Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): June 3, 2020

 

 

Change Healthcare Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   001-38961   82-2152098

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

3055 Lebanon Pike, Suite 1000

Nashville, Tennessee 37214

(Address of Principal Executive Offices) (Zip Code)

(615) 932-3000

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.001 per share   CHNG   The Nasdaq Stock Market LLC
6.00% Tangible Equity Units   CHNGU   The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.  ☐

 

 

 


Item 2.02

Results of Operations and Financial Condition.

On June 3, 2020, Change Healthcare Inc. issued a press release announcing financial results for the fourth fiscal quarter and fiscal year ended March 31, 2020. The press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Pursuant to General Instruction B.2 of Current Report on Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including the press release attached hereto as Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Furthermore, such information shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit
No.
  

Description

99.1   

Press Release of Change Healthcare Inc. dated June 3, 2020.


SIGNATURE

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 hereunto duly authorized.

 

CHANGE HEALTHCARE INC.

By:

 

/s/ Loretta A. Cecil

 

Name: Loretta A. Cecil

 

Title:   Executive Vice President, General

Counsel

Date: June 3, 2020

EX-99.1

Exhibit 99.1

Change Healthcare Inc. Reports Fourth Quarter and Full Year Fiscal 2020 Financial Results

NASHVILLE, Tenn., Jun. 3, 2020— (BUSINESS WIRE) – Change Healthcare Inc. (Nasdaq: CHNG), a leading independent healthcare technology company, today reported financial results for Change Healthcare LLC (“Change Healthcare”) for the fourth quarter and fiscal year ended March 31, 2020.

“Change Healthcare delivered strong performance in our first year as a public company, achieving our desired financial and operational goals, executing on our transformation initiatives, and strengthening our platform for future growth. In fiscal 2020, we delivered underlying growth across all three segments, expanded margins, and delivered strong free cash flow.” said Neil de Crescenzo, president and chief executive officer.

“While the COVID-19 pandemic has created uncertainties in the near term, the core mission of our company to drive financial, administrative, and clinical efficiencies will be even more important to our customers going forward. I am proud of our team members who quickly adapted to the escalating pandemic and actively addressed the needs of our customers and partners. To further support our customers in this environment we advanced several new solutions including our Telehealth set of engagement solutions, our National Payments Connector solution to drive increased electronic payments, and our Virtual Front Desk solutions to enable touchless waiting rooms for providers. Despite the continuing uncertainty, we believe we remain well-positioned to drive growth and build shareholder value over the coming years.”

Adoption of the New Revenue Recognition Standard - ASC 606

Change Healthcare adopted the new revenue recognition accounting standard Accounting Standards Codification (“ASC”) 606 effective April 1, 2019 on a modified retrospective basis. Financial results for reporting periods during fiscal year 2020 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to fiscal year 2020 are presented in conformity with the prior revenue recognition standard, ASC 605. This press release includes additional information to reconcile the impacts of the adoption of the new revenue recognition standard on Change Healthcare’s financial results for the quarter and year ended March 31, 2020. This includes the presentation of financial results during fiscal year 2020 under ASC 605 for comparison to the prior-year period.

Fiscal 2020 Fourth Quarter Highlights for Change Healthcare LLC:

Financial Summary - ASC 606 (standard adopted effective April 1, 2019)

 

   

Total revenue of $843.4 million, including solutions revenue of $786.6 million

 

   

Net loss of $108.6 million, resulting in net loss of $0.34 per diluted unit1

 

   

Adjusted net income of $133.2 million, resulting in adjusted net income of $0.42 per diluted unit1

 

   

Adjusted EBITDA of $264.4 million

Financial Summary - ASC 605 (standard before April 1, 2019)

 

   

Total revenue of $854.0 million, including solutions revenue of $797.2 million

 

   

Net loss of $108.0 million, resulting in net loss of $0.34 per diluted unit1

 

   

Adjusted net income of $133.7 million, resulting in adjusted net income of $0.42 per diluted unit1

 

   

Adjusted EBITDA of $269.3 million

 

 

1 

Common units of Change Healthcare LLC are equivalent to the number of outstanding common shares of Change Healthcare Inc. and, prior to McKesson’s March 2020 exit transaction, membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

1


Financial Results—ASC 606 (standard adopted effective April 1, 2019)

 

   

Solutions revenue was $786.6 million. Fourth-quarter results were impacted by the adoption of the new accounting standard, ASC 606, which resulted in the recognition of certain revenue in the first quarter of the fiscal year that would have been recognized in the subsequent periods under the prior accounting rules. The fourth-quarter results reflect an unfavorable revenue impact of $10.6 million as compared with ASC 605.

 

   

Net loss was $108.6 million, resulting in net loss of $0.34 per diluted unit. Net loss was primarily impacted negatively due to recognition of a $164.6 million McKesson tax receivable agreement liability as a part of their disposition of their ownership interest in Change Healthcare and the ASC 606 revenue impact noted above. These impacts were partially offset favorably by an extended recognition period for commissions and certain implementation costs, decreasing expenses in the period by $5.8 million.

 

   

Adjusted net income was $133.2 million, resulting in adjusted net income of $0.42 per diluted unit.

 

   

Adjusted EBITDA was $264.4 million. Adjusted EBITDA as a percent of Solutions revenue for the fourth quarter of fiscal 2020 was 33.6%.

Financial Results - ASC 605 (standard before April 1, 2019)

 

   

Solutions revenue was $797.2 million, compared to $778.4 million for the fourth quarter of fiscal 2019. Total revenue for the current period, which includes Postage revenue, was $854.0 million, compared to $836.3 million in the same period of the prior fiscal year. Growth in our Network Solutions business was partially offset by the impact of planned contract eliminations in our Technology-Enabled Services business, the strategic assessment of Connected Analytics, and a $6.2 million impact from COVID-19.

