare utilization, and timing related to deferred hiring as a result of~~ ~~COVID-19.~~the pending UHG Transaction.

~~Research and development~~Customer postage

~~Research and development expense was $54.1 million and $109.8~~Customer postage increased $2.6 million for the three ~~and six~~ months ended September 30, ~~2020, respectively. Research and development expense reflects incremental costs associated~~2021, compared with ~~recent acquisitions partially offset by deferred hiring and other related costs impacted by~~ ~~COVID-19.~~

~~Customer postage~~

~~Customer postage was $50.0 million and $95.8 million for~~ the ~~three and six months ended September 30, 2020, respectively.~~same period in the prior year. Customer postage is affected by ~~changes~~increases in ~~print volumes~~postage rates within communication and payment solutions. Because customer postage is a pass-through cost to our customers, changes in volume of customer postage generally have no effect on operating income.

Depreciation and amortization

Depreciation and amortization expense ~~was $146.9 million and $285.4~~increased $16.6 million for the three ~~and six~~ months ended September 30, ~~2020, respectively.~~ 2021, compared with the same period in the prior year. Depreciation and amortization were generally affected by routine amortization of tangible and intangible assets existing at March 31, ~~2020 which was impacted by fair value adjustments resulting from the Merger,~~2021, as well as the routine amortization and depreciation of additions to property, equipment, software and intangible assets since that date.

~~Accretion~~Non-Operating Income and ~~changes in estimate with related parties,~~Expense

Interest expense, net

~~Accretion and changes in estimate with related parties,~~Interest expense, net ~~was $3.6 million and $9.5~~decreased $2.1 million for the three ~~and six~~ months ended September 30, ~~2020, respectively. Accretion is routinely affected by changes~~2021, compared with the same period in the ~~expected timing or amount of cash flows which may result from various factors, including changes~~prior year. This decrease is primarily attributable to reductions in ~~tax~~our average long-term debt outstanding and lower interest rates.

~~Gain on sale of businesses~~

Gain on sale of businesses was $0.2 million and $28.3 million for the three and six months ended September 30, 2020, respectively, which primarily represents the gain recorded as a result of the sale of Connected Analytics in May 2020.

~~Non-Operating~~ ~~Income and Expense~~

~~Interest expense, net~~

~~Interest expense, net was $61.6 million and $124.3 million for the three and six months ended September 30, 2020, respectively. We~~ While we have interest rate cap agreements in place to limit our exposure to rising interest rates, ~~and~~ such agreements, together with our fixed rate notes, effectively fixed interest rates for approximately ~~75%~~81% of our total indebtedness at September 30, ~~2020.~~2021.

~~Contingent consideration~~

Contingent consideration reflects changes in the fair value of our earnout obligation to the former owners of an acquired business. Such amounts may increase or decrease in the future based on changes in the expected amount, timing, and probability of making such payments in the future.

~~Loss on extinguishment of debt~~

~~Loss on extinguishment of debt was $1.5 million for both the three and six months ended September 30, 2020, which is related to the~~ ~~write-off~~ ~~of unamortized discounts and debt issuance costs associated with repayment of our Term Loan Facility.~~

Other, net

Other, net primarily reflects mark to market adjustments on our investments.

Income Taxes

Our effective tax rate for the three ~~and six~~ months ended September 30, ~~2020~~2021 was 31.5% compared to 23.9% ~~and 20.9%, respectively.~~for the three months ended September 30, 2020. Fluctuations in our reported income tax rates from the statutory rate are primarily due to the impacts of ~~our acquisition~~equity compensation, transaction costs, and ~~divestiture activity,~~ benefits recognized ~~as a result of~~for certain incentive tax credits resulting from research and experimental expenditures ~~and discrete items recognized~~ in the three ~~and six~~ months ended September 30, ~~2020.~~2021.

Solutions Revenue and Adjusted EBITDA


	Three Months Ended		Six Months Ended		Three Months Ended September 30,				$		%
(amounts in millions) ⁽¹⁾	September 30, 2020		September 30, 2020		2021		2020		Change		Change
Solutions revenue ⁽²⁾
Software and Analytics	$	354.9	$	746.4	$	363.4	$	354.9	$	8.5	2.4	%
Network Solutions	$	184.1	$	326.9	$	215.6	$	184.1	$	31.5	17.1	%
Technology-Enabled Services	$	231.8	$	419.5	$	231.9	$	231.8	$	0.1	0.1	%
Adjusted EBITDA
Software and Analytics	$	117.4	$	261.3	$	112.3	$	117.4	$	(5.1)	(4.3)	%
Network Solutions	$	94.5	$	165.0	$	113.0	$	94.5	$	18.5	19.6	%
Technology-Enabled Services	$	19.9	$	2.4	$	21.2	$	19.9	$	1.3	6.3	%

⁽¹⁾	~~As a result of displaying amounts in millions, rounding differences may exist in the table above.~~

⁽²⁾	~~Includes inter-segment revenue and excludes deferred revenue purchase accounting adjustments.~~

⁽¹⁾As a result of displaying amounts in millions, rounding differences may exist in the table above.

⁽²⁾Includes inter-segment revenue and excludes deferred revenue purchase accounting adjustments resulting from the Merger.

Software and Analytics

Software and Analytics revenue increased $8.5 million for the three ~~and six~~ months ended September 30, ~~2020, reflects~~2021, compared with the ~~negative impact of~~ ~~COVID-19~~same period in the prior year. Software and Analytics revenue was positively impacted by volume recovery from COVID-19 related volume declines in the ~~impact of the Connected Analytics divestiture of $17.3 million and $28.7 million, respectively,~~prior period as well as organic revenue growth, which was partially offset by ~~new sales and organic~~the Capacity Management divestiture which had a revenue ~~growth.~~ impact of $6.0 million.

Software and Analytics adjusted EBITDA decreased $5.1 million for the three ~~and six~~ months ended September 30, ~~2020 was impacted~~2021, compared with the same period in the prior year. This decrease in adjusted EBITDA primarily reflects the impact of the Capacity Management divestiture and increased product investment, partially offset by the ~~same factors that impacted revenue.~~aforementioned revenue growth.

