VERADIGM INC. This "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section and other sections of this Quarterly Report on Form 10-Q
("Form 10-Q") contain forward-looking statements, within the meaning of the
Private Securities Litigation Reform Act of 1995, that involve risks and
uncertainties. Forward-looking statements provide current expectations of future
events based on certain assumptions and include any statement that does not
directly relate to any historical fact or pattern, including statements
regarding the potential impacts of the COVID-19 pandemic and steps we have taken
or plan to take in response thereto, statements related to the effect of
macroeconomic trends, statements regarding evolving patient care models,
statements regarding legislative, administrative and regulatory actions on our
business and opportunities related to accumulated patient data, statements
regarding our expected future investment in research and development efforts and
statements regarding our operations following the sale of the Hospital and Large
Physician Practices Business. Forward-looking statements can also be identified
by the use of words such as "future," "anticipates," "believes," "estimates,"
"expects," "intends," "plans," "predicts," "will," "would," "could," "can,"
"may," and similar terms. Forward-looking statements are not guarantees of
future performance. Actual results could differ significantly from those set
forth in the forward-looking statements, and reported results should not be
considered an indication of future performance or events. Certain factors that
could cause our actual results to differ materially from those described in the
forward-looking statements include, but are not limited to: our ability to
achieve the margin targets associated with our margin improvement initiatives
within the contemplated time periods, if at all; the magnitude, severity and
duration of the COVID-19 pandemic, including the impacts of the pandemic, along
with the impacts of our responses and the responses by governments and other
businesses to the pandemic, on our business, our employees, our clients and our
suppliers; security breaches resulting in unauthorized access to our or our
clients' computer systems or data, including denial-of-services ransomware or
other Internet-based attacks; the failure by Practice Fusion to comply with the
terms of the settlement agreements with the
Each of the terms "we," "us," "our," "Company," or "Allscripts" as used herein
refers collectively to
Overview
Our Business Overview and Regulatory Environment
We deliver information technology ("IT") solutions and services to help healthcare organizations achieve optimal clinical, financial and operational results. We sell our solutions to physicians, hospitals, governments, health systems, health plans, life sciences companies, retail clinics, retail pharmacies, pharmacy benefit managers, insurance companies, employer wellness clinics and post-acute organizations, such as home health and hospice agencies. We help our clients improve the quality and efficiency of health care with solutions that include electronic health records ("EHRs"), information connectivity, private cloud hosting, outsourcing, analytics, patient access and population health management. We derive our revenues primarily from sales of our proprietary software (either as a perpetual license sale or under a subscription delivery model), support and maintenance services, and managed services, such as outsourcing, private cloud hosting and revenue cycle management.
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Our solutions empower healthcare professionals with the data, insights and connectivity to other caregivers they need to succeed in an industry that is rapidly changing from fee-for-service models to fee-for-value advanced payment models. We believe we offer some of the most comprehensive solutions in our industry today. Healthcare organizations can effectively manage patients and patient populations across all care settings using a combination of our physician, hospital, health system, post-acute care and population health management products and services. We believe these solutions will help transform health care as the industry seeks new ways to manage risk, improve quality and reduce costs.
Globally, healthcare providers continue to face the COVID-19 crisis, as well as
an aging population and the challenge of caring for an increasing number of
patients with chronic diseases. At the same time, practitioners worldwide are
also under growing pressure to demonstrate the delivery of high-quality care at
lower costs and to fully embrace expectations of efficient, patient-centered
information exchange. Congressional oversight of EHRs and health information
technology has increased in recent years. This increased oversight has impacted
and could continue to impact our clients and our business. Most recently, the
passage of the 21st Century Cures Act in
Following several high-profile ransomware and other cybersecurity attacks both
in and outside the healthcare industry, as well as increased conversation about
the expanding use of patient health data outside of HIPAA-covered environments,
including through consumer applications, policy makers have taken action
affecting
Please refer to the section entitled "Our Business Overview and Regulatory Environment" in Part II, Item 7 of our Form 10-K for additional information.
