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): May 26, 2021

 

 

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.)

424 Church Street, Suite 1400

Nashville, Tennessee 37219

(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 6.00% Tangible Equity Units  

CHNG

CHNGU

 

The Nasdaq Stock Market LLC

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 May 26, 2021, Change Healthcare Inc. issued a press release announcing financial results for the fourth fiscal quarter and fiscal year ended March 31, 2021. 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 May 26, 2021.


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: May 26, 2021

EX-99.1

Exhibit 99.1

Change Healthcare Inc. Reports Fourth Quarter and Full Year Fiscal 2021 Financial Results

Nashville, Tenn., May 26, 2021 – Change Healthcare Inc. (Nasdaq: CHNG) (the “Company” or “Change Healthcare”), a leading healthcare technology company, today reported financial results for the fourth quarter and fiscal year ended March 31, 2021.

“The fourth quarter performance demonstrates the execution of our growth strategy, delivering on our financial objectives while continuing to make investments to support our customers and employees, and advance our capabilities,” said Neil de Crescenzo, president and chief executive officer. “As we enter fiscal 2022, we remain focused on delivering the next phase of growth by advancing our technology-first approach to innovation and further integrating our diverse capabilities to advance connectivity, enhance efficiency, and drive better experiences and outcomes throughout the healthcare industry.”

Fiscal 2021 Fourth Quarter Highlights:

Financial Summary

 

   

Total revenue of $855.2 million, including solutions revenue of $804.3 million

 

   

Net loss of $13.1 million, resulting in net loss of $0.04 per diluted share

 

   

Adjusted net income of $134.0 million, resulting in adjusted net income of $0.42 per diluted share

 

   

Adjusted EBITDA of $272.0 million

Recent Business Highlights

 

   

Announced in collaboration with AWS a new Data Science as a Service (DSaaS) offering to drive improved outcomes and healthcare economics for vulnerable health communities

 

   

Awarded “Best in KLAS” for Provider Eligibility Enrollment Services and for Payer IT Consulting Services

Impact of McKesson Exit on Comparability of Results

On March 10, 2020, Change Healthcare Inc. acquired the interest in Change Healthcare LLC (“the Joint Venture”) previously held by McKesson. The transaction resulted in Change Healthcare Inc. acquiring control of the Joint Venture, which was accounted for as a business combination and resulted in a new basis of accounting, and all of the business activities of the Joint Venture are now reported by the Company. Change Healthcare Inc.’s financial statements for periods prior to the acquisition were primarily limited to the equity method investment in the Joint Venture, and therefore did not reflect revenue, adjusted EBITDA, and other key measures. As a result, Change Healthcare Inc. does not consider comparison of the current operating results to the reported results for the same period in the prior year to be meaningful, and instead will compare our current quarter results to the prior quarter results of the Joint Venture, which have been recast to reflect the current segment structure, including the allocation of all corporate costs to the business units. This press release includes supplemental information for the recast results of the Joint Venture for the three months and year ended March 31, 2021. The recast results for all quarters in fiscal year 2019 and fiscal year 2020 are available in the appendix to the earnings presentation and will be included as an exhibit to Change Healthcare Inc.’s Form 10-K.

Financial Results for Fourth Quarter of Fiscal 2021

 

   

Solutions revenue was $804.3 million for the current period, inclusive of the impact of the fair value adjustment to deferred revenue resulting from the McKesson exit, which reduced revenue recognized in the quarter by $10.1 million. Total revenue, which includes postage revenue, was $855.2 million. For the fourth quarter of fiscal 2020, the Joint Venture reported $786.6 million of solutions revenue and $843.4 million of total revenue. Solutions revenue for the current period reflects the $10.7 million net favorable impact of acquisitions and divestitures including the negative $6.9 million impact during the quarter from the divestiture of the Capacity Management business which closed on December 2, 2020.

 

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Net loss was $13.1 million, resulting in net loss of $0.04 per diluted share. For the fourth quarter of fiscal 2020, the Joint Venture reported net loss of $108.6 million or $0.34 per diluted unit. Net loss for the current period was positively impacted by new sales volumes, productivity improvements and cost initiatives.

 

   

Adjusted net income was $134.0 million, resulting in adjusted net income of $0.42 per diluted share. For the fourth quarter of fiscal 2020, the Joint Venture reported adjusted net income of $133.2 million or $0.42 per diluted unit. Net loss per diluted share and adjusted net income per diluted share for the current period is based on 321 million shares compared to 320 million units in the prior year period.

