mdrx-10q_20170630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35547

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

36-4392754

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

222 Merchandise Mart, Suite 2024

Chicago, IL 60654

(Address of Principal Executive Offices, Zip Code)

(312) 506-1200

(Registrant's Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes        No   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes        No   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes        No   

As of July 31, 2017, there were 180,611,892 shares of the registrant's $0.01 par value common stock outstanding.

1


 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

FORM 10-Q

For the Fiscal Quarter Ended June 30, 2017

TABLE OF CONTENTS

 

 

  

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

3

Item 1.

 

Financial Statements (unaudited)

 

3

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

41

Item 4.

 

Controls and Procedures

 

41

PART II. OTHER INFORMATION

 

42

Item 1.

 

Legal Proceedings

 

42

Item 1A.

 

Risk Factors

 

42

Item 2.

 

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

42

Item 6.

 

Exhibits

 

42

SIGNATURES

 

43

 

2


PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

June 30, 2017

 

 

December 31, 2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

82,714

 

 

$

95,607

 

Restricted cash

 

 

6,400

 

 

 

1,003

 

Accounts receivable, net of allowance of $37,618 and $32,670 as of

   June 30, 2017 and December 31, 2016, respectively

 

 

420,116

 

 

 

405,172

 

Prepaid expenses and other current assets

 

 

113,563

 

 

 

102,551

 

Total current assets

 

 

622,793

 

 

 

604,333

 

Available for sale marketable securities

 

 

63,450

 

 

 

149,100

 

Fixed assets, net

 

 

160,470

 

 

 

148,810

 

Software development costs, net

 

 

192,920

 

 

 

163,879

 

Intangible assets, net

 

 

698,950

 

 

 

741,403

 

Goodwill

 

 

1,929,283

 

 

 

1,924,052

 

Deferred taxes, net

 

 

3,451

 

 

 

2,791

 

Other assets

 

 

112,738

 

 

 

97,791

 

Total assets

 

$

3,784,055

 

 

$

3,832,159

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

114,725

 

 

$

126,144

 

Accrued expenses

 

 

77,375

 

 

 

86,135

 

Accrued compensation and benefits

 

 

59,255

 

 

 

64,291

 

Deferred revenue

 

 

388,647

 

 

 

363,772

 

Current maturities of long-term debt

 

 

21,413

 

 

 

15,158

 

Current maturities of non-recourse long-term debt - Netsmart

 

 

2,460

 

 

 

2,451

 

Current maturities of capital lease obligations

 

 

8,573

 

 

 

9,126

 

Total current liabilities

 

 

672,448

 

 

 

667,077

 

Long-term debt

 

 

730,028

 

 

 

717,853

 

Non-recourse long-term debt - Netsmart

 

 

576,427

 

 

 

576,918

 

Long-term capital lease obligations

 

 

7,628

 

 

 

9,877

 

Deferred revenue

 

 

18,871

 

 

 

18,009

 

Deferred taxes, net

 

 

137,252

 

 

 

141,752

 

Other liabilities

 

 

66,302

 

 

 

39,787

 

Total liabilities

 

 

2,208,956

 

 

 

2,171,273

 

Redeemable convertible non-controlling interest - Netsmart

 

 

409,610

 

 

 

387,685

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock: $0.01 par value, 1,000 shares authorized,

   no shares issued and outstanding as of June 30, 2017 and December 31, 2016

 

 

0

 

 

 

0

 

Common stock: $0.01 par value, 349,000 shares authorized as of June 30, 2017 and

   December 31, 2016; 269,116 and 180,612 shares issued and outstanding as of

  June 30, 2017, respectively; 267,997 and 180,510 shares issued and outstanding as

   of December 31, 2016, respectively

 

 

2,691

 

 

 

2,680

 

Treasury stock: at cost, 88,504 and 87,487 shares as of June 30, 2017 and

   December 31, 2016, respectively

 

 

(322,735

)

 

 

(310,993

)

Additional paid-in capital

 

 

1,784,247

 

 

 

1,789,959

 

Accumulated deficit

 

 

(337,303

)

 

 

(187,351

)

Accumulated other comprehensive loss

 

 

(2,335

)

 

 

(61,829

)

Total Allscripts Healthcare Solutions, Inc.'s stockholders' equity

 

 

1,124,565

 

 

 

1,232,466

 

Non-controlling interest

 

 

40,924

 

 

 

40,735

 

Total stockholders’ equity

 

 

1,165,489

 

 

 

1,273,201

 

Total liabilities and stockholders’ equity

 

$

3,784,055

 

 

$

3,832,159

 

The accompanying notes are an integral part of these consolidated financial statements.

3


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands, except per share amounts)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

279,272

 

 

$

249,871

 

 

$

551,730

 

 

$

479,029

 

Client services

 

 

146,819

 

 

 

136,650

 

 

 

287,836

 

 

 

253,050

 

Total revenue

 

 

426,091

 

 

 

386,521

 

 

 

839,566

 

 

 

732,079

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

 

89,071

 

 

 

79,154

 

 

 

172,468

 

 

 

154,323

 

Client services

 

 

122,229

 

 

 

118,683

 

 

 

247,168

 

 

 

219,542

 

Amortization of software development and acquisition-related assets

 

 

27,300

 

 

 

22,000

 

 

 

53,787

 

 

 

39,632

 

Total cost of revenue

 

 

238,600

 

 

 

219,837

 

 

 

473,423

 

 

 

413,497

 

Gross profit

 

 

187,491

 

 

 

166,684

 

 

 

366,143

 

 

 

318,582

 

Selling, general and administrative expenses

 

 

112,037

 

 

 

94,802

 

 

 

222,882

 

 

 

178,955

 

Research and development

 

 

46,459

 

 

 

47,891

 

 

 

95,691

 

 

 

94,928

 

Asset impairment charges

 

 

0

 

 

 

0

 

 

 

0

 

 

 

4,650

 

Amortization of intangible and acquisition-related assets

 

 

7,891

 

 

 

5,417

 

 

 

15,203

 

 

 

9,579

 

Income from operations

 

 

21,104

 

 

 

18,574

 

 

 

32,367

 

 

 

30,470

 

Interest expense

 

 

(20,290

)

 

 

(16,421

)

 

 

(40,470

)

 

 

(23,390

)

Other (loss) income, net

 

 

(214

)

 

 

106

 

 

 

25

 

 

 

472

 

Impairment of long-term investments

 

 

(144,590

)

 

 

0

 

 

 

(144,590

)

 

 

0

 

Equity in net (loss) income of unconsolidated investments

 

 

(28

)

 

 

(4,898

)

 

 

257

 

 

 

(7,501

)

(Loss) income before income taxes

 

 

(144,018

)

 

 

(2,639

)

 

 

(152,411

)

 

 

51

 

Income tax benefit (provision)

 

 

1,007

 

 

 

503

 

 

 

835

 

 

 

(60

)

Net loss

 

 

(143,011

)

 

 

(2,136

)

 

 

(151,576

)

 

 

(9

)

Less: Net loss (income) attributable to non-controlling interests

 

 

264

 

 

 

87

 

 

 

(189

)

 

 

9

 

Less: Accretion of redemption preference on redeemable

   convertible non-controlling interest - Netsmart

 

 

(10,963

)

 

 

(8,153

)

 

 

(21,925

)

 

 

(8,153

)

Net loss attributable to Allscripts Healthcare

   Solutions, Inc. stockholders

 

$

(153,710

)

 

$

(10,202

)

 

$

(173,690

)

 

$

(8,153

)

Loss per share - basic attributable to Allscripts

   Healthcare Solutions, Inc. stockholders

 

$

(0.85

)

 

$

(0.05

)

 

$

(0.96

)

 

$

(0.04

)

Loss per share - diluted attributable to Allscripts

   Healthcare Solutions, Inc. stockholders

 

$

(0.85

)

 

$

(0.05

)

 

$

(0.96

)

 

$

(0.04

)

The accompanying notes are an integral part of these consolidated financial statements.