Impacts of COVID-19
The global outbreak of the novel coronavirus (COVID-19) has resulted in volatile economic activity around the world, and the degrees of any economic recovery in various jurisdictions have not been linear. We have been carefully monitoring the COVID-19 pandemic and its impact on our global operations. We are conducting business with certain modifications to employee travel and employee work locations, and have implemented certain cost reduction initiatives, among other modifications. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, partners and stockholders.
The COVID-19 pandemic negatively impacted revenue for the three months ended
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First Quarter 2022 Summary
During the first quarter of 2022, we continued to make progress on our key strategic, financial and operational imperatives, which are aimed at driving higher client satisfaction, increasing operating margins and improving our competitive position by expanding the depth and breadth of our products. Additionally, we believe there are still opportunities to continue to improve our operating leverage and further streamline our operations, and such efforts are ongoing.
Total revenue for the first quarter of 2022 was
Overview of Consolidated Results
Three Months Ended
Three Months Ended March 31,
(In thousands, except percentages) 2022 2021 % Change
Revenue:
Provider $ 118,665 $ 111,170 6.7 %
Payer & Life Sciences 24,007 22,482 6.8 %
Total revenue 142,672 133,652 6.7 %
Cost of revenue:
Provider 57,017 58,866 (3.1 %)
Payer & Life Sciences 12,174 11,869 2.6 %
Total cost of revenue 69,191 70,735 (2.2 %)
Gross profit 73,481 62,917 16.8 %
Gross margin % 51.5 % 47.1 %
Selling, general and administrative
expenses 41,318 32,164 28.5 %
Research and development 23,420 20,660 13.4 %
Amortization of intangible and
acquisition-related assets 2,171 2,364 (8.2 %)
Income from operations 6,572 7,729 (15.0 %)
Interest expense (2,136 ) (3,143 ) (32.0 %)
Other income, net 12 798 (98.5 %)
Equity in net (loss) income of
unconsolidated investments (398 ) 22 NM
Income from continuing operations before
income taxes 4,050 5,406 (25.1 %)
Income tax benefit (provision) 14,421 (1,106 ) NM
Effective tax rate NM 20.5 %
Income from continuing operations, net of
tax 18,471 4,300 NM
(Loss) income from discontinued operations (5,021 ) 5,820 (186.3 %) Gain on sale of discontinued operations
0 647 (100.0 %)
Income tax effect on discontinued
operations 9,407 (1,710 ) NM
Income from discontinued operations, net of
tax 4,386 4,757 (7.8 %)
Net income $ 22,857 $ 9,057 152.4 %
NM - We define "NM" as not meaningful for increases or decreases greater than
200%.
Revenue
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Revenue:
Provider $ 118,665 $ 111,170 6.7 %
Payer & Life Sciences 24,007 22,482 6.8 %
Total revenue $ 142,672 $ 133,652 6.7 %
Three Months Ended
Provider revenue consists of revenue derived from software applications for patient engagement and the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions. Payer and life sciences revenue consists of solutions targeted at payers, life sciences companies and other key healthcare stakeholders.
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Provider revenue increased for the three months ended
The percentage of provider and payer and life sciences revenue of our total
revenue was 83% and 17%, respectively, during both the three months ended
Gross Profit
Three Months Ended March 31,
(In thousands, except percentages) 2022 2021 % Change
Total cost of revenue $ 69,191 $ 70,735 (2.2 %)
Gross profit $ 73,481 $ 62,917 16.8 %
Gross margin % 51.5 % 47.1 %
Three Months Ended
Gross profit and margin increased during the three months ended
Selling, General and Administrative Expenses
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Selling, general and administrative expenses $ 41,318 $ 32,164 28.5 %
Three Months Ended
Selling, general and administrative expenses increased during the three months
ended
Research and Development
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Research and development $ 23,420 $ 20,660 13.4 %
Three Months Ended
Research and development expenses increased during the three months ended
Amortization of Intangible and Acquisition-related Assets
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Amortization of intangible and
acquisition-related assets $ 2,171 $ 2,364 (8.2 %)
Three Months Ended
The decrease in amortization expense for the three months ended
Interest Expense
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Interest expense $ 2,136 $ 3,143 (32.0 %)
Three Months Ended
Interest expense decreased during the three months ended
Other Income, Net
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Other income, net $ 12 $ 798 (98.5 %)
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Three Months Ended
Other income, net for the three months ended
Equity in Net (Loss) Income of Unconsolidated Investments
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Equity in net (loss) income of
unconsolidated investments $ (398 ) $ 22 NM
Three Months Ended
Equity in net (loss) income of unconsolidated investments represents our share of the equity earnings of our investments in third parties accounted for under the equity method of accounting based on a one quarter lag.