 

   

Adjusted EBITDA was $272.0 million for the current period. For the fourth quarter of fiscal 2020, the Joint Venture reported adjusted EBITDA of $264.4 million. The results in the current quarter reflect continued productivity and synergy realization.

Cash Flow and Balance Sheet Highlights

Net cash provided by operating activities was $586.2 million, free cash flow was $339.8 million, and adjusted free cash flow was $429.9 million, in each case, for the twelve months ended March 31, 2021. For the twelve months ended March 31, 2020, the Joint Venture reported net cash provided by operating activities, free cash flow, and adjusted free cash flow of $593.3 million, $334.7 million, and $481.5 million, respectively.

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 on hand decreased by $12.8 million in the twelve months ended March 31, 2021, reducing free cash flow for the period by that amount, and increased by $21.7 million for the Joint Venture for the twelve months ended March 31, 2020. Net cash flow from operating activities, free cash flow, and adjusted free cash flow in the current period reflect working capital improvements driven by strong collections.

The Company ended the quarter with approximately $113.1 million of cash and cash equivalents, and approximately $4,762.1 million of total debt. During the current period, the Company repaid $50.0 million on its Term Loan Facility.

Proposed Merger with OptumInsight

On January 5, 2021, OptumInsight, a diversified health services company and part of UnitedHealth Group, and Change Healthcare agreed to combine (the “Merger”). Under the terms of the merger agreement, UnitedHealth Group, through a wholly-owned subsidiary, will acquire all of the outstanding shares of Change Healthcare common stock for $25.75 per share in cash. The Boards of Directors of both UnitedHealth Group and Change Healthcare have unanimously approved the terms of the Merger. At a special meeting held April 13, 2021, Change Healthcare stockholders voted to approve the Merger. Of the approximately 222 million shares voted, 99.9% voted in favor of the adoption of the merger agreement. The closing of the Merger is subject to applicable regulatory approval and other customary closing conditions.

Guidance

Due to the recently announced transaction with OptumInsight, we will no longer be providing financial guidance.

 

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Webcast Information

Change Healthcare will host a conference call on Thursday, May 27, 2021, at 8:00 a.m. ET. Due to the previously announced transaction with OptumInsight, the Company will not be taking questions during the conference call.

Investors and other interested parties are invited to listen to the conference call via the Company’s website at https://ir.changehealthcare.com/. The webcast will be available for on-demand listening at the aforementioned URL until May 27, 2022.

About Change Healthcare

Change Healthcare (Nasdaq: CHNG) is a leading healthcare technology company, focused on insights, innovation, and accelerating the transformation of the U.S. healthcare system through the power of the Change Healthcare platform. We provide data and analytics-driven solutions to improve clinical, financial, administrative, and patient engagement outcomes in the U.S. healthcare system. Learn more at changehealthcare.com.

CHNG-IR

Contacts

Evan Smith, CFA

Investor Relations

404-338-2225

Evan.Smith@changehealthcare.com

Katherine Wojtecki

External Communications

630-624-9142

Katherine.Wojtecki@changehealthcare.com

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and businesses of Change Healthcare. Some of these statements can be identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “could,” “should,” “may,” “plan,” “project,” “predict” and similar expressions. Change Healthcare cautions readers of this press release that such “forward looking statements,” including without limitation, those relating to the timing of the proposed merger and Change Healthcare’s future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this press release or in other statements attributable to Change Healthcare, are necessarily estimates reflecting the judgment of Change Healthcare’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the “forward looking statements.”

Factors that could cause Change Healthcare’s actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to, the inability to complete the proposed merger due to the failure to satisfy conditions to completion of the proposed merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; risks related to disruption of management’s attention from Change Healthcare’s ongoing business operations due to the transaction; the effect of the announcement of

 

