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 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;
inflationary pressures and macroeconomic volatility; 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 , as amended (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
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 challenges of caring for an
aging population with an increasing number of patients with chronic diseases, as
well as the ongoing COVID-19 crisis. 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. 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 are having a significant effect on our business processes and how
our clients must exchange patient information. In particular, Allscripts must
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 are currently considering additional
legislative and regulatory vehicles to expand privacy protections. 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) continues to cause 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 theWhite House , HHS, theCenters 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 (e.g., telehealth), are implemented following the inclusion of associated appropriations within COVID-19-related bills that passed in 2020, 2021 and 2022. The COVID-19 pandemic negatively impacted revenue for the three and six months endedJune 30, 2022 , as projects and buying decisions from the prior year were delayed due in part to the pandemic. However, the negative impacts on our business in the first and second quarters of 2022 were minimal compared to the prior year periods. 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.
Changes in Macroeconomic Conditions
A potential economic recession and uncertainty in financial markets may result
in changes in market conditions and produce market volatility. The impact of
inflation and rising interest rates may affect the financial performance of the
customers we serve and influence customer demand.
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Second Quarter 2022 Summary
During the second 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 second quarter of 2022 was$151 million , an increase of$10 million compared to the second quarter of 2021. For the three months endedJune 30, 2022 , provider revenue and payer & life sciences revenue were$119 million and$32 million , respectively, compared with$116 million and$25 million , respectively, during the three months endedJune 30, 2021 . Gross profit for the second quarter of 2022 was$79 million , an increase of$11 million compared to the second quarter of 2021. Gross margin increased to 52.7% in the second quarter of 2022 compared to a 48.5% gross margin in the second quarter of 2021.
Overview of Consolidated Results
Three and Six Months Ended
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except
percentages) 2022 2021 % Change 2022 2021 % Change
Revenue:
Provider $ 118,939 $ 115,904 2.6 % $ 237,604 $ 227,074 4.6 %
Payer & Life Sciences 31,959 25,302 26.3 % 55,966 47,784 17.1 %
Total revenue 150,898 141,206 6.9 % 293,570 274,858 6.8 %
Cost of revenue:
Provider 58,326 60,094 (2.9 %) 115,343 118,960 (3.0 %)
Payer & Life Sciences 13,090 12,693 3.1 % 25,264 24,562 2.9 %
Total cost of revenue 71,416 72,787 (1.9 %) 140,607 143,522 (2.0 %)
Gross profit 79,482 68,419 16.2 % 152,963 131,336 16.5 %
Gross margin % 52.7 % 48.5 % 52.1 % 47.8 %
Selling, general and
administrative expenses 59,847 28,124 112.8 % 101,165 60,288 67.8 %
Research and development 22,750 20,942 8.6 % 46,170 41,602 11.0 %
Asset impairment charges 0 172 (100.0 %) 0 172 (100.0 %)
Amortization of intangible
and acquisition-related
assets 2,241 2,363 (5.2 %) 4,412 4,727 (6.7 %)
(Loss) income from operations (5,356 ) 16,818 (131.8 %) 1,216 24,547 (95.0 %)
Interest expense (1,887 ) (2,949 ) (36.0 %) (4,023 ) (6,092 ) (34.0 %)
Other income, net 2,133 16,528 (87.1 %) 2,145 17,326 (87.6 %)
Equity in net loss of
unconsolidated investments (207 ) (86 ) 140.7 % (605 ) (64 ) NM
(Loss) income from continuing
operations before income
taxes (5,317 ) 30,311 (117.5 %) (1,267 ) 35,717 (103.5 %)
Income tax benefit
(provision) 8,579 (4,168 ) NM 23,000 (5,274 ) NM
Effective tax rate 161.4 % 13.8 % NM 14.8 %
Income from continuing
operations, net of tax 3,262 26,143 (87.5 %) 21,733 30,443 (28.6 %)
Loss from discontinued
operations (3,797 ) (6,178 ) (38.5 %) (8,818 ) (358 ) NM
Gain on sale of discontinued
operations 2,765 0 100.0 % 2,765 647 NM
Income tax effect on
discontinued operations (66,256 ) 1,961 NM (56,849 ) 251 NM
(Loss) income from
discontinued operations, net
of tax (67,288 ) (4,217 ) NM (62,902 ) 540 NM
Net (loss) income $ (64,026 ) $ 21,926 NM $ (41,169 ) $ 30,983 NM
NM - We define "NM" as not meaningful for increases or decreases greater than
200%.