4


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(143,011

)

 

$

(2,136

)

 

$

(151,576

)

 

$

(9

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

832

 

 

 

(943

)

 

 

2,347

 

 

 

(199

)

Change in unrealized gain (loss) on available for sale securities

 

 

131,213

 

 

 

(18,115

)

 

 

56,511

 

 

 

(18,115

)

Change in fair value of derivatives qualifying as cash flow hedges

 

 

(315

)

 

 

(227

)

 

 

1,033

 

 

 

214

 

Other comprehensive income (loss) before income tax benefit (expense)

 

 

131,730

 

 

 

(19,285

)

 

 

59,891

 

 

 

(18,100

)

Income tax benefit (expense) related to items in other

   comprehensive loss

 

 

124

 

 

 

89

 

 

 

(397

)

 

 

(85

)

Total other comprehensive income (loss)

 

 

131,854

 

 

 

(19,196

)

 

 

59,494

 

 

 

(18,185

)

Comprehensive loss

 

 

(11,157

)

 

 

(21,332

)

 

 

(92,082

)

 

 

(18,194

)

Less: Comprehensive loss (income) attributable to

   non-controlling interests

 

 

264

 

 

 

87

 

 

 

(189

)

 

 

9

 

Comprehensive loss, net

 

$

(10,893

)

 

$

(21,245

)

 

$

(92,271

)

 

$

(18,185

)

The accompanying notes are an integral part of these consolidated financial statements.

5


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(151,576

)

 

$

(9

)

Adjustments to reconcile net loss to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

101,297

 

 

 

76,576

 

Stock-based compensation expense

 

 

18,461

 

 

 

20,057

 

Excess tax benefits from stock-based compensation

 

 

0

 

 

 

(962

)

Deferred taxes

 

 

(4,659

)

 

 

(1,560

)

Asset impairment charges

 

 

0

 

 

 

4,650

 

Impairment of long-term investments

 

 

144,590

 

 

 

0

 

Equity in net (income) loss of unconsolidated investments

 

 

(257

)

 

 

7,501

 

Other losses, net

 

 

2,294

 

 

 

963

 

Changes in operating assets and liabilities (net of businesses acquired):

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(13,047

)

 

 

(12,407

)

Prepaid expenses and other assets

 

 

(9,231

)

 

 

2,923

 

Accounts payable

 

 

(2,830

)

 

 

15,751

 

Accrued expenses

 

 

(5,187

)

 

 

(8,709

)

Accrued compensation and benefits

 

 

(2,102

)

 

 

(11,404

)

Deferred revenue

 

 

24,923

 

 

 

37,623

 

Other liabilities

 

 

6,683

 

 

 

1,106

 

Net cash provided by operating activities

 

 

109,359

 

 

 

132,099

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(25,035

)

 

 

(16,632

)

Capitalized software

 

 

(71,582

)

 

 

(37,106

)

Cash paid for business acquisitions, net of cash acquired

 

 

(3,975

)

 

 

(905,540

)

Purchases of equity securities, other investments and related

   intangible assets

 

 

(1,323

)

 

 

(20,685

)

Proceeds received from sale of fixed assets

 

 

0

 

 

 

37

 

Net cash used in investing activities

 

 

(101,915

)

 

 

(979,926

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from sale or issuance of common stock

 

 

0

 

 

 

5

 

Proceeds from issuance of redeemable convertible preferred stock - Netsmart

 

 

0

 

 

 

333,605

 

Excess tax benefits from stock-based compensation

 

 

0

 

 

 

962

 

Taxes paid related to net share settlement of equity awards

 

 

(6,554

)

 

 

(7,363

)

Payments of capital lease obligations

 

 

(5,966

)

 

 

(1,638

)

Credit facility payments

 

 

(110,939

)

 

 

(51,362

)

Credit facility borrowings, net of issuance costs

 

 

120,000

 

 

 

599,135

 

Repurchase of common stock

 

 

(12,077

)

 

 

(52,075

)

Net cash (used in) provided by financing activities

 

 

(15,536

)

 

 

821,269

 

Effect of exchange rate changes on cash and cash equivalents

 

 

596

 

 

 

340

 

Net decrease in cash and cash equivalents

 

 

(7,496

)

 

 

(26,218

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

96,610

 

 

 

116,873

 

Cash, cash equivalents and restricted cash, end of period

 

$

89,114

 

 

$

90,655

 

The accompanying notes are an integral part of these consolidated financial statements.


6


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1. Basis of Presentation and Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Allscripts Healthcare Solutions, Inc. (“Allscripts”) and its wholly-owned subsidiaries and controlled affiliates. All significant intercompany balances and transactions have been eliminated. Each of the terms “we,” “us,” “our” or the “Company” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.

Unaudited Interim Financial Information

The unaudited interim consolidated financial statements as of and for the three and six months ended June 30, 2017 and 2016 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim consolidated financial statements are unaudited and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the consolidated financial statements for the periods presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The consolidated results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.

Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting, although the Company believes that the disclosures made are adequate to make that information not misleading. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016 (our “Form 10-K”).

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.

Significant Accounting Policies

There have been no changes to our significant accounting policies from those disclosed in our Form 10-K.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”). The guidance in ASU 2016-07 eliminates the requirement that, when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for interim and annual periods beginning after December 15, 2016, and should be applied prospectively. Early application is permitted. We adopted this new guidance effective January 1, 2017 and the adoption did not have any impact on our consolidated financial statements.

7


In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting (“ASU 2016-09”). The Company adopted ASU 2016-09 effective January 1, 2017, which requires that tax effects related to employee share-based payments be recorded prospectively as a component of the provision for income taxes, thus potentially increasing the volatility in our effective tax rate (see Note 9, “Income Taxes”). Additionally, we prospectively adopted the requirement to present recognized excess tax benefits related to employee share-based payments as an operating activity in the accompanying Consolidated Statements of Cash Flows. ASU 2016-09 also eliminates prospectively the requirement to consider anticipated tax windfalls and shortfalls in the calculation of assumed proceeds under the treasury stock method used for computing the dilutive effect of share-based payment awards in the calculation of diluted earnings per share. Finally, ASU 2016-09 requires the recognition of excess tax benefits related to employee share-based payments, regardless of whether the tax deduction reduces taxes payable. As part of the adoption of this requirement, we decreased the opening balance of accumulated deficit by $1.8 million to recognize excess tax benefits not previously recorded since they did not reduce taxes payable. The adoption of the remaining requirements of ASU 2016-09 did not have an impact on our financial position or results of operation.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The guidance in ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We early adopted this new guidance effective January 1, 2017 and the adoption did not have any impact on our consolidated financial statements.

In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). The guidance in ASU 2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 is effective prospectively for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. We early adopted this new guidance effective June 1, 2017 and the adoption did not have any impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (“ASU 2014-09”), to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. As issued, ASU 2014-09 was effective for us for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. On August 12, 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, while also permitting companies to voluntarily adopt the new revenue standard as of the original effective date. In addition, during 2016, the FASB issued ASU 2016-08, ASU 2016-10, 2016-11, 2016-12 and 2016-20, all of which clarify certain implementation guidance within ASU 2014-09.

The new revenue recognition guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method).  We have decided to adopt the standard effective January 1, 2018 using the modified retrospective method.

We have completed our assessment of our systems, available data and processes that will be affected by the implementation of this new guidance. We are continuing to work towards establishing policies, updating our processes and implementing necessary changes to be able to comply with the new requirements. Through evaluation of the standard’s requirements, the Company plans to utilize several practical expedients including (i) viewing shipping and handling as a fulfillment cost versus a distinct performance obligation, and (ii) the right to invoice expedient as it relates to reimbursable expenses and transaction-related revenue activities. Based on the results of our assessment to date, we anticipate this standard will have an impact, which could be significant, on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impact relates to our accounting for software license revenue.  We expect revenue related to hardware, software-as-a-service-based offerings, client services, electronic data interchange services, and managed services to remain substantially unchanged. We expect to recognize a significant portion of license revenue upfront rather than be restricted to payment amounts due under extended payment term contracts as required under the current guidance.  We also expect to recognize license revenue upfront rather than over the subscription period from certain multi-year software subscription contracts that include both software licenses and software support and maintenance. Due to the complexity of certain of our license subscription contracts, the actual revenue license recognition treatment required under the new standard will be dependent on contract-specific terms, and may vary in some instances from upfront recognition.

