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MDRX Allscripts Healthcare Solutions

Filed: 5 Nov 21, 4:06pm

 

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, 2021

OR

 

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

 

Commission file number 001-35547

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

36-4392754

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

222 Merchandise Mart, Suite 2024

Chicago, IL 60654

(Address of Principal Executive Offices, Zip Code)

(800) 334-8534

(Registrant's Telephone Number, Including Area Code)

 

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

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

Common Stock, par value $0.01 per share

MDRX

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

 

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, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

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   

As of November 1, 2021, there were 122,572,462 shares of the registrant's $0.01 par value common stock outstanding.

 

 


 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

FORM 10-Q

For the Fiscal Quarter Ended September 30, 2021

TABLE OF CONTENTS

 

 

 

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

September 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

214,179

 

 

$

531,104

 

Restricted cash

 

 

2,141

 

 

 

6,361

 

Accounts receivable, net of allowance of $30,022 and $31,596 as of

   September 30, 2021 and December 31, 2020, respectively

 

 

340,924

 

 

 

347,355

 

Contract assets, net of allowance of $1,068 as of September 30, 2021 and December 31, 2020

 

 

123,244

 

 

 

106,717

 

Income tax receivable

 

 

0

 

 

 

25,421

 

Prepaid expenses and other current assets

 

 

124,473

 

 

 

136,264

 

Total current assets

 

 

804,961

 

 

 

1,153,222

 

Fixed assets, net

 

 

53,667

 

 

 

72,162

 

Software development costs, net

 

 

176,721

 

 

 

193,202

 

Intangible assets, net

 

 

248,408

 

 

 

286,602

 

Goodwill

 

 

974,427

 

 

 

974,729

 

Deferred taxes, net

 

 

6,118

 

 

 

5,790

 

Contract assets - long-term, net of allowance of $4,273 as of September 30, 2021 and December 31, 2020

 

 

51,119

 

 

 

43,682

 

Right-of-use assets - operating leases

 

 

70,297

 

 

 

96,601

 

Other assets

 

 

98,588

 

 

 

91,628

 

Total assets

 

$

2,484,306

 

 

$

2,917,618

 

 

 

 

 

 

 

 

 

 

 

 

 


3


 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(Unaudited)

(In thousands, except per share amounts)

 

September 30, 2021

 

 

December 31, 2020

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

21,801

 

 

$

35,905

 

Accrued expenses

 

 

93,546

 

 

 

100,262

 

Accrued compensation and benefits

 

 

92,737

 

 

 

118,771

 

Deferred revenue

 

 

337,884

 

 

 

334,764

 

Current operating lease liabilities

 

 

19,264

 

 

 

22,264

 

Current liabilities attributable to discontinued operations

 

 

1,708

 

 

 

322,811

 

Total current liabilities

 

 

566,940

 

 

 

934,777

 

Long-term debt

 

 

373,187

 

 

 

167,587

 

Deferred revenue

 

 

4,538

 

 

 

3,471

 

Deferred taxes, net

 

 

16,494

 

 

 

18,186

 

Long-term operating lease liabilities

 

 

67,057

 

 

 

93,463

 

Other liabilities

 

 

37,503

 

 

 

33,891

 

Total liabilities

 

 

1,065,719

 

 

 

1,251,375

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock: $0.01 par value, 1,000 shares authorized,

   0 shares issued and outstanding as of September 30, 2021 and December 31, 2020

 

 

0

 

 

 

0

 

Common stock: $0.01 par value, 349,000 shares authorized as of September 30, 2021

   and December 31, 2020; 276,697 and 122,570 shares issued and outstanding

   as of September 30, 2021, respectively; 274,558 and 139,942 shares issued

   and outstanding as of December 31, 2020, respectively

 

 

2,766

 

 

 

2,745

 

Treasury stock: at cost, 154,126 and 134,616 shares as of September 30, 2021 and

   December 31, 2020, respectively

 

 

(1,213,315

)

 

 

(870,558

)

Additional paid-in capital

 

 

1,952,097

 

 

 

1,902,776

 

Retained earnings

 

 

680,281

 

 

 

633,118

 

Accumulated other comprehensive loss

 

 

(3,242

)

 

 

(1,838

)

Total stockholders’ equity

 

 

1,418,587

 

 

 

1,666,243

 

Total liabilities and stockholders’ equity

 

$

2,484,306

 

 

$

2,917,618

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

(In thousands, except per share amounts)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

222,726

 

 

$

219,850

 

 

$

670,840

 

 

$

680,124

 

 

Client services

 

 

146,546

 

 

 

145,768

 

 

 

440,498

 

 

 

436,162

 

 

Total revenue

 

 

369,272

 

 

 

365,618

 

 

 

1,111,338

 

 

 

1,116,286

 

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

 

68,462

 

 

 

72,411

 

 

 

208,496

 

 

 

216,625

 

 

Client services

 

 

122,142

 

 

 

127,361

 

 

 

362,826

 

 

 

406,752

 

 

Amortization of software development and

    acquisition-related assets

 

 

29,894

 

 

 

30,708

 

 

 

89,444

 

 

 

88,237

 

 

Total cost of revenue

 

 

220,498

 

 

 

230,480

 

 

 

660,766

 

 

 

711,614

 

 

    Gross profit

 

 

148,774

 

 

 

135,138

 

 

 

450,572

 

 

 

404,672

 

 

Selling, general and administrative expenses

 

 

78,794

 

 

 

93,442

 

 

 

239,592

 

 

 

296,164

 

 

Research and development

 

 

45,540

 

 

 

46,352

 

 

 

145,932

 

 

 

151,774

 

 

Asset impairment charges

 

 

6,519

 

 

 

210

 

 

 

11,763

 

 

 

210

 

 

Amortization of intangible and acquisition-related assets

 

 

5,817

 

 

 

6,295

 

 

 

17,466

 

 

 

19,326

 

 

Income (loss) from operations

 

 

12,104

 

 

 

(11,161

)

 

 

35,819

 

 

 

(62,802

)

 

Interest expense

 

 

(3,617

)

 

 

(6,667

)

 

 

(9,709

)

 

 

(27,646

)

 

Other income, net

 

 

4,700

 

 

 

398

 

 

 

22,494

 

 

 

45

 

 

Gain on sale of businesses, net

 

 

8,363

 

 

 

0

 

 

 

8,363

 

 

 

0

 

 

Impairment of long-term investments

 

 

0

 

 

 

(1,025

)

 

 

0

 

 

 

(1,575

)

 

Equity in net (loss) income of unconsolidated investments

 

 

(257

)

 

 

383

 

 

 

(321

)

 

 

17,417

 

 

Income (loss) from continuing operations before income taxes

 

 

21,293

 

 

 

(18,072

)

 

 

56,646

 

 

 

(74,561

)

 

Income tax (provision) benefit

 

 

(5,099

)

 

 

4,116

 

 

 

(9,954

)

 

 

6,641

 

 

Income (loss) from continuing operations, net of tax

 

 

16,194

 

 

 

(13,956

)

 

 

46,692

 

 

 

(67,920

)

 

(Loss) income from discontinued operations

 

 

(14

)

 

 

19,545

 

 

 

(7

)

 

 

54,601

 

 

Gain on sale of discontinued operations

 

 

0

 

 

 

0

 

 

 

647

 

 

 

0

 

 

Income tax effect on discontinued operations

 

 

0

 

 

 

(5,047

)

 

 

(169

)

 

 

(14,098

)

 

(Loss) income from discontinued operations, net of tax

 

 

(14

)

 

 

14,498

 

 

 

471

 

 

 

40,503

 

 

Net income (loss)

 

$

16,180

 

 

$

542

 

 

$

47,163

 

 

$

(27,417

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.13

 

 

$

(0.09

)

 

$

0.35

 

 

$

(0.42

)

 

Discontinued operations

 

 

0.00

 

 

 

0.09

 

 

 

0.00

 

 

 

0.25

 

 

Net income (loss) per share - Basic

 

$

0.13

 

 

$

0.00

 

 

$

0.35

 

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.12

 

 

$

(0.09

)

 

$

0.33

 

 

$

(0.42

)

 

Discontinued operations

 

 

0.00

 

 

 

0.09

 

 

 

0.00

 

 

 

0.25

 

 

Net income (loss) per share - Diluted

 

$

0.12

 

 

$

0.00

 

 

$

0.33

 

 

$

(0.17

)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

Net income (loss)

 

$

16,180

 

 

$

542

 

 

$

47,163

 

 

$

(27,417

)

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(805

)

 

 

983

 

 

 

(285

)

 

 

(611

)

 

Change in fair value of derivatives qualifying as cash flow hedges

 

 

0

 

 

 

1,009

 

 

 

(1,509

)

 

 

1,620

 

 

Other comprehensive (loss) income before income tax benefit

 

 

(805

)

 

 

1,992

 

 

 

(1,794

)

 

 

1,009

 

 

Income tax benefit related to items in other comprehensive income (loss)

 

 

0

 

 

 

(260

)

 

 

390

 

 

 

(418

)

 

Total other comprehensive income (loss)

 

 

(805

)

 

 

1,732

 

 

 

(1,404

)

 

 

591

 

 

Comprehensive income (loss)

 

$

15,375

 

 

$

2,274

 

 

$

45,759

 

 

$

(26,826

)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 


6


 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Number of common shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

276,668

 

 

 

274,463

 

 

 

274,558

 

 

 

272,609

 

Common stock issued under stock compensation plans,

    net of shares withheld for employee taxes

 

 

29

 

 

 

8

 

 

 

2,139

 

 

 

1,862

 

Balance at end of period

 

 

276,697

 

 

 

274,471

 

 

 

276,697

 

 

 

274,471

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,766

 

 

$

2,743

 

 

$

2,745

 

 

$

2,725

 

Common stock issued under stock compensation plans,

    net of shares withheld for employee taxes

 

 

0

 

 

 

1

 

 

 

21

 

 

 

19

 

Balance at end of period

 

$

2,766

 

 

$

2,744

 

 

$

2,766

 

 

$

2,744

 

Number of treasury stock shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(151,657

)

 

 

(111,493

)

 

 

(134,616

)

 

 

(110,134

)

Issuance of treasury stock

 

 

0

 

 

 

0

 

 

 

33

 

 

 

90

 

Purchase of treasury stock

 

 

0

 

 

 

(5,000

)

 

 

(6,397

)

 

 

(6,449

)

Accelerated share repurchase program

 

 

(2,469

)

 

 

0

 

 

 

(13,146

)

 

 

0

 

Balance at end of period

 

 

(154,126

)

 

 

(116,493

)

 

 

(154,126

)

 

 

(116,493

)

Treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(1,174,498

)

 

$

(579,678

)

 

$

(870,558

)

 

$

(571,157

)

Issuance of treasury stock

 

 

0

 

 

 

0

 

 

 

465

 

 

 

1,193

 

Purchase of treasury stock

 

 

0

 

 

 

(45,568

)

 

 

(108,953

)

 

 

(55,282

)

Accelerated share repurchase program

 

 

(38,817

)

 

 

0

 

 

 

(234,269

)

 

 

0

 

Balance at end of period

 

$

(1,213,315

)

 

$

(625,246

)

 

$

(1,213,315

)

 

$

(625,246

)

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

1,903,542

 

 

$

1,920,645

 

 

$

1,902,776

 

 

$

1,907,348

 

Stock-based compensation

 

 

8,777

 

 

 

8,811

 

 

 

25,861

 

 

 

25,931

 

Common stock issued under stock compensation plans,

    net of shares withheld for employee taxes

 

 

(76

)

 

 

(60

)

 

 

(13,988

)

 

 

(5,604

)

Capped call transactions

 

 

0

 

 

 

0

 

 

 

0

 

 

 

797

 

Accelerated share repurchase program

 

 

38,817

 

 

 

0

 

 

 

34,269

 

 

 

0

 

Issuance of treasury stock

 

 

0

 

 

 

0

 

 

 

69

 

 

 

(440

)

Warrants issued

 

 

1,037

 

 

 

0

 

 

 

3,110

 

 

 

1,364

 

Balance at end of period

 

$

1,952,097

 

 

$

1,929,396

 

 

$

1,952,097

 

 

$

1,929,396

 

Retained earnings (accumulated deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

664,101

 

 

$

(95,248

)

 

$

633,118

 

 

$

(49,336

)

Net income (loss)

 

 

16,180

 

 

 

542

 

 

 

47,163

 

 

 

(27,417

)

ASU 2016-13 implementation adjustments

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(17,953

)

Balance at end of period

 

$

680,281

 

 

$

(94,706

)

 

$

680,281

 

 

$

(94,706

)

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(2,437

)

 

$

(5,533

)

 

$

(1,838

)

 

$

(4,392

)

Foreign currency translation adjustments, net

 

 

(805

)

 

 

983

 

 

 

(285

)

 

 

(611

)

Unrecognized gain (loss) on derivatives qualifying as cash flow hedges, net of tax

 

 

0

 

 

 

749

 

 

 

(1,119

)

 

 

1,202

 

Balance at end of period

 

$

(3,242

)

 

$

(3,801

)

 

$

(3,242

)

 

$

(3,801

)

Total Stockholders’ Equity at beginning of period

 

$

1,393,474

 

 

$

1,242,929

 

 

$

1,666,243

 

 

$

1,285,188

 

Total Stockholders’ Equity at end of period

 

$

1,418,587

 

 

$

1,208,387

 

 

$

1,418,587

 

 

$

1,208,387

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

47,163

 

 

$

(27,417

)

Less: Income from discontinued operations

 

 

471

 

 

 

40,503

 

Income (loss) from continuing operations

 

 

46,692

 

 

 

(67,920

)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

132,989

 

 

 

146,016

 

Non-cash lease expense, net

 

 

(3,048

)

 

 

561

 

Stock-based compensation expense

 

 

25,861

 

 

 

25,931

 

Deferred taxes

 

 

(1,650

)

 

 

2,930

 

Impairment of assets and long-term investments

 

 

11,763

 

 

 

1,785

 

Equity in net loss (income) of unconsolidated investments

 

 

321

 

 

 

(17,417

)

Gain on sale of businesses, net

 

 

(8,363

)

 

 

0

 

Other income, net

 

 

(9,881

)

 

 

(4,423

)

Changes in operating assets and liabilities (net of businesses acquired):

 

 

 

 

 

 

 

 

Accounts receivable and contract assets, net

 

 

55

 

 

 

60,440

 

Prepaid expenses and other assets

 

 

13,086

 

 

 

4,232

 

Accounts payable

 

 

(13,671

)

 

 

(49,458

)

Accrued expenses

 

 

21,630

 

 

 

(3,487

)

Accrued compensation and benefits

 

 

(25,513

)

 

 

29,975

 

Deferred revenue

 

 

(11,862

)

 

 

(26,028

)

Other liabilities

 

 

3,614

 

 

 

(3,110

)

Accrued DOJ settlement

 

 

0

 

 

 

(88,745

)

Net cash provided by operating activities - continuing operations

 

 

182,023

 

 

 

11,282

 

Net cash (used in) provided by operating activities - discontinued operations

 

 

(322,495

)

 

 

60,623

 

    Net cash (used in) provided by operating activities

 

 

(140,472

)

 

 

71,905

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,551

)

 

 

(7,798

)

Capitalized software

 

 

(55,482

)

 

 

(71,337

)

Sale of businesses and other investments, net of cash divested, and distributions received

 

 

7,581

 

 

 

24,884

 

Purchases of equity securities, other investments and related intangible assets, net

 

 

(2,421

)

 

 

(3,888

)

Net cash used in investing activities - continuing operations

 

 

(54,873

)

 

 

(58,139

)

Net cash used in investing activities - discontinued operations

 

 

0

 

 

 

(6,793

)

    Net cash used in investing activities

 

 

(54,873

)

 

 

(64,932

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(13,967

)

 

 

(5,589

)

Repayment of Convertible Senior Notes

 

 

0

 

 

 

(352,361

)

Credit facility payments

 

 

(50,000

)

 

 

(175,000

)

Credit facility borrowings, net of issuance costs

 

 

250,000

 

 

 

673,625

 

Repurchase of common stock

 

 

(308,953

)

 

 

(55,282

)

Payment of acquisition and other financing obligations

 

 

(2,400

)

 

 

(5,127

)

      Net cash (used in) provided by financing activities

 

 

(125,320

)

 

 

80,266

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(480

)

 

 

132

 

Net (decrease) increase in cash and cash equivalents

 

 

(321,145

)

 

 

87,371

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

537,465

 

 

 

137,539

 

Cash, cash equivalents and restricted cash, end of period

 

$

216,320

 

 

$

224,910

 

 

The accompanying notes are an integral part of these consolidated financial statements.