Revenue
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Revenue:
Provider $ 118,939 $ 115,904 2.6 % $ 237,604 $ 227,074 4.6 %
Payer & Life Sciences 31,959 25,302 26.3 % 55,966 47,784 17.1 %
Total revenue $ 150,898 $ 141,206 6.9 % $ 293,570 $ 274,858 6.8 %
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Three and Six 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 primarily consists of sales of our integrated data systems solutions and related services to key healthcare stakeholders, including health plans and pharmaceutical companies, to help them improve the quality, efficiency and value of healthcare delivery. Provider revenue increased for the three and six months endedJune 30, 2022 compared to the prior year comparable periods, reflecting increases in transaction-related, subscription and upfront software revenues. Payer and life sciences revenue increased for the three and six months endedJune 30, 2022 compared to the prior year comparable periods, primarily due to an increase in subscription revenues and transaction-related revenues. The percentage of provider and payer and life sciences revenue of our total revenue was 79% and 21%, respectively, during the three months endedJune 30, 2022 and 82% and 18%, respectively, during the three months endedJune 30, 2021 . The percentage of provider and payer and life sciences revenue of our total revenue was 81% and 19%, respectively, during the six months endedJune 30, 2022 and 83% and 17%, respectively, during the six months endedJune 30, 2021 .
Gross Profit
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except percentages) 2022 2021 % Change 2022 2021 % Change
Total cost of revenue $ 71,416 $ 72,787 (1.9 %) $ 140,607 $ 143,522 (2.0 %)
Gross profit $ 79,482 $ 68,419 16.2 % $ 152,963 $ 131,336 16.5 %
Gross margin % 52.7 % 48.5 % 52.1 % 47.8 %
Three and Six Months Ended
Gross profit and margin increased during the three and six months endedJune 30, 2022 compared with the prior year comparable periods, primarily due to increases in revenues, new business and lower contractor usage.
Selling, General and Administrative Expenses
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Selling, general and
administrative expenses $ 59,847 $ 28,124 112.8 % $ 101,165 $ 60,288 67.8 %
Three and Six Months Ended
Selling, general and administrative expenses increased during the three and six months endedJune 30, 2022 , compared with the prior year comparable periods, primarily due to higher legal costs and increases in stock-based compensation expense. Research and Development Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2022 2021 % Change 2022 2021 % Change Research and development$ 22,750 $ 20,942 8.6 %$ 46,170 $ 41,602 11.0 %
Three and Six Months Ended
Research and development expenses increased during the three and six months endedJune 30, 2022 compared with the prior year comparable periods, primarily due to the increased investment in Veradigm products for both provider and payer and life sciences. Asset impairment charges Three Months Ended June 30, Six Months Ended June 30, (In thousands) 2022 2021 % Change 2022 2021 % Change Asset impairment charges$ 0 $ 172 (100.0 %)$ 0 $ 172 (100.0 %)
Three and Six Months Ended
Asset impairment charges for the three and six months ended
Amortization of Intangible and Acquisition-related Assets
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Amortization of intangible
and acquisition-related
assets $ 2,241 $ 2,363 (5.2 %) $ 4,412 $ 4,727 (6.7 %)
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Three and Six Months Ended
The decrease in amortization expense for the three and six months ended
Interest Expense
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Interest expense $ 1,887 $ 2,949 (36.0 %) $ 4,023 $ 6,092 (34.0 %)
Three and Six Months Ended
Interest expense decreased during the three and six months endedJune 30, 2022 compared to the prior year comparable periods due to the absence of accreted interest expense in 2022 on the equity component of the 0.875% Convertible Senior Notes. As ofJanuary 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 June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Other income, net $ 2,133 $ 16,528 (87.1 %) $ 2,145 $ 17,326 (87.6 %)
Three and Six Months Ended
Other income, net for the three and six months endedJune 30, 2022 and 2021 consisted of a combination of interest income and miscellaneous receipts and expenses. The large increase in income in 2021 was primarily due to a$5.0 million distribution received from the Practice Fusion escrow account related to the settlement agreements with the DOJ, a$9.7 million gain as a result of a note conversion, the revaluation of our existing investment with a third-party cost method investment, and a$1.4 million distribution received from a third-party cost method investment.