8


In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 provides new accounting guidance to assist an entity in evaluating when a set of transferred assets and activities is a business.  The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied prospectively to any transactions occurring within the period of adoption.  Early adoption is permitted, including for interim or annual periods in which the financial statements have not been issued or made available for issuance. We are currently evaluating the impact of adopting this new guidance, including the timing of adoption.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which provides new accounting guidance to simplify the accounting for goodwill impairment. ASU 2017-04 removes Step Two of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new guidance, a goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill assigned to the reporting unit. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. ASU 2017-04 is effective for annual and interim periods in fiscal years beginning after December 15, 2019 with early adoption permitted for any goodwill impairment tests performed after January 1, 2017. The new guidance is to be applied prospectively. We are currently evaluating the impact of this accounting guidance, including the timing of adoption.

We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.

2. Business Combinations

2017 Business Combinations

Asset Purchase Agreement with Third Party

On March 31, 2017, Netsmart (as defined below) entered into an Asset Purchase Agreement with a third party, for an aggregate cash consideration of $4.0 million, to acquire intellectual property, certain contractual relationships and certain associates. This transaction has been accounted for as a business combination. The Asset Purchase Agreement provides for contingent consideration to be paid to the third party based on the number of customers of the third party that migrate to Netsmart’s electronic health record product.  The value of the contingent consideration has been estimated to be $0.7 million. Netsmart accrued $0.5 million at June 30, 2017 within other liabilities. This amount represents the discounted fair value of the contingent consideration. This transaction resulted in the recognition of goodwill of $4.4 million. The allocation of the fair value of the consideration transferred is based on management’s judgment after evaluating several factors, including a preliminary valuation assessment. 

2016 Business Combinations Update

Formation of Joint Business Entity and Acquisition of Netsmart, Inc.

 

On March 20, 2016, we entered into a Contribution and Investment Agreement with GI Netsmart Holdings LLC, a Delaware limited liability company (“GI Partners”), to form a joint business entity to which we contributed our HomecareTM business and GI Partners made a cash contribution. On April 19, 2016, the joint business entity acquired Netsmart, Inc., a Delaware corporation. As a result of these transactions (the “Netsmart Transaction”), the joint business entity combined the Allscripts HomecareTM business with Netsmart, Inc. Throughout the rest of this Form 10-Q, the joint business entity is referred to as “Netsmart”. As part of the Netsmart Transaction, we deposited $15 million in an escrow account to be used by Netsmart to facilitate the integration of our HomecareTM business within Netsmart over the next five years, at which time the restriction on any unused funds will lapse. As of June 30, 2017, there is $12.8 million remaining in the escrow account. Our Form 10-K includes a detailed discussion about the Netsmart Transaction. We finalized the allocation of the fair value of the consideration transferred as of December 31, 2016.

Acquisition of HealthMEDX

On October 27, 2016, Netsmart completed the acquisition of HealthMEDX, LLC, a Delaware limited liability company (“HealthMEDX”), for an aggregate consideration of $39.2 million. HealthMEDX is a provider of electronic medical record solutions for long-term and post-acute care including continuing care retirement communities, assisted living, independent living, skilled nursing and home care providers. During the three months ended March 31, 2017, we finalized the allocation of the fair value of the consideration transferred and recorded a measurement period adjustment of $0.1 million related to the fair value of liabilities with an offset to goodwill.

9


Third Party Acquisitions

During the three months ended June 30, 2017, we recorded final measurement period adjustments against goodwill related to the Company’s acquisitions of third parties during the fourth quarter of 2016.

Supplemental Information

The supplemental pro forma results below for the three and six months ended June 30, 2016 were calculated after applying our accounting policies and adjusting the results of Netsmart and HealthMEDX to reflect (i) the additional depreciation and amortization that would have resulted from the fair value adjustments to property, plant and equipment and intangible assets, (ii) the additional interest expense associated with Netsmart’s borrowings under new term loans and (iii) the additional amortization of the estimated adjustment to decrease the assumed deferred revenue obligations to fair value, that would have been recognized assuming both acquisitions occurred on January 1, 2015, together with the consequential tax effects. The supplemental pro forma results were also adjusted to exclude acquisition-related and transaction costs incurred during the below periods. The effects of transactions between Allscripts and Netsmart during the periods presented have been eliminated in the supplemental pro forma data.

The revenue and net loss of Netsmart since April 19, 2016 are included in our consolidated statement of operations for the three and six months ended June 30, 2016. The consolidated statements of operations for the three and six months ended June 30, 2016 do not include any actual revenue and earnings from HealthMEDX since this acquisition was completed on October 27, 2016. The below supplemental pro forma data for the combined entity is presented under the assumption that both of these acquisitions occurred on January 1, 2015:

(In thousands, except per share amounts)

 

Three Months Ended

June 30, 2016

 

 

Six Months Ended

June 30, 2016

 

Actual from Netsmart since acquisition date of April 19, 2016:

 

 

 

 

 

 

 

 

Revenue

 

$

44,233

 

 

$

44,233

 

Net loss

 

$

(7,113

)

 

$

(7,113

)

 

 

 

 

 

 

 

 

 

Supplemental pro forma data for combined entity:

 

 

 

 

 

 

 

 

Revenue

 

$

403,368

 

 

$

804,702

 

Net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders

 

$

(45,494

)

 

$

(60,490

)

Loss per share, basic and diluted

 

$

(0.24

)

 

$

(0.32

)

 

3. Fair Value Measurements and Long-term Investments

Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market participant assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair values of assets and liabilities required to be measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their value in one of the following three categories:

Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. Our Level 1 financial instruments include our investment in NantHealth, Inc. (“NantHealth”) common stock. Refer to Note 11, “Other Comprehensive Income,” for further information regarding our available for sale marketable securities.

Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Our Level 2 derivative financial instruments include foreign currency forward contracts valued based upon observable values of spot and forward foreign currency exchange rates. Refer to Note 10, “Derivative Financial Instruments,” for further information regarding these derivative financial instruments.

Level 3: Unobservable inputs that are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Our Level 3 financial instruments include derivative financial instruments comprising the 1.25% Call Option asset and the 1.25% embedded cash conversion option liability that are not actively traded. These derivative instruments were designed with the intent that changes in their fair values would substantially offset, with limited net impact to our earnings. Therefore, we believe the sensitivity of changes in the unobservable inputs to the option pricing model for these instruments is substantially mitigated. Refer to Note 10, “Derivative Financial Instruments,” for further information regarding these derivative financial instruments. Our Level 3 financial instruments also include a third party non-marketable convertible note. The sensitivity of changes in the unobservable inputs to the valuation pricing model used to value these instruments is not material to our consolidated results of operations.