8


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Basis of Presentation and Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Allscripts Healthcare Solutions, Inc. (“Allscripts”) and its wholly-owned subsidiaries and controlled affiliates. All significant intercompany balances and transactions have been eliminated. Each of the terms “we,” “us,” “our” or the “Company” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.

Unaudited Interim Financial Information

The unaudited interim consolidated financial statements as of and for the three and nine months ended September 30, 2021 and 2020 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim consolidated financial statements are unaudited and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the consolidated financial statements for the periods presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The consolidated results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting. The Company believes that the disclosures made are adequate to make these unaudited interim consolidated financial statements not misleading. They should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “Form 10-K”).

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Our estimates and assumptions consider the economic implications of COVID-19 on our critical and significant accounting estimates. Actual results could differ materially from these estimates.

Change in Presentation

During the third quarter of 2021, we changed our reportable segments from Core Clinical and Financial Solutions, Data, Analytics and Care Coordination, and Unallocated to Hospital and Large Physician Practices, Veradigm, and Unallocated. Certain business units reported within the historical segments have been reallocated into the new segments. Refer to Note 16 “Business Segments” for further discussion on the impact of the change. 

Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported consolidated prior period financial results.

Significant Accounting Policies

There have been no changes to our significant accounting policies from those disclosed in our Form 10-K.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740)” (“ASU 2019-12”), which is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 simplifies accounting guidance for intraperiod allocations, deferred tax liabilities, year-to-date losses in interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of tax laws or rate changes. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020. We adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a significant impact on our consolidated financial statements.

9


Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning after December 15, 2021. We are currently evaluating the impact of this accounting guidance.

We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, will have a material impact on our consolidated financial statements.

 

2. Revenue from Contracts with Customers

Our 2 primary revenue streams are (i) software delivery, support and maintenance and (ii) client services. Software delivery, support and maintenance revenue consists of all of our proprietary software sales (either under a perpetual or term license delivery model), subscription-based software sales, transaction-related revenue, the resale of hardware and third-party software and revenue from post-contract client support and maintenance services, which include telephone support services, maintaining and upgrading software and ongoing enhanced maintenance. Client services revenue consists of revenue from managed services solutions, such as private cloud hosting, outsourcing and revenue cycle management, as well as other client services and project-based revenue from implementation, training and consulting services. For some clients, we host the software applications licensed from us using our own or third-party servers. For other clients, we offer an outsourced service in which we assume partial to total responsibility for a healthcare organization’s IT operations using our employees.

At September 30, 2021 and December 31, 2020, we had capitalized costs to obtain or fulfill a contract of $15.1 million and $16.8 million, respectively, in Prepaid and other current assets and $26.1 million and $27.9 million, respectively, in Other assets. During the three months ended September 30, 2021 and 2020, we recognized $5.0 million and $6.0 million, respectively, of amortization expense related to such capitalized costs. During the nine months ended September 30, 2021 and 2020, we recognized $15.7 million and $18.5 million, respectively, of amortization expense related to such capitalized costs. The amortization of these capitalized costs to obtain a contract are included in Selling, general and administrative expense within our consolidated statements of operations.

The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable, contract assets and customer advances and deposits. Accounts receivable, net includes both billed and unbilled amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets include amounts where revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Deferred revenue includes advanced payments and billings in excess of revenue recognized. Our contract assets and deferred revenue are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term based on the timing of when we expect to complete the related performance obligations and bill the customer. Deferred revenue is classified as current or long-term based on the timing of when we expect to recognize revenue.

The breakdown of revenue recognized based on the origination of performance obligations and elected accounting expedients is presented in the table below:

(In thousands)

 

Three Months

Ended

March 31, 2021

 

 

Three Months

Ended

June 30, 2021

 

 

Three Months

Ended

September 30, 2021

 

Revenue related to deferred revenue balance at beginning of period

 

$

137,848

 

 

$

151,857

 

 

$

144,696

 

Revenue related to new performance obligations satisfied during the period

 

 

173,316

 

 

 

158,910

 

 

 

159,149

 

Revenue recognized under "right-to-invoice" expedient

 

 

56,811

 

 

 

62,422

 

 

 

64,820

 

Reimbursed travel expenses, shipping and other revenue

 

 

377

 

 

 

525

 

 

 

607

 

Total revenue

 

$

368,352

 

 

$

373,714

 

 

$

369,272

 

10


 

 

(In thousands)

 

Three Months

Ended

March 31, 2020

 

 

Three Months

Ended

June 30, 2020

 

 

Three Months

Ended

September 30, 2020

 

Revenue related to deferred revenue balance at beginning of period

 

$

105,366

 

 

$

119,545

 

 

$

118,300

 

Revenue related to new performance obligations satisfied during the period

 

 

216,580

 

 

 

195,308

 

 

 

192,658

 

Revenue recognized under "right-to-invoice" expedient

 

 

58,059

 

 

 

54,082

 

 

 

54,313

 

Reimbursed travel expenses, shipping and other revenue

 

 

1,359

 

 

 

369

 

 

 

347

 

Total revenue

 

$

381,364

 

 

$

369,304

 

 

$

365,618

 

 

The aggregate amount of contract transaction price related to remaining unsatisfied performance obligations (commonly referred to as “backlog”) represents contracted revenue that has not yet been recognized and includes both deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog equaled $3.9 billion as of September 30, 2021, of which we expect to recognize approximately 35% over the next 12 months, and the remaining 65% thereafter.

Revenue Recognition

We recognize revenue only when we satisfy an identified performance obligation (or bundle of obligations) by transferring control of a promised product or service to a customer. We consider a product or service to be transferred when a customer obtains control because a customer has sole possession of the right to use (or the right to direct the use of) the product or service for the remainder of its economic life or to consume the product or service in its own operations. We evaluate the transfer of control primarily from the customer’s perspective as this reduces the risk that revenue is recognized for activities that do not transfer control to the customer.

The majority of our revenue is recognized over time because a customer continuously and simultaneously receives and consumes the benefits of our performance. The exceptions to this pattern are our sales of perpetual and term software licenses, and hardware, where we determined that a customer obtains control of the asset upon granting of access, delivery or shipment.

We disaggregate our revenue from contracts with customers based on the type of revenue and nature of revenue stream, as we believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The below tables summarize revenue by type and nature of revenue stream as well as by our reportable segments:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Recurring revenue

 

$

304,724

 

 

$

301,616

 

 

$

904,016

 

 

$

914,792

 

  Non-recurring revenue

 

 

64,548

 

 

 

64,002

 

 

 

207,322

 

 

 

201,494

 

      Total revenue

 

$

369,272

 

 

$

365,618

 

 

$

1,111,338

 

 

$

1,116,286

 

 

 

 

Three Months Ended September 30, 2021

 

(In thousands)

 

Hospital and Large Physician Practices

 

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Software delivery, support and maintenance

 

$

104,809

 

 

$

113,075

 

 

$

4,842

 

 

$

222,726

 

Client services

 

 

120,876

 

 

 

24,093

 

 

 

1,577

 

 

 

146,546

 

Total revenue

 

$

225,685

 

 

$

137,168

 

 

$

6,419

 

 

$

369,272

 

 

 

 

Three Months Ended September 30, 2020

 

(In thousands)

 

Hospital and Large Physician Practices

 

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Software delivery, support and maintenance

 

$

113,112

 

 

$

101,171

 

 

$

5,567

 

 

$

219,850

 

Client services

 

 

120,518

 

 

 

23,902

 

 

 

1,348

 

 

 

145,768

 

Total revenue

 

$

233,630

 

 

$

125,073

 

 

$

6,915

 

 

$

365,618

 

 

11


 

 

 

Nine Months Ended September 30, 2021

 

(In thousands)

 

Hospital and Large Physician Practices

 

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Software delivery, support and maintenance

 

$

333,277

 

 

$

323,462

 

 

$

14,101

 

 

$

670,840

 

Client services

 

 

362,150

 

 

 

73,525

 

 

 

4,823

 

 

 

440,498

 

Total revenue

 

$

695,427

 

 

$

396,987

 

 

$

18,924

 

 

$

1,111,338

 

 

 

 

Nine Months Ended September 30, 2020

 

(In thousands)

 

Hospital and Large Physician Practices

 

 

Veradigm

 

 

Unallocated Amounts

 

 

Total

 

Software delivery, support and maintenance

 

$

351,098

 

 

$

314,550

 

 

$

14,476

 

 

$

680,124

 

Client services

 

 

361,440

 

 

 

70,975

 

 

 

3,747

 

 

 

436,162

 

Total revenue

 

$

712,538

 

 

$

385,525

 

 

$

18,223

 

 

$

1,116,286

 

 

Contract Assets – Estimate of Credit Losses

We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The guidance required the recognition of lifetime estimated credit losses expected to occur for contract assets and trade receivables. The guidance also required that we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of ASU 2016-13 for contract assets was recorded as a debit to retained earnings of $5.3 million as of January 1, 2020. Refer to Note 3, “Accounts Receivable”, for the adoption impact related to trade receivables.

At adoption, we segmented the contract asset population into pools based on their risk assessment. Risks related to contract assets are a customer’s inability to pay or bankruptcy. Each pool was defined by an internal credit assessment and business size.  The pools were aligned with management’s review of financial performance at the time. In the fourth quarter of 2020, we used each customer’s primary business unit in our pooling determination. This assessment provides additional information of the customer including size, segment and industry. Using this perspective, we added one new pool. We reallocated pools and loss rates accordingly and noted slight shifts in each pool. The new pools are aligned with management’s current review of financial performance. For the nine months ended September 30, 2021, no adjustment to the pools was necessary.

We utilized a loss-rate method to measure expected credit loss for each pool. The loss rate is calculated using a twenty-four-month lookback period of credit memos and adjustments divided by the average contract asset balance for each pool during that period.  We considered current economic conditions, including how the COVID-19 pandemic is impacting the global economy, internal forecasts, cash collection and credit memos written during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data. The September 30, 2021 analysis resulted in no change in the ending estimate of credit losses.

Changes in the estimate of credit losses for contract assets are presented in the table below.

(In thousands)

 

Total

 

Balance at December 31, 2020

 

$

5,341

 

Current period provision

 

 

0

 

Balance at September 30, 2021

 

$

5,341

 

Less: Contract assets, short-term

 

 

1,068

 

Total contract assets, long-term

 

$

4,273

 

 

3. Accounts Receivable

Trade Accounts Receivable – Estimate of Credit Losses

We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The guidance required the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable, which resulted in the recording of a debit to retained earnings of $12.6 million as of January 1, 2020. Refer to Note 2, “Revenue from Contracts with Customers” for additional information regarding the adoption of ASU 2016-13.

Changes in the estimate of credit losses for trade accounts receivable are presented in the table below.

(In thousands)

 

Total

 

Balance at December 31, 2020

 

$

31,596

 

Current period provision

 

 

2,110

 

Write-offs

 

 

(4,164

)

Recoveries

 

 

480

 

Balance at September 30, 2021

 

$

30,022

 

12


 

 

4. Leases

We determine whether an arrangement is a lease at inception. Assets leased under an operating lease arrangement are recorded in Right-of-use assets – operating leases and the associated lease liabilities are included in Current operating lease liabilities and Long-term operating lease liabilities within the consolidated balance sheets. Assets leased under finance lease arrangements are recorded within fixed assets and the associated lease liabilities are recorded within Accrued expenses and Other liabilities within the consolidated balance sheets.

Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate in conjunction with the market swap rate for the expected remaining lease term at the commencement date for new leases in determining the present value of future lease payments. Our expected lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.

We have elected the group of practical expedients under ASU 2016-02 to forego assessing upon adoption: (1) whether any expired contracts are or contain leases; (2) the lease classification for any existing or expired leases and (3) any indirect costs that would have qualified for capitalization for any existing leases. We have lease agreements with lease and non-lease components, which are generally accounted for separately except for real estate and vehicle leases, which we have elected to combine through a practical expedient under ASU 2016-02. Non-lease components for our leases typically consist of executory costs, and the practical expedient allows for executory costs to be recorded as lease payments. Additionally, for certain equipment leases, we apply a portfolio approach to effectively record right-of-use assets and liabilities.

Our operating leases mainly include office leases and our finance leases include office and computer equipment leases. Our finance leases are not significant. Our leases have remaining lease terms up to 7 years, some of which include options to extend the leases for up to 5 years, which may include options to terminate the leases within 1 year. Operating costs associated with leased assets are as follows:

(In thousands)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating lease cost (1)

 

$

5,366

 

 

$

6,251

 

 

$

17,063

 

 

$

19,265

 

Less: Sublease income

 

 

(64

)

 

 

(257

)

 

 

(221

)

 

 

(1,026

)

        Total operating lease costs

 

$

5,302

 

 

$

5,994

 

 

$

16,842

 

 

$

18,239

 

(1)

Operating lease costs are recognized on a straight-line basis and are included in Selling, general and administrative expenses within the consolidated statements of operations.

 

Supplemental cash flow information for operating leases is as follows:

(In thousands)

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Operating cash flows from operating leases

 

$

16,035

 

 

$

20,571

 

Right-of-use assets obtained in exchange for operating lease obligations

 

$

307

 

 

$

22,262

 

 

The balance sheet location and balances for operating leases are as follows:

(In thousands, except lease term and discount rate)

 

September 30, 2021

 

 

December 31, 2020

 

Right-of-use assets - operating leases

 

$

70,297

 

 

$

96,601

 

Current operating lease liabilities

 

$

19,264

 

 

$

22,264

 

Long-term operating lease liabilities

 

$

67,057

 

 

$

93,463

 

Weighted average remaining lease term (in years)

 

 

5

 

 

 

6

 

Weighted average discount rate

 

 

3.3

%

 

 

3.6

%

 

13


 

The future maturities of our leasing arrangements including lease and non-lease components are shown in the below table. The maturities are calculated using foreign currency exchange rates in effect as of September 30, 2021.

 

 

September 30, 2021

 

(In thousands)

 

Operating Leases

 

Remainder of 2021

 

$

5,669

 

2022

 

 

21,469

 

2023

 

 

19,650

 

2024

 

 

14,105

 

2025

 

 

12,748

 

Thereafter

 

 

20,130

 

    Total lease liabilities

 

 

93,771

 

Less: Amount representing interest

 

 

(7,450

)

Less: Short-term lease liabilities

 

 

(19,264

)

    Total long-term lease liabilities

 

$

67,057

 

 

5. Business Combinations and Divestitures

Acquisitions

On July 2, 2019, we acquired the Pinnacle and Diabetes Collaborative Registries from the American College of Cardiology (“ACC”) as part of our broader strategic partnership with the ACC. The total purchase price was $19.7 million, consisting of an initial payment of $11.7 million plus up to an aggregate of $8.0 million pending the attainment of certain milestones over the next 18 months. The contingent consideration of up to $8.0 million was valued at $5.0 million at the time of closing. As part of this partnership, we operate Pinnacle and Diabetes Collaborative Registries, which extends our EHR-enabled ambulatory network to create a large-scale chronic disease network. During the first quarter of 2021, we extended the ACC earnout agreement to June 30, 2021. In the second quarter of 2021, we paid $0.9 million related to the earnout agreement. The remaining payment was accrued as contingent consideration within our consolidated financial statements. Refer to Note 6, “Fair Value Measurements and Long-term Investments” for additional information regarding the contingent consideration. The business is included in our Veradigm business segment.

Divestitures

On August 23, 2021, we completed the sale of substantially all of the assets of our 2bPrecise business to a third party for a non-controlling interest in the combined entity. We realized a pre-tax gain upon the sale of $8.4 million, which was included in the Gain on sale of businesses, net line in our consolidated statements of operations for the three and nine months ended September 30, 2021. The 2bPrecise business was previously reported within our Data, Analytics and Care Coordination segment. However, due to the reportable segment changes in the third quarter of 2021, the historical 2bPrecise business is now presented in our “Unallocated Amounts” category. Refer to Note 16, “Business Segments” for additional information.

