Log in
Log in
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
Sign up
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

(MDRX)
  Report
Delayed Nasdaq  -  04:00 2022-12-02 pm EST
19.06 USD   +0.85%
11/30Sphere's TrustCommerce« Healthcare Payments Platform Now Integrated with Veradigm« Practice Management
PR
11/22Veradigm Digital Health Media Becomes the First EHR Marketing Solution to Join the Point of Care Marketing Association
BU
11/18JPMorgan Adjusts Price Target on Allscripts Healthcare Solutions to $20 From $19, Maintains Underweight Rating
MT
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisionsFunds 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/09/2022 | 11:38am EST

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 U.S. Department of Justice (the "DOJ"); the costs and burdens of compliance by Practice Fusion with the terms of its settlement agreements with the DOJ; additional investigations and proceedings from governmental entities or third parties other than the DOJ related to the same or similar conduct underlying the DOJ's investigations into Practice Fusion's business practices; our ability to recover from third parties (including insurers) any amounts paid in connection with Practice Fusion's settlement agreements with the DOJ and related inquiries; the expected financial results of businesses acquired by us; the successful integration of businesses acquired by us; the anticipated and unanticipated expenses and liabilities related to businesses acquired by us, including the civil investigation by the U.S. Attorney's Office involving our Enterprise Information Solutions business; other risks associated with investments and acquisitions; risks associated with the disposition of the Hospitals and Large Physician Practices Business; our failure to compete successfully; consolidation in our industry; current and future laws, regulations and industry initiatives; increased government involvement in our industry; the failure of markets in which we operate to develop as quickly as expected; our or our customers' failure to see the benefits of government programs; changes in interoperability or other regulatory standards; our ability to maintain and expand our business with existing clients or effectively transition clients to newer products; the effects of the realignment of our sales, services and support organizations; market acceptance of our products and services; the unpredictability of the sales and implementation cycles for our products and services; our ability to manage future growth; our ability to introduce new products and services; our ability to establish and maintain strategic relationships; the performance of our products; our ability to protect our intellectual property rights; the outcome of legal proceedings involving us; our ability to hire, retain and motivate key personnel; performance by our content and service providers; liability for use of content; price reductions; our ability to license and integrate third-party technologies; risks related to global operations; variability of our quarterly operating results; risks related to our outstanding indebtedness; changes in tax rates or laws; business disruptions; our ability to maintain proper and effective internal controls; asset and long-term investment impairment charges; and the other factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 (our "Form 10-K") under the heading "Risk Factors" and elsewhere. The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Part I, Item 1, "Financial Statements" in this Form 10-Q, as well as our Form 10-K filed with the Securities and Exchange Commission (the "SEC"). We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Each of the terms "we," "us," "our," "Company," or "Allscripts" as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and/or its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.

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.


                                       28

--------------------------------------------------------------------------------

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 December 2016 assuaged some concerns about interoperability and possible U.S. Food and Drug Administration oversight of EHRs, and the ensuing regulations on data blocking and interoperability were released by the Department of Health and Human Services ("HHS") in March 2020 and became applicable under Office of the National Coordinator for Health Information Technology oversight in April 2021. Additional regulatory clarity will come with the final rule expected shortly from the HHS Office of the Inspector General, as well as a rule from HHS that will outline disincentives for providers who may be engaged in blocking behaviors. Some aspects of the new regulations will have a significant effect on our business processes and how our clients must exchange patient information. In particular, Allscripts will need to complete development work to satisfy the revised and new certification criterion, and we and our clients will continue making adjustments to business practices associated with information exchange and provision of Electronic Health Information.

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 Allscripts and our clients and continue to weigh additional legislative and regulatory opportunities. Allscripts remains committed to working to securely protect the patient data within our system and complying with requirements associated with the transmission of patient data to both HIPAA- and non-HIPAA-covered entities.

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.