10


The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of the respective balance sheet dates:

 

 

Balance Sheet

 

June 30, 2017

 

 

December 31, 2016

 

(In thousands)

 

Classifications

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

NantHealth

   Common Stock

 

Available for sale

   marketable

   securities

 

$

63,450

 

 

$

0

 

 

$

0

 

 

$

63,450

 

 

$

149,100

 

 

$

0

 

 

$

0

 

 

$

149,100

 

Non-marketable

   convertible note

 

Other assets

 

 

0

 

 

 

0

 

 

 

1,152

 

 

 

1,152

 

 

 

0

 

 

 

0

 

 

 

1,156

 

 

 

1,156

 

1.25% Call Option

 

Other assets

 

 

0

 

 

 

0

 

 

 

32,046

 

 

 

32,046

 

 

 

0

 

 

 

0

 

 

 

17,080

 

 

 

17,080

 

1.25% Embedded

   cash conversion

   option

 

Other liabilities

 

 

0

 

 

 

0

 

 

 

(32,931

)

 

 

(32,931

)

 

 

0

 

 

 

0

 

 

 

(17,659

)

 

 

(17,659

)

Foreign exchange

   derivative assets

 

Prepaid expenses

   and other

   current assets

 

 

0

 

 

 

2,054

 

 

 

0

 

 

 

2,054

 

 

 

0

 

 

 

1,021

 

 

 

0

 

 

 

1,021

 

Total

 

 

 

$

63,450

 

 

$

2,054

 

 

$

267

 

 

$

65,771

 

 

$

149,100

 

 

$

1,021

 

 

$

577

 

 

$

150,698

 

Long-term Investments

The following table summarizes our long-term equity investments which are included in other assets in the accompanying consolidated balance sheets:

 

 

Number of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investees

 

 

Original

 

 

Carrying Value at

 

(In thousands, except # of investees)

 

at June 30, 2017

 

 

Investment

 

 

June 30, 2017

 

 

December 31, 2016

 

Equity method investments (1)

 

 

3

 

 

$

1,658

 

 

$

3,693

 

 

$

2,436

 

Cost method investments

 

 

6

 

 

 

31,284

 

 

 

25,284

 

 

 

26,041

 

Total equity investments

 

 

9

 

 

$

32,942

 

 

$

28,977

 

 

$

28,477

 

 

 

 

(1)

Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.

As of June 30, 2017, it is not practicable to estimate the fair value of our non-marketable cost and equity method investments primarily because of their illiquidity and restricted marketability. The factors we considered in trying to determine fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and the issuer’s subsequent or planned raises of capital.

Impairment of Long- term Investments

As of June 30, 2017, management assessed each of our investments on an individual basis to determine if the decline in fair value was other than temporary. Based on management's assessment of each individual investment, the Company determined that the decline in fair value of certain of these investments was other than temporary based on a number of factors, including, but not limited to, uncertainty regarding our intent to hold these investments for a period of time that would be sufficient to recover our cost basis in the event of a market recovery, the fact that the fair value of each investment had continued to decline below cost over the period held, and the Company's uncertainty around the near-term prospects for certain of the investments. As a result, the Company recognized other-than-temporary impairment charges of $142.2 million on available for sale marketable securities during the three months ended June 30, 2017. The cost basis of these marketable securities prior to recognizing the impairment charges was approximately $205.6 million. The Company determined the fair value of these securities based on Level 1 inputs. In addition, the Company recognized other-than-temporary impairment charges of $2.1 million on a cost method equity investment during the three months ended June 30, 2017. The aggregate carrying value of this equity investment prior to recognizing the impairment charge was $2.1 million. These impairment charges were recorded in impairment of long-term investments in our consolidated statements of operations. 

11


Long-term Financial Liabilities

Our long-term financial liabilities include amounts outstanding under our senior secured credit facility and Netsmart’s Credit Agreements (as defined in Note 8, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. In addition, the carrying amount of our 1.25% Cash Convertible Senior Notes (the “1.25% Notes”) approximates fair value as June 30, 2017, since the effective interest rate on the 1.25% Notes approximates current market rates. See Note 8, “Debt,” for further information regarding our long-term financial liabilities.

4. Stockholders' Equity

Stock-based Compensation Expense

Stock-based compensation expense recognized during the three and six months ended June 30, 2017 and 2016 is included in our consolidated statements of operations as shown in the below table. Stock-based compensation expense includes both non-cash expense related to grants of stock-based awards as well as cash expense related to the employee discount applied to purchases of our common stock under our employee stock purchase plan.  In addition, the three and six months periods ended June 30, 2017 and 2016 include stock-based compensation expense related to Netsmart’s time-based liability classified option awards. No stock-based compensation costs were capitalized during the three and six months ended June 30, 2017 and 2016.

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

988

 

 

$

1,061

 

 

$

2,113

 

 

$

2,230

 

Client services

 

 

993

 

 

 

1,138

 

 

 

2,565

 

 

 

2,628

 

Total cost of revenue

 

 

1,981

 

 

 

2,199

 

 

 

4,678

 

 

 

4,858

 

Selling, general and administrative expenses

 

 

7,050

 

 

 

6,342

 

 

 

10,600

 

 

 

11,508

 

Research and development

 

 

2,120

 

 

 

2,119

 

 

 

4,709

 

 

 

4,695

 

Total stock-based compensation expense

 

$

11,151

 

 

$

10,660

 

 

$

19,987

 

 

$

21,061

 

Allscripts Long-Term Incentive Plan

We measure stock-based compensation expense at the grant date based on the fair value of the award. We recognize the expense for service-based share awards over the requisite service period on a straight-line basis, net of estimated forfeitures. We recognize the expense for performance-based and market-based share awards over the vesting period under the accelerated attribution method, net of estimated forfeitures. In addition, we recognize stock-based compensation cost for awards with performance conditions if and when we conclude that it is probable that the performance conditions will be achieved.

The fair value of service-based and performance-based restricted stock units is measured at the underlying closing share price of our common stock on the date of grant. The fair value of market-based restricted stock units is measured using the Monte Carlo pricing model. No stock options were granted during the three and six months ended June 30, 2017 and 2016.

We granted stock-based awards as follows:

 

 

Three Months Ended

June 30, 2017

 

 

Six Months Ended

June 30, 2017

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant Date

 

 

 

 

 

 

Grant Date

 

(In thousands, except per share amounts)

 

Shares

 

 

Fair Value

 

 

Shares

 

 

Fair Value

 

Service-based restricted stock units

 

 

128

 

 

$

11.93

 

 

 

1,897

 

 

$

12.38

 

Performance-based restricted stock units with a service

   condition

 

 

0

 

 

$

0.00

 

 

 

572

 

 

$

11.93

 

Market-based restricted stock units with a service

   condition

 

 

41

 

 

$

12.49

 

 

 

613

 

 

$

13.34

 

 

 

 

169

 

 

$

12.06

 

 

 

3,082

 

 

$

12.48

 

During the six months ended June 30, 2017 and the year ended December 31, 2016, 1.1 million and 1.5 million shares of common stock, respectively, were issued in connection with the exercise of options and the release of restrictions on stock awards. 

12


Net Share-settlements

Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock. The majority of restricted stock units and awards that vested during the six months ended June 30, 2017 and year ended December 31, 2016 were net-share settled such that we withheld shares with fair value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total payments for the employees' minimum statutory tax obligations to the taxing authorities are reflected as a financing activity within the accompanying consolidated statements of cash flows. The total shares withheld for the six months ended June 30, 2017 and 2016 were 552 thousand and 564 thousand, respectively, and were based on the value of the restricted stock units on their vesting date as determined by our closing stock price. These net-share settlements had the effect of share repurchases by us as they reduced the number of shares that would have otherwise been issued as a result of the vesting.

Stock Repurchases

On November 17, 2016, we announced that our Board approved a new stock purchase program under which we may repurchase up to $200 million of our common stock through December 31, 2019. During the three and six months ended June 30, 2017, we repurchased 1.0 million shares of our common stock under the new program for a total of $12.1 million. Any future share repurchase transactions may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means, subject to market conditions. Any repurchase activity will depend on many factors such as our working capital needs, cash requirements for investments, debt repayment obligations, economic and market conditions at the time, including the price of our common stock, and other factors that we consider relevant. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.

Netsmart Stock-based Compensation Expense

Stock-based compensation expense (benefit) related to Netsmart’s time-based liability classified option awards was included in the following categories in our consolidated statements of operations:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

10

 

 

$

25

 

 

$

(25

)

 

$

25

 

Client services

 

 

13

 

 

 

37

 

 

 

(68

)

 

 

37

 

Total cost of revenue

 

 

23

 

 

 

62

 

 

 

(93

)

 

 

62

 

Selling, general and administrative expenses

 

 

478

 

 

 

1,328

 

 

 

(2,859

)

 

 

1,328

 

Research and development

 

 

15

 

 

 

36

 

 

 

(76

)

 

 

36

 

Total stock-based compensation expense (benefit)

 

$

516

 

 

$

1,426

 

 

$

(3,028

)

 

$

1,426

 

At June 30, 2017, the liability for outstanding awards was $2.8 million. As of June 30, 2017 the weighted average fair value per unit using the Black‑Scholes‑Merton option pricing model was estimated at $0.15, as compared to the estimated unit value of $1.00 at December 31, 2016. The significant decrease in unit value during the first quarter of 2017 resulted in the reversal of previously recognized stock-based compensation expense during the three months ended March 31, 2017 period, as required under the liability method of accounting.