 

   

Net loss was $108.0 million, resulting in net loss of $0.34 per diluted unit, compared with net income of $37.7 million or $0.15 per diluted unit, respectively, for the fourth quarter of fiscal 2019. The net loss was primarily driven by the recognition of a $164.6 million McKesson tax receivable agreement liability.

 

   

Adjusted net income was $133.7 million, resulting in adjusted net income of $0.42 per diluted unit, compared with adjusted net income of $125.8 million or $0.50 per diluted unit, respectively, for the fourth quarter of fiscal 2019. Net loss per unit and Adjusted net income per unit for the current period is based on 320 million units compared to 253 million units in the prior year period, increasing as a result of the initial public offering completed on July 1, 2019.

 

   

Adjusted EBITDA was $269.3 million, compared with $257.2 million for the fourth quarter of fiscal 2019. The favorable impact of productivity improvements and growth across our Software & Analytics and Network Solutions businesses was partially offset by planned contract eliminations in our Technology-Enabled Service business, and the above mentioned impact from COVID-19. Adjusted EBITDA as a percent of Solutions revenue for the fourth quarter of fiscal 2020 was 33.8%, compared with 33.0% for the fourth quarter of fiscal 2019.

 

2


Cash Flow and Balance Sheet Highlights for Change Healthcare LLC:

Net cash provided by operating activities was $593.3 million for the fiscal year ended March 31, 2020, an increase of 106.2% from $287.7 million for the fiscal year ended March 31, 2019. Free cash flow was $334.7 million for the year ended March 31, 2020, an increase of 721.8% from $40.7 million for the fiscal year ended March 31, 2019. Adjusted free cash flow was $481.5 million, an increase of $189.3 million year over year.

Net cash provided by operating activities, free cash flow, and adjusted free cash flow each is affected by pass-thru funds we receive from certain pharmaceutical industry participants in advance of our obligation to remit these funds to participating retail pharmacies. Such pass-thru funds were $21.7 million for the fiscal year ended March 31, 2020 and $3.0 million for the fiscal year ended March 31, 2019. The increase in cash flow from operations, free cash flow, and adjusted free cash flow in the current period primarily resulted from revenue growth and improved working capital driven by lower receivable balances and reduced integration capital expenditures.

Change Healthcare LLC ended the year with approximately $407.7 million of cash, cash equivalents, and restricted cash and approximately $5,117.9 million of total debt. During the quarter, Change Healthcare LLC also borrowed $250.0 million from its revolving credit facility to have access to additional liquidity in an uncertain macro environment. Subsequent to the quarter, the Company issued $325.0 million of 5.75% Senior Unsecured Notes due 2025 under the same terms as the existing $1,000.0 million Senior Notes.

Recent Business Highlights

 

   

Completed the acquisition of PDX, a company focused on delivering patient centric and innovative technologies for pharmacies and health systems for a purchase price of $208.0 million.

 

   

Completed the acquisition of eRx Network, a leading provider of comprehensive, innovative, and secure data-driven solutions for pharmacies, for a purchase price of $212.9 million plus cash on the balance sheet.

 

   

Completed the sale of Connected Analytics for total consideration of $55.0 million.

 

   

Launched COVID-19 Information Hub, an online source of technology, business, and informational resources from Change Healthcare, its partners, and third-party expert sources to give providers and payers guidance on how to maintain administrative, financial, and operational stability during the COVID-19 pandemic.

 

   

Completed McKesson Corporation’s disposition of its ownership interest in Change Healthcare. As a result, McKesson no longer owns any voting or economic interest in Change Healthcare.

 

   

Named as Software & Services Report Leader in the 2020 Best in KLAS awards. The awards reflect excellence in quality and customer service for technology solutions and services that help healthcare organizations achieve better outcomes.

 

   

Introduced Market Insights, a comprehensive analytic dataset that provides approved healthcare stakeholders unparalleled visibility into crucial utilization, population health, and financial trends that drive the U.S. healthcare system.

 

3


First Quarter Fiscal 2021 Guidance

Due to uncertainty around the duration of COVID-19, the Company will only be providing quarterly guidance. In addition, Change Healthcare Inc. was required to account for the McKesson exit as a business combination through which Change Healthcare Inc. obtained control of Change Healthcare LLC. As a result, the Change Healthcare Inc. balance sheet is now reflective of the fair value of assets and liabilities of Change Healthcare LLC. The impact of the fair value adjustments is included in our guidance.

For the first quarter of fiscal 2021, the Company expects Solutions revenue to be in the range of $595 million to $620 million, which includes a reduction of $55 million in revenue resulting from an adjustment of deferred revenue to fair value as described in our assumptions below, Adjusted EBITDA to be in the range of $160 million to $175 million and Adjusted EPS to be in the range of $0.14 - $0.18 per share.

The first quarter fiscal 2021 outlook is based on the following key assumptions and expectations and is also subject to risk factors such as those described in the Forward-Looking Statements below:

 

   

Reflects the Company’s current expectation that the largest impact from the COVID-19 pandemic will occur in the first quarter of the fiscal year with a gradual improvement throughout the remainder of the fiscal year as healthcare utilization trends improve.

 

   

Includes the impact of the sale of Connected Analytics and the acquisition of eRx Network as of May 1, 2020, and the acquisition of PDX as of June 1, 2020.

 

   

Assumes a revenue impact due to adjusting deferred revenue as part of fair value adjustments, which reduces revenue recognized by approximately $55 million with no impact on Adjusted EBITDA.