Allscripts, along with other health IT vendors, was asked by the White House, HHS, the Centers for Disease Control and Prevention, and state and local governments to support public health efforts to contain the pandemic by expanding COVID-19 reporting options available to our clients. Our technology has been instrumental to the provision of high-quality care, aiding not only public health surveillance but also in clinical decision support interventions to aid in triage, diagnosis and treatment; information exchange as patients are moved from site to site and/or discharged; predictive analytics based on local data for surge anticipation and vaccine management; and research based on real-world data informing the world's evolving understanding of post-acute sequelae of COVID-19 (known colloquially as Long COVID). Allscripts and our clients may also be affected by changed requirements at the Federal, State or Local levels as efforts to modernize public health systems, including technologies, are implemented following the inclusion of associated appropriations within COVID-19-related bills that passed in 2020 and 2021.

The COVID-19 pandemic negatively impacted revenue for the three months ended March 31, 2022, as projects and buying decisions from the prior year were delayed due to the pandemic. However, the negative impact on our business in the first quarter of 2022 was minimal compared to the prior year period. The extent to which the COVID-19 pandemic will continue to impact the Company's results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted. Future developments include resurgences or additional "waves" of outbreaks of COVID-19 in various jurisdictions (including new lineages of the virus), the impact of COVID-19 on economic activity, the actions taken by health authorities and policy makers to contain its impacts on public health and the global economy, and the availability, effectiveness and public acceptance of vaccines.


                                       29

--------------------------------------------------------------------------------

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 $143 million, an increase of $9 million compared to the first quarter of 2021. For the three months ended March 31, 2022, provider revenue and payer & life sciences revenue were $119 million and $24 million, respectively, compared with $111 million and $23 million, respectively, during the three months ended March 31, 2021. Gross profit for the first quarter of 2022 was $73 million, an increase of $11 million compared to the first quarter of 2021. Gross margin increased to 51.5% in the first quarter of 2022 compared to a 47.1% gross margin in the first quarter of 2021.

Overview of Consolidated Results

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021


                                                     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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

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.


                                       30

--------------------------------------------------------------------------------

Provider revenue increased for the three months ended March 31, 2022 compared to the prior year comparable period, reflecting increases in transaction-related revenues and subscription revenues. Payer and life sciences revenue increased for the three months ended March 31, 2022 compared to the prior year comparable period, primarily due to an increase in subscription revenues and upfront software revenues.

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 March 31, 2022 and 2021.


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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

Gross profit and margin increased during the three months ended March 31, 2022 compared with the prior year comparable period, primarily due to increase in revenues, new business and changes in revenue mix.

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

Selling, general and administrative expenses increased during the three months ended March 31, 2022, compared with the prior year comparable period, primarily due to higher legal costs.

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

Research and development expenses increased during the three months ended March 31, 2022 compared with the prior year comparable period, primarily due to the increased investment in Veradigm products for both provider and payer & life sciences.

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

The decrease in amortization expense for the three months ended March 31, 2022, compared with the prior year comparable period, was due to normal amortization expense and certain intangible assets being fully amortized in 2021.

Interest Expense

                         Three Months Ended March 31,
(In thousands)        2022            2021        % Change
Interest expense   $    2,136       $  3,143          (32.0 %)

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Interest expense decreased during the three months ended March 31, 2022 compared to the prior year comparable period due to the absence of accreted interest expense in 2022 on the equity component of the 0.875% Convertible Senior Notes. As of January 1, 2022, we adopted Accounting Standards Update No. 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity", which required us to remove the equity component from Additional paid-in capital. Refer to Note 10, "Debt" of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for additional information.

Other Income, Net

                         Three Months Ended March 31,
(In thousands)       2022           2021         % Change
Other income, net   $    12       $    798           (98.5 %)



                                       31

--------------------------------------------------------------------------------

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Other income, net for the three months ended March 31, 2022 and 2021 consisted of a combination of interest income and miscellaneous receipts and expenses.