No option unit awards were granted by Netsmart during the three and six months ended June 30, 2017.

13


5. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average shares of common stock outstanding. For purposes of calculating diluted earnings (loss) per share, the denominator includes both the weighted average shares of common stock outstanding and dilutive common stock equivalents. Dilutive common stock equivalents consist of stock options, restricted stock unit awards and warrants calculated under the treasury stock method.

The calculations of earnings (loss) per share are as follows:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands, except per share amounts)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Basic Loss per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(143,011

)

 

$

(2,136

)

 

$

(151,576

)

 

$

(9

)

Less: Net loss (income) attributable to non-controlling interests

 

 

264

 

 

 

87

 

 

 

(189

)

 

 

9

 

Less: Accretion of redemption preference on redeemable

   convertible non-controlling interest - Netsmart

 

 

(10,963

)

 

 

(8,153

)

 

 

(21,925

)

 

 

(8,153

)

Net loss attributable to Allscripts Healthcare Solutions, Inc.

   stockholders

 

$

(153,710

)

 

$

(10,202

)

 

$

(173,690

)

 

$

(8,153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

181,193

 

 

 

186,792

 

 

 

180,981

 

 

 

187,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Loss per Common Share

 

$

(0.85

)

 

$

(0.05

)

 

$

(0.96

)

 

$

(0.04

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Loss per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(143,011

)

 

$

(2,136

)

 

$

(151,576

)

 

$

(9

)

Less: Net loss (income) attributable to non-controlling interests

 

 

264

 

 

 

87

 

 

 

(189

)

 

 

9

 

Less: Accretion of redemption preference on redeemable

   convertible non-controlling interest - Netsmart

 

 

(10,963

)

 

 

(8,153

)

 

 

(21,925

)

 

 

(8,153

)

Net loss attributable to Allscripts Healthcare Solutions, Inc.

   stockholders

 

$

(153,710

)

 

$

(10,202

)

 

$

(173,690

)

 

$

(8,153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

181,193

 

 

 

186,792

 

 

 

180,981

 

 

 

187,676

 

Plus: Dilutive effect of stock options, restricted stock unit

   awards and warrants

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

Weighted-average common shares outstanding assuming

   dilution

 

 

181,193

 

 

 

186,792

 

 

 

180,981

 

 

 

187,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Loss per Common Share

 

$

(0.85

)

 

$

(0.05

)

 

$

(0.96

)

 

$

(0.04

)

As a result of the net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders for the three and six months ended June 30, 2017 and 2016, we used basic weighted-average common shares outstanding in the calculation of diluted loss per share for that period, since the inclusion of any stock equivalents would be anti-dilutive.

The following stock options, restricted stock unit awards and warrants are not included in the computation of diluted earnings (loss) per share as the effect of including such stock options, restricted stock unit awards and warrants in the computation would be anti-dilutive:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Shares subject to anti-dilutive stock options, restricted stock

   unit awards and warrants excluded from calculation

 

 

26,652

 

 

 

25,210

 

 

 

26,668

 

 

 

25,227

 

 


14


6. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following:

 

 

June 30, 2017

 

 

December 31, 2016

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Intangible

 

 

Carrying

 

 

Accumulated

 

 

Intangible

 

(In thousands)

 

Amount

 

 

Amortization

 

 

Assets, Net

 

 

Amount

 

 

Amortization

 

 

Assets, Net

 

Intangibles subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proprietary technology

 

$

628,082

 

 

$

(375,531

)

 

$

252,551

 

 

$

627,819

 

 

$

(347,477

)

 

$

280,342

 

Customer contracts and relationships

 

 

813,643

 

 

 

(446,244

)

 

 

367,399

 

 

 

813,021

 

 

 

(430,960

)

 

 

382,061

 

Total

 

$

1,441,725

 

 

$

(821,775

)

 

$

619,950

 

 

$

1,440,840

 

 

$

(778,437

)

 

$

662,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangibles not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Registered trademarks

 

 

 

 

 

 

 

 

 

$

79,000

 

 

 

 

 

 

 

 

 

 

$

79,000

 

Goodwill

 

 

 

 

 

 

 

 

 

 

1,929,283

 

 

 

 

 

 

 

 

 

 

 

1,924,052

 

Total

 

 

 

 

 

 

 

 

 

$

2,008,283

 

 

 

 

 

 

 

 

 

 

$

2,003,052

 

Changes in the carrying amounts of goodwill by reportable segment for the six months ended June 30, 2017 were as follows:

 

 

Clinical and

 

 

Population

 

 

 

 

 

 

 

 

 

(In thousands)

 

Financial Solutions

 

 

Health

 

 

Netsmart

 

 

Total

 

Balance as of December 31, 2016

 

$

843,837

 

 

$

404,875

 

 

$

675,340

 

 

$

1,924,052

 

Other additions

 

 

40

 

 

 

47

 

 

 

4,503

 

 

 

4,590

 

Foreign exchange translation

 

 

641

 

 

 

0

 

 

 

0

 

 

 

641

 

Balance as of June 30, 2017

 

$

844,518

 

 

$

404,922

 

 

$

679,843

 

 

$

1,929,283

 

There were no accumulated impairment losses associated with our goodwill as of June 30, 2017 or December 31, 2016.

Other additions during the six months ended June 30, 2017 relate to goodwill arising from Netsmart’s Purchase Agreement with a third party and measurement period adjustments against goodwill related to the Company’s acquisitions of third parties. Refer to Note 2, “Business Combinations,” for additional information regarding these transactions.

7. Asset and Long-term Investment Impairment Charges

We incurred the following asset and long-term investment impairment charges:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Asset impairment charges

 

$

0

 

 

$

0

 

 

$

0

 

 

$

4,650

 

Impairment of long-term investments

 

$

144,590

 

 

$

0

 

 

$

144,590

 

 

$

0

 

During the first quarter of 2016, we incurred non-cash asset impairment charges which included $2.2 million for the impairment of capitalized software as a result of our decision to discontinue several software development projects, $2.1 million for the impairment of one of our cost method equity investments, and other charges of $0.4 million to write down a long-term asset to its estimated net realizable value.

During the three months ended June 30, 2017, we recognized other-than-temporary non-cash impairment charges of $144.6 million associated with two of the Company’s long-term investments based on management’s assessment of the likelihood of near-term recovery of the investments’ value. The majority of the impairment charges relate to our investment in NantHealth common stock. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 11, “Other Comprehensive Income,” for further information regarding these impairments. Refer to Note 15, “Subsequent Events,” for information regarding our agreement to divest our investment in NantHealth common stock.