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the proposed merger on Change Healthcare’s relationships with its customers, operating results and business generally; the risk that the proposed merger will not be consummated in a timely manner; exceeding the expected costs of the merger; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; macroeconomic and industry trends and adverse developments in the debt, consumer credit and financial services markets; uncertainty and risks related to the impact of the COVID-19 pandemic on the national and global economy, Change Healthcare’s business, suppliers, customers, and employees; Change Healthcare’s ability to retain or renew existing customers and attract new customers; Change Healthcare’s ability to connect a large number of payers and providers; Change Healthcare’s ability to provide competitive services and prices while maintaining its margins; further consolidation in end-customer markets; Change Healthcare’s ability to effectively manage costs; Change Healthcare’s ability to effectively develop and maintain relationships with channel partners; Change Healthcare’s ability to timely develop new services and the market’s willingness to adopt new services; Change Healthcare’s ability to deliver services timely without interruption; a decline in transaction volume in the U.S. healthcare industry; Change Healthcare’s ability to maintain access to its data sources; Change Healthcare’s ability to maintain the security and integrity of its data; Change Healthcare’s reliance on key management personnel; Change Healthcare’s ability to manage and expand its operations and keep up with rapidly changing technologies; the ability of outside service providers and key vendors to fulfill their obligations to Change Healthcare; risks related to international operations; Change Healthcare’s ability to protect and enforce its intellectual property, trade secrets and other forms of unpatented intellectual property; Change Healthcare’s ability to defend its intellectual property from infringement claims by third parties; government regulation and changes in the regulatory environment; changes in local, state, federal and international laws and regulations, including related to taxation; economic and political instability in the U.S. and international markets where Change Healthcare operates; litigation or regulatory proceedings; losses against which Change Healthcare does not insure; Change Healthcare’s ability to make acquisitions and integrate the operations of acquired businesses; Change Healthcare’s ability to make timely payments of principal and interest on its indebtedness; Change Healthcare’s ability to satisfy covenants in the agreements governing its indebtedness; Change Healthcare’s ability to maintain liquidity; our adoption of new, or amendments to existing, accounting standards, and other risks. For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Change Healthcare’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 4, 2020, as such factors may be updated from time to time in our periodic filings with the SEC, including in Change Healthcare’s most recent Quarterly Report on Form 10-Q filed with the SEC on February 4, 2021.

Change Healthcare’s forward-looking statements speak only as of the date of this press release or as of the date they are made. Change Healthcare disclaims any intent or obligation to update any “forward looking statement” made in this press release to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

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 regards 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.

 

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Consolidated Statements of Operations

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

 

     Three Months Ended March 31,  
     2021     2020     2020  
     Change Healthcare Inc.     Change
Healthcare LLC
 

Revenue:

      

Solutions revenue

   $ 804,299     $ 184,161     $ 786,589  

Postage revenue

     50,861       12,631       56,791  
  

 

 

   

 

 

   

 

 

 

Total revenue

     855,160       196,792       843,380  

Operating expenses:

      

Cost of operations (exclusive of depreciation and amortization below)

     357,506       71,435       346,977  

Research and development

     58,926       11,559       53,257  

Sales, marketing, general and administrative

     187,606       37,389       175,725  

Customer postage

     50,861       12,631       56,791  

Depreciation and amortization

     154,495       30,838       89,852  

Accretion and changes in estimate with related parties, net

     2,744       (31,349     4,627  

Gain on sale of businesses

     1,344       —         —    

Tax receivable agreement charge

     —         164,633       164,633  

Goodwill impairment charge

     —         561,164       —    
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     813,482       858,300       891,862  
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     41,678       (661,508     (48,482

Non-operating (income) and expense

      

Interest expense, net

     59,508       16,248       64,084  

Contingent consideration

     —         —         (1,900

Loss on extinguishment of debt

     1,289       —         561  

Loss from Equity Method Investment in the Joint Venture

     —         276,216       —    

(Gain) loss on forward purchase contract

     —         55,768       —    

Other, net

     (2,253     (169     (3,749
  

 

 

   

 

 

   

 

 

 

Total non-operating (income) and expense

     58,544       348,063       58,996  
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (16,866     (1,009,571     (107,478

Income tax provision (benefit)

     (3,776     (142,690     1,112  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (13,090   $ (866,881   $ (108,590
  

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

      

Basic and diluted

   $ (0.04   $ (1.64   $ (0.34

Weighted average common shares outstanding: (1)

      

Basic and diluted

     321,393,600       186,342,936       319,789,840  

 

(1)

Prior to the McKesson exit, common units of Change Healthcare LLC were equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

5


Consolidated Statements of Operations

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

 

     Year Ended March 31,  
     2021     2020     2020  
     Change Healthcare Inc.     Change
Healthcare LLC
 

Revenue:

      

Solutions revenue

   $ 2,893,889     $ 184,161     $ 3,074,894  

Postage revenue

     196,532       12,631       228,079  
  

 

 

   

 