 

   

Interest expense of approximately $70 million, including the impact of $325 million in additional notes and the $250 million draw on the credit facility discussed above and assumes no additional debt paydown during the year. Includes approximately $4 million in non-cash, pre-tax interest expense for fair value adjustments related to the McKesson exit.

 

   

Depreciation and amortization2 expense of approximately $140 million, including approximately $54 million from the impact of fair value adjustments related to the McKesson exit.

 

   

Includes up to $10 million of increased bad debt expense provision in the first quarter consistent with anticipated days sales outstanding increase

Supplemental Forward-Looking Information and Assumptions For Fiscal 2021

While the Company is not providing guidance for the full fiscal 2021 due to the uncertainty and rapidly evolving economic environment as a result of COVID-19, the Company has determined to provide the following supplemental expectations and assumptions that the Company has made regarding its fiscal 2021 results to provide further transparency to investors into the Company’s current beliefs regarding fiscal 2021, all of which are subject to change:

 

   

Free cash flow positive for the fiscal year; amount dependent on the speed of recovery.

 

2 

Depreciation and amortization expense for the first quarter of fiscal 2021 includes an increase of approximately $77 million in amortization for intangible assets, offset by approximately $25 million for the fair value adjustment of capitalized software, as well as an increase of approximately $2 million of depreciation for fixed assets.

 

4


   

Capital expenditures of approximately 7% of Solutions Revenue excluding the impact of fair value adjustments for the fiscal year and excluding integration related capital expenditures.

 

   

Integration related expense for the fiscal year of approximately $80 million and Integration related capital expenditures of approximately $20 million.

 

   

Assumes a revenue impact due to adjusting deferred revenue as part of fair value adjustments related to the McKesson exit, which reduces revenue recognized in future periods by approximately $137 million, including an approximate $129 million reduction for the fiscal year, with no impact on adjusted EBITDA.

 

   

Interest expense in the range of $280 - $290 million, including the impact of $325 million in additional notes and the $250 million draw on the credit facility discussed above and assumes no additional debt paydown during the year. Includes approximately $14 million in non-cash, pre-tax interest expense for fair value adjustments related to the McKesson exit.

 

   

Includes approximately $215 million in additional depreciation and amortization3 expense for fair value adjustments related to the McKesson exit

 

   

Adjusted effective tax rate of approximately 25% as a result of simplified corporate structure post McKesson exit.

 

   

Basic Shares Outstanding of 320.0 million.4

A reconciliation of the forward-looking first-quarter 2021 Adjusted EBITDA outlook to net income cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted. For the same reasons, Change Healthcare is unable to assess the probable significance of the unavailable information, which could have a material impact on its future financial results in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

Conference Call and Webcast Information

Change Healthcare will host a conference call on June 4, 2020, at 8:00 a.m. ET. Investors and other interested parties are invited to listen to the conference call by dialing 1-(877) 279-0788 in the U.S.; 1-(270) 215-9894 from abroad, including the conference ID number: 2987345; or via a live, audio webcast on the Company’s website at https://ir.changehealthcare.com/.

 

3 

The additional amortization expense for fiscal 2021 is comprised of an increase of approximately $308 million for intangible assets, offset by approximately $100 million for the fair value adjustment of capitalized software, as well as an additional $7 million of depreciation for fixed assets.

4 

Basic shares outstanding includes the impact of the minimum issuable shares attributable to the TEUs.

 

5


A webcast replay will be available for on-demand listening shortly after the completion of the call until the fourth-quarter fiscal 2021 earnings call, at the aforementioned URL. In addition, a digital audio playback will be available until 11:00 a.m. Eastern Time on Thursday, June 11, 2020, by dialing 1-(855) 859-2056 or 1-(404) 537-3406 and referencing confirmation 2987345.

About Change Healthcare

Change Healthcare (Nasdaq: CHNG) is a leading independent healthcare technology company that provides data and analytics-driven solutions to improve clinical, financial and patient engagement outcomes in the U.S. healthcare system. We are a key catalyst of a value-based healthcare system, accelerating the journey toward improved lives and healthier communities. Learn more at changehealthcare.com.

CHNG-IR

Contacts

Evan Smith, CFA

Investor Relations

404-338-2225

Evan.Smith@changehealthcare.com

Kerry Kelly

External Communications

339-236-2756

Kerry.Kelly@changehealthcare.com

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of federal securities laws. Any statements made in this press release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include information concerning possible or assumed future results of operations, including, but not limited to, our first quarter fiscal 2021 guidance, the supplemental information and assumptions regarding fiscal 2021, the potential length and impact on COVID-19, and descriptions of our business plans and strategies. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,” “predicts,” and the negatives of these words and other similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, including, but not limited to, the uncertainty around the length and severity of the COVID-19 pandemic; the ongoing impact of the COVID-19 pandemic on our operations and financial results, on our customers and on national, state and local economies; and new risks that may arise due to responses to the pandemic by the government, our customers and us; and other factors disclosed in the Registration Statement on on Form S-4 (No. 333-236234) and the Annual Report on Form 10-K for the year ended March 31, 2020 in the section entitled “Risk Factors,” as such factors may be updated from time to time in our periodic filings with the SEC, and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this release. All forward-looking statements are based on information currently available to Change Healthcare and are qualified in their entirety by this cautionary statement. The statements herein speak only as of the date such statements were first made. Except to the extent required by law, Change Healthcare assumes no obligation to update any such forward-looking statements or other statements included in this release.

 

6


Non-GAAP Financial Measures

In the company’s earnings releases, prepared remarks, conference calls, slide presentations and webcasts, there may be use or discussion of non-GAAP financial measures. We believe such measures provide supplemental information to investors with regard to our operating performance and assist investors’ ability to compare our financial results to those of other companies in the same industry. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between the comparable GAAP financial measure and each non-GAAP financial measure are included in this press release after the consolidated financial statements. These non-GAAP financial measures are calculated and presented on the basis of methodologies other than in accordance with GAAP. These non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP and may be defined and calculated differently by others in the same industry.