15


8. Debt

Debt outstanding, excluding capital leases, consists of the following:

  

 

June 30, 2017

 

 

December 31, 2016

 

(In thousands)

 

Principal Balance

 

 

Unamortized Discount and Debt Issuance Costs

 

 

Net Carrying Amount

 

 

Principal Balance

 

 

Unamortized Discount and Debt Issuance Costs

 

 

Net Carrying Amount

 

1.25% Cash Convertible

   Senior Notes

 

$

345,000

 

 

$

42,662

 

 

$

302,338

 

 

$

345,000

 

 

$

49,186

 

 

$

295,814

 

Senior Secured Credit Facility

 

 

453,125

 

 

 

4,022

 

 

 

449,103

 

 

 

441,875

 

 

 

4,691

 

 

 

437,184

 

Netsmart Non-Recourse Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien Term Loan

 

 

430,749

 

 

 

10,703

 

 

 

420,046

 

 

 

432,925

 

 

 

11,655

 

 

 

421,270

 

Second Lien Term Loan

 

 

167,000

 

 

 

8,159

 

 

 

158,841

 

 

 

167,000

 

 

 

8,901

 

 

 

158,099

 

Other debt

 

 

0

 

 

 

0

 

 

 

0

 

 

 

13

 

 

 

0

 

 

 

13

 

Total debt

 

$

1,395,874

 

 

$

65,546

 

 

$

1,330,328

 

 

$

1,386,813

 

 

$

74,433

 

 

$

1,312,380

 

Less: Debt payable within

   one year - excluding Netsmart

 

 

21,875

 

 

 

462

 

 

 

21,413

 

 

 

15,638

 

 

 

480

 

 

 

15,158

 

Less: Debt payable within

   one year - Netsmart

 

 

4,351

 

 

 

1,891

 

 

 

2,460

 

 

 

4,351

 

 

 

1,900

 

 

 

2,451

 

Total long-term debt, less

   current maturities

 

$

1,369,648

 

 

$

63,193

 

 

$

1,306,455

 

 

$

1,366,824

 

 

$

72,053

 

 

$

1,294,771

 

Interest expense consists of the following:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Interest expense

 

$

4,668

 

 

$

3,595

 

 

$

9,502

 

 

$

7,133

 

Amortization of discounts and debt issuance costs

 

 

3,612

 

 

 

3,448

 

 

 

7,193

 

 

 

6,879

 

Netsmart:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense (1)

 

 

11,164

 

 

 

8,530

 

 

 

22,081

 

 

 

8,530

 

Amortization of discounts and debt issuance costs

 

 

846

 

 

 

848

 

 

 

1,694

 

 

 

848

 

Total interest expense

 

$

20,290

 

 

$

16,421

 

 

$

40,470

 

 

$

23,390

 

 

 

 

(1)

  Includes interest expense related to capital leases.

Interest expense related to the 1.25% Notes, included in the table above, consists of the following:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Coupon interest at 1.25%

 

$

1,078

 

 

$

1,078

 

 

$

2,156

 

 

$

2,156

 

Amortization of discounts and debt issuance costs

 

 

3,278

 

 

 

3,108

 

 

 

6,524

 

 

 

6,216

 

Total interest expense related to the 1.25% Notes

 

$

4,356

 

 

$

4,186

 

 

$

8,680

 

 

$

8,372

 

Allscripts Senior Secured Credit Facility

As of June 30, 2017, $228.1 million under a term loan, $225.0 million under our revolving credit facility, and $0.8 million in letters of credit were outstanding under our senior secured credit facility.

As of June 30, 2017, the interest rate on the borrowings under our senior secured credit facility was LIBOR plus 2.00%, which totaled 3.23%. We were in compliance with all covenants under the senior secured credit facility agreement as of June 30, 2017.

As of June 30, 2017, we had $324.2 million available, net of outstanding letters of credit, under our revolving credit facility. There can be no assurance that we will be able to draw on the full available balance of our revolving credit facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings.

As of June 30, 2017, the if-converted value of the 1.25% Notes did not exceed the 1.25% Notes’ principal amount.  


16


Netsmart Non-Recourse Debt

As of June 30, 2017, $430.7 million under the Netsmart First Lien Term Loan, $167.0 million under the Netsmart Second Lien Term Loan and no amounts under the Netsmart Revolving Facility (collectively, the “Credit Agreements”) were outstanding.

As of June 30, 2017, the interest rate on the borrowings under the Netsmart First Lien Term Loan was Adjusted LIBO plus 4.50%, which totaled 5.80%, the interest rate on the borrowings under the Netsmart Second Lien Term Loan was Adjusted LIBO plus 9.50%, which totaled 10.70%, and the interest rate on the borrowings under the Netsmart Revolving Facility was Adjusted LIBO plus 4.75%, which totaled 6.05%. Netsmart was in compliance with all covenants under its Credit Agreements as of June 30, 2017.

As of June 30, 2017, Netsmart had $48.5 million available, net of outstanding letters of credit of $1.5 million, under the Netsmart Revolving Facility. There can be no assurance that Netsmart will be able to draw on the full available balance of the Netsmart Revolving Facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings.

The following table summarizes future debt payment obligations as of June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Total

 

 

Remainder of 2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

Thereafter

 

1.25% Cash Convertible Senior Notes (1)

 

$

345,000

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

345,000

 

 

$

0

 

 

$

0

 

Term Loan

 

 

228,125

 

 

 

9,375

 

 

 

28,125

 

 

 

40,625

 

 

 

150,000

 

 

 

0

 

 

 

0

 

Revolving Facility (2)

 

 

225,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

225,000

 

 

 

0

 

 

 

0

 

Netsmart Non-Recourse Debt (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien Term Loan

 

 

430,749

 

 

 

2,176

 

 

 

4,351

 

 

 

4,351

 

 

 

4,351

 

 

 

4,351

 

 

 

411,169

 

Second Lien Term Loan

 

 

167,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

167,000

 

Total debt

 

$

1,395,874

 

 

$

11,551

 

 

$

32,476

 

 

$

44,976

 

 

$

724,351

 

 

$

4,351

 

 

$

578,169

 

 

 

 

(1)     Assumes no cash conversions of the 1.25% Notes prior to their maturity on July 1, 2020.

(2)     Assumes no additional borrowings after June 30, 2017, payment of any required periodic installments of principal and that all drawn amounts are repaid upon maturity.

9. Income Taxes

We account for income taxes under FASB Accounting Standards Codification 740, Income Taxes (“ASC 740”). We calculate the quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby we forecast the estimated annual effective tax rate and then apply that rate to the year-to-date pre-tax book (loss) income. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective rate, including factors such as the valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, or changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.  There is no tax benefit recognized on certain of the net operating losses incurred due to insufficient evidence supporting the Company’s ability to use these losses in the future. The effective tax rates were as follows:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Loss) income before income taxes

 

$

(144,018

)

 

$

(2,639

)

 

$

(152,411

)

 

$

51

 

Income tax benefit (provision)

 

$

1,007

 

 

$

503

 

 

$

835

 

 

$

(60

)

Effective tax rate

 

 

0.7

%

 

 

19.1

%

 

 

0.5

%

 

 

117.6

%

 

Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate due primarily to valuation allowance, permanent differences, income attributable to foreign jurisdictions taxed at lower rates, state taxes, tax credits and certain discrete items. Our effective tax rate for the three and six months ended June 30, 2017, compared with the prior year comparable periods, differs primarily due to $56.5 million of valuation allowance in the six months ended June 30, 2017 for deferred taxes on investment impairment not deductible for tax until disposal of the investment. The classification of the loss at this later disposal time is yet to be determined, but likely would result in a capital loss which can only can be deductible to the extent of offsetting capital gains.

17


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). We recorded $58.8 million of valuation allowance during the six months ended June 30, 2017 related to deferred tax assets associated with net operating loss carryforwards, credit carryforwards and other deferred tax assets not expected to be realized.

Effective January 1, 2017, we adopted ASU 2016-09.  The guidance in ASU 2016-09, among other things, will require all income tax effects of share-based awards to be recognized in the statement of operations when the awards vest or are settled as a discrete item in the period in which they occur.  In the six months ended June 30, 2017, we recorded $1.5 million of tax expense for awards in which the compensation cost recorded was higher than the tax deductions for the awards.  We recorded an offsetting release of valuation allowance in the quarter of $1.5 million, the effect of which has already been included in the valuation allowance amount recorded in the six months ended June 30, 2017 noted above.  ASU 2016-09 requires entities to recognize excess tax benefits, regardless of whether the tax deduction reduces taxes payable.  As part of adopting the new standard, we recorded a gross cumulative effect adjustment of $5.6 million to the opening balance of accumulated deficit to create a deferred tax asset to recognize excess tax benefits not previously recorded.  The net decrease to accumulated deficit was $1.8 million due to the recognition of a corresponding valuation allowance of $3.8 million.

Our unrecognized income tax benefits were $12.2 million and $11.4 million as of June 30, 2017 and December 31, 2016, respectively. If any portion of our unrecognized tax benefits is recognized, it could impact our effective tax rate. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations, and changes in tax law.