On December 31, 2020, we completed the sale of substantially all of the assets of our CarePort business to a subsidiary of WellSky Corp., a Delaware corporation (“WellSky”), pursuant to a purchase agreement (the “CarePort Purchase Agreement”). The total consideration for CarePort was $1.35 billion, which was subject to certain adjustments for liabilities assumed by WellSky and net working capital as described in the CarePort Purchase Agreement. We realized a pre-tax gain upon the sale of $933.9 million, which was included in the Gain on sale of discontinued operations line in our consolidated statements of operations for the year ended December 31, 2020. For the nine months ended September 30, 2021, we recorded a $0.6 million gain that primarily related to net working capital adjustments in the Gain on sale of discontinued operations line in our consolidated statements of operations. The divestiture was treated as a discontinued operation as of December 31, 2020. Refer to Note 15, “Discontinued Operations” for additional information. On December 31, 2020, we repaid $161.0 million of the Term Loan (as defined below) as a result of the sale, which was a mandatory prepayment in accordance with the Second Amended Credit Agreement (as defined below).

On October 15, 2020, we completed the sale of substantially all of the assets of our EPSiTM business (“EPSi”) to Strata Decision Technology LLC, an Illinois limited liability company (“Strata”), and Roper Technologies, Inc., a Delaware corporation, pursuant to a purchase agreement (the “EPSi Purchase Agreement”). The total consideration for EPSi was $365.0 million, which was subject to certain adjustments for liabilities assumed by Strata and net working capital as described in the EPSi Purchase Agreement. We realized a pre-tax gain upon the sale of $222.6 million, which was included in the Gain on sale of discontinued operations line in our consolidated statements of operations for the year ended December 31, 2020. The divestiture was treated as a discontinued operation as of December 31, 2020. Refer to Note 15, “Discontinued Operations” for additional information. On October 29, 2020, we repaid $19.0 million of the Term Loan (as defined below) as a result of the sale, which was a mandatory prepayment in accordance with the Second Amended Credit Agreement (as defined below).

14


6. Fair Value Measurements and Long-term Investments

Fair value measurements are based upon observable and unobservable inputs.

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Quoted prices for similar instruments in active markets with inputs that are observable, either directly or indirectly. Our Level 2 derivative financial instruments include foreign currency forward contracts valued based upon observable values of spot and forward foreign currency exchange rates.

Level 3: Unobservable inputs are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Our Level 3 instrument includes the fair value of contingent consideration related to a completed acquisition. The fair value is based on a discounted cash flow analysis reflecting the likelihood of achieving specified performance measures or events and captures the contractual nature of the contingencies, commercial risk, or time value of money.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of the respective balance sheet dates:

 

 

Balance Sheet

 

September 30, 2021

 

 

December 31, 2020

 

(In thousands)

 

Classifications

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Foreign exchange

   derivative assets

 

Prepaid expenses

   and other

   current assets

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

1,509

 

 

$

0

 

 

$

1,509

 

Total assets

 

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

1,509

 

 

$

0

 

 

$

1,509

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

     - current

 

Accrued

  expenses

 

$

0

 

 

$

0

 

 

$

153

 

 

$

153

 

 

$

0

 

 

$

0

 

 

$

1,011

 

 

$

1,011

 

Total liabilities

 

 

 

$

0

 

 

$

0

 

 

$

153

 

 

$

153

 

 

$

0

 

 

$

0

 

 

$

1,011

 

 

$

1,011

 

 

The changes in our Level 3 liability measured at fair value on a recurring basis at September 30, 2021 is summarized as follows:

(In thousands)

 

Contingent Consideration

 

Balance at December 31, 2020

 

$

1,011

 

    Payments

 

 

(858

)

Balance at September 30, 2021

 

$

153

 

 

The following table summarizes the quantitative information about our Level 3 fair value measurements at September 30, 2021:

 

 

September 30, 2021

 

(In thousands, except the discount rate)

 

Fair Value

 

 

Valuation Technique

 

Significant Unobservable Inputs

 

Ranges of Inputs

 

Weighted Average (1)

 

Financial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

153

 

 

Probability Weighted Discounted cash flow

 

Discount rate

 

5.3% to 5.5%

 

 

5.4

%

 

 

 

 

 

 

 

 

Registry members

 

0 to 1,551

 

 

776

 

 

 

 

 

 

 

 

 

Patient data volume

 

0 to 52,845

 

 

26,422

 

 

 

 

 

 

 

 

 

Projected year of payment

 

2021

 

 

 

 

Total financial instruments

 

$

153

 

 

 

 

 

 

 

 

 

 

 

(1)

The weighted average is calculated based upon the absolute fair value of the instruments.

 

Long-term Investments

The following table summarizes our long-term equity investments which are included in Other assets in the accompanying consolidated balance sheets:

 

 

Number of Investees

 

 

Original

 

 

Carrying Value at

 

(In thousands, except for number of investees)

 

at September 30, 2021

 

 

Cost

 

 

September 30, 2021

 

 

December 31, 2020

 

Equity method investments (1)

 

 

3

 

 

$

7,099

 

 

$

10,181

 

 

$

10,744

 

Cost less impairment

 

 

8

 

 

 

49,336

 

 

 

49,127

 

 

 

25,059

 

Total long-term equity investments

 

 

11

 

 

$

56,435

 

 

$

59,308

 

 

$

35,803

 

(1)

Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.

15


 

 

During the three months ended September 30, 2021, we divested one of our businesses to a new third-party in exchange for a non-controlling interest in the combined entity, which is a cost method investment. The divestiture resulted in an $8.4 million gain, which is included in the Gain on sale of businesses, net line in our consolidated statements of operations for the three and nine months ended September 30, 2021. During the nine months ended September 30, 2021, one of our third-party cost method investments converted its notes and we received 475 thousand shares as a result of the conversion. We also revalued our existing investment based on the note conversion share price. The note conversion and the revaluation of the existing investment resulted in a $9.7 million gain, which is included in the Other income (loss), net line in our consolidated statements of operations for the nine months ended September 30, 2021.

During the nine months ended September 30, 2020, we recorded a $16.8 million gain from the sale of a third-party equity method investment.

As of September 30, 2021, it is not possible to estimate the fair value of our non-marketable cost and equity method investments, primarily because of their illiquidity and restricted marketability. The factors we considered in trying to determine fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations, the issuer’s subsequent or planned raises of capital and observable price changes in orderly transactions.

Impairment of Long-term Investments

Each quarter, management performs an assessment of each of our investments on an individual basis to determine if there have been any declines in fair value. Based on our assessment, we determined 0 impairment charges were necessary for the nine months ended September 30, 2021.

Long-term Financial Liabilities

Our long-term financial liabilities include amounts outstanding under our senior secured credit facility (as described in Note 10, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. Refer to Note 10, “Debt,” for further information regarding our long-term financial liabilities.

7. Stockholders' Equity

Stock-based Compensation Expense

Stock-based compensation expense recognized during the three and nine months ended September 30, 2021 and 2020 is included in our consolidated statements of operations as shown in the below table. Stock-based compensation expense includes both non-cash expense related to grants of stock-based awards as well as cash expense related to the employee discount applied to purchases of our common stock under our employee stock purchase plan. NaN stock-based compensation costs were capitalized during the three and nine months ended September 30, 2021 and 2020.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

305

 

 

$

295

 

 

$

1,112

 

 

$

1,213

 

Client services

 

 

816

 

 

 

1,519

 

 

 

3,162

 

 

 

3,418

 

Total cost of revenue

 

 

1,121

 

 

 

1,814

 

 

 

4,274

 

 

 

4,631

 

Selling, general and administrative expenses

 

 

7,832

 

 

 

6,728

 

 

 

23,426

 

 

 

18,851

 

Research and development

 

 

1,361

 

 

 

2,127

 

 

 

4,828

 

 

 

5,950

 

Total stock-based compensation expense

 

$

10,314

 

 

$

10,669

 

 

$

32,528

 

 

$

29,432

 

 

Allscripts Long-Term Incentive Plan

We measure stock-based compensation expense at the grant date based on the fair value of the award. We recognize the expense for service-based share awards over the requisite service period on a straight-line basis, net of estimated forfeitures. We recognize the expense for performance-based and market-based share awards over the vesting period under the accelerated attribution method, net of estimated forfeitures. In addition, we recognize stock-based compensation cost for awards with performance conditions if and when we conclude that it is probable that the performance conditions will be achieved.

The fair value of service-based and performance-based restricted stock units is measured at the underlying closing share price of our common stock on the date of grant. The fair value of market-based restricted stock units is measured using the Monte Carlo pricing model. NaN stock options were granted during the three and nine months ended September 30, 2021 and 2020.

16


We granted stock-based awards as follows:

 

 

Three Months Ended

September 30, 2021

 

 

Nine Months Ended

September 30, 2021

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant Date

 

 

 

 

 

 

Grant Date

 

(In thousands, except per share amounts)

 

Shares

 

 

Fair Value

 

 

Shares

 

 

Fair Value

 

Service-based restricted stock units

 

 

42

 

 

$

16.59

 

 

 

2,487

 

 

$

15.38

 

Performance-based restricted stock units with a service condition

 

 

33

 

 

$

15.35

 

 

 

268

 

 

$

15.18

 

Market-based restricted stock units with a service condition

 

 

0

 

 

$

0.00

 

 

 

235

 

 

$

17.19

 

 

 

 

75

 

 

$

16.04

 

 

 

2,990

 

 

$

15.51

 

 

During the nine months ended September 30, 2021 and the year ended December 31, 2020, 2.1 million and 1.9 million shares of common stock, respectively, were issued in connection with the release of restrictions on stock awards. 

Net Share-settlements

Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax, and the remaining amount is converted into an equivalent number of shares of common stock. The majority of restricted stock units and awards that vested during the nine months ended September 30, 2021 and 2020 were net-share settled such that we withheld shares with fair value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities. Total payments for the employees' minimum statutory tax obligations to the taxing authorities are reflected as a financing activity within the accompanying consolidated statements of cash flows. The total shares withheld for the nine months ended September 30, 2021 and 2020 were 900 thousand and 770 thousand, respectively, and were based on the value of the restricted stock units on their vesting date as determined by our closing stock price. These net-share settlements had the effect of share repurchases by us as they reduced the number of shares that would have otherwise been issued as a result of the vesting.

Stock Repurchases

On November 18, 2020, we announced that our Board approved a stock purchase program (the “2020 Program”) under which we may repurchase up to $300 million of our common stock through December 31, 2021. The 2020 Program replaced a previous program and the 2020 program was fully exhausted by May of 2021. During the nine months ended September 30, 2021, we repurchased 5.6 million shares of our common stock under the 2020 Program, which was inclusive of the shares we received at final settlement of the accelerated share repurchase program we entered into on November 30, 2020, described below. During the three months ended September 30, 2020, we repurchased 5.0 million shares of our common stock under the previous program for a total of $45.6 million. During the nine months ended September 30, 2020, we repurchased 6.5 million shares of our common stock under the previous program for a total of $55.3 million.

On May 26, 2021, we announced that our Board approved a new stock purchase program (the “2021 Program”) under which we may repurchase up to $350 million of our common stock. The 2021 Program replaced the 2020 Program and does not have a termination date. During the three months ended September 30, 2021, we received 2.4 million shares of our common stock at final settlement of the accelerated share repurchase program entered into on June 14, 2021, described below. During the nine months ended September 30, 2021, we repurchased 13.9 million shares of our common stock under the 2021 Program. This is inclusive of the shares we received at initial and final settlement of the accelerated share repurchase program entered into on June 14, 2021, described below.

On November 30, 2020, we entered into separate Master Confirmations (each, a “Master Confirmation”) and Supplemental Confirmations (each, together with the related Master Confirmation, an “ASR Agreement”), with JPMorgan Chase Bank, National Association and Wells Fargo Bank, National Association (each, an “ASR Counterparty”, or collectively, the “ASR Counterparties”), to purchase shares of our common stock for a total payment of $200.0 million (the “Prepayment Amount”). Under the terms of the ASR Agreements, on November 30, 2020, we paid the Prepayment Amount to the ASR Counterparties and received on December 2, 2020 an initial delivery of approximately 11.7 million shares of our common stock, which is approximately 80% of the total number of shares that could be repurchased under the ASR Agreements if the final purchase price per share equaled the closing price of our common stock on November 30, 2020. These repurchased shares became treasury shares and were recorded as a $165.7 million reduction to stockholders’ equity. The remaining $34.3 million of the Prepayment Amount was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our common stock. The total number of shares received under the ASR Agreements, after final settlement, was based on the average daily volume weighted average price of our common stock during the repurchase period, less an agreed upon discount. Final settlement of the ASR Agreements occurred in May 2021, resulting in the receipt of 1.6 million additional shares, which yielded a weighted-average share repurchase price of approximately $15.07.

17


On June 14, 2021, we entered into Supplemental Confirmations (each, a “June 2021 Supplemental Confirmation”) to the Master Confirmations dated November 30, 2020 (each, as supplemented by the corresponding June 2021 Supplemental Confirmation, a “June 2021 ASR Agreement”), with each of the ASR Counterparties, to purchase shares of our common stock for a total payment of $200.0 million (the “June 2021 Prepayment Amount”). Under the terms of the June 2021 ASR Agreements, on June 14, 2021, we paid the June 2021 Prepayment Amount to the ASR Counterparties and received on June 16, 2021 an initial delivery of approximately 9.1 million shares of our common stock, which is approximately 80% of the total number of shares that could be repurchased under the June 2021 ASR Agreements if the final purchase price per share equaled the closing price of our common stock on June 14, 2021. These repurchased shares became treasury shares and were recorded as a $161.2 million reduction to stockholders’ equity. The remaining $38.8 million of the June 2021 Prepayment Amount was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our common stock. The total number of shares received under the June 2021 ASR Agreements, after final settlement, was based on the average daily volume weighted average price of our common stock during the repurchase period, less an agreed upon discount. Final settlement of the June 2021 ASR Agreements occurred in August 2021, resulting in the receipt of 2.4 million additional shares, which yielded a weighted-average share repurchase price of approximately $17.28.

The approximate dollar value of shares of our common stock that may yet be purchased under the 2021 Program was $108.4 million as of September 30, 2021. Any future stock repurchase transactions may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means, subject to market conditions. Any repurchase activity will depend on many factors such as our working capital needs, cash requirements for investments, debt repayment obligations, economic and market conditions at the time, including the price of our common stock, and other factors that we consider relevant. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.

8. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average shares of common stock outstanding. For purposes of calculating diluted earnings (loss) per share, the denominator includes both the weighted-average shares of common stock outstanding and dilutive common stock equivalents. Dilutive common stock equivalents consist of restricted stock unit awards and warrants calculated under the treasury stock method.

18


The calculations of earnings (loss) per share are as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except per share amounts)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Basic earnings (loss) per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations, net of tax

 

$

16,194

 

 

$

(13,956

)

 

$

46,692

 

 

$

(67,920

)

(Loss) income from discontinued operations, net of tax

 

 

(14

)

 

 

14,498

 

 

 

471

 

 

 

40,503

 

Net income (loss)

 

$

16,180

 

 

$

542

 

 

$

47,163

 

 

$

(27,417

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

123,892

 

 

 

161,144

 

 

 

133,517

 

 

 

162,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) from continuing operations per Common Share

 

$

0.13

 

 

$

(0.09

)

 

$

0.35

 

 

$

(0.42

)

Basic earnings from discontinued operations per Common Share

 

 

0.00

 

 

 

0.09

 

 

 

0.00

 

 

 

0.25

 

Net earnings (loss) per Common Share

 

$

0.13

 

 

$

0.00

 

 

$

0.35

 

 

$

(0.17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations, net of tax

 

$

16,194

 

 

$

(13,956

)

 

$

46,692

 

 

$

(67,920

)

(Loss) income from discontinued operations, net of tax

 

 

(14

)

 

 

14,498

 

 

 

471

 

 

 

40,503

 

Net income (loss)

 

$

16,180

 

 

$

542

 

 

$

47,163

 

 

$

(27,417

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

123,892

 

 

 

161,144

 

 

 

133,517

 

 

 

162,092

 

Plus: Dilutive effect of restricted stock unit awards and warrants

 

 

7,460

 

 

 

0

 

 

 

8,564

 

 

 

0

 

Weighted-average common shares outstanding assuming dilution

 

 

131,352

 

 

 

161,144

 

 

 

142,081

 

 

 

162,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) from continuing operations per Common Share

 

$

0.12

 

 

$

(0.09

)

 

$

0.33

 

 

$

(0.42

)

Diluted earnings from discontinued operations per Common Share

 

 

0.00

 

 

 

0.09

 

 

 

0.00

 

 

 

0.25

 

Net earnings (loss) per Common Share

 

$

0.12

 

 

$

0.00

 

 

$

0.33

 

 

$

(0.17

)

 

Due to the loss from continuing operations, net of tax and the net loss for the three and nine months ended September 30, 2020, respectively, we used basic weighted-average common shares outstanding in the calculation of diluted loss per share, since the inclusion of any stock equivalents would be anti-dilutive.