Network Solutions

Network Solutions revenue ~~and adjusted EBITDA~~increased $31.5 million for the three ~~and six~~ months ended September 30, ~~2020, reflects~~2021, compared with the same period in the prior year. Network Solutions revenue was positively impacted by volume recovery and incremental revenue from COVID-19 vaccines and new sales and the inclusion of the acquisitions of eRx and PDX which had a combined revenue impact of $32.9 million and $49.9 million, respectively. This positive impact is partially offset by lower utilization due to ~~COVID-19.~~sales.

Network Solutions adjusted EBITDA increased $18.5 million for the three ~~and six~~ months ended September 30, ~~2020~~2021, compared with the same period in the prior year. Network Solutions adjusted EBITDA was impacted by the same factors that impacted revenue, ~~as well as~~partially offset by investments to support new product launches and market expansion opportunities in the core network ~~data solutions,~~ and business to business ~~payments.~~payments offerings.

Technology-Enabled Services

Technology-Enabled Services revenue increased $0.1 million for the three ~~and six~~ months ended September 30, ~~2020 reflects lower volume, driven by~~2021 as compared with the ~~impact of~~ ~~COVID-19~~ ~~and customer attrition, partially offset~~same period in the prior year. Technology-Enabled Services revenue was impacted by new sales and ~~organic revenue growth.~~ volume recovery from COVID-19 related volume declines in the prior period, partially offset by customer attrition.

Technology-Enabled Services adjusted EBITDA increased $1.3 million for the three ~~and six~~ months ended September 30, ~~2020~~2021 as compared with the same period in the prior year. Technology-Enabled Services adjusted EBITDA was impacted by the same factors that impacted ~~revenue.~~revenue as well as the continued optimization of our cost structure.

~~Three and~~

Six Months Ended September 30, ~~2019~~2021 Compared to Six Months Ended September 30, 2020

   Three Months Ended    Six Months Ended
(amounts in millions) ⁽¹⁾
   September 30, 2019    September 30, 2019
Total revenue
   $ —      $ —
Operating expenses

Sales, marketing, general and administrative
   $ 1.1    $ 1.4
Accretion and changes in estimate with related parties, net
   48.4    48.4




Total operating expenses
   $ 49.5    $ 49.8




Operating income (loss)
   $ (49.5 )    $ (49.8 )
Non-operating (income) expense

Loss from Equity Method Investment in the Joint Venture
   56.2    95.7
(Gain) loss on other investments
   2.4    2.4
Other, net
   (0.6 )    (0.7 )




Total non-operating (income) and expense
   $ 58.1    $ 97.5
Income (loss) before income tax provision (benefit)
   (107.6 )    (147.3 )
Income tax provision (benefit)
   (13.6 )    (15.8 )




Net income (loss)
   $ (94.0 )    $ (131.5 )

⁽¹⁾	~~As a result of displaying amounts in millions, rounding differences may exist in the table above.~~

~~Operating Expenses~~

~~Accretion and changes~~

Six Months Ended September 30,
$
%
(amounts in millions) ⁽¹⁾
2021
2020
Change
Change
Revenue
Solutions revenue
$
1,590.9
$
1,354.3
$
236.6
17.5
%
Postage revenue
103.8
95.8
8.0
8.3
%
Total revenue
1,694.6
1,450.1
244.5
16.9
%
Operating expenses
Cost of operations (exclusive of depreciation and amortization below)
$
698.7
$
645.2
$
53.5
8.3
%
Research and development
138.3
109.8
28.5
26.0
%
Sales, marketing, general and administrative
361.0
337.1
23.9
7.1
%
Customer postage
103.8
95.8
8.0
8.3
%
Depreciation and amortization
331.7
285.4
46.3
16.2
%
Accretion and changes in estimate with related parties, net
5.9
9.5
(3.6)
(37.8)
%
Gain on sale of businesses
—
(28.3)
28.3
(100.0)
%
Total operating expenses
$
1,639.3
$
1,454.5
$
184.8
12.7
%
Operating income (loss)
$
55.3
$
(4.3)
$
59.6
NMF
Non-operating (income) expense
Interest expense, net
118.9
124.3
(5.4)
(4.4)
%
Loss on extinguishment of debt
2.2
1.5
0.7
48.8
%
Other, net
(0.6)
(2.0)
1.4
NMF
Total non-operating (income) expense
$
120.5
$
123.8
$
(3.3)
(2.7)
%
Income (loss) before income tax provision (benefit)
(65.2)
(128.2)
63.0
(49.1)
%
Income tax provision (benefit)
(25.2)
(26.8)
1.6
(6.0)
%
Net income (loss)
$
(40.0)
$
(101.3)
$
61.3
(60.5)
%

⁽¹⁾As a result of displaying amounts in ~~estimate with related parties, net~~millions, rounding differences may exist in the table above.

~~Accretion and changes in estimate with related parties, net was $48.4~~Revenue

Solutions revenue

Solutions revenue increased $236.6 million for ~~both~~ the ~~three and~~ six months ended September 30, ~~2019. This amount reflects estimated tax payments to be paid to related parties for anticipated future tax savings allocated to~~2021, compared with the ~~Company.~~

~~Non-Operating~~ ~~Income and Expense~~

~~Loss from Equity Method Investment~~same period in the ~~Joint Venture~~

~~Prior to the Merger, loss from equity method investment~~prior year. Factors affecting solutions revenue are described in the Joint Venture generally represented our proportionate share of the income or loss from our investment in the Joint Venture, including basis adjustments related to amortization expense associated with equity method intangible assets, property and equipment, deferredvarious segment discussions below.

Postage revenue ~~and other items.~~

~~Loss from equity method investment in the Joint Venture was $56.2~~Postage revenue increased $8.0 million ~~and 95.7 million~~ for the ~~three and~~ six months ended September 30, ~~2019, respectively. The loss was discretely affected by~~2021, compared with the ~~Joint Venture’s adoption of ASC 606 which drove $17.0 million of income and Change Healthcare Inc.’s adoption of ASU~~ ~~2018-07,~~ ~~which resulted in $45.4 million of loss upon changes~~same period in the ~~fair value~~prior year. See “Customer postage” below for additional information.

Operating Expenses

Cost of ~~its dividend receivable.~~operations (exclusive of depreciation and amortization)

~~(Gain) loss on other investments~~

~~(Gain) loss on other investments was $2.4~~Cost of operations increased $53.5 million for ~~both~~ the ~~three and~~ six months ended September 30, ~~2019. This amount reflects losses recognized during~~2021, compared with the same period ~~on equity securities.~~in the prior year. The increase is primarily attributable to $32.0 million of revenue-related expenses.