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

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) $ 14,421 $ (1,106 ) NM Effective tax rate

                           NM         20.5 %


NM - We define "NM" as not meaningful for percentages greater than 200%

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate primarily due to permanent differences, income attributable to foreign jurisdictions taxed at different rates, state taxes, tax credits and certain discrete items including a windfall benefit of $5.1 million for the three months ended March 31, 2022 and a windfall benefit of $1.0 million for the three months ended March 31, 2021. Our effective tax rate for the three months ended March 31, 2022, compared with the prior year comparable period, differs primarily due to the release of valuation allowance of $11.2 million in the three months ended March 31, 2022. In addition, the permanent items, credits and the impact of foreign earnings had more impact on the pre-tax income of $4.1 million in the three months ended March 31, 2022, compared to the impact of these items on a pre-tax income of $5.4 million for the three months ended March 31, 2021.

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 March 31, 2022, we released valuation allowances of $11.2 million related to U.S. deferred tax assets.


Discontinued Operations

                                                       Three Months Ended March 31,
(In thousands)                                       2022           2021       % Change

(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 %)

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

On March 2, 2022, we entered into the Harris Purchase Agreement (as defined below) to sell substantially all of the assets of our Hospitals and Large Physician Practices Business, including the Sunrise and TouchWorks solutions (the "Hospitals and Large Physician Practices Business"). As of March 31, 2022, the assets and liabilities related to the Harris Purchase Agreement (as defined below) were classified as held for sale on our consolidated balance sheet. The held for sale assets and liabilities are classified as current since, as of March 31, 2022, we expected to complete the sale within the next 12 months. The Hospitals and Large Physician Practices Business classified as held for sale was classified in discontinued operations as the disposition represents a strategic shift that will have a major effect on our operations and financial results. On May 2, 2022, we completed the sale of the Hospitals and Large Physician Practices Business.

On October 15, 2020 and December 31, 2020, we completed the sale of the EPSi and CarePort businesses, respectively. Prior to the sale of EPSi, it was part of the "Unallocated Amounts" category as it did not meet the requirements to be a reportable segment nor the criteria to be aggregated into our two reportable segments. Prior to the sale of CarePort, it was part of the former Data, Analytics and Care Coordination reportable segment. Both businesses were part of the same strategic initiative and were sold within the same period, and given that the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results, we reported them together as discontinued operations for all periods presented.


                                       32

--------------------------------------------------------------------------------

The loss from discontinued operations for the three months ended March 31, 2022 represents the income statement activity related to the Hospitals and Large Physician Practices Business. The income tax effect on discontinued operations for the three months ended March 31, 2022 represents the income tax benefit related to the Hospitals and Large Physician Practices Business.

The income from discontinued operations, net of tax for the three months ended March 31, 2021 primarily represents the income statement activity related to the Hospitals and Large Physician Practices Business. The gain on sale of discontinued operations for the three months ended March 31, 2021 represents the net working capital adjustments to the gain from the sale of CarePort. The income tax effect on discontinued operations for the three months ended March 31, 2021 primarily represents the income tax expense related to the Hospitals and Large Physician Practices Business. Refer to Note 15, "Discontinued Operations" of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further information regarding discontinued operations.

Segment Operations

On March 2, 2022, we entered into a purchase agreement (the "Harris Purchase Agreement") with Harris Dawn Holdings Inc. ("Harris"), a wholly-owned subsidiary of Constellation Software Inc., an Ontario corporation, to sell substantially all of the assets of the Hospitals and Large Physician Practices Business. As of March 31, 2022, the operating segment was classified in discontinued operations as the disposition represents a strategic shift that will have a major effect on our operations and financial results. Therefore, we changed our reportable segments from Hospitals and Large Physician Practices, Veradigm and Unallocated to Veradigm and Unallocated. The segment disclosures below for the three months ended March 31, 2021 have been revised to conform to the current period presentation. Refer to Note 16 "Business Segments" of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further discussion on the impact of the change.