The following restricted stock unit awards and warrants are not included in the computation of diluted earnings (loss) per share as the effect of including such restricted stock unit awards and warrants in the computation would be anti-dilutive:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Shares subject to anti-dilutive restricted stock unit awards and warrants excluded from calculation

 

 

1,504

 

 

 

47,162

 

 

 

1,502

 

 

 

48,816

 

 

19


 

9. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Intangible

 

 

Carrying

 

 

Accumulated

 

 

Intangible

 

(In thousands)

 

Amount

 

 

Amortization

 

 

Assets, Net

 

 

Amount

 

 

Amortization

 

 

Assets, Net

 

Intangibles subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proprietary technology

 

$

534,999

 

 

$

(485,810

)

 

$

49,189

 

 

$

535,092

 

 

$

(465,292

)

 

$

69,800

 

Customer contracts and relationships

 

 

674,034

 

 

 

(526,815

)

 

 

147,219

 

 

 

674,336

 

 

 

(509,534

)

 

 

164,802

 

Total

 

$

1,209,033

 

 

$

(1,012,625

)

 

$

196,408

 

 

$

1,209,428

 

 

$

(974,826

)

 

$

234,602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Registered trademarks

 

 

 

 

 

 

 

 

 

$

52,000

 

 

 

 

 

 

 

 

 

 

$

52,000

 

Goodwill

 

 

 

 

 

 

 

 

 

 

974,427

 

 

 

 

 

 

 

 

 

 

 

974,729

 

Total

 

 

 

 

 

 

 

 

 

$

1,026,427

 

 

 

 

 

 

 

 

 

 

$

1,026,729

 

 

Changes in the carrying amounts of goodwill by reportable segment for the nine months ended September 30, 2021 were as follows:

(In thousands)

 

Hospital & Large Physician Practices

 

 

Veradigm

 

 

Unallocated

 

 

Total

 

Balance as of December 31, 2020

 

 

531,393

 

 

 

433,188

 

 

 

10,148

 

 

 

974,729

 

Foreign exchange translation

 

 

(302

)

 

 

0

 

 

 

0

 

 

 

(302

)

Balance as of September 30, 2021

 

$

531,091

 

 

$

433,188

 

 

$

10,148

 

 

$

974,427

 

 

There were 0 accumulated impairment losses associated with goodwill as of September 30, 2021 and December 31, 2020.

10. Debt

Debt outstanding, excluding lease obligations, consists of the following:

 

 

September 30, 2021

 

 

December 31, 2020

 

(In thousands)

 

Principal Balance

 

 

Unamortized Discount and Debt Issuance Costs

 

 

Net Carrying Amount

 

 

Principal Balance

 

 

Unamortized Discount and Debt Issuance Costs

 

 

Net Carrying Amount

 

0.875% Convertible Senior Notes (1)

 

$

167,853

 

 

$

(7,578

)

 

$

175,431

 

 

$

167,853

 

 

$

(3,166

)

 

$

171,019

 

Senior Secured Credit Facility

 

 

200,000

 

 

 

2,244

 

 

 

197,756

 

 

 

0

 

 

 

3,432

 

 

 

(3,432

)

Total debt

 

$

367,853

 

 

$

(5,334

)

 

$

373,187

 

 

$

167,853

 

 

$

266

 

 

$

167,587

 

(1)

Principal balance is $207,911 thousand; $167,853 thousand is recognized in debt and $40,058 thousand is recognized in additional paid-in capital.

 

Interest expense consists of the following:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Interest expense

 

$

1,742

 

 

$

4,651

 

 

$

4,109

 

 

$

14,199

 

Amortization of discounts and debt issuance costs

 

 

1,875

 

 

 

2,016

 

 

 

5,600

 

 

 

13,447

 

Total interest expense

 

$

3,617

 

 

$

6,667

 

 

$

9,709

 

 

$

27,646

 

 

Interest expense related to the 0.875% Convertible Senior Notes and the 1.25% Cash Convertible Senior Notes (which matured and were repaid in full on July 1, 2020), included in the table above, consisted of the following:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Coupon interest

 

$

454

 

 

$

451

 

 

$

1,364

 

 

$

3,561

 

Amortization of discounts and debt issuance costs

 

 

1,479

 

 

 

1,454

 

 

 

4,412

 

 

 

12,030

 

Total interest expense related to the convertible notes

 

$

1,933

 

 

$

1,905

 

 

$

5,776

 

 

$

15,591

 

 

20


 

Allscripts Senior Secured Credit Facility

On February 15, 2018, Allscripts and Allscripts Healthcare LLC entered into a Second Amended and Restated Credit Agreement (the “Second Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent. The Second Amended Credit Agreement provides for a $400 million senior secured term loan (the “Term Loan”) and a $900 million senior secured revolving facility (the “Revolving Facility”), each with a five-year term. The Term Loan was repayable in quarterly installments, which began on June 30, 2018. We repaid the Term Loan in full on December 31, 2020. A total of up to $50 million of the Revolving Facility is available for the issuance of letters of credit, up to $10 million of the Revolving Facility is available for swingline loans, and up to $100 million of the Revolving Facility could be borrowed under certain foreign currencies.

As of September 30, 2021, $200.0 million under the Revolving Facility and $1.0 million in letters of credit were outstanding under the Second Amended Credit Agreement.

As of September 30, 2021, the interest rate on the borrowings under the Second Amended Credit Agreement was LIBOR plus 1.50%, which totaled 1.58%. We were in compliance with all covenants under the Second Amended Credit Agreement as of September 30, 2021.

In connection with the sale of our EPSi business on October 15, 2020, which is further discussed in Note 5, “Business Combinations and Divestitures”, the terms of our Second Amended Credit Agreement required us to make a mandatory prepayment of our Term Loan in the amount of $19.0 million on October 29, 2020.

In connection with the sale of our CarePort business on December 31, 2020, which is further discussed in Note 5, “Business Combinations and Divestitures”, the terms of our Second Amended Credit Agreement required us to make a mandatory prepayment of our Term Loan in the amount of $161.0 million on December 31, 2020.

On August 7, 2019, we entered into a First Amendment to the Second Amended Credit Agreement in order to remain compliant with the covenants of our Second Amended Credit Agreement. The First Amendment provided the financial flexibility to settle the U.S. Department of Justice’s investigations as discussed in Note 14, “Contingencies”, while maintaining our compliance with the covenants of our Second Amended Credit Agreement. None of the original terms of our Second Amended Credit Agreement relating to scheduled future principal payments, applicable interest rates and margins or borrowing capacity under our Revolving Facility were amended.

On July 20, 2020, we entered into a Second Amendment to the Second Amended Credit Agreement. None of the original terms of our Second Amended Credit Agreement relating to scheduled future principal payments, applicable interest rates and margins or borrowing capacity under our Revolving Facility were amended. In connection with this amendment, we incurred fees and other costs totaling $1.4 million, of which a majority was capitalized.

As of September 30, 2021, we had $699.0 million available borrowing capacity, net of outstanding letters of credit, under the Revolving Facility. There can be no assurance that we will be able to draw on the full available balance of the Revolving Facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings or if we are unable to maintain compliance with applicable covenants.

0.875% Convertible Senior Notes

The issuance in December 2019 of the combined $218.0  million aggregate principal amount of the 0.875% Convertible Senior Notes resulted in $0.7 million in debt issuance costs, which were paid in January 2020. We have separately recorded liability and equity components of the 0.875% Convertible Senior Notes, including any discounts and issuance costs, by allocating the proceeds from the issuance between the liability component and the embedded conversion option, or equity component. This allocation was completed by first estimating an interest rate at the time of issuance for similar notes that do not include an embedded conversion option. The semi-annual interest rate of 1.95% was used to compute the initial fair value of the liability component, which totaled $177.9  million at the time of issuance. The excess of the initial proceeds received from the 0.875% Convertible Senior Notes and the $177.9 million liability component was allocated to the equity component, which totaled $40.1  million at the time of issuance before deducting any paid capped call fees. The equity component of $40.1 million, the $17.2  million in paid capped call fees and an allocation of $1.1  million in combined discounts and issuance costs were recorded in Additional paid-in capital within the consolidated balance sheets in December 2019. These were recorded as a discount that will be accreted into interest expense through January 1, 2027 using the interest method. In June 2020, we paid $7.7 million to repurchase $10.1 million of the aggregate principal amount of the 0.875% Convertible Senior Notes, which resulted in a $0.5 million gain. In connection with the repurchase, the capped call transaction was partially terminated, and we received $0.3 million, which resulted in a recognition of $0.8 million in equity to offset the capped call fees and a $0.5 million loss. The remaining principal amount of the 0.875% Convertible Senior Notes at September 30, 2021 totaled $207.9 million. The carrying value of the combined equity component, net of capped call fees, issuance costs and accretion, at September 30, 2021 totaled $12.2 million.

21


Future Debt Payments

The following table summarizes future debt principal payment obligations as of September 30, 2021:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Total

 

 

Remainder

of 2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

0.875% Convertible Senior Notes (1)

 

$

207,911

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

207,911

 

Revolving Facility (2)

 

 

200,000

 

 

 

0

 

 

 

0

 

 

 

200,000

 

 

 

0

 

 

 

0

 

 

 

0

 

Total debt

 

$

407,911

 

 

$

0

 

 

$

0

 

 

$

200,000

 

 

$

0

 

 

$

0

 

 

$

207,911

 

(1)

Amount represents face value of the 0.875% Convertible Senior Notes, which includes both the liability and equity portion.

(2)

Assumes no additional borrowings after September 30, 2021, payment of any required periodic installments of principal when due and that all drawn amounts are repaid upon maturity.

11. Income Taxes

We account for income taxes under FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). We calculate the quarterly tax provision consistent with the guidance provided by ASC 740, whereby we forecast the estimated annual effective tax rate and then apply that rate to the year-to-date pre-tax book (loss) income. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective rate, including factors such as the valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, or changes in or the interpretation of tax laws in jurisdictions where the Company conducts business. There is no tax benefit recognized on certain of the net operating losses incurred due to insufficient evidence supporting the Company’s ability to use these losses in the future. The effective tax rates were as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except effective tax rate)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Income (loss) from continuing operations before income taxes

 

$

21,293

 

 

$

(18,072

)

 

$

56,646

 

 

$

(74,561

)

Income tax (provision) benefit

 

$

(5,099

)

 

$

4,116

 

 

$

(9,954

)

 

$

6,641

 

    Effective tax rate

 

 

23.9

%

 

 

22.8

%

 

 

17.6

%

 

 

8.9

%

 

Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate primarily due to permanent differences, income attributable to foreign jurisdictions taxed at different rates, state taxes, tax credits and certain discrete items including a windfall benefit of $4.6 million for the nine months ended September 30, 2021 and a shortfall expense of $6.9 million for the nine months ended September 30, 2020. Our effective tax rates for the three and nine months ended September 30, 2021, compared with the prior year comparable periods, differ primarily due to the fact that the permanent items, credits and the impact of foreign earnings had more impact on the pre-tax income of $21.3 million and $56.6 million in the three and nine months ended September 30, 2021, respectively, compared to the impact of these items on a pre-tax loss of $18.1 million and $74.6 million for the three and nine months ended September 30, 2020, respectively.

In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). During the nine months ended September 30, 2021, we released valuation allowances of $0.7 million related to U.S. and foreign net operating loss carryforwards.

Our unrecognized income tax benefits were $29.9 million and $28.9 million as of September 30, 2021 and December 31, 2020, respectively. If any portion of our unrecognized tax benefits is recognized, it could impact our effective tax rate. The tax reserves are reviewed periodically and adjusted considering changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law.

12. Derivative Financial Instruments

The following tables provide information about the fair values of our derivative financial instruments as of the respective balance sheet dates:

 

 

September 30, 2021

 

 

 

Asset Derivatives

 

(In thousands)

 

Balance Sheet Location

 

Fair Value

 

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid expenses and other current assets

 

$

0

 

Total derivatives

 

 

 

$

0

 

 

22


 

 

 

December 31, 2020

 

 

 

Asset Derivatives

 

(In thousands)

 

Balance Sheet Location

 

Fair Value

 

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid expenses and other current assets

 

$

1,509

 

Total derivatives

 

 

 

$

1,509

 

 

Foreign Exchange Contracts

We have entered into non-deliverable forward foreign currency exchange contracts with reputable banking counterparties to hedge a portion of our forecasted future Indian Rupee-denominated (“INR”) expenses against foreign currency fluctuations between the United States dollar and the INR. These forward contracts cover a percentage of forecasted monthly INR expenses over time. As of September 30, 2021, we had 0 forward contracts outstanding. In the future, we may enter into additional forward contracts to increase the amount of hedged monthly INR expenses or initiate hedges.

The following tables show the impact of derivative instruments designated as cash flow hedges on the consolidated statements of operations and the consolidated statements of comprehensive loss:

 

 

Amount of Gain (Loss) Recognized

in OCI

 

 

 

 

Amount of Gain (Loss) Reclassified from AOCI into Income

 

(In thousands)

 

Three Months

Ended

September 30, 2021

 

 

Nine Months

Ended

September 30, 2021

 

 

Location of Gain (Loss) Reclassified

from AOCI into Income

 

Three Months

Ended

September 30, 2021

 

 

Nine Months

Ended

September 30, 2021

 

Foreign exchange contracts

 

$

0

 

 

$

121

 

 

Cost of Revenue

 

$

0

 

 

$

611

 

 

 

 

 

 

 

 

 

 

 

Selling, general and

   administrative expenses

 

 

0

 

 

 

351

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

0

 

 

$

668

 

 

 

 

Amount of Gain (Loss) Recognized

in OCI

 

 

 

 

Amount of Gain (Loss) Reclassified from AOCI into Income

 

(In thousands)

 

Three Months

Ended

September 30, 2020

 

 

Nine Months

Ended

September 30, 2020

 

 

Location of Gain (Loss) Reclassified

from AOCI into Income

 

Three Months

Ended

September 30, 2020

 

 

Nine Months

Ended

September 30, 2020

 

Foreign exchange contracts

 

$

1,280

 

 

$

1,798

 

 

Cost of Revenue

 

$

107

 

 

$

71

 

 

 

 

 

 

 

 

 

 

 

Selling, general and

   administrative expenses

 

 

52

 

 

 

34

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

111

 

 

$

73

 

 

23


 

13. Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

Changes in the balances of each component included in accumulated other comprehensive income (loss) (“AOCI”) are presented in the tables below. All amounts are net of tax.

(In thousands)

 

Foreign Currency Translation Adjustments

 

 

Unrealized Net Gains (Losses) on Foreign Exchange Contracts

 

 

Total

 

Balance as of December 31, 2020 (1)

 

$

(2,957

)

 

$

1,119

 

 

$

(1,838

)

Other comprehensive (loss) income before

    reclassifications

 

 

(285

)

 

 

90

 

 

 

(195

)

Net losses (gains) reclassified from accumulated

   other comprehensive loss

 

 

0

 

 

 

(1,209

)

 

 

(1,209

)

Net other comprehensive income (loss)

 

 

(285

)

 

 

(1,119

)

 

 

(1,404

)

Balance as of September 30, 2021

 

$

(3,242

)

 

$

0

 

 

$

(3,242

)

(1)

Net of taxes of $390 thousand for unrealized net gains on foreign exchange contract derivatives.

 

(In thousands)

 

Foreign Currency Translation Adjustments

 

 

Unrealized Net Gains (Losses) on Foreign Exchange Contracts

 

 

Total

 

Balance as of December 31, 2019 (1)

 

$

(4,392

)

 

$

0

 

 

$

(4,392

)

Other comprehensive (loss) income before

    reclassifications

 

 

(611

)

 

 

1,334

 

 

 

723

 

Net losses (gains) reclassified from accumulated

   other comprehensive loss

 

 

0

 

 

 

(132

)

 

 

(132

)

Net other comprehensive income (loss)

 

 

(611

)

 

 

1,202

 

 

 

591

 

Balance as of September 30, 2020 (2)

 

$

(5,003

)

 

$

1,202

 

 

$

(3,801

)

(1)

Net of taxes of $149 thousand arising from the revaluation of tax effects included in AOCI.