~~Income Taxes~~Research and development

~~Our effective tax rate~~Research and development expense increased $28.5 million for the ~~three and~~ six months ended September 30, ~~2019~~2021, compared with the same period in the prior year. The increase is primarily attributable to recent acquisitions and investments in product development.

Sales, marketing, general and administrative

Sales, marketing, general and administrative expense increased $23.9 million for the six months ended September 30, 2021, compared with the same period in the prior year, which is primarily attributable to equity compensation and legal fees related to the pending UHG Transaction.

Customer postage

Customer postage increased $8.0 million for the six months ended September 30, 2021, compared with the same period in the prior year. Customer postage is affected by changes in print volumes and increases in postage rates within communication and payment solutions. Because customer postage is a pass-through cost to our customers, changes in volume of customer postage generally have no effect on operating income.

Depreciation and amortization

Depreciation and amortization expense increased $46.3 million for the six months ended September 30, 2021, compared with the same period in the prior year. Depreciation and amortization were generally affected by routine amortization of tangible and intangible assets existing at March 31, 2021, as well as the routine amortization and depreciation of additions to property, equipment, software and intangible assets since that date.

Gain on sale of businesses

Gain on sale of businesses decreased $28.3 million for the six months ended September 30, 2021, compared with the same period in the prior year. This decrease is driven by a gain recorded as a result of the sale of Connected Analytics in May 2020, whereas there was ~~12.7%~~no disposition activity during the six months ended September 30, 2021.

Non-Operating Income and ~~10.7%, respectively.~~Expense

Interest expense, net

Interest expense, net decreased $5.4 million for the six months ended September 30, 2021, compared with the same period in the prior year. This decrease is primarily attributable to reductions in our average long-term debt outstanding and lower interest rates. While we have interest rate cap agreements in place to limit our exposure to rising interest rates, such agreements, together with our fixed rate notes, effectively fixed interest rates for approximately 81% of our total indebtedness at September 30, 2021.

Other, net

Other, net primarily reflects mark to market adjustments on our investments.

Income Taxes

Our effective tax rate for the six months ended September 30, 2021 was 38.6% compared to 23.9% for the six months ended September 30, 2020. Fluctuations in our reported income tax rates from the statutory rate are primarily due to the impacts of equity compensation, transaction costs, and benefits recognized ~~as a result of~~for certain incentive tax credits resulting from research and experimental expenditures ~~and discrete items recognized~~ in the ~~quarters.~~six months ended September 30, 2021, and our acquisition and divestiture activity in the six months ended September 30, 2020.

Six Months Ended September 30,
$
%
(amounts in millions) ⁽¹⁾
2021
2020
Change
Change
Solutions revenue ⁽²⁾
Software and Analytics
$
783.7
$
746.4
$
37.3
5.0
%
Network Solutions
$
425.1
$
326.9
$
98.2
30.0
%
Technology-Enabled Services
$
457.5
$
419.5
$
38.0
9.0
%
Adjusted EBITDA
Software and Analytics
$
272.7
$
261.3
$
11.4
4.4
%
Network Solutions
$
222.5
$
165.0
$
57.5
34.8
%
Technology-Enabled Services
$
34.0
$
2.4
$
31.6
NMF

⁽¹⁾As a result of displaying amounts in millions, rounding differences may exist in the table above.

⁽²⁾Includes inter-segment revenue and excludes deferred revenue purchase accounting adjustments resulting from the Merger.

Software and Analytics

Software and Analytics revenue increased $37.3 million for the six months ended September 30, 2021, compared with the same period in the prior year. Software and Analytics revenue was positively impacted by volume recovery from COVID-19 related volume declines in the prior period as well as organic revenue growth, which was partially offset by the Connected Analytics and Capacity Management divestitures which had a combined revenue impact of $21.3 million.

Software and Analytics adjusted EBITDA increased $11.4 million for the six months ended September 30, 2021, compared with the same period in the prior year. This increase in adjusted EBITDA reflects the aforementioned revenue growth partially offset by the impact of the divestitures.

Network Solutions

Network Solutions revenue increased $98.2 million for the six months ended September 30, 2021, compared with the same period in the prior year. Network Solutions revenue was positively impacted by volume recovery from COVID-19 related volume declines in the prior period, COVID-19 vaccine volume as well as new sales and the impacts of the eRx and PDX acquisitions which had a combined impact of $21.6 million, reflecting a full quarter in the first quarter versus a partial first quarter in the prior year.

Network Solutions adjusted EBITDA increased $57.5 million for the six months ended September 30, 2021, compared with the same period in the prior year. Network Solutions adjusted EBITDA was impacted by the same factors that impacted revenue, partially offset by investments to support new product launches and market expansion opportunities primarily in the core network and business to business payments offerings.

Technology-Enabled Services

Technology-Enabled Services revenue increased $38.0 million for the six months ended September 30, 2021 as compared with the same period in the prior year. Technology-Enabled Services revenue was positively impacted by volume recovery from COVID-19 related volume declines in the prior period and new sales, partially offset by customer attrition.

Technology-Enabled Services adjusted EBITDA increased $31.6 million for the six months ended September 30, 2021 as compared with the same period in the prior year. Technology-Enabled Services adjusted EBITDA was impacted by the same factors that impacted revenue as well as the optimization of our cost structure.

Significant Changes in Assets and Liabilities

~~During~~In addition to the $100 million repayment on our Term Loan Facility made during the first six months of fiscal year ~~2021,~~2022, we completed a debt offering of $325.0 million, repaid $250.0 million that was outstanding on our Revolving Facility, and repaid $50.0 million on our Senior Notes. Further, we adopted ASC 842 establishing operating lease ~~right-of-use~~ assets and operating liabilities. As a result of the eRx acquisition, our investment in business purchase option was eliminated decreasing our total assets. Finally, goodwill increased primarily as a result of the acquisitions of eRx and PDX.