 

   

 

 

 

Total revenue

     3,090,421       196,792       3,302,973  

Operating expenses:

      

Cost of operations (exclusive of depreciation and amortization below)

     1,335,075       71,435       1,345,920  

Research and development

     227,036       11,559       205,035  

Sales, marketing, general and administrative

     686,645       39,893       743,311  

Customer postage

     196,532       12,631       228,079  

Depreciation and amortization

     591,048       30,838       315,946  

Accretion and changes in estimate with related parties, net

     13,158       15,823       14,966  

Gain on sale of businesses

     (59,143     —         —    

Tax receivable agreement charge

     —         164,633       164,633  

Goodwill impairment charge

     —         561,164        
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     2,990,351       907,976       3,017,890  
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

     100,070       (711,184     285,083  

Non-operating (income) and expense

      

Interest expense, net

     245,241       16,652       283,745  

Contingent consideration

     (3,000     —         (91

Loss on extinguishment of debt

     8,924       —         19,975  

Loss from Equity Method Investment in the Joint Venture

     —         380,713       —    

(Gain) loss on forward purchase contract

     —         (15,881     —    

Other, net

     (3,698     (1,817     (14,630
  

 

 

   

 

 

   

 

 

 

Total non-operating (income) and expense

     247,467       379,667       288,999  
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (147,397     (1,090,851     (3,916

Income tax provision (benefit)

     (35,187     (143,254     1,701  
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (112,210)     $ (947,597)     $ (5,617)  
  

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

      

Basic and diluted

   $ (0.35)     $ (6.92)     $ (0.02)  

Weighted average common shares outstanding: (1)

      

Basic and diluted

     320,771,789       136,996,624       302,412,870  

 

(1)

Prior to the McKesson exit, common units of Change Healthcare LLC were equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

6


Consolidated Balance Sheets

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

 

     March 31, 2021     March 31, 2020  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 113,101     $ 410,405  

Accounts receivable, net

     732,614       740,105  

Contract assets, net

     132,856       132,704  

Prepaid expenses and other current assets

     140,258       117,967  
  

 

 

   

 

 

 

Total current assets

     1,118,829       1,401,181  

Property and equipment, net

     174,370       206,196  

Operating lease right-of-use assets, net

     93,412       —    

Goodwill

     4,108,792       3,795,325  

Intangible assets, net

     4,187,072       4,365,806  

Investment in business purchase option

     —         146,500  

Other noncurrent assets, net

     430,141       192,372  
  

 

 

   

 

 

 

Total assets

   $ 10,112,616     $ 10,107,380  
  

 

 

   

 

 

 

Liabilities

    

Current liabilities:

    

Accounts payable

   $ 57,449     $ 68,169  

Accrued expenses

     484,293       390,294  

Deferred revenue

     436,666       302,313  

Due to related parties, net

     10,766       20,234  

Current portion of long-term debt

     27,339       278,779  

Current portion of operating lease liabilities

     30,608       —    
  

 

 

   

 

 

 

Total current liabilities

     1,047,121       1,059,789  

Long-term debt, excluding current portion

     4,734,775       4,710,294  

Long-term operating lease liabilities

     75,396       —    

Deferred income tax liabilities

     605,291       615,904  

Tax receivable agreement obligations to related parties

     103,151       177,826  

Tax receivable agreement obligations

     229,082       164,633  

Other long-term liabilities

     65,572       93,487  
  

 

 

   

 

 

 

Total liabilities

     6,860,388       6,821,933  

Commitments and contingencies

    

Stockholders’ Equity

    

Common Stock (par value, $.001), 9,000,000,000 and 9,000,000,000 shares authorized and 306,796,076 and 303,428,142 shares issued and outstanding at March 31, 2021 and 2020, respectively

     307       303  

Preferred stock (par value, $.001), 900,000,000 shares authorized and no shares issued and outstanding at both March 31, 2021 and 2020

     —         —    

Additional paid-in capital

     4,283,391       4,222,580  

Accumulated other comprehensive income (loss)

     11,221       (7,372

Accumulated deficit

     (1,042,691     (930,064
  

 

 

   

 

 

 

Total stockholders’ equity

     3,252,228       3,285,447  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $  10,112,616     $  10,107,380  
  

 

 

   

 

 

 

 

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Consolidated Statements of Cash Flows

(unaudited and amounts in thousands)

 