(2)

Net of taxes of $418 thousand for unrealized net gains on foreign exchange contract derivatives.

 

Income Tax Effects Related to Components of Other Comprehensive Income (Loss)

The following tables reflect the tax effects allocated to each component of other comprehensive income (loss) (“OCI”):

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

(In thousands)

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

(805

)

 

$

0

 

 

$

(805

)

 

$

983

 

 

$

0

 

 

$

983

 

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) arising during the period

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,280

 

 

 

(330

)

 

 

950

 

Net (gains) losses reclassified into income

 

 

0

 

 

 

0

 

 

 

0

 

 

 

(271

)

 

 

70

 

 

 

(201

)

Net change in unrealized gains (losses) on foreign exchange contracts

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,009

 

 

 

(260

)

 

 

749

 

Other comprehensive (loss) income

 

$

(805

)

 

$

0

 

 

$

(805

)

 

$

1,992

 

 

$

(260

)

 

$

1,732

 

24


 

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

(In thousands)

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

(285

)

 

$

0

 

 

$

(285

)

 

$

(611

)

 

$

0

 

 

$

(611

)

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) arising during the period

 

 

121

 

 

 

(31

)

 

 

90

 

 

 

1,798

 

 

 

(464

)

 

 

1,334

 

Net (gains) losses reclassified into income

 

 

(1,630

)

 

 

421

 

 

 

(1,209

)

 

 

(178

)

 

 

46

 

 

 

(132

)

Net change in unrealized (losses) gains on foreign exchange contracts

 

 

(1,509

)

 

 

390

 

 

 

(1,119

)

 

 

1,620

 

 

 

(418

)

 

 

1,202

 

Other comprehensive (loss) income

 

$

(1,794

)

 

$

390

 

 

$

(1,404

)

 

$

1,009

 

 

$

(418

)

 

$

591

 

 

14. Contingencies

In addition to commitments and obligations in the ordinary course of business, we are currently subject to various legal proceedings and claims that have not been fully adjudicated. We intend to vigorously defend ourselves, as appropriate, in these matters.

No less than quarterly, we review the status of each significant matter and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made.

The outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. In the opinion of our management, the ultimate disposition of pending legal proceedings or claims will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, if one or more of these legal proceedings were resolved against or settled by us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that and subsequent reporting periods could be materially adversely affected. Additionally, the resolution of a legal proceeding against us could prevent us from offering our products and services to current or prospective clients or cause us to incur increased compliance costs, either of which could further adversely affect our operating results.

The Enterprise Information Solutions business (the “EIS Business”) acquired from McKesson Corporation (“McKesson”) on October 2, 2017 is subject to a May 2017 civil investigative demand (“CID”) related to the Horizon Clinicals software from the U.S. Attorney’s Office for the Eastern District of New York. In August 2018, McKesson received an additional CID (together with the May 2017 CID, the “McKesson CIDs”), which relates to the Paragon software. The McKesson CIDs request documents and information related to the certification McKesson obtained in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program. McKesson has agreed, with respect to the CIDs, to indemnify Allscripts for amounts paid or payable to the government (or any private relator) involving any products or services marketed, sold or licensed by the EIS Business as of or prior to the closing of the acquisition. In October 2021, Allscripts received a CID seeking information about its acquisition of the EIS Business from McKesson and the Horizon Clinicals software. McKesson has agreed to assume defense of this CID.

25


Practice Fusion, acquired by Allscripts on February 13, 2018, received in March 2017 a request for documents and information from the U.S. Attorney’s Office for the District of Vermont pursuant to a CID. Between April 2018 and June 2019, Practice Fusion received from the U.S. Department of Justice (the “DOJ”) seven additional requests for documents and information through four additional CIDs and three Health Insurance Portability and Accountability Act (“HIPAA”) subpoenas. The document and information requests received by Practice Fusion related to both the certification Practice Fusion obtained in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program and Practice Fusion’s compliance with the Anti-Kickback Statute (“AKS”) and HIPAA as it relates to certain business practices engaged in by Practice Fusion. In March 2019, Practice Fusion received a grand jury subpoena in connection with a criminal investigation related to Practice Fusion’s compliance with the AKS. On August 6, 2019, Practice Fusion reached an agreement in principle with the DOJ to resolve all of the DOJ’s outstanding civil and criminal investigations, including the investigation by the U.S. Attorney’s Office for the District of Vermont, and we announced that on January 27, 2020, Practice Fusion entered into a deferred prosecution agreement (the “Deferred Prosecution Agreement”) and various civil settlement agreements, including with the Medicaid programs for each U.S. state, the District of Columbia and Puerto Rico (collectively, the “Settlement Agreements”) resolving the investigations conducted by the DOJ and the U.S. Attorney’s Office. The Settlement Agreements required Practice Fusion to, among other matters, pay a criminal fine of $25.3 million, a forfeiture payment of $959,700 and a civil settlement of $118.6 million, which includes $5.2 million designated for the state Medicaid program expenditures, all of which, as of December 31, 2020, have been paid in full. The Deferred Prosecution Agreement required Practice Fusion to retain an Oversight Organization to oversee the Practice Fusion’s implementation of certain compliance measures and ongoing compliance efforts. On August 17, 2021, Practice Fusion’s initial Oversight Organization resigned, and on August 25, 2021, Practice Fusion received a notice from the U.S. Attorney’s Office for the District of Vermont stating Practice Fusion was in breach of the Deferred Prosecution Agreement due to such resignation. On September 17, 2021, Practice Fusion engaged a new Oversight Organization, and it continues to engage in discussions with the U.S. Attorney’s Office concerning the claim that a breach of the Deferred Prosecution Agreement occurred.

15. Discontinued Operations

During 2020, we implemented a strategic initiative to sell 2 of our businesses, EPSi and CarePort. Since both businesses were part of the same strategic initiative and were sold within the same period, the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results. As of December 31, 2020, these businesses were reported together as discontinued operations.

On October 15, 2020, we completed the sale of our EPSi business. Prior to the sale, EPSi was part of the “Unallocated Amounts” category as it did not meet the requirements to be a reportable segment nor the criteria to be aggregated into our two reportable segments. On its own, the divestiture of the EPSi business did not represent a strategic shift that had a major effect on our operations and financial results. However, the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results. Therefore, EPSi was treated as a discontinued operation.

On December 31, 2020, we completed the sale of our CarePort business. Prior to the sale, CarePort was part of the former Data, Analytics and Care Coordination reportable segment. On its own, the divestiture of the CarePort business represented a strategic shift that had a major effect on our operations and financial results.

The following table summarizes the major classes of assets and liabilities of EPSi and CarePort, as reported on the consolidated balance sheets as of September 30, 2021 and December 31, 2020:

(In thousands)

 

September 30, 2021

 

 

December 31, 2020

 

Carrying amounts of major classes of liabilities associated with EPSi and CarePort included as part of discontinued operations:

 

 

 

 

 

 

 

 

Accrued expenses

 

$

1,708

 

 

$

6,669

 

Income tax payable

 

 

0

 

 

 

316,142

 

Total current liabilities attributable to discontinued operations

 

$

1,708

 

 

$

322,811

 

26


 

The following table summarizes the major income and expense line items of EPSi and CarePort as reported in the consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020. The activity during the three and nine months ended September 30, 2021 relates to certain adjustments made in connection with the sale of EPSi and CarePort, primarily of which relates to net working capital adjustments that impacted the gain on the sale of the discontinued operations.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Major income and expense line items related to EPSi and CarePort:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

6

 

 

$

32,894

 

 

$

6

 

 

$

96,807

 

Client services

 

 

0

 

 

 

3,517

 

 

 

0

 

 

 

11,883

 

Total revenue

 

 

6

 

 

 

36,411

 

 

 

6

 

 

 

108,690

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

 

15

 

 

 

2,900

 

 

 

(178

)

 

 

9,254

 

Client services

 

 

4

 

 

 

4,553

 

 

 

149

 

 

 

13,431

 

Amortization of software development and acquisition-related assets

 

 

0

 

 

 

2,499

 

 

 

0

 

 

 

7,623

 

Total cost of revenue

 

 

19

 

 

 

9,952

 

 

 

(29

)

 

 

30,308

 

Gross (loss) profit

 

 

(13

)

 

 

26,459

 

 

 

35

 

 

 

78,382

 

Selling, general and administrative expenses

 

 

2

 

 

 

3,788

 

 

 

76

 

 

 

12,974

 

Research and development

 

 

0

 

 

 

2,118

 

 

 

(32

)

 

 

7,133

 

Amortization of intangible assets

 

 

0

 

 

 

7

 

 

 

0

 

 

 

22

 

(Loss) income from discontinued operations for EPSi and CarePort

 

 

(15

)

 

 

20,546

 

 

 

(9

)

 

 

58,253

 

Interest expense

 

 

0

 

 

 

(995

)

 

 

0

 

 

 

(3,634

)

Other income, net

 

 

1

 

 

 

0

 

 

 

2

 

 

 

0

 

Gain on sale of discontinued operations

 

 

0

 

 

 

0

 

 

 

647

 

 

 

0

 

(Loss) income from discontinued operations for EPSi and CarePort before income taxes (1)

 

 

(14

)

 

 

19,551

 

 

 

640

 

 

 

54,619

 

Income tax provision

 

 

0

 

 

 

(5,047

)

 

 

(169

)

 

 

(14,098

)

(Loss) income from discontinued operations, net of tax for EPSi and CarePort (2)

 

$

(14

)

 

$

14,504

 

 

$

471

 

 

$

40,521

 

(1)  (Loss) income from discontinued operations for EPSi and CarePort does not agree to the consolidated statements of operations for the three and nine months ended September 30, 2020, due to residual amounts related to Netsmart (as defined below). Refer to Note 17, “Supplemental Disclosures” for additional information.

(2)  (Loss) income from discontinued operations, net of tax for EPSi and CarePort does not agree to the consolidated statements of operations for the three and nine months ended September 30, 2020 due to residual amounts related to Netsmart (as defined below). Refer to Note 17, Supplemental Disclosures” for additional information.

16. Business Segments

We primarily derive our revenues from sales of our proprietary software (either as a direct license sale or under a subscription delivery model), which also serves as the basis for our recurring service contracts for software support and maintenance and certain transaction-related services. In addition, we provide various other client services, including installation, and managed services, such as outsourcing, private cloud hosting and revenue cycle management.

During the third quarter of 2021, we realigned our reporting structure as a result of certain organizational changes. As a result, we changed the presentation of our reportable segments to Hospital and Large Physician Practices and Veradigm. As of September 30, 2021, we had 2 operating segments. The operating segments are equivalent to the reportable segments. The Hospital and Large Physician Practices segment derives its revenue from the sale of integrated clinical and financial management solutions, which primarily include EHR-related software, related installation, support and maintenance, outsourcing and private cloud hosting. The Veradigm segment derives its revenue from payer and life sciences solutions, which are mainly targeted at payers, life sciences companies and other key healthcare stakeholders; the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions; and software applications for patient engagement. These solutions enable clients to transition, analyze, coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community. The “Unallocated Amounts” category consists of the 2bPrecise business, certain products that were shifted from the previous Core Clinical and Financial Solutions reportable segment due to the organizational changes (“Certain Products”), transfer pricing revenues and as of January 1, 2021 also includes certain corporate-related expenses. The amounts included in the “Unallocated Amounts” category for 2bPrecise and Certain Products do not meet the requirements to be reportable segments nor the criteria to be aggregated into the two reportable segments. The segment disclosures below have been revised to conform to the current year presentation.

27


Our chief operating decision maker uses segment revenues, gross profit and income (loss) from operations as measures of performance and to make decisions about the allocation of resources. We do not track our assets by segment.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hospital and Large Physician Practices

 

$

225,685

 

 

$

233,630

 

 

$

695,427

 

 

$

712,538

 

Veradigm

 

 

137,168

 

 

 

125,073

 

 

 

396,987

 

 

 

385,525

 

Unallocated Amounts

 

 

6,419

 

 

 

6,915

 

 

 

18,924

 

 

 

18,223

 

Total revenue

 

$

369,272

 

 

$

365,618

 

 

$

1,111,338

 

 

$

1,116,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hospital and Large Physician Practices

 

$

79,135

 

 

$

73,359

 

 

$

249,594

 

 

$

210,582

 

Veradigm

 

 

65,698

 

 

 

56,685

 

 

 

187,963

 

 

 

180,981

 

Unallocated Amounts

 

 

3,941

 

 

 

5,094

 

 

 

13,015

 

 

 

13,109

 

Total gross profit

 

$

148,774

 

 

$

135,138

 

 

$

450,572

 

 

$

404,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hospital and Large Physician Practices

 

$

(6,160

)

 

$

(16,913

)

 

$

(6,995

)

 

$

(75,982

)

Veradigm

 

 

16,877

 

 

 

8,820

 

 

 

46,386

 

 

 

24,518

 

Unallocated Amounts

 

 

1,387

 

 

 

(3,068

)

 

 

(3,572

)

 

 

(11,338

)

Total income (loss) from operations

 

$

12,104

 

 

$

(11,161

)

 

$

35,819

 

 

$

(62,802

)

 

17. Supplemental Disclosures

Supplemental Consolidated Statements of Cash Flows Information

The majority of the restricted cash balance as of September 30, 2021 represents lease deposits. The majority of the restricted cash balance as of September 30, 2020 represents lease deposits and an escrow account established as part of the acquisition of Netsmart LLC (“Netsmart”) in 2016, to be used by Netsmart to facilitate the integration of Allscripts’ former HomecareTM business.

 

 

September 30,

 

(In thousands)

 

2021

 

 

2020

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

214,179

 

 

$

218,701

 

Restricted cash

 

 

2,141

 

 

 

6,209

 

Total cash, cash equivalents and restricted cash

 

$

216,320

 

 

$

224,910

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

Supplemental non-cash information:

 

 

 

 

 

 

 

 

Sale of 2bPrecise business in exchange for a non-controlling interest in the combined entity

 

$

11,768

 

 

$

0

 

Issuance of treasury stock to commercial partner

 

$

534

 

 

$

752

 

 

28


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical fact or pattern, including statements regarding the potential impacts of the COVID-19 pandemic and steps we have taken or plan to take in response thereto, statements related to the effect of macroeconomic trends, statements regarding evolving patient care models, statements regarding legislative, administrative and regulatory actions on our business and opportunities related to accumulated patient data, and statements regarding our expected future investment in research and development efforts. Forward-looking statements can also be identified by the use of words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance. Actual results could differ significantly from those set forth in the forward-looking statements, and reported results should not be considered an indication of future performance or events. Certain factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to: our ability to achieve the margin targets associated with our margin improvement initiatives within the contemplated time periods, if at all; the magnitude, severity and duration of the COVID-19 pandemic, including the impacts of the pandemic, along with the impacts of our responses and the responses by governments and other businesses to the pandemic, on our business, our employees, our clients and our suppliers; security breaches resulting in unauthorized access to our or our clients’ computer systems or data, including denial-of-services ransomware or other Internet-based attacks; the failure by Practice Fusion to comply with the terms of the settlement agreements with the U.S. Department of Justice (the “DOJ”); the costs and burdens of compliance by Practice Fusion with the terms of its settlement agreements with the DOJ; additional investigations and proceedings from governmental entities or third parties other than the DOJ related to the same or similar conduct underlying the DOJ’s investigations into Practice Fusion’s business practices; our ability to recover from third parties (including insurers) any amounts paid in connection with Practice Fusion’s settlement agreements with the DOJ and related inquiries; the expected financial results of businesses acquired by us; the successful integration of businesses acquired by us; the anticipated and unanticipated expenses and liabilities related to businesses acquired by us, including the civil investigation by the U.S. Attorney’s Office involving our Enterprise Information Solutions business; our failure to compete successfully; consolidation in our industry; current and future laws, regulations and industry initiatives; increased government involvement in our industry; the failure of markets in which we operate to develop as quickly as expected; our or our customers’ failure to see the benefits of government programs; changes in interoperability or other regulatory standards; our ability to maintain and expand our business with existing clients or effectively transition clients to newer products; the effects of the realignment of our sales, services and support organizations; market acceptance of our products and services; the unpredictability of the sales and implementation cycles for our products and services; our ability to manage future growth; our ability to introduce new products and services; our ability to establish and maintain strategic relationships; risks associated with investments and acquisitions; the performance of our products; our ability to protect our intellectual property rights; the outcome of legal proceedings involving us; our ability to hire, retain and motivate key personnel; performance by our content and service providers; liability for use of content; price reductions; our ability to license and integrate third-party technologies; risks related to global operations; variability of our quarterly operating results; risks related to our outstanding indebtedness; changes in tax rates or laws; business disruptions; our ability to maintain proper and effective internal controls; asset and long-term investment impairment charges; and the other factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 (our “Form 10-K”) under the heading “Risk Factors” and elsewhere. The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements” in this Form 10-Q, as well as our Form 10-K filed with the Securities and Exchange Commission (the “SEC”). We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Each of the terms “we,” “us,” “our,” “Company,” or “Allscripts” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and/or its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.