~~Within~~regularly receive funds within our Network Solutions segment ~~we regularly receive funds~~ from certain pharmaceutical industry participants in advance of ~~its~~our obligation to remit these funds to participating retail pharmacies. Such funds are not restricted; however, these funds are generally paid out in satisfaction of the processing obligations within three business days of their receipt. At the time of receipt, we record a corresponding liability within accrued expenses on our consolidated balance sheets. At September 30, ~~2020,~~2021, we reported ~~$27.7~~$20.7 million of such pass-through payment obligations which were subsequently paid in the first week of October ~~2020.~~2021. At March 31, ~~2020,~~2021, we reported ~~$29.1~~$16.2 million of such pass-through payment obligations.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity are cash flows provided by operating activities, cash and cash equivalents on hand, and our Revolving Facility. Our principal uses of liquidity are working capital, capital expenditures, debt service, business acquisitions and other general corporate purposes. Pursuant to the UHG Agreement, however, there are limitations on how we conduct our business during the period from the signing of the UHG Agreement through the close of the transaction, including limitations on our ability to, among other things, engage in certain acquisitions or incur indebtedness. We anticipate our cash on hand, cash generated from operations, and funds available under the

Revolving Facility will be sufficient to fund our planned capital expenditures, debt service obligations, permitted business acquisitions and operating needs. ~~We may, however, elect to raise funds through debt or equity financing in the future to fund significant investments or acquisitions that are consistent with our growth strategy.~~ Further, we may be required to make additional principal payments on the Term Loan Facility based on excess cash flows of the prior year, as defined in the credit agreement governing the Term Loan Facility.

Cash and cash equivalents totaled ~~$167.5~~$80.4 million and ~~$410.4~~$113.1 million at September 30, ~~2020~~2021 and March 31, ~~2020,~~2021, respectively, of which ~~$18.4~~$17.1 million and ~~$22.2~~$27.7 million was held outside the U.S., respectively. As of September 30, ~~2020,~~2021, no amounts had been drawn under the Revolving Facility and ~~$5.0~~$6.1 million had been issued in letters of credit against the Revolving Facility, leaving ~~$780.0~~$778.9 million available for borrowing. We also have the ability to borrow up to an additional ~~$1,102.8~~$1,736.7 million, or such amount that the senior secured net leverage ratio does not exceed 4.9 to 1.0, whichever is greater, under the Term Loan Facility, subject to certain additional conditions including the UHG Agreement and commitments by existing or new lenders to fund any additional borrowings.

Cash Flows

~~Six Months Ended September 30, 2020~~

The following table summarizes the net cash flow from operating, investing and financing activities:

   Six Months Ended
(amounts in millions) ⁽¹⁾    September 30, 2020
Cash provided by (used in) operating activities
   $ 296.6
Cash provided by (used in) investing activities
   (510.4 )
Cash provided by (used in) financing activities
   (31.7 )
Effects of exchange rate changes on cash and cash equivalents
   2.7


Net change in cash and cash equivalents
   $ (242.9 )

⁽¹⁾	~~As a result of displaying amounts in millions, rounding differences may exist in the tables above.~~


	Six Months Ended		Six Months Ended		$		%
(amounts in millions) ⁽¹⁾	September 30, 2021		September 30, 2020		Change		Change
Cash provided by (used in) operating activities	$	261.4	$	296.6	$	(35.2)	(11.9)	%
Cash provided by (used in) investing activities		(127.8)		(510.4)		382.6	(75.0)	%
Cash provided by (used in) financing activities		(166.3)		(31.7)		(134.6)	424.6	%
Effects of exchange rate changes on cash and cash equivalents		0.1		2.7		(2.6)	(96.3)	%
Net change in cash and cash equivalents	$	(32.6)	$	(242.9)	$	210.3	(86.6)	%

⁽¹⁾As a result of displaying amounts in millions, rounding differences may exist in the table above.

Operating Activities

Cash provided by operating activities is primarily affected by operating income, including the impact of debt service payments, ~~integration related~~integration-related costs and the timing of collections and ~~related~~ disbursements. Cash provided by operating activities includes $4.4 million related to pass-through funds for the six months ended September 30, 2021, and includes a $1.4 million ~~as a~~ use of cash related to pass-through funds for the six months ended September 30, 2020.

Investing Activities

Cash used in investing activities reflects ~~primarily~~routine capital expenditures related to purchases of property and equipment and the development of software. For the six months ended September 30, 2020, cash used in investing activities also reflects the eRx ~~PDX~~ and ~~Nucleus.io~~PDX acquisitions partially offset by the sale of the Connected Analytics business that occurred during the six months ended September 30, 2020. Cash used in investing activities also reflects routine capital expenditures related to purchase of property and equipment and the development of software as well as expenditures related to significant software development efforts necessary to integrate the contributed businesses.business.

Financing Activities

Cash used in financing activities reflects ~~the repayment of the Revolving Facility and payment made on~~payments under the Term Loan Facility, tax receivable agreements, interest rate cap agreements, deferred financing obligations, employee tax withholdings on vesting of equity awards, and tangible equity unit agreements partially offset by proceeds from the exercise of equity awards. Cash provided by financing activities in the prior year reflects the issuance of additional Senior Notes during the six months ended September 30, ~~2020. Additional cash used in financing activities reflects payments under tax receivable agreements, interest rate cap agreements, employee tax withholdings on vesting~~2020 partially offset by the repayment of ~~equity awards, deferred financing obligations and TEU agreements.~~

~~Six Months Ended September 30, 2019~~

~~The following table summarizes~~ the ~~net cash flow from operating, investing and financing activities:~~


	~~Six Months Ended~~
~~(amounts in millions)~~ ⁽¹⁾	~~September 30, 2019~~
~~Cash provided by (used in) operating activities~~	$	—
~~Cash provided by (used in) investing activities~~		~~(885.1~~	)
~~Cash provided by (used in) financing activities~~		~~885.1~~
~~Effects of exchange rate changes on cash and cash equivalents~~		—

~~Net change in cash and cash equivalents~~	$	—

⁽¹⁾	~~As a result of displaying amounts in millions, rounding differences may exist in the tables above.~~

~~Investing Activities~~

~~Cash used in investing activities~~Revolving Facility during the six months ended September 30, ~~2019, reflects the incremental investment in the Joint Venture upon the Company’s initial public offering.~~

2020.

~~Financing Activities~~

~~Cash provided by financing activities during the six months ended September 30, 2019, was primarily impacted by the proceeds from the initial public offering.~~

Capital Expenditures

We incur capital expenditures to grow our business by developing new and enhanced capabilities, to increase the effectiveness and efficiency of the organization and to reduce risks. Additionally, we incur capital expenditures for product development, disaster recovery, security enhancements, regulatory compliance and the replacement and upgrade of existing equipment at the end of its useful life.