     Year Ended March 31,  
     2021     2020     2020  
     Change Healthcare Inc.     Change
Healthcare LLC
 

Cash flows from operating activities:

      

Net income (loss)

   $  (112,210)     $  (947,597)     $ (5,617)  

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

      

Depreciation and amortization

     591,048       30,838       315,946  

Amortization of capitalized software developed for sale

     1,326       —         14,415  

Accretion and changes in estimate, net

     11,644       15,823       14,966  

Equity compensation

     59,016       1,701       31,808  

Deferred income tax expense (benefit)

     (50,114     (143,822     (2,613

Amortization of debt discount and issuance costs

     32,532       2,235       18,807  

Contingent consideration

     (3,000     —         (91

Gain on sale of businesses

     (59,143     —         —    

Loss on extinguishment of debt

     8,924       —         19,975  

(Gain) loss on other investments

     —         (15,881     —    

Non-cash lease expense

     29,114       —         —    

Goodwill impairment charge

     —         561,164       —    

Loss from Equity Method Investment in the Joint Venture

     —         380,713       —    

Tax receivable agreement charge

     —         164,633       164,633  

Other, net

     11,257       (1,110     6,896  

Changes in operating assets and liabilities:

      

Accounts receivable, net

     (6,064     (21,211     (1,267

Contract assets, net

     158       —         21,390  

Prepaid expenses and other assets

     (87,540     (6,219     (29,375

Accounts payable

     (21,407     7,532       (16,609

Accrued expenses and other liabilities

     14,178       (195,207     10,929  

Deferred revenue

     166,477       11,304       32,648  

Due to the Joint Venture, net

     —         1,176       —    

Due to related party, net

     —         —         (3,532
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     586,196       (153,928     593,309  
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Capitalized expenditures

     (246,381     (13,002     (258,576

Acquisitions, net of cash acquired

     (439,483     330,667       (18,994

Proceeds from sale of businesses

     115,733       —         —    

Proceeds from sale of real estate

     —         —         29,837  

Investment in the Joint Venture

     —         (610,784     —    

Investment in debt and equity securities of the Joint Venture

     —         (278,875     —    

Other, net

     2,099       7,332       (2
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (568,032     (564,662     (247,735
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Payments on Revolving Facility

     (250,000     —         —    

Proceeds from Revolving Facility

     —         250,000       250,000  

Payments on Term Loan Facility

     (315,000     —         (1,087,750

Proceeds from issuance of Senior Notes

     325,000       —         —    

Payments under tax receivable agreements

     (20,691     —         (27,227

Receipts (payments) on derivative instruments

     (29,538     (890     935  

Employee tax withholding on vesting of equity compensation awards

     (4,108     —         —    

Payments on deferred financing obligations

     (19,519     —         (6,593

Payment of senior amortizing notes

     (15,636     (11,094     —    

Payment of debt issued to Change Healthcare Inc.

     —         —         (7,332

 

8


Proceeds from exercise of equity awards

           17,514       —         —    

Capital contribution from Members from exercise of equity compensation awards

     —         —         6,256  

Proceeds from initial public offering, net of issuance costs

     —         608,679       —    

Proceeds from Change Healthcare Inc. initial public offering

     —         —         608,679  

Proceeds from issuance of debt component of tangible equity units

     —         47,367       —    

Proceeds from debt issued to Change Healthcare Inc.

     —         —         47,367  

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

     —             232,929       —    

Proceeds from forward purchase contract with Change Healthcare Inc.

     —         —                 232,929  

Other, net

     (6,800     (1,421     (3,024
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (318,778     1,125,570       14,240  
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     3,310       16       (1,021
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (297,304     406,996       358,793  
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     410,405       3,409       48,894  
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 113,101     $ 410,405     $  407,687  
  

 

 

   

 

 

   

 

 

 

 

9


Reconciliation of Net Income (Loss) to Adjusted EBITDA

(unaudited and amounts in thousands)

 

     Three Months Ended March 31,  
     2021     2020     2020  
     Change Healthcare Inc. (1)     Change
Healthcare LLC
 

Net income (loss)

   $  (13,090)     $ (866,881)     $  (108,590)  

Income tax provision (benefit)

     (3,776     (142,690     1,112  
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (16,866     (1,009,571     (107,478