Equity in Net Loss of Unconsolidated Investments
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Equity in net loss of
unconsolidated investments $ (207 ) $ (86 ) 140.7 % $ (605 ) $ (64 ) NM
Three and Six Months Ended
Equity in net (loss) income of unconsolidated investments represents our share of the equity earnings (or losses) 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 June 30, Six Months Ended June 30,
(In thousands, except percentages) 2022 2021 % Change 2022 2021 % Change
Income tax benefit (provision) $ 8,579 $ (4,168 ) NM $ 23,000 $ (5,274 ) NM
Effective tax rate 161.4 % 13.8 % NM 14.8 %
NM - We define "NM" as not meaningful for percentages greater than 200%
Three and Six Months Ended
Our provision for income taxes differs from the tax computed at theU.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$11.2 million for the six months endedJune 30, 2022 and a windfall benefit of$4.6 million for the six months endedJune 30, 2021 . Our effective tax rate for the six months endedJune 30, 2022 , compared with the prior year comparable period, differs primarily due to the release of valuation allowance of$11.2 million in the six months endedJune 30, 2022 . In addition, the permanent items, credits and the impact of foreign earnings had more impact on the pre-tax loss of$1.3 million in the six months endedJune 30, 2022 , compared to the impact of these items on a pre-tax income of$35.7 million for the six months endedJune 30, 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 six months endedJune 30, 2022 , we released valuation allowances of$11.2 million related toU.S. deferred tax assets. 33
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Discontinued Operations
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Loss from discontinued
operations $ (3,797 ) $ (6,178 ) (38.5 %) $ (8,818 ) $ (358 ) NM
Gain on sale of discontinued
operations 2,765 0 NM 2,765 647 NM
Income tax effect on
discontinued operations (66,256 ) 1,961 NM (56,849 ) 251 NM
(Loss) income from
discontinued operations, net
of tax $ (67,288 ) $ (4,217 ) NM $ (62,902 ) $ 540 NM
Three and Six Months Ended
OnMay 2, 2022 , we completed the sale of our Hospitals and Large Physician Practices business, including the Sunrise and TouchWorks solutions (the "Hospitals and Large Physician Practices Business") toAltera Digital Health Inc. (formerly known asHarris Dawn Holdings Inc. ), aDelaware corporation ("Altera"), a wholly-owned subsidiary of Constellation Software Inc., anOntario corporation, pursuant to a purchase agreement (the "Altera Purchase Agreement") by which Altera purchased substantially all of the assets of the Hospitals and Large Physician Practices Business. The Hospitals and Large Physician Practices Business sale represented a strategic shift that had a major effect on our operations and financial results. As ofJune 30, 2022 , we reported the Hospitals and Large Physician Practices Business as discontinued operations. OnOctober 15, 2020 andDecember 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 at the time. 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. The loss from discontinued operations for the three and six months endedJune 30, 2022 represents the income statement activity related to the Hospitals and Large Physician Practices Business. The gain on sale of discontinued operations for the three and six months endedJune 30, 2022 is a result of the sale of the Hospitals and Large Physician Practices Business. The income tax effect on discontinued operations for the three and six months endedJune 30, 2022 represents the income tax expense related to the Hospitals and Large Physician Practices Business. The loss from discontinued operations, net of tax for the three months endedJune 30, 2021 and the income from discontinued operations, net of tax for the six months endedJune 30, 2021 primarily represent the income statement activity related to the Hospitals and Large Physician Practices Business. The gain on sale of discontinued operations for the six months endedJune 30, 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 and six months endedJune 30, 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. 34
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Segment Operations