 

10. Derivative Financial Instruments

The following tables provide information about the fair values of our derivative financial instruments as of the respective balance sheet dates:

 

 

June 30, 2017

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

(In thousands)

 

Balance Sheet Location

 

Fair Value

 

 

Balance Sheet Location

 

Fair Value

 

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid expenses and

   other current assets

 

$

2,054

 

 

Accrued expenses

 

$

0

 

Derivatives not subject to hedge accounting:

 

 

 

 

 

 

 

 

 

 

 

 

1.25% Call Option

 

Other assets

 

 

32,046

 

 

N/A

 

 

 

 

1.25% Embedded cash conversion option

 

N/A

 

 

 

 

 

Other liabilities

 

 

32,931

 

Total derivatives

 

 

 

$

34,100

 

 

 

 

$

32,931

 

 

 

 

December 31, 2016

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

(In thousands)

 

Balance Sheet Location

 

Fair Value

 

 

Balance Sheet Location

 

Fair Value

 

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Prepaid expenses and

   other current assets

 

$

1,021

 

 

Accrued expenses

 

$

0

 

Derivatives not subject to hedge accounting:

 

 

 

 

 

 

 

 

 

 

 

 

1.25% Call Option

 

Other assets

 

 

17,080

 

 

N/A

 

 

 

 

1.25% Embedded cash conversion option

 

N/A

 

 

 

 

 

Other liabilities

 

 

17,659

 

Total derivatives

 

 

 

$

18,101

 

 

 

 

$

17,659

 

 

N/A – We define “N/A” as disclosure not being applicable


18


Foreign Exchange Contracts

We have entered into non-deliverable forward foreign currency exchange contracts with reputable banking counterparties in order to hedge a portion of our forecasted future Indian Rupee-denominated (“INR”) expenses against foreign currency fluctuations between the United States dollar and the INR. These forward contracts cover a decreasing percentage of forecasted monthly INR expenses over time. As of June 30, 2017, there were 15 forward contracts outstanding that were staggered to mature monthly starting in July 2017 and ending in June 2018. In the future, we may enter into additional forward contracts to increase the amount of hedged monthly INR expenses or initiate hedges for monthly periods beyond June 2018. As of June 30, 2017, the notional amounts of outstanding forward contracts ranged from 25 million to 120 million INR, or the equivalent of $0.4 million to $1.9 million, based on the exchange rate between the United States dollar and the INR in effect as of June 30, 2017. These amounts also approximate the ranges of forecasted future INR expenses we target to hedge in any one month in the future.

The critical terms of the forward contracts and the related hedged forecasted future expenses matched and allowed us to designate the forward contracts as highly effective cash flow hedges. The effective portion of the change in fair value is initially recorded in accumulated other comprehensive loss (“AOCI”) and subsequently reclassified to income in the period in which the cash flows from the associated hedged transactions affect income. Any ineffective portion of the change in fair value of the cash flow hedges is recognized in current period income. During the three and six months ended June 30, 2017, no amount was excluded from the effectiveness assessment and no gains or losses were reclassified from AOCI into income as a result of forecasted transactions that failed to occur. As of June 30, 2017, we estimate that $2.1 million of net unrealized derivative gains included in AOCI will be reclassified into income within the next twelve months.

The following tables show the impact of derivative instruments designated as cash flow hedges on the consolidated statements of operations and the consolidated statements of comprehensive loss:

 

 

Amount of Gain (Loss) Recognized

in OCI (Effective Portion)

 

 

 

 

Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)

 

(In thousands)

 

Three Months

Ended

June 30, 2017

 

 

Six Months

Ended

June 30, 2017

 

 

Location of Gain (Loss) Reclassified

from AOCI into Income

(Effective Portion)

 

Three Months

Ended

June 30, 2017

 

 

Six Months

Ended

June 30, 2017

 

Foreign exchange

   contracts

 

$

434

 

 

$

2,307

 

 

Cost of Revenue

 

$

255

 

 

$

433

 

 

 

 

 

 

 

 

 

 

 

Selling, general and

   administrative expenses

 

 

194

 

 

 

331

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

300

 

 

$

510

 


 

 

Amount of Gain (Loss) Recognized

in OCI (Effective Portion)

 

 

 

 

Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)

 

(In thousands)

 

Three Months

Ended

June 30, 2016

 

 

Six Months

Ended

June 30, 2016

 

 

Location of Gain (Loss) Reclassified

from AOCI into Income

(Effective Portion)

 

Three Months

Ended

June 30, 2016

 

 

Six Months

Ended

June 30, 2016

 

Foreign exchange

   contracts

 

$

(141

)

 

$

201

 

 

Cost of Revenue

 

$

27

 

 

$

(4

)

 

 

 

 

 

 

 

 

 

 

Selling, general and

   administrative expenses

 

 

22

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

37

 

 

$

(6

)

 

1.25% Call Option

In June 2013, concurrent with the issuance of the 1.25% Notes, we entered into privately negotiated hedge transactions with certain of the initial purchasers of the 1.25% Notes (collectively, the “1.25% Call Option”). Assuming full performance by the counterparties, the 1.25% Call Option is intended to offset cash payments in excess of the principal amount due upon any conversion of the 1.25% Notes.

The 1.25% Call Option, which is indexed to our common stock, is a derivative asset that requires mark-to-market accounting treatment (due to the cash settlement features) until the 1.25% Call Option settles or expires. The 1.25% Call Option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the 1.25% Call Option, refer to Note 3, “Fair Value Measurements and Long-term Investments.”          

The 1.25% Call Option does not qualify for hedge accounting treatment. Therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of operations in Other income, net. Because the terms of the 1.25% Call Option are substantially similar to those of the 1.25% Notes embedded cash conversion option, discussed below, we expect the net effect of those two derivative instruments on our earnings to be minimal.

19


1.25% Notes Embedded Cash Conversion Option

The embedded cash conversion option within the 1.25% Notes is required to be separated from the 1.25% Notes and accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of operations in Other income, net until the cash conversion option settles or expires. The initial fair value liability of the embedded cash conversion option was $82.8 million, which simultaneously reduced the carrying value of the 1.25% Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the embedded cash conversion option, refer to Note 3, “Fair Value Measurements and Long-term Investments.”

The following table shows the net impact of the changes in fair values of the 1.25% Call Option and the 1.25% Notes’ embedded cash conversion option in the consolidated statements of operations:

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

1.25% Call Option

 

$

(2,639

)

 

$

(10,507

)

 

$

14,966

 

 

$

(41,710

)

1.25% Embedded cash conversion option

 

 

2,631

 

 

 

10,577

 

 

 

(15,272

)

 

 

41,970

 

Net (loss) gain included in other income, net

 

$

(8

)

 

$

70

 

 

$

(306

)

 

$

260

 

 

11. Other Comprehensive Income

Accumulated Other Comprehensive Loss

Changes in the balances of each component included in AOCI are presented in the tables below. All amounts are net of tax and exclude non-controlling interest.

(In thousands)

 

Foreign Currency Translation Adjustments

 

 

Unrealized Net (Losses) Gains on Available for Sale Securities

 

 

Unrealized Net Gains on Foreign Exchange Contracts

 

 

Total

 

Balance as of December 31, 2016 (1)

 

$

(6,028

)

 

$

(56,420

)

 

$

619

 

 

$

(61,829

)

Other comprehensive income (loss) before reclassifications

 

 

2,347

 

 

 

(85,652

)

 

 

1,411

 

 

 

(81,894

)

Net losses (gains) reclassified from accumulated

   other comprehensive loss (2)

 

 

0

 

 

 

142,165

 

 

 

(777

)

 

 

141,388

 

Net other comprehensive income

 

 

2,347

 

 

 

56,513

 

 

 

634

 

 

 

59,494

 

Balance as of June 30, 2017 (3)

 

$

(3,681

)

 

$

93

 

 

$

1,253

 

 

$

(2,335

)

 

 

 

(1)

Net of taxes of $402 thousand for unrealized net gains on foreign exchange contract derivatives and $61 thousand for unrealized net gains on available for sale securities.