Amortization of capitalized software developed for sale

     776         3,959  

Depreciation and amortization

     154,495         89,852  

Interest expense, net

     59,508         64,084  

Equity compensation

     24,158         6,893  

Acquisition accounting adjustments

     5,917         522  

Acquisition and divestiture-related costs

     9,590         1,664  

Integration and related costs

     13,094         15,131  

Strategic initiatives, duplicative and transition costs

     8,671         8,991  

Severance costs

     2,717         7,824  

Accretion and changes in estimate, net

     3,215         4,627  

Management fees and related costs

     —           2,647  

Impairment of long-lived assets and other

     3,772         1,347  

Tax receivable agreement charge

     —           164,633  

Gain on sale of business

     1,344         —    

Contingent consideration

     —           (1,900

Loss on extinguishment of debt

     1,289         560  

Other non-routine, net

     365         1,002  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 272,045       $ 264,358  
  

 

 

   

 

 

   

 

 

 

 

(1)

Prior to the McKesson exit, Change Healthcare Inc. did not utilize adjusted EBITDA as a key performance metric, therefore we have not presented a reconciliation to adjusted EBITDA for the three months ended March 31, 2020.

 

10


Reconciliation of Net Income (Loss) to Adjusted EBITDA

(unaudited and amounts in thousands)

 

     Year Ended March 31,  
     2021     2020     2020  
     Change Healthcare Inc. (1)     Change
Healthcare LLC
 

Net income (loss)

   $ (112,210   $ (947,597   $ (5,617

Income tax provision (benefit)

     (35,187     (143,254     1,701  
  

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (147,397     (1,090,851     (3,916

Amortization of capitalized software developed for sale

     1,326         14,415  

Depreciation and amortization

     591,048         315,946  

Interest expense, net

     245,241         283,745  

Equity compensation

     59,016         31,808  

Acquisition accounting adjustments

     109,743         1,889  

Acquisition and divestiture-related costs

     19,709         4,217  

Integration and related costs

     40,675         82,108  

Strategic initiatives, duplicative and transition costs

     21,841         23,325  

Severance costs

     13,184         22,113  

Accretion and changes in estimate, net

     11,644         14,966  

Management fees and related costs

     —           10,355  

Impairment of long-lived assets and other

     18,190         72  

Tax receivable agreement charge

     —           164,633  

Gain on sale of business

     (59,143       —    

Contingent consideration

     (3,000       (91

Loss on extinguishment of debt

     8,924         19,975  

Other non-routine, net

     3,164         10,173  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 934,165       $ 995,733  
  

 

 

   

 

 

   

 

 

 

 

(1)

Prior to the McKesson exit, Change Healthcare Inc. did not utilize adjusted EBITDA as a key performance metric, therefore we have not presented a reconciliation to adjusted EBITDA for the year ended March 31, 2020.

 

11


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

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

 

     Three Months Ended March 31,  
     2021     2020     2020  
     Change Healthcare Inc. (1)     Change
Healthcare LLC
 

Net income (loss)

   $ (13,090   $ (866,881   $ (108,590

Amortization expense resulting from acquisition method adjustments

     117,362         35,251  

EBITDA adjustments

     74,132         213,942  

Tax effect of EBITDA adjustments and amortization expense

     (44,413       (7,417
  

 

 

   

 

 

   

 

 

 

Adjusted net income (loss)

   $ 133,991       $ 133,186  
  

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) per diluted share (2)

   $ 0.42       $ 0.42  
  

 

 

   

 

 

   

 

 

 

 

     Year Ended March 31,  
     2021     2020     2020  
     Change Healthcare Inc. (1)     Change
Healthcare LLC
 

Net income (loss)

   $ (112,210   $ (947,597   $ (5,617

Amortization expense resulting from acquisition method adjustments

     463,334         139,875  

EBITDA adjustments

     243,947         385,542  

Tax effect of EBITDA adjustments and amortization expense

     (166,324       (52,168
  

 

 

   

 

 

   

 

 

 

Adjusted net income (loss)

   $ 428,747       $ 467,632  
  

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) per diluted share (2)

   $ 1.34       $ 1.55  
  

 

 

   

 

 

   

 

 

 

 

(1)

Prior to the McKesson exit, Change Healthcare Inc. did not utilize adjusted net income (loss) as a key performance metric, therefore we have not presented a reconciliation to adjusted net income (loss) for the three months and year ended March 31, 2020.

