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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

or

¨

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

For the transition period from             to            

Commission file number 001-38961

A white sign with black text

Description automatically generated with low confidence

Change Healthcare Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

82-2152098

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

424 Church Street, Suite 1400

 

Nashville, TN

37219

(Address of Principal Executive Offices)

(Zip Code)

(615932-3000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

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

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

Indicate by check mark whether the registrant is a Large Accelerated Filer, an Accelerated Filer, a Non-Accelerated Filer, a Smaller Reporting Company, or an Emerging Growth Company. See the definitions of “Large Accelerated Filer,” “Accelerated Filer”, “Smaller Reporting Company” and “Emerging Growth Company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller Reporting company

Emerging Growth Company

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

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

Number of shares of common stock outstanding on July 26, 2021: 310,861,786

1


TABLE OF CONTENTS

 

PART I. Financial Information

Item 1.

Financial Statements

3

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

PART II. Other Information

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

31

Signatures

2


Part I. Financial Information

Item 1. Financial Statements

Change Healthcare Inc.

Consolidated Statements of Operations

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

Three Months Ended

June 30,

2021

2020

Revenue

Solutions revenue

$

816,648

$

648,412

Postage revenue

51,208

45,772

Total revenue

867,856

694,184

Operating expenses

Cost of operations (exclusive of depreciation and amortization below)

352,063

318,542

Research and development

71,240

55,734

Sales, marketing, general and administrative

177,955

165,474

Customer postage

51,208

45,772

Depreciation and amortization

168,211

138,541

Accretion and changes in estimate with related parties, net

3,037

5,895

Gain on sale of businesses

(28,095)

Total operating expenses

823,714

701,863

Operating income (loss)

44,142

(7,679)

Non-operating (income) expense

Interest expense, net

59,386

62,667

Other, net

(3,189)

1,809

Total non-operating (income) expense

56,197

64,476

Income (loss) before income tax provision (benefit)

(12,055)

(72,155)

Income tax provision (benefit)

(8,450)

(13,461)

Net income (loss)

$

(3,605)

$

(58,694)

Net income (loss) per share:

Basic and diluted

$

(0.01)

$

(0.18)

Weighted average common shares outstanding:

Basic and diluted

322,546,171

320,052,943

See accompanying notes to consolidated financial statements.

3


Change Healthcare Inc.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited and amounts in thousands)

Three Months Ended

June 30,

2021

2020

Net income (loss)

$

(3,605)

$

(58,694)

Other comprehensive income (loss):

Foreign currency translation adjustment

3,571

6,353

Changes in fair value of interest rate caps, net of taxes

119

(4,184)

Other comprehensive income (loss)

3,690

2,169

Total comprehensive income (loss)

$

85

$

(56,525)

See accompanying notes to consolidated financial statements.

4


Change Healthcare Inc.

Consolidated Balance Sheets

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

June 30,

March 31,

2021

2021

Assets

Current assets:

Cash & cash equivalents

$

109,104

$

113,101

Accounts receivable, net

744,482

732,614

Contract assets, net

134,100

132,856

Prepaid expenses and other current assets

147,835

140,258

Total current assets

1,135,521

1,118,829

Property and equipment, net

162,784

174,370

Operating lease right-of-use assets, net

86,292

93,412

Goodwill

4,112,222

4,108,792

Intangible assets, net

4,064,439

4,187,072

Other noncurrent assets, net

470,593

430,141

Total assets

$

10,031,851

$

10,112,616

Liabilities

Current liabilities:

Accounts payable

$

92,644

$

57,449

Accrued expenses

453,367

484,293

Deferred revenue

403,536

436,666

Due to related parties, net

11,392

10,766

Current portion of long-term debt

23,099

27,339

Current portion of operating lease liabilities

29,423

30,608

Total current liabilities

1,013,461

1,047,121

Long-term debt, excluding current portion

4,735,332

4,734,775

Long-term operating lease liabilities

68,346

75,396

Deferred income tax liabilities

596,327

605,291

Tax receivable agreement obligations due to related parties

94,737

103,151

Tax receivable agreement obligations

195,201

229,082

Other long-term liabilities

64,594

65,572

Total liabilities

6,767,998

6,860,388

Commitments and contingencies

 