Overview

Our Business Overview and Regulatory Environment

We deliver information technology (“IT”) solutions and services to help healthcare organizations achieve optimal clinical, financial and operational results. We sell our solutions to physicians, hospitals, governments, health systems, health plans, life sciences companies, retail clinics, retail pharmacies, pharmacy benefit managers, insurance companies, employer wellness clinics and post-acute organizations, such as home health and hospice agencies. We help our clients improve the quality and efficiency of health care with solutions that include electronic health records (“EHRs”), information connectivity, private cloud hosting, outsourcing, analytics, patient access and population health management. We derive our revenues primarily from sales of our proprietary software (either as a perpetual license sale or under a subscription delivery model), support and maintenance services, and managed services, such as outsourcing, private cloud hosting and revenue cycle management.

29


Our solutions empower healthcare professionals with the data, insights and connectivity to other caregivers they need to succeed in an industry that is rapidly changing from fee-for-service models to fee-for-value advanced payment models. We believe we offer some of the most comprehensive solutions in our industry today. Healthcare organizations can effectively manage patients and patient populations across all care settings using a combination of our physician, hospital, health system, post-acute care and population health management products and services. We believe these solutions will help transform health care as the industry seeks new ways to manage risk, improve quality and reduce costs.

Globally, healthcare providers continue to face the COVID-19 crisis, as well as an aging population and the challenge of caring for an increasing number of patients with chronic diseases. At the same time, practitioners worldwide are also under growing pressure to demonstrate the delivery of high-quality care at lower costs and to fully embrace expectations of efficient, patient-centered information exchange. Congressional oversight of EHRs and health information technology has increased in recent years. This increased oversight has impacted and could continue to impact our clients and our business. Most recently, the passage of the 21st Century Cures Act in December 2016 assuaged some concerns about interoperability and possible U.S. Food and Drug Administration oversight of EHRs, and the ensuing regulations on data blocking and interoperability were released by the Department of Health and Human Services (“HHS”) in March 2020 and became applicable under Office of the National Coordinator for Health Information Technology oversight in April 2021. Additional regulatory clarity will come with the final rule expected shortly from the HHS Office of the Inspector General. Some aspects of the new regulations will have a significant effect on our business processes and how our clients must exchange patient information. In particular, Allscripts will need to complete development work to satisfy the revised and new certification criterion, and we and our clients will continue making adjustments to business practices associated with information exchange and provision of Electronic Health Information.

Please refer to the section entitled “Our Business Overview and Regulatory Environment” in Part II, Item 7 of our Form 10-K for additional information.

Impacts of COVID-19

The global outbreak of the novel coronavirus (COVID-19) has resulted in volatile economic activity around the world, and the degrees of any economic recovery in various jurisdictions have not been linear. We have been carefully monitoring the COVID-19 pandemic and its impact on our global operations. We are conducting business with certain modifications to employee travel and employee work locations, and have implemented certain cost reduction initiatives, among other modifications. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, partners and stockholders.

Allscripts, along with other health IT vendors, has been asked by the White House, HHS, the CDC, and state and local governments to support public health efforts to contain the pandemic by expanding COVID-19 reporting options available to our clients. Our technology has been instrumental to the provision of high-quality care, aiding not only public health surveillance but also in clinical decision support interventions to aid in triage, diagnosis and treatment; information exchange as patients are moved from site to site and/or discharged; predictive analytics based on local data for surge anticipation and vaccine management; and research based on real-world data informing the world’s evolving understanding of post-acute sequelae of COVID-19 (known colloquially as Long COVID).

However, the COVID-19 pandemic negatively impacted revenue for the three and nine months ended September 30, 2021, as we continued to see delays in deals with upfront software revenue and professional services implementations across our inpatient and outpatient base. During 2020, we implemented cost reduction actions across all functional disciplines of the Company, including headcount reductions and temporary salary measures. We believe the cost reduction actions that were implemented in 2020 and our current liquidity provide us with operating and financial flexibility to assist us in navigating through this uncertain environment.

The extent to which the COVID-19 pandemic will continue to impact the Company’s results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted. Future developments include new information that may emerge concerning the duration and severity of the COVID-19 pandemic, resurgences or additional “waves” of outbreaks of COVID-19 in various jurisdictions (including new lineages of the virus), the impact of COVID-19 on economic activity, the actions taken by health authorities and policy makers to contain its impacts on public health and the global economy, and the availability, effectiveness and public acceptance of vaccines.

Critical Accounting Policies and Estimates

There were no material changes to our critical accounting policies and estimates from those previously disclosed in our Form 10-K.

Third Quarter 2021 Summary

During the third quarter of 2021, we continued to make progress on our key strategic, financial and operational imperatives, which are aimed at driving higher client satisfaction, increasing operating margins, improving our competitive position by expanding the depth and breadth of our products. Additionally, we believe there are still opportunities to continue to improve our operating leverage and further streamline our operations, and such efforts are ongoing.

30


Total revenue for the third quarter of 2021 was $369 million, an increase of $4 million compared to the third quarter of 2020. For the three months ended September 30, 2021, software delivery, support and maintenance revenue and client services revenue were $223 million and $146 million, respectively, compared with $220 million and $146 million, respectively, during the three months ended September 30, 2020. Gross profit for the third quarter of 2021 was $149 million, an increase of $14 million compared to the third quarter of 2020. Gross margin increased to 40.3% in the third quarter of 2021 compared to a 37.0% gross margin in the third quarter of 2020.

Our contract backlog as of September 30, 2021 was $3.9 billion, which decreased compared with our contract backlog of $4.1 billion as of both December 31, 2020 and September 30, 2020.

Our bookings, which reflect the value of executed contracts for software, hardware, other client services, private cloud hosting, outsourcing and subscription-based services, totaled $166 million for the three months ended September 30, 2021, which represents an increase of 4% over the comparable prior period amount of $160 million and a decrease of 8% from the second quarter 2021 amount of $180 million.

Overview of Consolidated Results

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

222,726

 

 

$

219,850

 

 

 

1.3

%

 

$

670,840

 

 

$

680,124

 

 

 

(1.4

%)

Client services

 

 

146,546

 

 

 

145,768

 

 

 

0.5

%

 

 

440,498

 

 

 

436,162

 

 

 

1.0

%

Total revenue

 

 

369,272

 

 

 

365,618

 

 

 

1.0

%

 

 

1,111,338

 

 

 

1,116,286

 

 

 

(0.4

%)

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

 

68,462

 

 

 

72,411

 

 

 

(5.5

%)

 

 

208,496

 

 

 

216,625

 

 

 

(3.8

%)

Client services

 

 

122,142

 

 

 

127,361

 

 

 

(4.1

%)

 

 

362,826

 

 

 

406,752

 

 

 

(10.8

%)

Amortization of software development and

   acquisition-related assets

 

 

29,894

 

 

 

30,708

 

 

 

(2.7

%)

 

 

89,444

 

 

 

88,237

 

 

 

1.4

%

Total cost of revenue

 

 

220,498

 

 

 

230,480

 

 

 

(4.3

%)

 

 

660,766

 

 

 

711,614

 

 

 

(7.1

%)

Gross profit

 

 

148,774

 

 

 

135,138

 

 

 

10.1

%

 

 

450,572

 

 

 

404,672

 

 

 

11.3

%

Gross margin %

 

 

40.3

%

 

 

37.0

%

 

 

 

 

 

 

40.5

%

 

 

36.3

%

 

 

 

 

Selling, general and administrative expenses

 

 

78,794

 

 

 

93,442

 

 

 

(15.7

%)

 

 

239,592

 

 

 

296,164

 

 

 

(19.1

%)

Research and development

 

 

45,540

 

 

 

46,352

 

 

 

(1.8

%)

 

 

145,932

 

 

 

151,774

 

 

 

(3.8

%)

Asset impairment charges

 

 

6,519

 

 

 

210

 

 

NM

 

 

 

11,763

 

 

 

210

 

 

NM

 

Amortization of intangible and acquisition-related assets

 

 

5,817

 

 

 

6,295

 

 

 

(7.6

%)

 

 

17,466

 

 

 

19,326

 

 

 

(9.6

%)

Income (loss) from operations

 

 

12,104

 

 

 

(11,161

)

 

NM

 

 

 

35,819

 

 

 

(62,802

)

 

 

157.0

%

Interest expense

 

 

(3,617

)

 

 

(6,667

)

 

 

(45.7

%)

 

 

(9,709

)

 

 

(27,646

)

 

 

(64.9

%)

Other income, net

 

 

4,700

 

 

 

398

 

 

NM

 

 

 

22,494

 

 

 

45

 

 

NM

 

Gain on sale of businesses, net

 

 

8,363

 

 

 

0

 

 

 

100.0

%

 

 

8,363

 

 

 

0

 

 

 

100.0

%

Impairment of long-term investments

 

 

0

 

 

 

(1,025

)

 

 

(100.0

%)

 

 

0

 

 

 

(1,575

)

 

 

(100.0

%)

Equity in net (loss) income of unconsolidated investments

 

 

(257

)

 

 

383

 

 

 

(167.1

%)

 

 

(321

)

 

 

17,417

 

 

 

(101.8

%)

Income (loss) from continuing operations before income taxes

 

 

21,293

 

 

 

(18,072

)

 

NM

 

 

 

56,646

 

 

 

(74,561

)

 

 

176.0

%

Income tax (provision) benefit

 

 

(5,099

)

 

 

4,116

 

 

NM

 

 

 

(9,954

)

 

 

6,641

 

 

NM

 

Effective tax rate

 

 

23.9

%

 

 

22.8

%

 

 

 

 

 

 

17.6

%

 

 

8.9

%

 

 

 

 

Income (loss) from continuing operations, net of tax

 

 

16,194

 

 

 

(13,956

)

 

NM

 

 

 

46,692

 

 

 

(67,920

)

 

 

168.7

%

(Loss) income from discontinued operations

 

 

(14

)

 

 

19,545

 

 

 

(100.1

%)

 

 

(7

)

 

 

54,601

 

 

 

(100.0

%)

Gain on sale of discontinued operations

 

 

0

 

 

 

0

 

 

-

 

 

 

647

 

 

 

0

 

 

 

100.0

%

Income tax effect on discontinued operations

 

 

0

 

 

 

(5,047

)

 

 

(100.0

%)

 

 

(169

)

 

 

(14,098

)

 

 

(98.8

%)

(Loss) income from discontinued operations, net of tax

 

 

(14

)

 

 

14,498

 

 

 

(100.1

%)

 

 

471

 

 

 

40,503

 

 

 

(98.8

%)

Net income (loss)

 

$

16,180

 

 

$

542

 

 

NM

 

 

$

47,163

 

 

$

(27,417

)

 

NM

 

NM – We define “NM” as not meaningful for increases or decreases greater than 200%.

31


Revenue

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring revenue

 

$

304,724

 

 

$

301,616

 

 

 

1.0

%

 

$

904,016

 

 

$

914,792

 

 

 

(1.2

%)

Non-recurring revenue

 

 

64,548

 

 

 

64,002

 

 

 

0.9

%

 

 

207,322

 

 

 

201,494

 

 

 

2.9

%

Total revenue

 

$

369,272

 

 

$

365,618

 

 

 

1.0

%

 

$

1,111,338

 

 

$

1,116,286

 

 

 

(0.4

%)

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Recurring revenue consists of subscription-based software sales, support and maintenance revenue, recurring transactions revenue and recurring revenue from managed services solutions, such as outsourcing, private cloud hosting and revenue cycle management. Non-recurring revenue consists of perpetual software licenses sales, hardware resale and non-recurring transactions revenue, and project-based client services revenue.

Recurring revenue increased for the three months ended September 30, 2021 compared to the prior year comparable period, reflecting increases in recurring transaction-related revenues and subscription revenues, which were mostly offset by attrition. Recurring revenue decreased for the nine months ended September 30, 2021 compared to the prior year comparable period, primarily due to attrition. The decrease was partially offset by an increase in recurring transaction-related revenues and subscription revenues. Non-recurring revenue increased for the three and nine months ended September 30, 2021 compared to the prior year comparable periods, primarily due to an increase in non-recurring transaction-related revenues. The increase was partially offset by a decrease in upfront software revenues.

The percentage of recurring and non-recurring revenue of our total revenue was 83% and 17%, respectively, during the three months ended September 30, 2021 and 82% and 18%, respectively, during the three months ended September 30, 2020. The percentage of recurring and non-recurring revenue of our total revenue was 81% and 19%, respectively, during the nine months ended September 30, 2021 and 82% and 18%, respectively, during the nine months ended September 30, 2020.

Gross Profit

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Total cost of revenue

 

$

220,498

 

 

$

230,480

 

 

 

(4.3

%)

 

$

660,766

 

 

$

711,614

 

 

 

(7.1

%)

Gross profit

 

$

148,774

 

 

$

135,138

 

 

 

10.1

%

 

$

450,572

 

 

$

404,672

 

 

 

11.3

%

Gross margin %

 

 

40.3

%

 

 

37.0

%

 

 

 

 

 

 

40.5

%

 

 

36.3

%

 

 

 

 

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Gross profit and margin increased during the three and nine months ended September 30, 2021 compared with the prior year comparable periods, primarily due to the increase in transaction-related revenues, the increase in subscription revenues, the decrease in hosting costs and the cost reduction initiatives implemented throughout 2020. The increase was partially offset by a decrease in upfront software revenues and attrition.

Selling, General and Administrative Expenses

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Selling, general and administrative expenses

 

$

78,794

 

 

$

93,442

 

 

 

(15.7

%)

 

$

239,592

 

 

$

296,164

 

 

 

(19.1

%)

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Selling, general and administrative expenses decreased during the three and nine months ended September 30, 2021, compared with the prior year comparable periods, primarily due to lower legal costs and the impact of the cost reduction initiatives implemented throughout 2020.

Research and Development

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Research and development

 

$

45,540

 

 

$

46,352

 

 

 

(1.8

%)

 

$

145,932

 

 

$

151,774

 

 

 

(3.8

%)

32


 

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Research and development expenses decreased during the three and nine months ended September 30, 2021 compared with the prior year comparable periods, primarily due to the impact of the cost reduction initiatives implemented throughout 2020.

Asset Impairment Charges

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

2021

 

 

2020

 

 

% Change

Asset impairment charges

 

$

6,519

 

 

$

210

 

 

NM

 

$

11,763

 

 

$

210

 

 

NM

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Asset impairment charges for the three and nine months ended September 30, 2021 were primarily due to the write-off of deferred costs related to our private cloud hosting operations.

Amortization of Intangible and Acquisition-related Assets

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Amortization of intangible and acquisition-related assets

 

$

5,817

 

 

$

6,295

 

 

 

(7.6

%)

 

$

17,466

 

 

$

19,326

 

 

 

(9.6

%)

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

The decrease in amortization expense for the three and nine months ended September 30, 2021, compared with the prior year comparable periods, was due to normal amortization expense and certain intangible assets being fully amortized in 2020.

Interest Expense

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Interest expense

 

$

3,617

 

 

$

6,667

 

 

 

(45.7

%)

 

$

9,709

 

 

$

27,646

 

 

 

(64.9

%)

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Interest expense decreased during the three and nine months ended September 30, 2021 compared to the prior year comparable periods due to lower outstanding debt levels during the current year. The 1.25% Cash Convertible Senior Notes matured and were repaid in full in the third quarter of 2020. The senior secured credit facility was repaid in full in the fourth quarter of 2020. The decrease was partially offset as a result of new borrowings from the senior secured revolving facility (“Revolving Facility”) that occurred in the second quarter of 2021.