(2)

Prior to the McKesson exit, Common units of Change Healthcare LLC were equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

12


Segment Results

(unaudited and amounts in thousands)

 

     Three Months Ended March 31,  
     2021     2020      2020  
     Change Healthcare Inc. (1)      Change
Healthcare LLC (2)
 

Segment revenue

       

Software and Analytics

   $ 416,265       N/A      $ 418,658  

Network Solutions

     198,334       N/A        152,163  

Technology-Enabled Services

     227,311       N/A        242,444  

Postage and Eliminations (3)

     23,391       N/A        30,115  

Purchase Accounting Adjustment (4)

     (10,141     N/A        —    
  

 

 

   

 

 

    

 

 

 

Net revenue

   $ 855,160       N/A      $ 843,380  
  

 

 

   

 

 

    

 

 

 

Segment adjusted EBITDA

       

Software and Analytics

   $ 144,025       N/A      $ 150,341  

Network Solutions

     108,147       N/A        85,340  

Technology-Enabled Services

     19,873       N/A        28,677  

Postage and Eliminations

     —         N/A        —    
  

 

 

   

 

 

    

 

 

 

Total adjusted EBITDA

   $ 272,045       N/A      $ 264,358  
  

 

 

   

 

 

    

 

 

 

 

     Year Ended March 31,  
     2021     2020      2020  
     Change Healthcare Inc. (1)      Change
Healthcare LLC (2)
 

Segment revenue

       

Software and Analytics

   $ 1,534,926       N/A      $ 1,612,800  

Network Solutions

     717,843       N/A        588,748  

Technology-Enabled Services

     869,349       N/A        978,684  

Postage and Eliminations (3)

     96,533       N/A        122,741  

Purchase Accounting Adjustment (4)

     (128,230     N/A        —    
  

 

 

   

 

 

    

 

 

 

Net revenue

   $ 3,090,421       N/A      $ 3,302,973  
  

 

 

   

 

 

    

 

 

 

Segment adjusted EBITDA

       

Software and Analytics

   $ 526,129       N/A      $ 565,628  

Network Solutions

     377,005       N/A        331,659  

Technology-Enabled Services

     31,031       N/A        98,446  

Postage and Eliminations

     —         N/A        —    
  

 

 

   

 

 

    

 

 

 

Total adjusted EBITDA

   $ 934,165       N/A      $ 995,733  
  

 

 

   

 

 

    

 

 

 

 

(1)

Prior to the McKesson exit, Change Healthcare Inc. did not have revenues from customers and did not utilize adjusted EBITDA as a key performance metric.

(2)

The prior year results of Change Healthcare LLC have been retrospectively adjusted to be consistent with the Company’s current segment structure and cost allocation methodology.

(3)

Revenue for Postage and Eliminations includes postage revenue of $50.9 million for Change Healthcare Inc. for the three months ended March 31, 2021 and $56.8 million for Change Healthcare LLC for the three months ended March 31, 2020. Revenue for Postage and Eliminations includes postage revenue of $196.5 million for Change Healthcare Inc. for the year ended March 31, 2021 and $228.1 million for Change Healthcare LLC for the year ended March 31, 2020.

(4) 

Amount reflects the impact to deferred revenue resulting from the McKesson exit which reduced revenue recognized during the three months and year ended March 31, 2021.

 

13


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,  
     2021     2020     2020  
     Change Healthcare Inc. (1)     Change
Healthcare LLC
 

Cash provided by (used in) operating activities (2)

   $ 586,196     $ (153,928   $ 593,309  

Capital expenditures

     (246,381     (13,002     (258,576
  

 

 

   

 

 

   

 

 

 

Free cash flow

     339,815       (166,930     334,733  

Adjustments to free cash flow (3):

      

Integration and related costs

     40,675         82,108  

Strategic initiatives, duplicative and transition costs

     21,841         23,325  

Severance costs

     13,184         22,113  

Integration and strategic capital expenditures

     14,379         19,254  
  

 

 

   

 

 

   

 

 

 

Adjusted free cash flow

   $ 429,894       $ 481,533  
  

 

 

   

 

 

   

 

 

 

 

(1)

Prior to the McKesson exit, Change Healthcare Inc. did not utilize adjusted free cash flow as a key performance metric, therefore we have not presented a reconciliation to adjusted free cash flow for the year ended March 31, 2020.

(2)

Includes cash used by pass-thru funds of $12.8 million for Change Healthcare Inc. for the year ended March 31, 2021 and cash provided by pass-thru funds of $21.7 million for Change Healthcare LLC for the year ended March 31, 2020.

(3)

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

 

14