Income Taxes
Three Months Ended March 31 ,
(In thousands, except percentages) 2022 2021 % Change
Income tax benefit (provision)
NM 20.5 %
NM - We define "NM" as not meaningful for percentages greater than 200%
Three Months Ended
Our provision for income taxes differs from the tax computed at the
In evaluating our ability to recover our deferred tax assets within the
jurisdictions from which they arise, we consider all available evidence,
including scheduled reversals of deferred tax liabilities, tax-planning
strategies, and results of recent operations. In evaluating the objective
evidence that historical results provide, we consider three years of cumulative
operating income (loss). During the three months ended
Discontinued Operations
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
(Loss) income from discontinued operations
0 647 (100.0 %)
Income tax effect on discontinued operations 9,407 (1,710 ) NM
Income from discontinued operations, net of tax
Three Months Ended
On
On
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The loss from discontinued operations for the three months ended
The income from discontinued operations, net of tax for the three months ended
Segment Operations
On
Overview of Segment Results
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Revenue:
Veradigm $ 136,278 $ 126,370 7.8 %
Unallocated Amounts 6,394 7,282 (12.2 %)
Total revenue $ 142,672 $ 133,652 6.7 %
Gross Profit:
Veradigm $ 69,195 $ 58,623 18.0 %
Unallocated Amounts 4,286 4,294 (0.2 %)
Total gross profit $ 73,481 $ 62,917 16.8 %
Income (loss) from operations:
Veradigm $ 18,115 $ 11,494 57.6 %
Unallocated Amounts (11,543 ) (3,765 ) NM
Total income (loss) from operations
Veradigm
Our Veradigm segment derives its revenue from payer and life sciences solutions, which are mainly targeted at payers, life sciences companies and other key healthcare stakeholders. Additionally, revenue is derived from software applications for patient engagement and the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions. These solutions enable clients to transition, analyze, coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community.
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Revenue $ 136,278 $ 126,370 7.8 %
Gross profit $ 69,195 $ 58,623 18.0 %
Gross margin % 50.8 % 46.4 %
Income from operations $ 18,115 $ 11,494 57.6 %
Operating margin % 13.3 % 9.1 %
Three Months Ended
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Veradigm revenue increased for the three months ended
Gross profit and gross margin increased during the three months ended
Income from operations and operating margin increased during the three months
ended
Unallocated Amounts
The "Unallocated Amounts" category consists of the 2bPrecise business, certain products that were shifted from the previous Core Clinical and Financial Solutions reportable segment due to the organizational changes ("Certain Products"), transfer pricing revenues and certain corporate-related expenses. The amounts included in the "Unallocated Amounts" category for 2bPrecise and Certain Products do not meet the requirements to be reportable segments nor the criteria to be aggregated into our Veradigm reportable segment.