Other Income, Net

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

2021

 

 

2020

 

 

% Change

Other income, net

 

$

4,700

 

 

$

398

 

 

NM

 

$

22,494

 

 

$

45

 

 

NM

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Other income, net for the three and nine months ended September 30, 2021 and 2020 consisted of a combination of interest income and miscellaneous receipts and expenses. The increase in income during the three months ended September 30, 2021 was primarily due to a $1.4 million distribution received from a third-party cost method investment and a $1.6 million gain as a result of the sale of a third-party cost method investment. In addition to the items previously mentioned, the increase in income during the nine months ended September 30, 2021 was primarily due to a $5.0 million distribution received from the Practice Fusion escrow account related to the settlement agreements with the DOJ, a $9.7 million gain as a result of a note conversion and the revaluation of our existing investment with a third-party cost method investment and a $1.4 million distributions received from a third-party cost method investment.

Gain on Sale of Businesses, Net

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Gain on sale of businesses, net

 

$

8,363

 

 

$

0

 

 

 

100.0

%

 

$

8,363

 

 

$

0

 

 

 

100.0

%

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Gain on sale of businesses, net during the three and nine months ended September 30, 2021 consisted of a gain of $8.4 million from the divestiture of our 2bPrecise business.

33


Impairment of Long-term Investments

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Impairment of long-term investments

 

$

0

 

 

$

(1,025

)

 

 

(100.0

%)

 

$

0

 

 

$

(1,575

)

 

 

(100.0

%)

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

During the three months ended September 30, 2020, we recorded a $1.0 million impairment for a third-party cost-method investment. During the nine months ended September 30, 2020, we also recorded a $0.6 million impairment for a third-party equity-method investment.

Equity in Net (Loss) Income of Unconsolidated Investments

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Equity in net (loss) income of unconsolidated investments

 

$

(257

)

 

$

383

 

 

 

(167.1

%)

 

$

(321

)

 

$

17,417

 

 

 

(101.8

%)

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Equity in net (loss) income of unconsolidated investments represents our share of the equity earnings of our investments in third parties accounted for under the equity method of accounting based on a one quarter lag. During the nine months ended September 30, 2020, we recorded a $16.8 million gain from the sale of a third-party equity method investment.

Income Taxes

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(In thousands, except percentages)

 

2021

 

 

2020

 

 

% Change

 

2021

 

 

2020

 

 

% Change

Income tax (provision) benefit

 

$

(5,099

)

 

$

4,116

 

 

NM

 

$

(9,954

)

 

$

6,641

 

 

NM

Effective tax rate

 

 

23.9

%

 

 

22.8

%

 

 

 

 

17.6

%

 

 

8.9

%

 

 

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate primarily due to permanent differences, income attributable to foreign jurisdictions taxed at different rates, state taxes, tax credits and certain discrete items. Our effective tax rate for the three and nine months ended September 30, 2021, compared with the prior year comparable periods, differs primarily due to the fact that the permanent items, credits and the impact of foreign earnings had more impact on the pre-tax income of $21.3 million and $56.6 million in the three and nine months ended September 30, 2021, respectively, compared to the impacts of these items on a pre-tax loss of $18.1 million and $74.6 million for the three and nine months ended September 30, 2020, respectively.

In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). During the nine months ended September 30, 2021, we released valuation allowances of $0.7 million related to U.S. and foreign net operating loss carryforwards.

Discontinued Operations

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

(Loss) income from discontinued operations

 

$

(14

)

 

$

19,545

 

 

 

(100.1

%)

 

$

(7

)

 

$

54,601

 

 

 

(100.0

%)

Gain on sale of discontinued operations

 

 

0

 

 

 

0

 

 

-

 

 

 

647

 

 

 

0

 

 

 

100.0

%

Income tax effect on discontinued operations

 

 

0

 

 

 

(5,047

)

 

 

(100.0

%)

 

 

(169

)

 

 

(14,098

)

 

 

(98.8

%)

(Loss) income from discontinued operations, net of tax

 

$

(14

)

 

$

14,498

 

 

 

(100.1

%)

 

$

471

 

 

$

40,503

 

 

 

(98.8

%)

34


 

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

On October 15, 2020 and December 31, 2020, we completed the sale of the EPSi and CarePort businesses, respectively. Prior to the sale of EPSi, it was part of the “Unallocated Amounts” category as it did not meet the requirements to be a reportable segment nor the criteria to be aggregated into our two reportable segments. Prior to the sale of CarePort, it was part of the former Data, Analytics and Care Coordination reportable segment. Both businesses were part of the same strategic initiative and were sold within the same period, and given that the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results, we reported them together as discontinued operations for all periods presented. The (loss) income from discontinued operations during the three and nine months ended September 30, 2020 represents income generated from both EPSi and CarePort. The gain on sale of discontinued operations during the nine months ended September 30, 2021 primarily represents net working capital adjustments to the gain from the sale of CarePort. Refer to Note 15, “Discontinued Operations” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further information regarding discontinued operations.

Segment Operations

During the third quarter of 2021, we changed our reportable segments from Core Clinical and Financial Solutions, Data, Analytics and Care Coordination, and Unallocated to Hospital and Large Physician Practices, Veradigm, and Unallocated. The segment disclosures below for the three and nine months ended September 30, 2020, have been revised to conform to the current year presentation. Refer to Note 16 “Business Segments” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further discussion on the impact of the change.

Overview of Segment Results

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Hospital & Large Physician Practices

 

$

225,685

 

 

$

233,630

 

 

 

(3.4

%)

 

$

695,427

 

 

$

712,538

 

 

 

(2.4

%)

    Veradigm

 

 

137,168

 

 

 

125,073

 

 

 

9.7

%

 

 

396,987

 

 

 

385,525

 

 

 

3.0

%

    Unallocated Amounts

 

 

6,419

 

 

 

6,915

 

 

 

(7.2

%)

 

 

18,924

 

 

 

18,223

 

 

 

3.8

%

Total revenue

 

$

369,272

 

 

$

365,618

 

 

 

1.0

%

 

$

1,111,338

 

 

$

1,116,286

 

 

 

(0.4

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Hospital & Large Physician Practices

 

$

79,135

 

 

$

73,359

 

 

 

7.9

%

 

$

249,594

 

 

$

210,582

 

 

 

18.5

%

    Veradigm

 

 

65,698

 

 

 

56,685

 

 

 

15.9

%

 

 

187,963

 

 

 

180,981

 

 

 

3.9

%

    Unallocated Amounts

 

 

3,941

 

 

 

5,094

 

 

 

(22.6

%)

 

 

13,015

 

 

 

13,109

 

 

 

(0.7

%)

Total gross profit

 

$

148,774

 

 

$

135,138

 

 

 

10.1

%

 

$

450,572

 

 

$

404,672

 

 

 

11.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Hospital & Large Physician Practices

 

$

(6,160

)

 

$

(16,913

)

 

 

63.6

%

 

$

(6,995

)

 

$

(75,982

)

 

 

90.8

%

    Veradigm

 

 

16,877

 

 

 

8,820

 

 

 

91.3

%

 

 

46,386

 

 

 

24,518

 

 

 

89.2

%

    Unallocated Amounts

 

 

1,387

 

 

 

(3,068

)

 

 

145.2

%

 

 

(3,572

)

 

 

(11,338

)

 

 

68.5

%

Total income (loss) from operations

 

$

12,104

 

 

$

(11,161

)

 

NM

 

 

$

35,819

 

 

$

(62,802

)

 

 

157.0

%

Hospital & Large Physician Practices

Our Hospital and Large Physician Practices segment derives its revenue from the sale of integrated clinical and financial management solutions, which primarily include EHR-related software, related installation, support and maintenance, outsourcing and private cloud hosting.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Revenue

 

$

225,685

 

 

$

233,630

 

 

 

(3.4

%)

 

$

695,427

 

 

$

712,538

 

 

 

(2.4

%)

Gross profit

 

$

79,135

 

 

$

73,359

 

 

 

7.9

%

 

$

249,594

 

 

$

210,582

 

 

 

18.5

%

Gross margin %

 

 

35.1

%

 

 

31.4

%

 

 

 

 

 

 

35.9

%

 

 

29.6

%

 

 

 

 

Loss from operations

 

$

(6,160

)

 

$

(16,913

)

 

 

(63.6

%)

 

$

(6,995

)

 

$

(75,982

)

 

 

(90.8

%)

Operating margin %

 

 

(2.7

%)

 

 

(7.2

%)

 

 

 

 

 

 

(1.0

%)

 

 

(10.7

%)

 

 

 

 

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Hospital and Large Physician Practices revenue decreased during the three and nine months ended September 30, 2021, compared with the prior year comparable periods, primarily due to lower upfront software revenues and attrition.

35


Gross profit and margin increased during the three and nine months ended September 30, 2021, compared with the prior year comparable periods, primarily due to the decrease in hosting costs and the cost reduction initiatives implemented throughout 2020. The increase was partially offset by the previously mentioned attrition.

Loss from operations decreased for the three and nine months ended September 30, 2021, compared with the prior year comparable periods, primarily due to the increase in gross profit and the cost reduction initiatives implemented throughout 2020. The decrease was partially offset by the asset impairment charges related to our private cloud hosting operations.

Veradigm

Our Veradigm segment derives its revenue from payer and life sciences solutions, which are mainly targeted at payers, life sciences companies and other key healthcare stakeholders; the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions; and software applications for patient engagement. These solutions enable clients to transition, analyze, coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Revenue

 

$

137,168

 

 

$

125,073

 

 

 

9.7

%

 

$

396,987

 

 

$

385,525

 

 

 

3.0

%

Gross profit

 

$

65,698

 

 

$

56,685

 

 

 

15.9

%

 

$

187,963

 

 

$

180,981

 

 

 

3.9

%

Gross margin %

 

 

47.9

%

 

 

45.3

%

 

 

 

 

 

 

47.3

%

 

 

46.9

%

 

 

 

 

Income from operations

 

$

16,877

 

 

$

8,820

 

 

 

91.3

%

 

$

46,386

 

 

$

24,518

 

 

 

89.2

%

Operating margin %

 

 

12.3

%

 

 

7.1

%

 

 

 

 

 

 

11.7

%

 

 

6.4

%

 

 

 

 

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Veradigm revenue increased for the three and nine months ended September 30, 2021 compared with the prior year comparable periods, due to an increase in subscription and transaction-related revenues. The increase was partially offset by a decrease in maintenance and upfront software revenues.

Gross profit and gross margin increased during the three and nine months ended September 30, 2021 compared with the prior year comparable periods, primarily due to an increase in revenues changes in revenue mix.

Income from operations and operating margin increased during the three and nine months ended September 30, 2021 compared with the prior year comparable periods, primarily due to the increase in gross profit, lower bad debt costs and the cost reduction initiatives implemented throughout 2020.

Unallocated Amounts

The “Unallocated Amounts” category consists of the 2bPrecise business, certain products that were shifted from the previous Core Clinical and Financial Solutions reportable segment due to the organizational changes (“Certain Products”), transfer pricing revenues and as of January 1, 2021 also includes certain corporate-related expenses. The amounts included in the “Unallocated Amounts” category for 2bPrecise and Certain Products do not meet the requirements to be reportable segments nor the criteria to be aggregated into the two reportable segments.

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except percentages)

 

2021

 

 

2020

 

 

% Change

 

 

2021

 

 

2020

 

 

% Change

 

Revenue

 

$

6,419

 

 

$

6,915

 

 

 

(7.2

%)

 

$

18,924

 

 

$

18,223

 

 

 

3.8

%

Gross profit

 

$

3,941

 

 

$

5,094

 

 

 

(22.6

%)

 

$

13,015

 

 

$

13,109

 

 

 

(0.7

%)

Gross margin %

 

 

61.4

%

 

 

73.7

%

 

 

 

 

 

 

68.8

%

 

 

71.9

%

 

 

 

 

Income (loss) from operations

 

$

1,387

 

 

$

(3,068

)

 

 

145.2

%

 

$

(3,572

)

 

$

(11,338

)

 

 

68.5

%

Operating margin %

 

 

21.6

%

 

 

(44.4

%)

 

 

 

 

 

 

(18.9

%)

 

 

(62.2

%)

 

 

 

 

Three and Nine Months Ended September 30, 2021 Compared with the Three and Nine Months Ended September 30, 2020

Revenue decreased during the three months ended September 30, 2021 and increased slightly during the nine months ended September 30, 2021, compared with the prior year comparable periods.

Gross profit and gross margin decreased during the three and nine months ended September 30, 2021, compared with the prior year comparable periods, primarily due to an increase in the 2021 bonus accrual.

The category recorded income from operations for the three months ended September 30, 2021, compared to loss from operations for the prior year comparable period, primarily due to lower selling, general and administrative expenses. Loss from operations decreased during the nine months ended September 30, 2021, compared with the prior year comparable period, primarily due to lower selling, general and administrative expenses.

36


Contract Backlog

Contract backlog represents the value of bookings and support and maintenance contracts that have not yet been recognized as revenue. A summary of contract backlog by revenue category is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change vs. September 30, 2021

 

(In millions)

 

As of

September 30,

2021

 

 

As of

December 31, 2020

 

 

As of

September 30,

2020

 

 

December 31,

2020

 

 

September 30,

2020

 

Software delivery, support and maintenance

 

$

2,096

 

 

$

2,153

 

 

$

2,154

 

 

 

(2.6

%)

 

 

(2.7

%)

Client services

 

 

1,810

 

 

 

1,918

 

 

 

1,906

 

 

 

(5.6

%)

 

 

(5.0

%)

Total contract backlog

 

$

3,906

 

 

$

4,071

 

 

$

4,060

 

 

 

(4.1

%)

 

 

(3.8

%)

Total contract backlog as of September 30, 2021 decreased compared with December 31, 2020 and September 30, 2020. Total contract backlog can fluctuate between periods based on the level of revenue and bookings, as well as the timing and mix of renewal activity and periodic revalidations.

Liquidity and Capital Resources

The primary factors that influence our liquidity include, but are not limited to, the amount and timing of our revenues, cash collections from our clients, capital expenditures and investments in research and development efforts, including investments in or acquisitions of third parties, and divestitures. As of September 30, 2021, our principal sources of liquidity consisted of cash and cash equivalents of $216 million and available borrowing capacity of $699 million under our Revolving Facility. The change in our cash and cash equivalents balance is reflective of the following:

Operating Cash Flow Activities

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

$ Change

 

Net income (loss)

 

$

47,163

 

 

$

(27,417

)

 

$

74,580

 

Less: Income from discontinued operations

 

 

471

 

 

 

40,503

 

 

 

(40,032

)

    Income (loss) from continuing operations

 

$

46,692

 

 

$

(67,920

)

 

 

114,612

 

Non-cash adjustments to net income (loss)

 

 

147,992

 

 

 

155,383

 

 

 

(7,391

)

Cash impact of changes in operating assets and liabilities

 

 

(12,661

)

 

 

(76,181

)

 

 

63,520

 

    Net cash provided by operating activities -

        continuing operations

 

 

182,023

 

 

 

11,282

 

 

 

170,741

 

    Net cash (used in) provided by operating activities -

        discontinued operations

 

 

(322,495

)

 

 

60,623

 

 

 

(383,118

)

    Net cash (used in) provided by operating activities

 

$

(140,472

)

 

$

71,905

 

 

$

(212,377

)

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Net cash provided by operating activities – continuing operations increased during the nine months ended September 30, 2021 compared with the prior year comparable period. The change from net loss for the nine months ended September 30, 2020 to net income for the nine months ended September 30, 2021 reflects cost savings related to the cost reduction initiatives implemented throughout 2020, the distribution received from the Practice Fusion escrow account related to the settlement agreements with the DOJ, the investment gain and distributions received from our third-party cost method investments, the gain from the sale of our 2bPrecise business and lower interest expense, due to the repayment of the 1.25% Cash Convertible Senior Notes and the senior secured credit facility in the third and fourth quarters of 2020, respectively. Net income (loss) and cash impact of changes in operating assets and liabilities for the nine months ended September 30, 2020 reflects $89 million of payments related to the settlement agreements with the DOJ. The increase in cash impact of changes in operating assets and liabilities for the nine months ended September 30, 2021 was partially offset by working capital changes. Non-cash adjustments to net income (loss) decreased primarily due to the gain from the sale of our 2bPrecise business and lower depreciation and amortization expense. The decrease was partially offset due to the absence of equity in net income of unconsolidated investments and the asset impairment charges related to our private cloud hosting operations.