 

7


Change Healthcare Inc.

Consolidated Statements of Operations

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

 

     Three Months Ended
March 31,
    Year Ended
March 31,
 
     2020     2019     2020     2019  

Revenue

        

Solutions revenue

   $ 184,161     $ —       $ 184,161     $ —    

Postage revenue

     12,631       —         12,631       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     196,792       —         196,792       —    

Operating expenses

        

Sales, marketing, general and administrative

     37,389       971       39,893       1,159  

Cost of operations (exclusive of depreciation and amortization below)

     71,435       —         71,435       —    

Research and development

     11,559       —         11,559       —    

Customer postage

     12,631       —         12,631       —    

Depreciation and amortization

     30,838       —         30,838       —    

Accretion and changes in estimate with related parties, net

     (31,349     —         15,823       —    

Tax Receivable Agreement charges

     164,633       —         164,633       —    

Goodwill impairment charge

     561,164       —         561,164       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     858,300       971       907,976       1,159  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (661,508     (971     (711,184     (1,159

Non-operating (income) expense

        

Loss from Equity Method Investment in the Joint Venture

     276,216       4,682       380,713       70,487  

(Gain) Loss on sale of interests in the Joint Venture

     —         —         —         (661

Management fee income

     540       (190     (1,108     (378

Interest expense, net

     16,248       —         16,652       —    

(Gain) loss on other investments

     55,768       —         (15,881     —    

Other, net

     (709     —         (709     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (income) expense

     348,063       4,492       379,667       69,448  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (1,009,571     (5,463     (1,090,851     (70,607

Income tax provision (benefit)

     (142,690     (1,931     (143,254     (18,595
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (866,881   $ (3,532   $ (947,597   $ (52,012
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share:

        

Basic and Diluted

   $ (1.64   $ (0.05   $ (6.92   $ (0.69
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

Basic and Diluted

     186,342,936       75,474,675       136,996,624       75,513,130  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

8


Change Healthcare Inc.

Consolidated Balance Sheets

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

 

     March 31,
2020
    March 31,
2019
 

Assets

    

Current assets:

    

Cash & cash equivalents

   $ 410,405     $ 3,409  

Accounts receivable, net of allowance for doubtful accounts

     740,105       —    

Contract assets

     132,704       —    

Due from Joint Venture

     —         373  

Prepaid expenses and other current assets

     117,495       —    

Income taxes receivable

     472       1,781  

Total current assets

     1,401,181       5,563  

Property and equipment, net

     206,196       —    

Goodwill

     3,795,325       —    

Intangible assets, net

     4,365,806       —    

Dividend receivable

     —         81,264  

Investment in the Joint Venture

     —         1,211,996  

Investment in business purchase option

     146,500       —    

Other noncurrent assets, net

     192,372       —    

Total assets

   $ 10,107,380     $ 1,298,823  

Liabilities

    

Current liabilities:

    

Accounts payable

   $ 68,169     $ —    

Accrued expenses

     390,294       176  

Deferred revenues

     302,313       —    

Due to related parties, net

     20,234       —    

Current portion of long-term debt

     278,779       —    

Due to the Joint Venture

     —         6,167  

Total current liabilities

     1,059,789       6,343  

Long-term debt, excluding current portion

     4,710,294       —    

Deferred income tax liabilities

     615,904       159,993  

Tax receivable agreement obligations to related parties

     177,826       —    

Tax receivable agreement obligation

     164,633       —    

Other long-term liabilities

     93,487       —    

Total liabilities

     6,821,933       166,336  

Commitments and contingencies

    

Stockholders’ Equity

    

Common Stock (par value, $.001), 9,000,000,000 and 252,800,000 shares authorized and 303,428,142 and 75,474,654 shares issued and outstanding at March 31, 2020 and 2019, respectively

     303       75  

Class X common stock (par value, $.001), 0 and 1 share authorized and no shares issued and outstanding at March 2020 and 2019, respectively

     —         —    

Preferred stock (par value, $.001), 900,000,000 and 0 shares authorized and no shares issued and outstanding at March 31, 2020 and 2019, respectively

     —         —    

Additional paid-in capital

     4,222,580       1,153,509  

Accumulated other comprehensive income (loss)

     (7,372     (3,256

Accumulated deficit

     (930,064)       (17,841)  

Total stockholders’ equity

     3,285,447       1,132,487  

Total liabilities and stockholders’ equity

   $  10,107,380     $  1,298,823  

 

9


Change Healthcare Inc.

Consolidated Statements of Cash Flows

(unaudited and amounts in thousands)

 

     Year Ended
March 31,
2020
    Year Ended
March 31, 2019
 

Cash flows from operating activities:

    

Net income (loss)

   $ (947,597   $ (52,012

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

    

Loss from Equity Method Investment in the Joint Venture

     380,713       70,487  

Depreciation and amortization

     30,838       —    

Accretion and changes in estimate, net

     15,823       —    

Tax receivable agreement charges

     164,633       —    

Equity compensation

     1,701       —    

Deferred income tax expense (benefit)

     (143,822     (18,595

(Gain) Loss on Sale of Interests in the Joint Venture

     —         (661

(Gain) loss on other investments

     (15,881     —    

Goodwill impairment charge

     561,164       —    

Amortization of debt discount and issuance costs

     2,235       —    

Other

     (1,110     —    

Changes in operating assets and liabilities:

    