 

Stockholders' Equity

Common Stock (par value, $0.001), 9,000,000,000 and 9,000,000,000 shares authorized and 310,677,936 and 306,796,076 shares issued and outstanding at June 30, 2021 and March 31, 2021, respectively

311

307

Preferred stock (par value, $0.001), 900,000,000 shares authorized and no shares issued and outstanding at both June 30, 2021 and March 31, 2021

Additional paid-in capital

4,294,927

4,283,391

Accumulated other comprehensive income (loss)

14,911

11,221

Accumulated deficit

(1,046,296)

(1,042,691)

Total stockholders' equity

3,263,853

3,252,228

Total liabilities and stockholders' equity

$

10,031,851

$

10,112,616

See accompanying notes to consolidated financial statements.

5


Change Healthcare Inc.

Consolidated Statements of Stockholders’ Equity

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

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders'

Shares

Amount

Capital

Deficit

Income (Loss)

Equity

Balance at March 31, 2020

303,428,142 

$

303 

$

4,222,580 

$

(930,064)

$

(7,372)

$

3,285,447 

Cumulative effect of accounting change-ASU 2016-13

(417)

(417)

Equity compensation expense

8,780 

8,780 

Issuance of common stock under equity compensation plans

341,230 

1 

2,143 

2,144 

Net income (loss)

(58,694)

(58,694)

Foreign currency translation adjustment

6,353 

6,353 

Change in fair value of interest rate caps, net of taxes

(4,184)

(4,184)

Other

(75)

(75)

Balance at June 30, 2020

303,769,372 

$

304 

$

4,233,428 

$

(989,175)

$

(5,203)

$

3,239,354 

Balance at March 31, 2021

306,796,076 

$

307 

$

4,283,391 

$

(1,042,691)

$

11,221 

$

3,252,228 

Equity compensation expense

23,191 

23,191 

Issuance of common stock under equity compensation plans

1,948,163 

2 

1,443 

1,445 

Employee tax withholding on vesting of equity compensation awards

(564,116)

(1)

(13,015)

(13,016)

Net income (loss)

(3,605)

(3,605)

Foreign currency translation adjustment

3,571 

3,571 

Change in fair value of interest rate caps, net of taxes

119 

119 

Conversion of tangible equity units

2,497,813 

3 

(3)

Other

(80)

(80)

Balance at June 30, 2021

310,677,936 

$

311 

$

4,294,927

$

(1,046,296)

$

14,911 

$

3,263,853

See accompanying notes to consolidated financial statements.

6


Change Healthcare Inc.

Consolidated Statements of Cash Flows

(unaudited and amounts in thousands)

Three Months Ended

June 30,

2021

2020

Cash flows from operating activities:

Net income (loss)

$

(3,605)

$

(58,694)

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

Depreciation and amortization

168,211

138,541

Amortization of capitalized software developed for sale

717

78

Accretion and changes in estimate, net

4,732

5,895

Equity compensation

26,166

9,583

Deferred income tax expense (benefit)

(8,989)

(13,845)

Amortization of debt discount and issuance costs

7,910

8,047

Non-cash lease expense

7,007

7,402

Gain on sale of businesses

(28,095)

Other, net

249

4,766

Changes in operating assets and liabilities:

Accounts receivable, net

(11,773)

113,470

Contract assets, net

(3,090)

10,013

Prepaid expenses and other assets

(25,029)

(24,632)

Accounts payable

34,722

(19,244)

Accrued expenses and other liabilities

(53,649)

(4,852)

Deferred revenue

(33,472)

20,667

Net cash provided by (used in) operating activities

110,107

169,100

Cash flows from investing activities: