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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 September 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 October 22, 2021: 311,495,269

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

33

Item 4.

Controls and Procedures

33

PART II. Other Information

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

34

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

35

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

Six Months Ended

September 30,

September 30,

2021

2020

2021

2020

Revenue

Solutions revenue

$

774,214

$

705,913

$

1,590,862

$

1,354,325

Postage revenue

52,550

50,023

103,758

95,795

Total revenue

826,764

755,936

1,694,620

1,450,120

Operating expenses

Cost of operations (exclusive of depreciation and amortization below)

346,632

326,653

698,695

645,195

Research and development

67,070

54,052

138,310

109,787

Sales, marketing, general and administrative

183,041

171,606

360,997

337,080

Customer postage

52,550

50,023

103,758

95,795

Depreciation and amortization

163,469

146,869

331,681

285,409

Accretion and changes in estimate with related parties, net

2,870

3,564

5,907

9,459

Gain on sale of businesses

(176)

(28,270)

Total operating expenses

815,632

752,591

1,639,348

1,454,455

Operating income (loss)

11,132

3,345

55,272

(4,335)

Non-operating (income) expense

Interest expense, net

59,466

61,627

118,852

124,294

Loss on extinguishment of debt

2,232

1,489

2,232

1,489

Other, net

2,587

(3,761)

(605)

(1,953)

Total non-operating (income) expense

64,285

59,355

120,479

123,830

Income (loss) before income tax provision (benefit)

(53,153)

(56,010)

(65,207)

(128,165)

Income tax provision (benefit)

(16,749)

(13,388)

(25,198)

(26,849)

Net income (loss)

$

(36,404)

$

(42,622)

$

(40,009)

$

(101,316)

Net income (loss) per share:

Basic and diluted

$

(0.11)

$

(0.13)

$

(0.12)

$

(0.32)

Weighted average common shares outstanding:

Basic and diluted

324,060,460

320,638,116

323,309,280

320,347,128

See accompanying notes to consolidated financial statements.

3


Change Healthcare Inc.

Consolidated Statements of Comprehensive Income (Loss)

(unaudited and amounts in thousands)

Three Months Ended

September 30,

Six Months Ended

September 30,

2021

2020

2021

2020

Net income (loss)

$

(36,404)

$

(42,622)

$

(40,009)

$

(101,316)

Other comprehensive income (loss):

Foreign currency translation adjustment

(2,156)

5,221

1,415

11,574

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

41

(1,996)

160

(6,180)

Other comprehensive income (loss)

(2,115)

3,225

1,575

5,394

Total comprehensive income (loss)

$

(38,519)

$

(39,397)

$

(38,434)

$

(95,922)

See accompanying notes to consolidated financial statements.

4


Change Healthcare Inc.

Consolidated Balance Sheets

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

September 30,

March 31,

2021

2021

Assets

Current assets:

Cash & cash equivalents

$

80,414

$

113,101

Accounts receivable, net

704,595

732,614

Contract assets, net

128,010

132,856

Prepaid expenses and other current assets

149,176

140,258

Total current assets

1,062,195

1,118,829

Property and equipment, net

150,579

174,370

Operating lease right-of-use assets, net

80,562

93,412

Goodwill

4,110,823

4,108,792

Intangible assets, net

3,942,164

4,187,072

Other noncurrent assets, net

503,405

430,141

Total assets

$

9,849,728

$

10,112,616

Liabilities

Current liabilities:

Accounts payable

$

64,756

$

57,449

Accrued expenses

463,510

484,293

Deferred revenue

377,270

436,666

Due to related parties, net

11,392

10,766

Current portion of long-term debt

19,152

27,339

Current portion of operating lease liabilities

28,948

30,608

Total current liabilities

965,028

1,047,121

Long-term debt, excluding current portion

4,643,245

4,734,775

Long-term operating lease liabilities

62,001

75,396

Deferred income tax liabilities

578,584

605,291

Tax receivable agreement obligations due to related parties

97,606

103,151

Tax receivable agreement obligations

196,687

229,082

Other long-term liabilities

62,411

65,572

Total liabilities

6,605,562

6,860,388

Commitments and contingencies

 

 

Stockholders' Equity

Common Stock (par value, $0.001), 9,000,000,000 and 9,000,000,000 shares authorized and 311,311,208 and 306,796,076 shares issued and outstanding at September 30, 2021 and March 31, 2021, respectively

311

307

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

Additional paid-in capital

4,313,759

4,283,391

Accumulated other comprehensive income (loss)

12,796

11,221

Accumulated deficit

(1,082,700)

(1,042,691)

Total stockholders' equity

3,244,166

3,252,228

Total liabilities and stockholders' equity

$

9,849,728

$

10,112,616

See accompanying notes to consolidated financial statements.

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 

Equity compensation expense

12,372 

12,372 

Issuance of common stock under equity compensation plans

911,961 

408 

408 

Employee tax withholding on vesting of equity compensation awards

(254,764)

(3,131)

(3,131)

Net income (loss)

(42,622)

(42,622)

Foreign currency translation adjustment

5,221 

5,221 

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

(1,996)

(1,996)

Other

(356)

(356)

Balance at September 30, 2020

304,426,569 

$

304 

$

4,242,721 

$

(1,031,797)

$