Accounts receivable

     (21,211     —    

Prepaid expenses and other

     (7,528     —    

Due from the Joint Venture

     (2,516     (72

Income taxes receivable

     1,309       14,047  

Accounts payable

     7,532       —    

Accrued expenses and other liabilities

     (195,207     (125

Deferred Revenue

     11,304       —    

Due to the Joint Venture

     3,692       (9,661
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (153,928     3,408  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Proceeds from sale of interests in the Joint Venture

     —         6,503  

Capitalized expenditures

     (13,002     —    

Acquisitions, net of cash acquired

     330,667       —    

Investment in debt and equity securities of the Joint Venture

     (278,875     —    

Proceeds from investments in debt securities of the Joint Venture

     7,332       —    

Investment in the Joint Venture

     (610,784     —    
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (564,662     6,503  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from initial public offering, net of issuance costs

     608,679       —    

Proceeds from issuance of equity component of tangible equity units, net of issuance costs

     232,929       —    

Proceeds from issuance of debt component of tangible equity units

     47,367       —    

Payment of loan costs

     (1,421     —    

Repayment of senior amortizing notes

     (11,094     —    

Proceeds from draw on revolver

     250,000       —    

Payments to acquire common stock

     —         (6,502

Receipts (payments) on derivative instruments

     (890     —    
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     1,125,570       (6,502
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     16       —    

Net increase (decrease) in cash, cash equivalents and restricted cash

     406,996       3,409  

Cash, cash equivalents and restricted cash at beginning of period

     3,409       —    
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $ 410,405     $ 3,409  
  

 

 

   

 

 

 

 

10


Change Healthcare LLC

Consolidated Statements of Operations

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

 

     Three Months Ended
March 31,
    Year Ended
March 31,
 
     2020     2019     2020     2019  

Revenue:

        

Solutions revenue

   $ 786,589     $ 778,427     $ 3,074,894     $ 3,043,111  

Postage revenue

     56,791       57,912       228,079       238,618  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     843,380       836,339       3,302,973       3,281,729  

Operating expenses:

        

Cost of operations (exclusive of depreciation and

amortization below)

     346,977       347,327       1,345,920       1,354,655  

Research and development

     53,257       42,637       205,035       202,241  

Sales, marketing, general and administrative

     175,221       200,470       742,807       821,082  

Customer postage

     56,791       57,912       228,079       238,618  

Depreciation and amortization

     89,852       69,917       315,946       278,020  

Accretion and changes in estimate with related parties, net

     4,627       6,039       14,966       19,329  

Tax receivable agreement charge

     164,633       —         164,633       —    

Gain on sale of business

     —         —         —         (111,435

Impairment of long-lived assets and related costs

     504       675       504       675  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     891,862       724,977       3,017,890       2,803,185  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (48,482     111,362       285,083       478,544  

Non-operating (income) and expense

        

Interest expense, net

     64,084       83,591       283,745       325,431  

Loss on extinguishment of debt

     561       —         19,975       —    

Contingent consideration

     (1,900     91       (91     (809

Other, net

     (3,749     (4,505     (14,630     (18,267
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (income) and expense

     58,996       79,177       288,999       306,355  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (107,478     32,185       (3,916     172,189  

Income tax provision (benefit)

     1,112       (5,530     1,701       (4,481
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (108,590   $ 37,715     $ (5,617   $ 176,670  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common unit:

        

Basic

   $ (0.34   $ 0.15     $ (0.02   $ 0.70  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ (0.34   $ 0.15     $ (0.02   $ 0.70  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common units outstanding:

        

Basic

     319,789,840       251,469,867       302,412,870       251,508,322  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     319,789,840       253,409,601       302,412,870       253,377,778  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1)

Common units of Change Healthcare LLC are equivalent to the weighted average outstanding common shares of Change Healthcare Inc. and, prior to the Merger, membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

11


Change Healthcare LLC

Consolidated Balance Sheets

(unaudited and amounts in thousands)

 

     March 31,
2020
     March 31,
2019
 

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 407,687      $ 47,718  

Restricted cash

     —          1,176  

Accounts receivable, net of allowance for doubtful accounts

     740,105        759,502  

Contract assets

     132,704        —    

Prepaid expenses and other current assets

     144,051        172,067  
  

 

 

    

 

 

 

Total current assets

     1,424,547        980,463  

Property and equipment, net

     150,000        197,263  

Goodwill

     3,288,765        3,284,266  

Intangible assets, net

     1,192,776        1,320,161  

Other noncurrent assets, net

     574,078        421,985  
  

 

 

    

 

 

 

Total assets

   $ 6,630,166      $ 6,204,138  
  

 

 

    

 

 

 

Liabilities and members’ equity

     

Current liabilities:

     

Drafts and accounts payable

   $ 68,169      $ 98,550  

Accrued expenses

     379,700        316,179  

Deferred revenues

     439,364        437,636  

Due to related parties, net

     20,779        34,629  

Current portion of long-term debt

     278,779        2,789  
  

 

 

    

 

 

 

Total current liabilities

     1,186,791        889,783  

Long-term debt, excluding current portion

     4,762,832        5,787,150  

Deferred income tax liabilities

     109,144        106,099  

Tax receivable agreement obligations to related parties

     207,395        212,698  

Other long-term liabilities

     267,584        113,194  

Commitments and contingencies

     

Members’ equity (deficit)

     96,420        (904,786
  

 

 

    

 

 

 

Total liabilities and members’ equity

   $ 6,630,166      $ 6,204,138  
  

 

 

    

 

 

 

 

12


Change Healthcare LLC

Consolidated Statements of Cash Flows

(unaudited and amounts in thousands)

 

     Year Ended March 31,  
   2020     2019  

Cash flows from operating activities:

    

Net income (loss)

   $ (5,617   $ 176,670

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

    

