SEC Filing | Change Healthcare

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chng-20220630x10q

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





¨	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)

(615) 932-3000

(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

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

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.

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.

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.

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.

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