Debt

Senior Credit Facilities and Senior Notes

In March 2017, the Joint Venture entered into a $5,100.0 ~~million term loan facility (the “Term~~Term Loan ~~Facility”),~~Facility and a $500.0 million ~~revolving credit facility (the “Revolving Facility”, together with the Term Loan Facility, the “Senior Credit Facilities”).~~Revolving Facility. Additionally, the Joint Venture issued Senior Notes totaling $1,000.0 ~~million of 5.75% senior notes due 2025 (the “Senior Notes”).~~

million. In July 2019, the Joint Venture amended the Revolving Facility, the primary effects of which were to increase the maximum amount that can be borrowed from $500.0 million to $785.0 million and to extend the maturity date until July 2024. In the event the outstanding balance under the Term Loan Facility exceeds $1,100.0 million on December 1, 2023, amounts due, if any, under the Revolving Facility become due and payable on December 1, 2023.

On April 21, 2020, we issued $325.0 million aggregate principal amount of 5.75% Senior Notes due 2025 (the “Notes”). The Senior Notes were issued as part of the same series as the ~~$1,000.0 million~~ Senior Notes issued in February 2017.

In ~~September 2020,~~second quarter of fiscal year 2022, we repaid ~~$50.0~~$100 million on our Term Loan Facility and recognized a loss on extinguishment of ~~$1.5~~$2.2 million.

Tangible Equity Units

In connection with our initial public offering in July 2019, we completed an offering of 5,750,000 TEUs. Each TEU, which has a stated amount of $50.00, is comprised of a stock purchase contract and a senior amortizing note due June 30, 2022. Each senior amortizing note has an initial principal amount of $8.2378 and bears interest at 5.5% per year. ~~On each~~Each year on March 30, June 30, September 30 and December 30, we pay equal quarterly cash installments of $0.7500 per amortizing note with an aggregate principal

amount of $47.4 million. Each installment constitutes a payment of interest and partial payment of principal. Unless settled earlier, each purchase contract will automatically settle on June 30, 2022. Holders of TEUs may elect to early settle prior to June 30, 2022, in which case each purchase contract converts to 3.2051 shares of common stock. 779,325 TEUs were converted during the six months ended September 30, 2021.

Hedges

From time to time, we execute interest rate cap agreements with various counterparties that effectively cap our LIBOR exposure on a portion of our existing Term Loan Facility or similar replacement debt. The following table summarizes the terms of our interest rate cap agreements at September 30, ~~2020.~~2021.



				Receive LIBOR		Pay
Effective Date	Expiration Date		Notional Amount	Exceeding⁽¹⁾		Fixed Rate
August 31, 2018	December 31, 2021	$	600,000,000	1.00	%	1.82	%
August 31, 2018	December 31, 2021	$	900,000,000	1.00	%	1.82	%
March 31, 2020	March 31, 2024	$	250,000,000	1.00	%	0.18	%
March 31, 2020	March 31, 2024	$	250,000,000	1.00	%	0.18	%
March 31, 2020	March 31, 2024	$	250,000,000	1.00	%	0.18	%
March 31, 2020	March 31, 2024	$	250,000,000	1.00	%	0.19	%

⁽¹⁾All based on 1-month LIBOR.

         Receive LIBOR Pay
Effective Date
   Expiration Date    Notional Amount    Exceeding⁽¹⁾ Fixed Rate
August 31, 2018
   December 31, 2021    $ 600,000,000    1.00 % 1.82 %
August 31, 2018
   December 31, 2021    $ 900,000,000    1.00 % 1.82 %
March 31, 2020
   March 31, 2024    $ 250,000,000    1.00 % 0.18 %
March 31, 2020
   March 31, 2024    $ 250,000,000    1.00 % 0.18 %
March 31, 2020
   March 31, 2024    $ 250,000,000    1.00 % 0.18 %
March 31, 2020
   March 31, 2024    $ 250,000,000    1.00 % 0.19 %

⁽¹⁾	~~All based on~~ ~~1-month~~ ~~LIBOR.~~

The interest rate cap agreements are recorded on the balance sheet at fair value and changes in the fair value are recorded in other comprehensive ~~income. The fair value of the interest rate caps is~~income (loss). Amounts are reclassified from other comprehensive income (loss) to interest expense in the same period the interest expense on the underlying hedged debt impacts earnings. Any payments we receive to the extent LIBOR exceeds the specified cap rate isare also reclassified from other comprehensive income (loss) to interest expense in the period received.

LIBOR Transition

LIBOR is a commonly used indicative measure of the average interest rate at which major global banks could borrow from one another. ~~In July 2017,~~On March 5, 2021, the Financial Conduct Authority (“FCA”) (the authority that governs LIBOR) announced ~~it intends~~that all LIBOR settings will either cease to ~~stop compelling~~be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the one week and two-month U.S. dollar settings and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. The United States Federal Reserve has also advised banks to ~~submit rates for~~cease entering into new contracts that use USD LIBOR as a reference rate. The Federal Reserve, in conjunction with the ~~calculation of LIBOR after 2021. The~~ Alternative Reference ~~Rates~~Rate Committee, ~~(“ARRC”)~~a committee convened by the Federal Reserve that includes major market participants, has ~~proposed that~~identified the Secured Overnight Financing Rate, ~~(“SOFR”)~~or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR. At this time, it is ~~the rate that represents best practice~~not possible to predict how markets will respond to SOFR or other alternative reference rates as the ~~alternative~~transition away from the LIBOR benchmarks is anticipated in coming years. Accordingly, the outcome of these reforms is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to ~~USD-LIBOR~~ ~~for use~~LIBOR’s phaseout could cause LIBOR to perform differently than in ~~derivatives and other financial contracts that are currently indexed~~the past or cease to ~~USD-LIBOR.~~ ~~The ARRC has proposed a paced market transition plan to SOFR from~~ ~~USD-LIBOR~~ ~~and organizations are currently working on industry-wide and company-specific transition plans as it relates to derivatives and cash markets exposed to~~ ~~USD-LIBOR.~~exist. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks.

Effect of Certain Debt Covenants

A breach of any of the covenants under the agreements governing existing debt could limit our ability to borrow funds under the Term Loan Facility and could result in a default under the Term Loan Facility. Upon the occurrence of an event of default under the Term Loan Facility, the lenders could elect to declare all amounts then outstanding to be immediately due and payable, and the lenders could terminate all commitments to extend further credit. If we were unable to repay the amounts declared due, the lenders could proceed against any collateral granted to them to secure that indebtedness.

With certain exceptions, the Term Loan Facility obligations are secured by a first-priority security interest in substantially all of our ~~assets, including our investment in subsidiaries.~~assets. The Term Loan Facility contains various restrictions and nonfinancial covenants, along with a senior secured net leverage ratio test. The nonfinancial covenants include restrictions on dividends, investments, dispositions, future borrowings and other specified payments, as well as additional reporting and disclosure requirements. The senior secured net leverage test must be met as a condition to incur additional indebtedness, but otherwise is applicable only to the extent that amounts drawn exceed 35% of the Revolving Facility at the end of any fiscal quarter. As of September 30, ~~2020,~~2021, we were in compliance with all debt covenants.

Our ability to meet liquidity needs depends on our subsidiaries’ earnings and cash flows, the terms of our indebtedness along with our subsidiaries’ indebtedness, and other contractual restrictions.

Cautionary Notice Regarding Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of federal securities laws. Any statements

made in this Quarterly Report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plans and strategies. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,” “predicts,” and the negatives of these words and other similar expressions.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that factors affecting our actual financial results could cause actual results to differ materially from those expressed in the forward-looking statements, including those described below.

Summary of Material Risks

Our actual results may differ significantly from any results expressed or implied by any forward-looking statements. A summary of the principal risk factors that make investing in us risky and might cause our actual results to differ is set forth below. The following is only a summary of the principal risks that may materially adversely affect our business, financial condition and results of operations. Factors that could materially affect our financial results or such forward-looking statements include, among others, the following factors:

•the inability to complete the transactions contemplated by the UHG Transaction due to the failure to satisfy the conditions to the completion of the UHG Transaction, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the UHG Transaction;

•risks related to disruption of management’s attention from business operations due to the UHG Transaction;

•the effect of the announcement of the UHG Transaction on our ~~ability~~relations with our customers, operations results and business generally;

•the risk that the UHG Transaction will not be consummated in a timely manner, exceeding the expected costs of the UHG Transaction;

•the occurrence of any event, change or other circumstances that could give rise to ~~retain or renew existing customers and attract new customers;~~the termination of the UHG 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 variant) on the national and global economy, our business, suppliers, customers, and employees;

•our ability to retain and recruit key management personnel and other talent (including while the UHG Transaction is pending and in light of our recently imposed COVID-19 vaccine mandate);

•our ability to retain or renew existing customers and attract new customers;

•our ability to connect a large number of payers and providers;

•our ability to provide competitive services and prices while maintaining our margins;

•further consolidation in our end-customer markets;

•our ability to effectively manage our costs;

•our ability to effectively develop and maintain relationships with our channel partners;

•our ability to timely develop new services and improve existing solutions;

•our ability to deliver services timely without interruption;

•a decline in transaction volume in the U.S. healthcare industry;

~~our ability to timely develop new services and the market’s willingness to adopt our new services;~~

•our ability to maintain our access to data sources;

•our ability to maintain the security and integrity of our data;

•our reliance on key management personnel;

•our ability to ~~deliver services timely without interruption;~~

manage and expand our ~~ability to make acquisitions~~operations and ~~integrate the operations of acquired businesses;~~keep up with rapidly changing technologies;

~~government regulation and changes in the regulatory environment;~~

~~economic and political instability in the U.S. and international markets where we operate;~~

~~risks related to our international operations;~~

•the ability of our outside service providers and key vendors to fulfill their obligations to us;

•risks related to our international operations;

~~litigation or regulatory proceedings;~~

•our ability to protect and enforce our intellectual property, trade secrets and other forms of unpatented intellectual property;

•our ability to defend our 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;

~~our reliance on key management personnel;~~

~~our ability to manage~~•economic and ~~expand our operations~~political instability in the U.S. and ~~keep up with rapidly changing technologies;~~international markets where we operate;

~~our adoption of new,~~•litigation or ~~amendments to existing, accounting standards;~~regulatory proceedings;

•losses against which we do not insure;

•our ability to make acquisitions and integrate the operations of acquired businesses;

•our ability to make timely payments of principal and interest on our indebtedness;

•our ability to satisfy covenants in the agreements governing our indebtedness;

•our ability to maintain our liquidity;

•our adoption of new, or amendments to existing, accounting standards;

•the potential dilutive effect of future ~~issuances~~issuance of shares of our common ~~stock;~~stock, par value $0.001 per share (our “common stock”); and

•the impact of anti-takeover provisions in our organizational documents and under Delaware law, which may discourage or delay acquisition attempts.

There may be other factors, many of which are beyond our control, that may cause our actual results to differ materially from the forward-looking statements, including factors disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2020~~2021 in the section entitled “Risk Factors” and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. You should evaluate all forward-looking statements made in this report and the other public statements we may make from time to time in the context of these risks and uncertainties.

Our forward-looking statements made herein speak only as of the date on which made. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this ~~report.~~report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk in the normal course of business.

Interest Rate Risk

We have interest rate risk primarily related to borrowings under our Senior Credit Facilities. Borrowings under the Senior Credit Facilities bear interest at a rate equal to either (i) LIBOR for the relevant interest period, adjusted for statutory reserve requirements (the Term Loan Facility is subject to a floor of 1.00% per ~~annum~~year and the Revolving Facility is subject to a floor of 0.00% per ~~annum)~~year), plus an applicable margin or (ii) a base rate equal to the highest of (a) the rate of interest in effect as publicly announced by the administrative agent as its prime rate, (b) the federal funds effective rate plus 0.50% and (c) adjusted LIBOR for an interest period of one month plus 1.00% (the Term Loan Facility may be subject to a floor of 2.00% per ~~annum)~~year), in each case, plus an applicable margin.

As of September 30, ~~2020,~~2021, we had Term Loan Facility borrowings of ~~$3,758.3~~$3,493.3 million (before unamortized debt discount) and no Revolving Facility ~~borrowings under the Senior Credit Facilities.~~borrowings. As of September 30, ~~2020,~~2021, the LIBOR-based interest rate on the Term Loan Facility was LIBOR plus 2.5%.

We manage economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into interest rate cap agreements to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our interest rate cap agreements are used to manage differences in the amount, timing and duration of our known or expected cash receipts and our known or expected cash payments principally related to our borrowings. As of September 30, ~~2020,~~2021, our outstanding interest rate cap agreements were designated as cash flow hedges of interest rate risk and were determined to be highly effective.