Depreciation and amortization

     315,946     278,020

Amortization of capitalized software developed for sale

     14,415     14,673

Accretion and changes in estimate, net

     14,966     19,329

Tax receivable agreement charge

     164,633     —    

Equity compensation

     31,808     20,135

Deferred income tax expense (benefit)

     (2,613     (3,774

Amortization of debt discount and issuance costs

     18,807     21,823

Contingent consideration

     (91     (809

Gain on Sale of the Extended Care Business

     —         (111,435

Loss on extinguishment of debt

     19,975     —    

Impairment of long-lived assets and related costs

     504       675

Other

     6,392       (2,340

Changes in operating assets and liabilities:

    

Accounts receivable

     (1,267     (61,556

Contract assets

     21,390     —    

Prepaid expenses and other

     (29,375     (33,286

Accounts payable

     (16,609     (2,111

Accrued expenses and other liabilities

     10,929     12,048

Deferred Revenue

     32,648     (40,196

Due to related party, net

     (3,532     (185
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     593,309     287,681
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capitalized expenditures

     (258,576     (246,986

Proceeds from Sale of the Extended Care Business

     —         159,871

Payments for acquisitions, net of cash acquired

     (18,994     —    

Proceeds from sale of real estate

     29,837     —    

Investments in businesses

     —         (15,500

Other

     (2     (3,068
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (247,735     (105,683
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from Change Healthcare Inc. initial public offering

     608,679     —    

Proceeds from forward purchase contract with Change Healthcare Inc.

     232,929     —    

Proceeds from debt issued to Change Healthcare Inc.

     47,367     —    

Proceeds from Revolving Facility

     250,000     —    

Capital contribution from Members from exercise of equity awards

     6,256     205

(Advances to) and refunds from Members

     5,531     2,636

Receipts (payments) on derivative instruments

     935     5,776

Payments on Term Loan Facility

     (1,087,750     (153,000

Payments under tax receivable agreements with related parties

     (27,227     (25,096

Payments of third party initial public offering and loan costs

     (8,555     —    

Payment of debt issued to Change Healthcare Inc.

     (7,332     —    

Payments of deferred financing obligations

     (6,593     (3,432

Repurchase of equity awards

     —         (7,425

Payment of working capital settlement to related party

     —         —    

Payment of data sublicense obligation

     —         —    

Settlement of Legacy CHC equity awards

     —         —    

Other

     —         (1,758
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     14,240     (182,094
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (1,021     (1,021
  

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     358,793     (1,117

Cash, cash equivalents and restricted cash at beginning of period

     48,894     50,011
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $ 407,687   $ 48,894
  

 

 

   

 

 

 

 

13


Change Healthcare LLC

Reconciliation of Net Income (Loss) to Adjusted EBITDA – Quarter End

(unaudited and amounts in thousands)

 

     Three Months Ended March 31,  
     2020     2019  
     As Reported     Impacts
from
Adoption
     Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Net income (loss)

   $ (108,590   $ 554      $ (108,036   $ 37,715  

Net interest expense

     64,084       —          64,084       83,591  

Income tax provision (benefit)

     1,112       4,342        5,454       (5,530

Depreciation and amortization

     89,852       —          89,852       69,917  

Amortization of capitalized software developed for sale

     3,959       —          3,959       3,793  
  

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA

     50,417       4,896        55,313       189,486  

Adjustments to EBITDA:

         

Equity compensation

     6,893       —          6,893       3,757  

Acquisition accounting adjustments

     522       —          522       341  

Acquisition and divestiture-related costs

     1,664       —          1,664       1,559  

Integration and related costs

     15,132       —          15,132       34,728  

Strategic initiatives, duplicative and transition costs

     8,991       —          8,991       8,325  

Severance costs

     7,824       —          7,824       3,339  

Costs related to recently issued accounting standards

     —         —          —         1,022  

Accretion and changes in estimate with related parties, net

     4,627       —          4,627       6,039  

Tax receivable agreement

     164,633          164,633       —    

Management fees and related costs

     2,647       —          2,647       2,607  

Impairment of long-lived assets and other

     1,347       —          1,347       463  

Gain on sale of business

     —         —          —         —    

Contingent consideration

     (1,900     —          (1,900     91  

Loss on Extinguishment of Debt

     560       —          560       —    

Other non-routine, net

     1,002       —          1,002       5,423  
  

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA Adjustments

     213,942       —          213,942       67,694  
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 264,359     $  4,896      $ 269,255     $  257,180  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

14


Change Healthcare LLC

Reconciliation of Net Income (Loss) to Adjusted EBITDA – Year End

(unaudited and amounts in thousands)

 

     Year Ended March 31,  
     2020     2019  
     As Reported     Impacts from
Adoption
    Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Net income (loss)

   $ (5,617   $ (22,633   $ (28,250   $ 176,670

Net interest expense

     283,745     —         283,745     325,431

Income tax provision (benefit)

     1,701     1,989     3,690     (4,481

Depreciation and amortization

     315,946     —         315,946     278,020

Amortization of capitalized software developed for sale

     14,415     —         14,415     14,673
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     610,190     (20,644     589,546     790,313

Adjustments to EBITDA:

        

Equity compensation

     31,808     —         31,808     20,135

Acquisition accounting adjustments

     1,889     —         1,889     3,532

Acquisition and divestiture-related costs

     4,217     —         4,217     13,076

Integration and related costs

     82,108       —         82,108       114,533

Strategic initiatives, duplicative and transition costs

     23,325       —         23,325       27,339

Severance costs

     22,113     —         22,113     17,666

Costs related to recently issued accounting standards

     —         —         —         8,265

Accretion and changes in estimate with related parties, net

     14,966     —         14,966     19,329

Tax receivable agreement

     164,633     —         164,633     —    

Management fees and related costs

     10,355     —         10,355     10,490

Impairment of long-lived assets and other

     72     —         72     4,205

Gain on sale of business

     —         —         —         (111,435

Contingent consideration

     (91     —         (91     (809

Loss on Extinguishment of Debt

     19,975     —         19,975     —    

Other non-routine, net

     10,172     —         10,172     18,359
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA Adjustments