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 $ 6,572 $ 7,729 (15.0 %)

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021


                                       33

--------------------------------------------------------------------------------

Veradigm revenue increased for the three months ended March 31, 2022 compared with the prior year comparable period, due to an increase in subscription and transaction-related revenues. The increase was partially offset by a decrease in maintenance and client services revenues.

Gross profit and gross margin increased during the three months ended March 31, 2022 compared with the prior year comparable period, primarily due to an increase in revenues, new business and changes in revenue mix.

Income from operations and operating margin increased during the three months ended March 31, 2022 compared with the prior year comparable period, primarily due to the increase in gross profit. The increase was partially offset by higher research and development costs related to the increased investment in Veradigm products for both provider and payer & life sciences.

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

Revenue decreased during the three months ended March 31, 2022, compared with the prior year comparable period, primarily due to a decrease in upfront software, subscription and maintenance revenues.

Gross profit was flat during the three months ended March 31, 2022, compared with the prior year comparable period. The decrease to revenues was partially offset by a decrease in cost of revenues related to capitalized software amortization and bonus expense.

Loss from operations increased during the three months ended March 31, 2022, compared with the prior year comparable period, primarily due to higher legal costs.

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 March 31, 2022, our principal sources of liquidity consisted of cash and cash equivalents of $84 million and available borrowing capacity of $724 million under our Revolving Facility. The change in our cash and cash equivalents balance is reflective of the following:

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 $ 69,261 $ 4,575 $ 64,686

Three Months Ended March 31, 2022 Compared with the Three Months Ended March 31, 2021

Net cash provided by operating activities - continuing operations increased during the three months ended March 31, 2022 compared with the prior year comparable period. The increase in net income for the three months ended March 31, 2022 reflects a deferred tax benefit and the releases of certain valuation allowances. Non-cash adjustments to net income decreased primarily due to the change in deferred taxes and lower depreciation and amortization expense. The decrease was partially offset due to higher


                                       34

--------------------------------------------------------------------------------

stock-based compensation expense. The increase in cash impact of changes in operating assets and liabilities for the three months ended March 31, 2022 was primarily a result of working capital changes.

The change from net cash used in operating activities - discontinued operations for the three months ended March 31, 2021 to net cash provided by operating activities - discontinued operations for the three months ended March 31, 2022 was primarily due to the tax payment relating to the gain from the sale of CarePort on December 31, 2020. The Hospitals and Large Physician Practices Business generated cash from operations in both the three months ended March 31, 2022 and 2021.

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

Net cash used in investing activities - continuing operations increased during the three months ended March 31, 2022, compared with the prior year comparable period. The increase in the use of cash during 2022 was primarily due to the cash paid for the Babel Health acquisition.

Net cash used in investing activities - discontinued operations during the three months ended March 31, 2022 and 2021 primarily reflects spending for capitalized software costs related to the Hospitals and Large Physician Practices Business.

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 March 31, 2022 Compared with the Three Months Ended March 31, 2021

The change from net cash provided by financing activities - continuing operations for the three months ended March 31, 2021 to net cash used in financing activities for the three months ended March 31, 2022 was primarily a result of the repurchase of common stock on the open market and higher credit facility payments in 2022, which were partially offset by the credit facility borrowings in 2022.

Net cash used in financing activities - discontinuing operations during both the three months ended March 31, 2022 and 2021 primarily reflect lower cash for operations for the Hospitals and Large Physician Practices Business.


                                       35

--------------------------------------------------------------------------------

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 March 31, 2022, we had outstanding convertible senior notes and borrowings under the Revolving Facility in an aggregate principal amount of $382.9 million, which were fully due on their respective maturity dates.