Three Months Ended March 31,
(In thousands) 2022 2021 % Change
Revenue $ 6,394 $ 7,282 (12.2 %)
Gross profit $ 4,286 $ 4,294 (0.2 %)
Gross margin % 67.0 % 59.0 %
Loss from operations $ (11,543 ) $ (3,765 ) NM
Operating margin % (180.5 %) (51.7 %)
Three Months Ended
Revenue decreased during the three months ended
Gross profit was flat during the three months ended
Loss from operations increased during the three months ended
Liquidity and Capital Resources
The primary factors that influence our liquidity include, but are not limited
to, the amount and timing of our revenues, cash collections from our clients,
capital expenditures and investments in research and development efforts,
including investments in or acquisitions of third parties, and divestitures. As
of
Operating Cash Flow Activities
Three Months Ended March 31,
(In thousands) 2022 2021 $ Change
Net income $ 22,857 $ 9,057 $ 13,800
Less: Income from discontinued operations 4,386 4,757 (371 )
Income from continuing operations $ 18,471 $ 4,300 14,171
Non-cash adjustments to net income 784 22,688 (21,904 )
Cash impact of changes in operating assets
and liabilities 15,256 (11,818 ) 27,074
Net cash provided by operating activities -
continuing operations 34,511 15,170 19,341
Net cash provided by (used in) operating
activities -
discontinued operations 34,750 (10,595 ) 45,345
Net cash provided by operating activities
Three Months Ended
Net cash provided by operating activities - continuing operations increased
during the three months ended
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stock-based compensation expense. The increase in cash impact of changes in
operating assets and liabilities for the three months ended
The change from net cash used in operating activities - discontinued operations
for the three months ended
Investing Cash Flow Activities
Three Months Ended March 31,
(In thousands) 2022 2021 $ Change
Capital expenditures $ (345 ) $ (225 ) $ (120 )
Capitalized software (9,600 ) (8,148 ) (1,452 )
Cash paid for business acquisitions, net of
cash acquired (24,106 ) 0 (24,106 )
Sale of businesses and other investments, net
of cash divested, and distributions received 1,083 1,753 (670 )
Purchases of equity securities, other
investments and related intangible assets,
net 0 (221 ) 221
Net cash used in investing activities -
continuing operations (32,968 ) (6,841 ) (26,127 )
Net cash used in investing activities -
discontinued operations (11,231 ) (12,148 ) 917
Net cash used in investing activities $ (44,199 ) $ (18,989 ) $ (25,210 ) Three Months Ended
Net cash used in investing activities - continuing operations increased during
the three months ended
Net cash used in investing activities - discontinued operations during the three
months ended
Financing Cash Flow Activities
Three Months Ended March 31,
(In thousands) 2022 2021 $ Change
Taxes paid related to net share settlement of
equity awards $ (13,275 ) $ (4,723 ) $ (8,552 )
Credit facility payments (25,000 ) 0 (25,000 )
Credit facility borrowings, net of issuance
costs 25,000 0 25,000
Repurchase of common stock (49,679 ) 0 (49,679 )
Intercompany to/from parent/subsidiaries 11,685 28,373 (16,688 )
Payment of acquisition and other financing
obligations 0 (1,542 ) 1,542
Net cash (used in) provided by financing
activities -
continuing operations (51,269 ) 22,108 (73,377 )
Net cash used in financing activities -
discontinued operations (11,697 ) (29,622 ) 17,925
Net cash used in financing activities $ (62,966 ) $ (7,514 ) $ (55,452 ) Three Months Ended
The change from net cash provided by financing activities - continuing
operations for the three months ended
Net cash used in financing activities - discontinuing operations during both the
three months ended
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Future Capital Requirements
We enter into obligations with third parties in the ordinary course of business. These future cash obligations will be funded from future cash flows from the sale of our products and services. The material cash requirements include the following contractual and other obligations.
Debt Obligations
As of
On
During the quarter ended
Non-cancelable Operating Leases
We have lease arrangements for certain facilities. As of
Purchase Obligations
Purchase obligations consist of minimum purchase commitments for Microsoft
services, computer equipment, maintenance, consulting and other commitments. As
of
Letters of Credit
As of
Income Taxes
Our liability for uncertain tax positions was
Other Matters Affecting Future Capital Requirements
Our total investment in research and development is expected to increase in 2022 as the Company makes continued investments in expanding the capabilities and functionality of our Veradigm provider, payer and life sciences solutions. Our total spending consists of research and development costs directly recorded to expense, which are offset by the capitalization of eligible development costs.
We believe that our cash and cash equivalents of
Critical Accounting Estimates
There were no material changes to our critical accounting estimates from those previously disclosed in our Form 10-K.
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