     385,542     —         385,542     144,685
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 995,732   $ (20,644   $ 975,088   $ 934,998
  

 

 

   

 

 

   

 

 

   

 

 

 

 

15


Change Healthcare LLC

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)

(unaudited and amounts in thousands)

 

     Three Months Ended March 31,  
     2020     2019  
     As Reported     Impacts
from
Adoption
     Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Net income (loss)

   $ (108,590   $ 554      $ (108,036   $ 37,715  

Amortization expense resulting from acquisition method adjustments

     35,251       —          35,251       36,273  

EBITDA Adjustments

     213,942       —          213,942       67,694  

Tax effect of EBITDA Adjustments and amortization expense

     (7,417     —          (7,417     (15,878
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted Net Income

   $ 133,186     $ 554      $ 133,740     $ 125,804  
  

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted net income (loss) per diluted unit

   $ 0.42        $ 0.42     $ 0.50  
  

 

 

      

 

 

   

 

 

 

 

     Year Ended March 31,  
     2020     2019  
     As Reported     Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Net income (loss)

   $ (5,617   $ (22,633   $ (28,250   $ 176,670  

Amortization expense resulting from acquisition method adjustments

     139,875       —         139,875       146,549  

EBITDA Adjustments

     385,542       —         385,542       144,685  

Tax effect of EBITDA Adjustments and amortization expense

     (52,168     —         (52,168     (57,953
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $ 467,632     $ (22,633   $ 444,999     $ 409,951  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) per diluted unit (1)

   $ 1.55       $ 1.47     $ 1.62  
  

 

 

     

 

 

   

 

 

 

 

 

(1)

Common units of Change Healthcare LLC are equivalent to the weighted average outstanding common shares of Change Healthcare Inc. and, prior to the Merger, membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

16


Change Healthcare LLC

Segment Results

(unaudited and amounts in thousands)

 

     Three Months Ended March 31,     Year Ended March 31,  
     2020     2019     2020     2019  
     As
Reported
    Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As
Reported
(ASC 605)
    As
Reported
    Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Segment revenue

                

Software and Analytics

   $ 418,658     $ 12,341     $ 430,999     $ 419,125     $ 1,612,799     $ 2,401     $ 1,615,200     $ 1,579,023  

Network Solutions

     152,163       —         152,163       140,093       588,749       —         588,749       556,525  

Technology-Enabled Services

     242,444       (1,692     240,752       243,995       978,684       665       979,349       1,005,377  

Corporate and Eliminations

     30,115       —         30,115       33,126       122,741       —         122,741       140,804  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

   $ 843,380     $ 10,649     $ 854,029     $ 836,339     $ 3,302,973     $ 3,066     $ 3,306,039     $ 3,281,729  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Segment Adjusted EBITDA

                

Software and Analytics

   $ 172,717     $ 8,574     $ 181,291     $ 177,454     $ 663,016     $ (14,287   $ 648,729     $ 610,313  

Network Solutions

     89,323       (496     88,827       83,439       353,486       (1,899     351,587       337,360  

Technology-Enabled Services

     47,141       (2,770     44,371       42,695       175,116       (2,998     172,118       175,953  

Corporate and Eliminations

     (44,821     (441     (45,262     (46,408     (195,886     (1,460     (197,346     (188,628
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Adjusted EBITDA

   $ 264,360     $ 4,867     $ 269,227     $ 257,180     $ 995,732     $ (20,644   $ 975,088     $ 934,998  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) 

Revenue for the Corporate and Eliminations segment includes postage revenue of $56,791 and $57,912 for the three months ended March 31, 2020 and 2019, respectively, and $228,079 and $238,618 for the years ended March 31, 2020 and 2019, respectively.

 

17


Change Healthcare LLC

Reconciliation of Cash Provided by (Used in) Operating Activities to Free Cash Flow and

Adjusted Free Cash Flow

(unaudited and amounts in thousands)

 

     Year Ended March 31,  
     2020     2019  

Cash provided by (used in) operating activities (1)

   $ 593,309     $ 287,681  

Capital expenditures

     (258,576     (246,986
  

 

 

   

 

 

 

Free Cash Flow

     334,733       40,695  

Adjustments to Free Cash Flow (2):

    

Integration and related costs

     82,108       114,533  

Strategic initiatives, duplicative and transition costs

     23,325       27,339  

Severance costs

     22,113       17,666  

Costs related to recently issued accounting standards

     —         8,265  

Integration capital expenditures

     19,254       83,752  
  

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ 481,533     $ 292,250  
  

 

 

   

 

 

 

 

 

(1)

Includes cash provided by pass-thru funds of $21.7 million and $3.0 million for the years ended March 31, 2020 and 2019, respectively.

(2)

All operating costs and integrational capital expenditures are presented on an as-incurred basis.

