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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, 2022

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

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 22, 2022: 328,308,520

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

31

PART II. Other Information

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

32

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,

2022

2021

Revenue

Solutions revenue

$

831,343

$

816,648

Postage revenue

53,126

51,208

Total revenue

884,469

867,856

Operating expenses

Cost of operations (exclusive of depreciation and amortization below)

357,096

352,063

Research and development

74,197

71,240

Sales, marketing, general and administrative

197,886

177,955

Customer postage

53,126

51,208

Depreciation and amortization

171,722

168,211

Accretion and changes in estimate with related parties, net

3,189

3,037

Total operating expenses

857,216

823,714

Operating income (loss)

27,253

44,142

Non-operating (income) expense

Interest expense, net

56,870

59,386

Loss on extinguishment of debt

390

Other, net

2,472

(3,189)

Total non-operating (income) expense

59,732

56,197

Income (loss) before income tax provision (benefit)

(32,479)

(12,055)

Income tax provision (benefit)

(9,311)

(8,450)

Net income (loss)

$

(23,168)

$

(3,605)

Net income (loss) per share:

Basic and diluted

$

(0.07)

$

(0.01)

Weighted average common shares outstanding:

Basic and diluted

326,562,482

322,546,171

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,

2022

2021

Net income (loss)

$

(23,168)

$

(3,605)

Other comprehensive income (loss):

Foreign currency translation adjustment

(12,098)

3,571

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

6,159

119

Other comprehensive income (loss)

(5,939)

3,690

Total comprehensive income (loss)

$

(29,107)

$

85

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,

2022

2022

Assets

Current assets:

Cash & cash equivalents

$

94,009

$

252,298

Accounts receivable, net

717,684

720,122

Contract assets, net

130,351

162,828

Prepaid expenses and other current assets

204,357

177,659

Total current assets

1,146,401

1,312,907

Property and equipment, net

126,781

141,340

Operating lease right-of-use assets, net

61,423

65,680

Goodwill

4,101,659

4,112,904

Intangible assets, net

3,587,019

3,699,603

Other noncurrent assets, net

613,698

600,061

Total assets

$

9,636,981

$

9,932,495

Liabilities

Current liabilities:

Accounts payable

$

85,208

$

104,273

Accrued expenses

383,368

461,506

Deferred revenue

409,952

469,098

Due to related parties, net

29,560

13,057

Current portion of long-term debt

4,708

10,006

Current portion of operating lease liabilities

20,009

21,726

Total current liabilities

932,805

1,079,666

Long-term debt, excluding current portion

4,486,565

4,580,087

Long-term operating lease liabilities

48,580

52,286

Deferred income tax liabilities

555,616

563,606

Tax receivable agreement obligations due to related parties

79,503

104,863

Tax receivable agreement obligations

174,445

202,762

Other long-term liabilities

68,581

73,118

Total liabilities

6,346,095

6,656,388

Commitments and contingencies

 

 

Stockholders' Equity

Common Stock (par value, $0.001), 9,000,000,000 and 9,000,000,000 shares authorized and 326,971,095 and 313,131,714 shares issued and outstanding at June 30, 2022 and March 31, 2022, respectively

327

313

Preferred stock (par value, $0.001), 900,000,000 shares authorized and no shares issued and outstanding at both June 30, 2022 and March 31, 2022

Additional paid-in capital

4,384,631

4,340,759

Accumulated other comprehensive income (loss)

29,177

35,116

Accumulated deficit

(1,123,249)

(1,100,081)

Total stockholders' equity

3,290,886

3,276,107

Total liabilities and stockholders' equity

$

9,636,981

$

9,932,495

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, 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 

Balance at March 31, 2022

313,131,714 

$

313 

$

4,340,759 

$

(1,100,081)

$

35,116 

$

3,276,107 

Equity compensation expense

49,064 

49,064 

Issuance of common stock under equity compensation plans

1,130,552 

1 

1,364 

1,365 

Employee tax withholding on vesting of equity compensation awards

(285,667)

(6,407)

(6,407)

Net income (loss)

(23,168)

(23,168)

Foreign currency translation adjustment

(12,098)

(12,098)

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

6,159 

6,159 

Conversion of tangible equity units

6,660,905 

7 

(7)

Settlement of tangible equity units

6,333,591 

6 

(6)

Other

(136)

(136)

Balance at June 30, 2022

326,971,095 

$

327 

$

4,384,631 

$

(1,123,249)

$

29,177 

$

3,290,886 

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,

2022

2021

Cash flows from operating activities:

Net income (loss)

$

(23,168)

$

(3,605)

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

Depreciation and amortization

171,722

168,211

Amortization of capitalized software developed for sale

1,302

717

Accretion and changes in estimate, net

4,800

4,732

Equity compensation

49,961

26,166

Deferred income tax expense (benefit)

(10,411)

(8,989)

Amortization of debt discount and issuance costs

7,770

7,910

Loss on extinguishment of debt

390

Non-cash lease expense

5,681

7,007

Other, net

3,916

249

Changes in operating assets and liabilities:

Accounts receivable, net

1,991

(11,773)

Contract assets, net

30,028

(3,090)

Prepaid expenses and other assets

(20,811)

(25,029)

Accounts payable

(2,481)

34,722

Accrued expenses and other liabilities

(75,394)

(53,649)

Deferred revenue

(61,981)

(33,472)

Net cash provided by (used in) operating activities

83,315

110,107

Cash flows from investing activities:

Capitalized expenditures

(79,535)

(66,006)

Other, net

(1,000)

Net cash provided by (used in) investing activities

(79,535)

(67,006)

Cash flows from financing activities:

Payments on Senior Notes

(100,000