A change in interest rates on variable rate debt may impact our pretax earnings and cash flows. Based on the outstanding debt as of September 30, ~~2020,~~2021, and assuming that our mix of debt instruments, derivative financial instruments and other variables remain the same, the annualized effect of a one percentage point change in variable interest rates would have an annualized pretax impact on the earnings and cash flows of approximately ~~$12.6~~$1.2 million.

In the future, in order to manage our interest rate risk, we may refinance existing debt, enter into additional interest rate cap agreements, modify our existing interest rate cap agreements or make changes that may impact our ability to treat our interest rate cap agreements as a cash flow hedge. However, we do not intend or expect to enter into derivative or interest rate cap agreement transactions for speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, ~~has~~ evaluated the effectiveness of ~~the Company’s~~our disclosure controls and procedures as of ~~the end of the period covered by this report.~~September 30, 2021. The term “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“the Exchange Act”) means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosures.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving their desired control objectives. Based on the evaluation of ~~management’s~~ disclosure controls and procedures as of ~~the end of the period covered by this report,~~September 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, ~~the~~our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control ~~Over~~over Financial Reporting

During the quarter ~~covered by this report,~~ended September 30, 2021, there have been no changes in ~~our~~the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect, ~~our~~the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in legal proceedings related to the potential UHG Transaction and various other legal proceedings in the ordinary course of business. We believe that the ultimate disposition of such proceedings will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note ~~15,~~ 14, Legal Proceedings, ~~in Part I, Item 1 of this Quarterly Report~~.to our consolidated financial statements.

ITEM 1A. RISK FACTORS

In addition to the other information included in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” included in ~~the most recent~~our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (“the Annual Report”), as well as the factors identified under “Cautionary ~~Statement~~Notice Regarding Forward-Looking Statements” at the end of Part I, Item 2 of this Quarterly Report, which could ~~materially affect the~~have a material adverse impact on our business, financial condition or ~~future~~operating results. There have been no material changes to the risk factors described in the Annual Report. The risks described in the Annual Report and this Quarterly Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or operating results.

~~ITEM 2.~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

~~None.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

~~Not applicable.~~None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits listed on the accompanying Exhibit Index are filed, furnished or incorporated by ~~reference~~references (as stated therein) as part of this Quarterly Report.

Exhibit Index


~~Exhibit No.~~		~~Description~~
Exhibit No.	Description
~~3.1~~ 2.1	Agreement and Plan of Merger, dated as of January 5, 2021, by and among Change Healthcare Inc., UnitedHealth Group Incorporated and Cambridge Merger Sub Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 6, 2021)
3.1	Amended and Restated Certificate of Incorporation of Change Healthcare Inc., dated as of June 26, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 on February 4, 2020)
3.2
~~3.2~~		Amended and Restated Bylaws of Change Healthcare Inc., dated as of June 26, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-4 filed on February 4, 2020)
31.1*
10.1†*		~~Amended and Restated Change Healthcare LLC Supplemental 401(k) Plan~~

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2*
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1*
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	iXBRL Instance Document
99.1* 101.SCH*		~~Supplemental Information of Change Healthcare LLC for the fiscal years ended March 31, 2020 and 2019.~~

~~101.INS~~		~~XBRL Instance Document~~

~~101.SCH~~		~~XBRL~~ iXBRL Taxonomy Extension Schema Document
101.DEF*
~~101.DEF~~		~~XBRL~~ iXBRL Taxonomy Extension Definition Linkbase Document
101.CAL*
~~101.CAL~~		~~XBRL~~ iXBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
~~101.LAB~~		~~XBRL~~ iXBRL Taxonomy Extension Label Linkbase Document
101.PRE*
~~101.PRE~~		~~XBRL~~ iXBRL Taxonomy Extension Presentation Linkbase Document

104

~~Filed herewith.~~

†	~~Indicates management contract or compensatory plan.~~Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibits 101)

* Filed herewith.

Certain agreements and other documents filed as exhibits to this Form 10-Q contain representations and warranties that the parties thereto made to each other. These representations and warranties have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and other documents and that may not be reflected in such agreements and other documents. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject matter of any such representations and warranties may have changed since the date of such agreements and other documents.

~~SIGNATURES~~35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	:	~~Change Healthcare Inc.~~
			CHANGE HEALTHCARE INC.
Date: November ~~5, 2020~~4, 2021	By:	~~By:~~	/s/ Neil E. de Crescenzo
				Neil E. de Crescenzo Chief Executive Officer and Director
				(Principal Executive Officer)

Date: November ~~5, 2020~~4, 2021	By:	~~By:~~	/s/ Fredrik Eliasson
				Fredrik Eliasson
				Executive Vice President, Chief Financial Officer
				(Principal Financial Officer)


	PDX
Cash	$	755
Accounts receivable, net of allowance of $1,092		5,739
Prepaid expenses and other current assets		2,251
Property and equipment		840
Goodwill		98,830
Identifiable intangible assets:
Customer relationships (life 18 years)		74,300
Technology-based intangible assets (life 10-11 years)		25,300
Other noncurrent assets		690
Accounts payable		(3,882	)
Deferred revenue, current		(2,946	)
Accrued expenses and other current liabilities		(3,364	)
Other noncurrent liabilities		(222	)

Total consideration transferred	$	198,291


Net Assets acquired
Cash	$	330,665
Accounts receivable, net of allowance of $22,059		718,895
Contract assets		132,704
Prepaid and other current assets		115,265
Investment in business purchase option		146,500
Property and equipment, net		206,751
Goodwill		4,362,252
Other noncurrent assets		169,539
Identified intangible assets:
Customer relationships (life 12-16 years)		3,056,000
Tradenames (life 18 years)		146,000
Technology-based intangible assets (life 6-12 years)		1,188,000
Drafts and accounts payable		(60,637	)
Accrued expenses		(559,456	)
Deferred revenue, current		(292,528	)
Current portion of long-term debt		(28,969	)
Other current liabilities		(22,732	)
Long-term debt, excluding current portion		(4,713,565	)
Deferred income tax liabilities		(579,680	)
Tax receivable agreement obligations with related parties		(176,586	)
Other long-term liabilities		(102,675	)