 

18


Change Healthcare LLC

Consolidated Statements of Operations – Quarter End

Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

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

 

    Three Months Ended March 31,  
    2020     2019  
    As Reported     Impacts from
Adoption
    Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Revenue:

       

Solutions revenue

  $ 786,589   $ 10,649   $ 797,238   $ 778,427

Postage revenue

    56,791     —         56,791     57,912
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    843,380     10,649     854,029     836,339

Operating expenses:

       

Cost of operations (exclusive of depreciation and amortization below)

    346,978     239     347,217     347,327

Research and development

    53,257     —         53,171     42,637

Sales, marketing, general and administrative

    175,221     5,514       180,821     200,470

Customer postage

    56,791     —         56,791     57,912

Depreciation and amortization

    89,851     —         89,851     69,917

Accretion and changes in estimate with related parties, net

    4,627     —         4,627     6,039

Tax receivable agreement charge

    164,633     —         164,633     —    

Gain on sale of business

    —         —               —    

Impairment of long-lived assets and related costs

    504     —         504     675  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    891,862     5,753     897,615     724,977  
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (48,482     4,896     (43,586     111,362  

Non-operating (income) and expense

       

Interest expense, net

    64,084     —         64,084     83,591

Loss on extinguishment of debt

    561     —         561     —    

Contingent consideration

    (1,900     —         (1,900     91

Other, net

    (3,749     —         (3,749     (4,505
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (income) and expense

    58,996     —         58,996     79,177
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

    (107,478     4,896     (102,582     32,185  

Income tax provision (benefit)

    1,112     4,342     5,454     (5,530
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (108,590   $ 554   $ (108,036   $ 37,715  
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common unit:

       

Basic

  $ (0.34   $ 0.00   $ (0.34   $ 0.15
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.34   $ 0.00   $ (0.34   $ 0.15
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common units outstanding:

       

Basic

    319,787,840       319,787,840       319,787,840       251,469,867

Diluted

    319,787,840       319,787,840       319,787,840       253,409,601

 

19


Change Healthcare LLC

Consolidated Statements of Operations – Year End

Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

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

 

    Year Ended March 31,  
    2020     2019  
    As Reported     Impacts from
Adoption
    Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Revenue:

       

Solutions revenue

  $ 3,074,894   $ 3,066   $ 3,077,960   $ 3,043,111

Postage revenue

    228,079     —         228,079     238,618
 

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    3,302,973     3,066     3,306,039     3,281,729

Operating expenses:

       

Cost of operations (exclusive of depreciation and

amortization below)

    1,345,920     3,282     1,349,202     1,354,655

Research and development

    205,035     —         205,035     202,241

Sales, marketing, general and administrative

    742,807     20,428     763,235     821,082

Customer postage

    228,079     —         228,079     238,618

Depreciation and amortization

    315,946     —         315,946     278,020

Accretion and changes in estimate with related parties, net

    14,966     —         14,966     19,329

Tax receivable agreement charge

    164,633     —         164,633     —    

Gain on sale of business

    —         —         —         (111,435

Impairment of long-lived assets and related costs

    504     —         504     675
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    3,017,890     23,710     3,041,600     2,803,185
 

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    285,083     (20,644     264,439     478,544

Non-operating (income) and expense

       

Interest expense, net

    283,745     —         283,745     325,431

Loss on extinguishment of debt

    19,975     —         19,975     —    

Contingent consideration

    (91     —         (91     (809

Other, net

    (14,630     —         (14,630     (18,267
 

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (income) and expense

    288,999     —         288,999     306,355
 

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

    (3,916     (20,644     (24,560     172,189

Income tax provision (benefit)

    1,701     1,989     3,690     (4,481
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ (5,617   $ (22,633   $ (28,250   $ 176,670
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common unit:

       

Basic

  $ (0.02   $ (0.07   $ (0.09   $ 0.70
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.02   $ (0.07   $ (0.09   $ 0.70
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common units outstanding:

       

Basic

    302,412,870     302,412,870     302,412,870     251,508,322

Diluted

    302,412,870     302,412,870     302,412,870     253,377,778

 

 

(1)

Common units of Change Healthcare LLC are equivalent to the weighted average outstanding common shares of Change Healthcare Inc. and, prior to the Merger, membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

20


Change Healthcare LLC

Consolidated Balance Sheets

Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

(unaudited and amounts in thousands)

 

    March 31, 2020     March 31,
2019
 
    As Reported     Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 
Assets        

Current assets:

       

Cash and cash equivalents

  $ 407,687     $ —       $ 407,687     $ 47,718  

Restricted cash

    —         —         —         1,176  

Accounts receivable, net of allowance for doubtful accounts

    740,105       21,822       761,927       759,502  

Contract assets

    132,704       (132,704     —         —    

Prepaid expenses and other current assets

    144,051       19,616       163,667       172,067  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    1,424,547       (91,266     1,333,281       980,463  

Property and equipment, net

    150,000       —         150,000       197,263  

Goodwill

    3,288,765       —         3,288,765       3,284,266  

Intangible assets, net

    1,192,776       —         1,192,776       1,320,161  

Other noncurrent assets, net

    574,078       (52,889     521,189       421,985  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 6,630,166     $ (144,155   $  6,486,011     $  6,204,138  
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and members’ equity (deficit)

       

Current liabilities:

       

Drafts and accounts payable

  $ 68,169     $ —       $ 68,169     $ 98,550  

Accrued expenses

    379,700       —         379,700       316,179  

Deferred revenues

    439,364       38,043       477,407       437,636  

Due to related parties, net

    20,779       —         20,779       34,629  

Current portion of long-term debt

    278,779       —         278,779       2,789  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    1,186,791       38,043       1,224,834       889,783  

Long-term debt, excluding current portion

    4,762,832       —         4,762,832       5,787,150  

Deferred income tax liabilities

    109,144       —         109,144       106,099  

Tax receivable agreement obligations to related parties

    207,395       —         207,395       212,698  

Other long-term liabilities

    267,584       438       268,022       113,194  

Commitments and contingencies

       

Members’ equity (deficit)

    96,420       (182,636     (86,216     (904,786
 

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and members’ equity (deficit)

  $  6,630,166     $ (144,155   $ 6,486,011     $ 6,204,138  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

21