OnMarch 2, 2022 , we entered into a purchase agreement to sell substantially all of the assets of our Hospitals and Large Physician Practices Business. As ofMarch 31, 2022 , the operating segment was classified in discontinued operations as the disposition represented a strategic shift that had a major effect on our operations and financial results. Therefore, we changed our reportable segments, which previously included Hospitals and Large Physician Practices. As ofMarch 31, 2022 , we had two operating segments: (i) Veradigm and (ii) Certain Products. The Veradigm operating segment was the equivalent to our one reportable segment. OnMay 2, 2022 , we completed the sale of the Hospitals and Large Physician Practices Business. As ofJune 30, 2022 , our two operating segments and one reportable segment remained unchanged from the first quarter of 2022. The segment disclosures below for the three and six months endedJune 30, 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 June 30, Six Months Ended June 30, (In thousands) 2022 2021 % Change 2022 2021 % Change Revenue: Veradigm$ 144,637 $ 133,449 8.4 % 280,915 259,819 8.1 % Unallocated Amounts 6,261 7,757 (19.3 %) 12,655 15,039 (15.9 %) Total revenue$ 150,898 $ 141,206 6.9 %$ 293,570 $ 274,858 6.8 % Gross Profit: Veradigm$ 75,409 $ 63,641 18.5 % 144,604 122,264 18.3 % Unallocated Amounts 4,073 4,778 (14.8 %) 8,359 9,072 (7.9 %) Total gross profit$ 79,482 $ 68,419 16.2 %$ 152,963 $ 131,336 16.5 % Income (loss) from operations: Veradigm$ 23,974 $ 18,014 33.1 % 42,089 29,508 42.6 % Unallocated Amounts (29,330 ) (1,196 ) NM (40,873 ) (4,961 ) NM Total (loss) income from operations$ (5,356 ) $ 16,818 (131.8 %)$ 1,216 $ 24,547 (95.0 %) 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 June 30, Six Months Ended June 30, (In thousands) 2022 2021 % Change 2022 2021 % Change Revenue$ 144,637 $ 133,449 8.4 %$ 280,915 $ 259,819 8.1 % Gross profit$ 75,409 $ 63,641 18.5 %$ 144,604 $ 122,264 18.3 % Gross margin % 52.1 % 47.7 % 51.5 % 47.1 % Income from operations$ 23,974 $ 18,014 33.1 %$ 42,089 $ 29,508 42.6 % Operating margin % 16.6 % 13.5 %
15.0 % 11.4 %
Three and Six Months Ended
Veradigm revenue increased for the three and six months ended
Gross profit and gross margin increased during the three and six months endedJune 30, 2022 compared with the prior year comparable periods, primarily due to increases in revenues, new business and lower contractor usage. Income from operations and operating margin increased during the three and six months endedJune 30, 2022 compared with the prior year comparable periods, primarily due the increase in gross profit. The increases were partially offset due to higher research and development costs related to the increased investment in Veradigm products for both provider and payer and life sciences and the decrease in capitalized software costs. 35
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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") 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 June 30, Six Months Ended June 30,
(In thousands) 2022 2021 % Change 2022 2021 % Change
Revenue $ 6,261 $ 7,757 (19.3 %) $ 12,655 $ 15,039 (15.9 %)
Gross profit $ 4,073 $ 4,778 (14.8 %) $ 8,359 $ 9,072 (7.9 %)
Gross margin % 65.1 % 61.6 % 66.1 % 60.3 %
Loss from operations $ (29,330 ) $ (1,196 ) NM $ (40,873 ) $ (4,961 ) NM
Operating margin % NM (15.4 %) NM (33.0 %)
Three and Six Months Ended
Revenue decreased during the three and six months endedJune 30, 2022 , compared with the prior year comparable periods, primarily due to a decrease in upfront software revenues. Gross profit decreased during the three and six months endedJune 30, 2022 , compared with the prior year comparable periods, primarily due to the decrease in revenues. The decrease to revenues was partially offset by an increase in cost of revenues as certain corporate bonus expense previously recorded to the "Unallocated Amounts" category was recorded to the Veradigm segment in 2022. Loss from operations increased during the three and six months endedJune 30, 2022 , compared with the prior year comparable periods, primarily due to higher legal costs, increases in stock-based compensation expense and changes attributed to corporate allocations from 2021 to 2022.