On April 29, 2022, we amended and restated the Revolving Facility to provide for a new $700 million senior secured revolving facility with a five year term (the "New Revolving Facility"). On May 2, 2022 we used proceeds from the sale of the Hospitals and Large Physician Practices Business to repay the outstanding amount under the New Revolving Facility ($175 million principal amount).

During the quarter ended December 31, 2021, the conditional conversion feature of the convertible senior notes was triggered as a result of the sale price of Allscripts' common stock being greater than or equal to 130% of the conversion price for the requisite period during such quarter. As a result, holders of the convertible senior notes were entitled to convert the notes into common stock at their option at any time during the quarter ending March 31, 2022. If we do not elect to satisfy our conversion obligation by delivering solely shares of our common stock, then we will settle a portion or all of our conversion obligations through the payment of cash. Our capped call transactions may help reduce the potential dilution to Allscripts' common stock upon any conversion of the notes and/or may help to offset any cash payments Allscripts is required to make in excess of the principal amount of the converted notes upon conversion. As of March 31, 2022, none of the convertible senior notes have been converted.

Non-cancelable Operating Leases

We have lease arrangements for certain facilities. As of March 31, 2022, we had fixed lease payment obligations of $22.7 million, with $6.6 million payable within the next 12 months.

Purchase Obligations

Purchase obligations consist of minimum purchase commitments for Microsoft services, computer equipment, maintenance, consulting and other commitments. As of March 31, 2022, we had purchase obligations of $38.2 million, with approximately $16.7 million payable within the next 12 months.

Letters of Credit

As of March 31, 2022, we had $1.0 million letters of credit outstanding under the Second Amended Credit Agreement. On April 29, 2022, we entered into the Third Amended Credit Agreement, and a total of up to $50 million of the New Revolving Facility thereunder is available for the issuance of letters of credit.

Income Taxes

Our liability for uncertain tax positions was $30.0 million as of March 31, 2022. It is uncertain the amount that is payable within the next 12 months for liabilities that may result from this exposure, as we cannot predict, with reasonable reliability, the outcome of discussions with the respective taxing jurisdictions, which may or may not result in cash settlements.

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 $84 million as of March 31, 2022, our future cash flows, the proceeds received from the sale of the Hospitals and Large Physician Practices Business, our borrowing capacity under our New Revolving Facility and access to capital markets, taken together, provide adequate resources to meet future operating needs as well as scheduled payments of short and long-term debt. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of this Form 10-Q. We will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies and the repurchase of our common stock under our stock repurchase program, any of which might impact our liquidity requirements or cause us to borrow additional amounts under our New Revolving Facility or issue additional equity or debt securities.

Critical Accounting Estimates

There were no material changes to our critical accounting estimates from those previously disclosed in our Form 10-K.


                                       36

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses

All news about ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
11/30Sphere's TrustCommerce« Healthcare Payments Platform Now Integrated with Veradigm« Prac..
PR
11/22Veradigm Digital Health Media Becomes the First EHR Marketing Solution to Join the Poin..
BU
11/18JPMorgan Adjusts Price Target on Allscripts Healthcare Solutions to $20 From $19, Maint..
MT
11/14Insider Sell: Allscripts Healthcare Solutions
MT
11/10Allscripts - Veradigm EHR Achieves 2015 ONC Health IT Update Certification
AQ
11/09Goldman Sachs Upgrades Allscripts Healthcare Solutions to Buy From Neutral, Adjusts Pri..
MT
11/09Veradigm EHR Achieves 2015 ONC Health IT Update Certification
BU
11/07ALLSCRIPTS HEALTHCARE SOLUTIONS, INC. Management's Discussion and Analysis of Financia..
AQ
11/07Tranche Update on Allscripts Healthcare Solutions, Inc.'s Equity Buyback Plan announced..
CI
11/07Deutsche Bank Adjusts Allscripts Healthcare Solutions Price Target to $21 From $20, Mai..
MT
More news
Analyst Recommendations on ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
More recommendations