The change from net cash provided by operating activities – discontinued operations for the nine months ended September 30, 2020 to net cash used in operating activities – discontinued operations for the nine months ended September 30, 2021 was primarily due to the tax payment relating to the gain from the sale of CarePort on December 31, 2020. Additionally, both EPSi and CarePort generated cash from operations during the nine months ended September 30, 2020.

37


Investing Cash Flow Activities

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

$ Change

 

Capital expenditures

 

$

(4,551

)

 

$

(7,798

)

 

$

3,247

 

Capitalized software

 

 

(55,482

)

 

 

(71,337

)

 

 

15,855

 

Sale of businesses and other investments, net of cash divested, and distributions received

 

 

7,581

 

 

 

24,884

 

 

 

(17,303

)

Purchases of equity securities, other investments and related intangible assets, net

 

 

(2,421

)

 

 

(3,888

)

 

 

1,467

 

    Net cash used in investing activities -

        continuing operations

 

 

(54,873

)

 

 

(58,139

)

 

 

3,266

 

    Net cash used in investing activities -

        discontinued operations

 

 

0

 

 

 

(6,793

)

 

 

6,793

 

    Net cash used in investing activities

 

$

(54,873

)

 

$

(64,932

)

 

$

10,059

 

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

Net cash used in investing activities – continuing operations decreased during the nine months ended September 30, 2021, compared with the prior year comparable period. The decrease in the use of cash during 2021 was primarily due to a decrease in capitalized software costs, a decrease in capital expenditures and the receipt of distributions from a third-party cost method investment. The decrease was partially offset by a decrease in the sale of investments.

Net cash used in investing activities – discontinued operations during the nine months ended September 30, 2020 reflects spending for capital expenditures and capitalized software costs related to the EPSi and CarePort businesses that were sold during the fourth quarter of 2020.

Financing Cash Flow Activities

 

 

Nine Months Ended September 30,

 

(In thousands)

 

2021

 

 

2020

 

 

$ Change

 

Taxes paid related to net share settlement of equity awards

 

$

(13,967

)

 

$

(5,589

)

 

$

(8,378

)

Repayment of Convertible Senior Notes

 

 

0

 

 

 

(352,361

)

 

 

352,361

 

Credit facility payments

 

 

(50,000

)

 

 

(175,000

)

 

 

125,000

 

Credit facility borrowings, net of issuance costs

 

 

250,000

 

 

 

673,625

 

 

 

(423,625

)

Repurchase of common stock

 

 

(308,953

)

 

 

(55,282

)

 

 

(253,671

)

Payment of acquisition and other financing obligations

 

 

(2,400

)

 

 

(5,127

)

 

 

2,727

 

      Net cash (used in) provided by financing activities

 

$

(125,320

)

 

$

80,266

 

 

$

(205,586

)

Nine Months Ended September 30, 2021 Compared with the Nine Months Ended September 30, 2020

The change from net cash provided by financing activities for the nine months ended September 30, 2020 to net cash used in financing activities for the nine months ended September 30, 2021 was primarily a result of the payment made pursuant to the accelerated share repurchase program, the repurchase of common stock on the open market and lower credit facility borrowings in 2021, partially offset by lower credit facility payments in 2021 and the repayment of convertible senior notes in 2020.

38


Future Capital Requirements

The following table summarizes future payments under the 0.875% Convertible Senior Notes and Revolving Facility as of September 30, 2021:

(In thousands)

 

Total

 

 

Remainder of 2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

Principal payments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.875% Convertible Senior Notes (1)

 

$

207,911

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

207,911

 

Revolving Facility (2)

 

 

200,000

 

 

 

0

 

 

 

0

 

 

 

200,000

 

 

 

0

 

 

 

0

 

 

 

0

 

   Total principal payments

 

 

407,911

 

 

 

0

 

 

 

0

 

 

 

200,000

 

 

 

0

 

 

 

0

 

 

 

207,911

 

Interest payments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.875% Convertible Senior Notes

 

 

10,006

 

 

 

0

 

 

 

1,819

 

 

 

1,819

 

 

 

1,819

 

 

 

1,819

 

 

 

2,730

 

Revolving Facility (2) (3)

 

 

8,349

 

 

 

1,392

 

 

 

5,566

 

 

 

1,391

 

 

 

0

 

 

 

0

 

 

 

0

 

   Total interest payments

 

 

18,355

 

 

 

1,392

 

 

 

7,385

 

 

 

3,210

 

 

 

1,819

 

 

 

1,819

 

 

 

2,730

 

Total future debt payments

 

$

426,266

 

 

$

1,392

 

 

$

7,385

 

 

$

203,210

 

 

$

1,819

 

 

$

1,819

 

 

$

210,641

 

(1)

Amount represents the face value of the 0.875% Convertible Senior Notes, which includes both the liability and equity portions.

(2)

Assumes no additional borrowings after September 30, 2021, payment of any required periodic installments of principal when due and that all drawn amounts are repaid upon maturity. Amounts include fees related to the unused available borrowing capacity on the Revolving Facility.

(3)

Assumes LIBOR plus the applicable margin remain constant at the rate in effect on September 30, 2021, which was 1.58%.

Other Matters Affecting Future Capital Requirements

Our total investment in research and development is expected to decline in 2021 as the Company continues to benefit from margin improvement initiatives that commenced in 2020. Our total spending consists of research and development costs directly recorded to expense, which are offset by the capitalization of eligible development costs.

We believe that our cash and cash equivalents of $216 million as of September 30, 2021, our future cash flows, our borrowing capacity under our Revolving Facility and access to capital markets, taken together, provide adequate resources to meet future operating needs as well as scheduled payments of short and long-term debt. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of this Form 10-Q. We will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies and the repurchase of our common stock under our stock repurchase program, any of which might impact our liquidity requirements or cause us to borrow additional amounts under our Revolving Facility or issue additional equity or debt securities.

Contractual Obligations, Commitments and Off-Balance Sheet Arrangements

We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. During the nine months ended September 30, 2021, there were no material changes, outside of the ordinary course of business, to our contractual obligations and purchase commitments previously disclosed in our Form 10-K.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Form 10-K have not changed materially during the nine months ended September 30, 2021.

Item 4.

Controls and Procedures 

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the end of the period covered by this Form 10-Q.

Based on management’s evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures are designed to, and were effective as of September 30, 2021 to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

39


Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2021, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

We hereby incorporate by reference Note 14, “Contingencies,” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Item 1A.

Risk Factors

Except as follows, there have been no other material changes during the nine months ended September 30, 2021 from the risk factors as previously disclosed in our Form 10-K.

The failure by Practice Fusion to comply with the terms of its settlement agreements with the U.S. Department of Justice (the “DOJ”) could have a material and adverse impact on our business, results of operations and financial condition, and, even if Practice Fusion complies with those settlement agreements, the costs and burdens of compliance could be significant, and we may face additional investigations and proceedings from other governmental entities or third parties related to the same or similar conduct underlying the agreements with the DOJ.

On January 27, 2020, we announced that our subsidiary Practice Fusion entered into a series of agreements to resolve an investigation conducted by the DOJ and the U.S. Attorney for the District of Vermont. See the risk factor entitled “We have acquired and expect to acquire new companies, investments or technologies, which are subject to significant risks.” Practice Fusion has entered a three-year deferred prosecution agreement with the U.S. Attorney for the District of Vermont (“Deferred Prosecution Agreement”) and a civil settlement agreement with the DOJ (“Civil Settlement Agreement”), and has entered into separate civil settlement agreements with the Medicaid programs for each U.S. state, the District of Columbia and Puerto Rico (“State Settlement Agreements” and, together with the Deferred Prosecution Agreement and the Civil Settlement Agreement, the “Settlement Agreements”).

Under the Deferred Prosecution Agreement, Practice Fusion consented to the filing of a two count criminal information: one felony count of violating the Anti-Kickback Statute and one felony count of conspiracy to violate the Anti-Kickback Statute. The Deferred Prosecution Agreement required Practice Fusion to pay a criminal fine of $25.3 million and a forfeiture payment of $959,700, both of which have been paid in full, and for the Company and Practice Fusion to regularly review and certify compliance with the Deferred Prosecution Agreement. Practice Fusion also agreed to implement Additional Civil Compliance Terms, which include the appointment of an Oversight Organization and the implementation of compliance measures set forth in a Compliance Addendum, each as described further in the Deferred Prosecution Agreement. The Oversight Organization Mandate requires Practice Fusion to retain an Oversight Organization selected by the U.S. Attorney’s Office for the District of Vermont for three years. The Oversight Organization is required to take steps to provide reasonable assurance that Practice Fusion establishes and maintains compliance systems, controls and processes reasonably designed, implemented and operated to ensure Practice Fusion’s compliance with the terms of the Deferred Prosecution Agreement, including the Compliance Addendum, as well as reducing the risk of any recurrence of misconduct as described in the information and statement of facts. The Compliance Addendum also required Practice Fusion to, within 90 days of the execution of the Deferred Prosecution Agreement, implement and maintain a Sponsored Clinical Decision Support (“CDS”) Compliance Program that sets procedures and systems to review all current or future Sponsored CDSs on the Practice Fusion electronic health records system. Practice Fusion is subject to the Compliance Addendum for a three-year period from the effective date of the Deferred Prosecution Agreement.

Practice Fusion also entered into the Civil Settlement Agreement to resolve allegations by the DOJ that false claims were submitted to governmental healthcare programs. The Civil Settlement Agreement required Practice Fusion to pay a civil settlement of $118.6 million, which included $5.2 million designated for the state Medicaid program expenditures and has been paid in full. In addition, Practice Fusion entered into the State Settlement Agreements to resolve Medicaid claims under state law analogues to the federal False Claims Act. The financial terms of the State Settlement Agreements are substantially similar to those set forth in the Civil Settlement Agreement.

See Note 14, “Contingencies,” to our consolidated financial statements included in Part I, Item 1, “Financial Statements” of this Form 10-Q for additional information.

40


Compliance with the terms of the Settlement Agreements has imposed and could continue to impose significant costs and burdens on us. For instance, on August 25, 2021, Practice Fusion received a notice from the U.S. Attorney’s Office for the District of Vermont stating Practice Fusion was in breach of the Deferred Prosecution Agreement after Practice Fusion’s Initial Oversight Organization resigned. On September 17, 2021, Practice Fusion engaged a new Oversight Organization, and it is currently engaged in discussions with the U.S. Attorney’s Office concerning the claim that a breach of the Deferred Prosecution Agreement occurred. The failure by Practice Fusion to comply with any Settlement Agreement may result in the DOJ imposing substantial monetary penalties, excluding Practice Fusion from Medicare, Medicaid and other federal healthcare programs, and/or criminally prosecuting Practice Fusion, which could have a material adverse effect on our business, financial condition and results of operations.  

Other government investigations or legal or regulatory proceedings, including investigations or proceedings brought by private litigants or shareholders, federal agencies, private insurers and states’ attorneys general, may follow as a consequence of our entry into the Settlement Agreement or the existing government investigation of our EIS Business, which could result in criminal liability, the imposition of damages or non-monetary relief, significant compliance, litigation or settlement costs, other losses, or a diversion of management’s attention from other business concerns and have a material adverse effect on our business, results of operations and financial condition. For example, Practice Fusion has received requests for documents and information from the Attorneys General of several states arising from the conduct at issue in the Settlement Agreements. We may also be subject to negative publicity related to these matters that could harm our reputation, reduce demand for our solutions and services, result in employee attrition and negatively impact our stock price.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On May 26, 2021, we announced that our Board of Directors approved a new stock purchase program (the “2021 Program”) under which we may repurchase up to $350 million of our common stock. The 2021 Program replaced a previous program and does not have a termination date. During the three months ended September 30, 2021, we received 2.4 million shares of our common stock at final settlement of the accelerated share repurchase program entered into on June 14, 2021, described below. We did not repurchase any shares on the open market during the three months ended September 30, 2021.

On June 14, 2021, we entered into Supplemental Confirmations (each, a “June 2021 Supplemental Confirmation”) to the separate Master Confirmations (each, a “Master Confirmation”) dated November 30, 2020 (each, as supplemented by the corresponding June 2021 Supplemental Confirmation, a “June 2021 ASR Agreement”), with JPMorgan Chase Bank, National Association and Wells Fargo Bank, National Association (each, an “ASR Counterparty”, or collectively, the “ASR Counterparties”), to purchase shares of our common stock for a total payment of $200.0 million (the “June 2021 Prepayment Amount”). Under the terms of the June 2021 ASR Agreements, on June 14, 2021, we paid the June 2021 Prepayment Amount to the ASR Counterparties and received on June 16, 2021 an initial delivery of approximately 9.1 million shares of our common stock, which is approximately 80% of the total number of shares that could be repurchased under the June 2021 ASR Agreements if the final purchase price per share equaled the closing price of our common stock on June 14, 2021. The total number of shares received under the June 2021 ASR Agreements, after final settlement, was based on the average daily volume weighted average price of our common stock during the repurchase period, less an agreed upon discount. Final settlement of the June 2021 ASR Agreements occurred in August 2021, resulting in the receipt of 2.4 million additional shares, which yielded a weighted average share repurchase price of approximately $17.28.

Any future stock repurchase transactions may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means, subject to market conditions. Any repurchase activity will depend on many factors such as our working capital needs, cash requirements for investments, debt repayment obligations, economic and market conditions at the time, including the price of our common stock, and other factors that we consider relevant. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.

41


The following table summarize the stock repurchase activity during the three months ended September 30, 2021 and the approximate dollar value of shares that may yet be purchased under our stock repurchase program:

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

 

Of Shares

 

 

Dollar Value

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

Of Shares

 

 

 

 

 

 

 

 

 

 

 

As Part Of

 

 

That May Yet

 

 

 

Total

 

 

Average

 

 

Publicly

 

 

Be Purchased

 

 

 

Number

 

 

Price

 

 

Announced

 

 

Under The

 

 

 

Of Shares

 

 

Paid Per

 

 

Plans Or

 

 

Plans Or

 

Period (Based on Trade Date)

 

Purchased

 

 

Share(1)(2)

 

 

Programs

 

 

Programs

 

07/01/21—07/31/21

 

 

-

 

 

$

-

 

 

 

-

 

 

$

108,361

 

08/01/21—08/31/21 (3)

 

 

2,470

 

 

$

-

 

 

 

2,470

 

 

$

108,361

 

09/01/21—09/30/21

 

 

-

 

 

$

-

 

 

 

-

 

 

$

108,361

 

 

 

 

2,470

 

 

$

-

 

 

 

2,470

 

 

 

 

 

 

(1)

Average price paid per share excludes effect of accelerated share repurchases. See additional disclosure above regarding our accelerated share repurchase activity during the third quarter of 2021.

 

(2)

Excludes broker commissions in the case of open market transactions, if any.

 

(3)

Shares represent the final settlement shares received from the accelerated share repurchase program, described above. The receipt of these shares did not impact the approximate dollar value of shares that may yet be purchased under the plans or programs as these shares were already paid for as part of the June 2021 Prepayment Amount.

 

Item 6.

Exhibits

Exhibit Number

 

 

Exhibit Description

 

Filed   Herewith

 

Furnished Herewith

31.1

 

 

Rule 13a - 14(a) Certification of Chief Executive Officer

 

X

 

 

 

 

 

 

 

 

 

 

31.2

 

 

Rule 13a - 14(a) Certification of Chief Financial Officer

 

X

 

 

 

 

 

 

 

 

 

 

32.1

 

 

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

 

 

 

X

 

 

 

 

 

 

 

 

101.INS

 

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline document

 

X

 

 

 

 

 

 

 

 

 

 

101.SCH

 

 

Inline XBRL Taxonomy Extension Schema

 

X

 

 

 

 

 

 

 

 

 

 

101.CAL

 

 

Inline XBRL Taxonomy Extension Calculation Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

101.LAB

 

 

Inline XBRL Taxonomy Extension Label Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

101.PRE

 

 

Inline XBRL Taxonomy Extension Presentation Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

101.DEF

 

 

Inline XBRL Taxonomy Definition Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

104

 

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL and included in Exhibit 101.

 

X

 

 

 

 

 

 

 

 

 

 

 

42


 

SIGNATURES

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

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

 

 

By:

 

/s/ Richard J. Poulton

 

 

Richard J. Poulton

 

 

President and Chief Financial Officer

 

 

(Principal Financial and Accounting Officer and Duly Authorized Officer)

Date: November 5, 2021

43