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 ofJune 30, 2022 , our principal sources of liquidity consisted of cash and cash equivalents of$501 million and available borrowing capacity of$699 million under our New Revolving Facility. The change in our cash and cash equivalents balance is reflective of the following:
Operating Cash Flow Activities
Six Months Ended June 30,
(In thousands) 2022 2021 $ Change
Net (loss) income $ (41,169 ) $ 30,983 $ (72,152 )
Less: (Loss) income from discontinued
operations (62,902 ) 540 (63,442 )
Income from continuing operations$ 21,733 $ 30,443 (8,710 ) Non-cash adjustments to net (loss) income 37,411 38,164 (753 ) Cash impact of changes in operating assets and liabilities 17,516 19,646
(2,130 )
Net cash provided by operating activities -
continuing operations 76,660 88,253 (11,593 )
Net cash used in operating activities -
discontinued operations (9,034 ) (284,615 ) 275,581
Net cash provided by (used in) operating activities$ 67,626 $ (196,362
)
Six Months Ended
Net cash provided by operating activities - continuing operations decreased during the six months endedJune 30, 2022 compared with the prior year comparable period. Income from continuing operations for the six months endedJune 30, 2022 included a deferred tax benefit. However, during the six months endedJune 30, 2021 we recorded higher income from operations and higher other income, which included a distribution received from the Practice Fusion escrow account related to the settlement agreements with the DOJ, the investment gain and distribution received from our third-party cost method investments. Non-cash adjustments to net (loss) income decreased primarily due the change in deferred taxes and lower depreciation and amortization expense. The decrease was partially offset due to higher stock-based compensation expense. The increase in cash impact of changes in operating assets and liabilities for the six months endedJune 30, 2022 was primarily a result of working capital changes. Net cash used in operating activities - discontinued operations decreased for the six months endedJune 30, 2022 primarily due to the absence of the tax payment relating to the gain from the sale of CarePort onDecember 31, 2020 , which was paid in the second quarter of 2022. 36
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Investing Cash Flow Activities
Six Months Ended June 30,
(In thousands) 2022 2021 $ Change
Capital expenditures $ (1,652 ) $ (225 ) $ (1,427 )
Capitalized software (18,258 ) (16,735 ) (1,523 )
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 672,488 4,242 668,246
Purchases of equity securities, other investments and related intangible assets, net (251 ) (221 )
(30 )
Net cash provided by (used in) investing
activities -
continuing operations 628,221 (12,939 ) 641,160
Net cash used in investing activities -
discontinued operations (15,248 ) (21,606 ) 6,358
Net cash provided by (used in) investing
activities $ 612,973 $ (34,545 )
Six Months Ended
The change from net cash used in operating activities - continuing operations for the six months endedJune 30, 2021 to net cash provided by operating activities - continuing operations for the six months endedJune 30, 2022 was primarily due to the cash received as a result of the sale of the Hospitals and Large Physician Practices Business, which was partially offset by cash paid for theBabel Health acquisition. Net cash used in investing activities - discontinued operations during the six months endedJune 30, 2022 and 2021 primarily reflects spending for capitalized software costs related to the Hospitals and Large Physician Practices Business.
Financing Cash Flow Activities
Six Months Ended June 30,
(In thousands) 2022 2021 $ Change
Taxes paid related to net share settlement of
equity awards $ (27,871 ) $ (12,638 ) $ (15,233 )
Credit facility payments (200,000 ) 0 (200,000 )
Credit facility borrowings, net of issuance
costs 22,335 250,000 (227,665 )
Repurchase of common stock (143,372 ) (308,953 ) 165,581
Intercompany to/from parent/subsidiaries 11,685 4,987
6,698
Payment of acquisition and other financing
obligations 0 (2,400 ) 2,400
Net cash used in financing activities -
continuing operations (337,223 ) (69,004 ) (268,219 )
Net cash used in financing activities -
discontinued operations (11,697 ) (6,236 ) (5,461 )
Net cash used in financing activities $ (348,920 ) $ (75,240 ) $ (273,680 ) Six Months Ended
Net cash used in financing activities - continuing operations increased for the six months endedJune 30, 2022 primarily due to higher credit facility payments and lower credit facility borrowings in 2022. The increase was partially offset due to lower share repurchases of common stock.
Net cash used in financing activities - discontinuing operations during both the
six months ended
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 ofJune 30, 2022 , we had outstanding convertible senior notes in an aggregate principal amount of$207.9 million , which is fully due on the convertible senior notes' maturity date. As ofJune 30, 2022 , we had no outstanding borrowings under the New Revolving Facility.
Non-cancelable Operating Leases
We have lease arrangements for certain facilities. As of
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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$30.5 million as ofJune 30, 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 plans to make 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$501 million as ofJune 30, 2022 , our future cash flows, 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.
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