Net Assets acquired	$	4,035,743

Summary of purchase consideration:
Fair value of shares issued to SpinCo shareholders
(175,995,192 shares at $12.47 per share):
Common Stock, $0.001 par value	$	176
Additional paid-in capital		2,194,484
Fair value of Joint Venture equity interest previously held		1,589,040
Fair value of Joint Venture equity interest previously held through TEUs		216,764
Settlement of dividend receivable		42,778
Repayment of advances to member		(7,499	)

Purchase consideration	$	4,035,743


	Software and Analytics			Network Solutions		Technology-Enabled Services		Total
Balance at March 31, 2020	$	1,770,118		$	1,645,831	$	379,376	$	3,795,325
Acquisitions ⁽¹⁾		23,191			324,143		133		347,467
Dispositions		(24,073	)		—		—		(24,073	)
Effects of foreign currency		7,762			—		—		7,762

Balance at September 30, 2020	$	1,776,998		$	1,969,974	$	379,509	$	4,126,481


	Three Months Ended			Six Months Ended
	September 30, 2019			September 30, 2019
Total revenue	$	795,811		$	1,651,367
Cost of operations (exclusive of depreciation and amortization)	$	331,234		$	658,181
Customer postage	$	57,110		$	115,594
Net income (loss)	$	(130	)	$	71,785


		Three Months Ended			Six Months Ended
	Statement of Operations Location	September 30, 2020			September 30, 2020
Operating lease cost	(1)	$	11,686		$	22,158
Finance lease cost
Amortization expense	Depreciation and amortization		123			202
Interest expense	Interest expense, net		34			67
Short-term lease cost	(1)		244			486
Variable lease cost	(1)		1,909			3,751
Sublease income	Other, net		(355	)		(662	)

Total lease cost		$	13,641		$	26,002


	Balance Sheet Location	September 30, 2020
Right-of-use assets
Operating leases	Operating lease right-of-use assets, net	$	106,790
Finance leases	Property and equipment, net		2,085

Total right-of-use assets		$	108,875

Lease liabilities
Current liabilities
Operating leases	Current portion of operating lease liabilities	$	32,060
Finance leases	Current portion of long-term debt		588
Noncurrent liabilities
Operating leases	Long-term operating lease liabilities		88,239
Finance leases	Long-term debt, excluding current portion		1,554

Total lease liabilities		$	122,441


	Six Months Ended September 30, 2020
	Operating Leases		Finance Leases
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows	$	20,747	$	67
Financing cash flows	$	—	$	298
Non-cash activities
Right-of-use assets obtained in exchange for lease liabilities⁽¹⁾	$	11,733	$	363


	Operating Leases			Finance Leases
Weighted-average remaining lease term		4.88 years			3.88 years
Weighted-average discount rate		7.40	%		6.55	%


	Three Months Ended September 30,					Six Months Ended September 30,
Derivative financial instruments in cash flow hedging relationships:	2020			2019		2020			2019
Gain/(loss) related to derivative financial instruments recognized in other comprehensive income (loss)	$	(2,277	)	$	—	$	(6,737	)	$	—

Gain/(loss) related to portion of derivative financial instruments reclassified from accumulated other comprehensive income (loss) to interest expense	$	281		$	—	$	557		$	—


	September 30, 2020			March 31, 2020
Senior Credit Facilities
$5,100,000 Term Loan Facility, due March 1, 2024, net of unamortized discount of $109,426 and $125,793 at September 30, 2020 and March 31, 2020, respectively (effective interest rate of 4.42% and 4.42%, respectively)	$	3,648,824		$	3,682,457
$785,000 Revolving Facility, expiring July 3, 2024, and bearing interest at a variable interest rate ⁽¹⁾		—			250,000
Senior Notes
$1,325,000 5.75% Senior Notes due March 1, 2025, net of unamortized discount of $7,695 and $2,228 at September 30, 2020 and March 31, 2020, respectively (effective interest rate of 5.90% and 5.80%, respectively)		1,317,305			997,772
Tangible Equity Unit Senior Amortizing Note
$47,367 Senior Amortizing Notes due June 30, 2022, net of unamortized discount of $535 and $842 at September 30, 2020 and March 31, 2020, respectively (effective interest rate of 7.44% and 7.44%, respectively)		28,058			35,431
Other		20,038			23,413
Less current portion		(30,488	)		(278,779	)

Long-term debt	$	4,983,737		$	4,710,294


	Available		Foreign Currency						Accumulated Other
	For Sale		Translation			Cash Flow			Comprehensive
	Debt Security		Adjustment			Hedge			Income (Loss)
Balance at March 31, 2019	$	—	$	(1,565	)	$	(1,691	)	$	(3,256	)
Cumulative effect of accounting change of the Joint Venture-ASU 2018-02		—		—			422			422
Change associated with foreign currency translation		—		226			—			226
Change associated with current period hedging		—		—			(5,117	)		(5,117	)
Reclassification into earnings		—		—			(314	)		(314	)

Balance at June 30, 2019	$	—	$	(1,339	)	$	(6,700	)	$	(8,039	)
Unrealized gain (loss) on available for sale debt securities of the Joint Venture		1,173		—			—			1,173
Change associated with foreign currency translation		—		1,583			—			1,583
Change associated with current period hedging		—		—			(1,509	)		(1,509	)
Reclassification into earnings		—		—			199			199

Balance at September 30, 2019	$	1,173	$	244		$	(8,010	)	$	(6,593	)

Balance at March 31, 2020	$	—	$	(7,084	)	$	(288	)	$	(7,372	)
Change associated with foreign currency translation		—		6,353			—			6,353
Change associated with current period hedging		—		—			(4,459	)		(4,459	)
Reclassification into earnings		—		—			275			275

Balance at June 30, 2020	$	—	$	(731	)	$	(4,472	)	$	(5,203	)
Change associated with foreign currency translation		—		5,221			—			5,221
Change associated with current period hedging		—		—			(2,277	)		(2,277	)
Reclassification into earnings		—		—			281			281

Balance at September 30, 2020	$	—	$	4,490		$	(6,468	)	$	(1,978	)


	Six Months Ended
(amounts in millions) ⁽¹⁾	September 30, 2020
Cash provided by (used in) operating activities	$	296.6
Cash provided by (used in) investing activities		(510.4	)
Cash provided by (used in) financing activities		(31.7	)
Effects of exchange rate changes on cash and cash equivalents		2.7

Net change in cash and cash equivalents	$	(242.9	)