 

(2)

Reclassification adjustment related to other-than-temporary impairment of our investment in NantHealth. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 7, “Asset and Long-term Investment Impairment Charges,” for further information regarding this impairment. Refer to Note 15, “Subsequent Events,” for information regarding our agreement to divest our investment in NantHealth common stock.

 

(3)

Net of taxes of $801 thousand for unrealized net gains on foreign exchange contract derivatives and $59 thousand for unrealized net gains on available for sale securities.

 

(In thousands)

 

Foreign Currency Translation Adjustments

 

 

Unrealized Net Losses on Available for Sale Securities

 

 

Unrealized Net Gains on Foreign Exchange Contracts

 

 

Total

 

Balance as of December 31, 2015 (1)

 

$

(4,500

)

 

$

0

 

 

$

258

 

 

$

(4,242

)

Other comprehensive (loss) income before reclassifications

 

 

(199

)

 

 

(18,115

)

 

 

121

 

 

 

(18,193

)

Net losses reclassified from accumulated

   other comprehensive loss

 

 

0

 

 

 

0

 

 

 

8

 

 

 

8

 

Net other comprehensive (loss) income

 

 

(199

)

 

 

(18,115

)

 

 

129

 

 

 

(18,185

)

Balance as of June 30, 2016 (2)

 

$

(4,699

)

 

$

(18,115

)

 

$

387

 

 

$

(22,427

)

 

  (1) Net of taxes of $166 thousand for unrealized net gains on foreign exchange contract derivatives.

  (2) Net of taxes of $251 thousand for unrealized net gains on foreign exchange contract derivatives.

20


Income Tax Effects Related to Components of Other Comprehensive Income (Loss)

The following tables reflect the tax effects allocated to each component of other comprehensive income (loss) (“OCI”):

 

 

Three Months Ended June 30,

 

 

 

2017

 

 

2016

 

(In thousands)

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

832

 

 

$

0

 

 

$

832

 

 

$

(943

)

 

$

0

 

 

$

(943

)

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss arising during the period

 

 

(10,952

)

 

 

1

 

 

 

(10,951

)

 

 

(18,115

)

 

 

0

 

 

 

(18,115

)

Net loss reclassified into income (1)

 

 

142,165

 

 

 

0

 

 

 

142,165

 

 

 

0

 

 

 

0

 

 

 

0

 

Net change in unrealized gains (losses) on available for sale securities

 

 

131,213

 

 

 

1

 

 

 

131,214

 

 

 

(18,115

)

 

 

0

 

 

 

(18,115

)

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) arising during the period

 

 

434

 

 

 

(169

)

 

 

265

 

 

 

(141

)

 

 

55

 

 

 

(86

)

Net (gains) losses reclassified into income

 

 

(749

)

 

 

292

 

 

 

(457

)

 

 

(86

)

 

 

34

 

 

 

(52

)

Net change in unrealized (losses) gains on foreign exchange contracts

 

 

(315

)

 

 

123

 

 

 

(192

)

 

 

(227

)

 

 

89

 

 

 

(138

)

Net (loss) gain on cash flow hedges

 

 

(315

)

 

 

123

 

 

 

(192

)

 

 

(227

)

 

 

89

 

 

 

(138

)

Other comprehensive income (loss)

 

$

131,730

 

 

$

124

 

 

$

131,854

 

 

$

(19,285

)

 

$

89

 

 

$

(19,196

)

 

 

 

(1)

Reclassification adjustment related to other-than-temporary impairment of our investment in NantHealth. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 7, “Asset and Long-term Investment Impairment Charges,” for further information regarding this impairment. Refer to Note 15, “Subsequent Events,” for information regarding our agreement to divest our investment in NantHealth common stock.

 

 

 

Six Months Ended June 30,

 

 

 

2017

 

 

2016

 

(In thousands)

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

 

Before-Tax Amount

 

 

Tax Effect

 

 

Net Amount

 

Foreign currency translation adjustments

 

$

2,347

 

 

$

0

 

 

$

2,347

 

 

$

(199

)

 

$

0

 

 

$

(199

)

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss arising during the period

 

 

(85,654

)

 

 

2

 

 

 

(85,652

)

 

 

(18,115

)

 

 

0

 

 

 

(18,115

)

Net loss reclassified into income (1)

 

 

142,165

 

 

 

0

 

 

 

142,165

 

 

 

0

 

 

 

0

 

 

 

0

 

Net change in unrealized gains (losses) on available for sale securities

 

 

56,511

 

 

 

2

 

 

 

56,513

 

 

 

(18,115

)

 

 

0

 

 

 

(18,115

)

Derivatives qualifying as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) arising during the period

 

 

2,307

 

 

 

(896

)

 

 

1,411

 

 

 

201

 

 

 

(80

)

 

 

121

 

Net (gains) losses reclassified into income

 

 

(1,274

)

 

 

497

 

 

 

(777

)

 

 

13

 

 

 

(5

)

 

 

8

 

Net change in unrealized gains (losses) on foreign exchange contracts

 

 

1,033

 

 

 

(399

)

 

 

634

 

 

 

214

 

 

 

(85

)

 

 

129

 

Net gain (loss) on cash flow hedges

 

 

1,033

 

 

 

(399

)

 

 

634

 

 

 

214

 

 

 

(85

)

 

 

129

 

Other comprehensive income (loss)

 

$

59,891

 

 

$

(397

)

 

$

59,494

 

 

$

(18,100

)

 

$

(85

)

 

$

(18,185

)

 

 

 

(1)

Reclassification adjustment related to other-than-temporary impairment of our investment in NantHealth. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 7, “Asset and Long-term Investment Impairment Charges,” for further information regarding this impairment. Refer to Note 15, “Subsequent Events,” for information regarding our agreement to divest our investment in NantHealth common stock.

 


21


12. Contingencies

In addition to commitments and obligations in the ordinary course of business, we are currently subject to various legal proceedings and claims that have not been fully adjudicated. We intend to vigorously defend ourselves in these matters.

No less than quarterly, we review the status of each significant matter and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made.

The outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. In the opinion of our management, the ultimate disposition of pending legal proceedings or claims will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, if one or more of these legal proceedings were resolved against us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that reporting period could be materially adversely affected. Additionally, the resolution of a legal proceeding against us could prevent us from offering our products and services to current or prospective clients, which could further adversely affect our operating results.

On May 1, 2012, Physicians Healthsource, Inc. filed a class action complaint in the U.S. District Court for the Northern District of Illinois against us. The complaint alleges that, on multiple occasions between July 2008 and December 2011, we or our agent sent advertisements by fax to the plaintiff and a class of similarly situated persons, without first receiving the recipients’ express permission or invitation in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (the “TCPA”). The plaintiff seeks $500 for each alleged violation of the TCPA, treble damages if the Court finds the violations to be willful, knowing or intentional; and injunctive and other relief. Allscripts answered the complaint denying all material allegations and asserting a number of affirmative defenses, as well as counterclaims for breach of a license agreement.  After plaintiff’s motion to compel arbitration of the counterclaims was granted, Allscripts made a demand in arbitration where the counterclaims remain pending.  Discovery in the proposed class action has now concluded. On March 31, 2016, plaintiff filed its motion for class certification.  On May 31, 2016, we filed our opposition to plaintiff’s motion for class certification, and simultaneously moved for summary judgment on all of plaintiff’s claims. On June 2, 2017, the court denied Allscripts’ motion for summary judgment, and also denied Plaintiff’s motion for class certification.  Plaintiff did not seek appellate review of the Court’s denial of class certification, so the only claim remaining in the case is Plaintiff’s individual TCPA claim.


22


13. Business Segments

We primarily derive our revenues from sales of our proprietary software (either as a direct license sale or under a subscription delivery model), which also serves as the basis for our recurring service contracts for software support and maintenance and certain transaction-related services. In addition, we provide various other client services, including installation, and managed services such as outsourcing, private cloud hosting and revenue cycle management.

As of June 30, 2017, we had seven operating segments, which are aggregated into three reportable segments. The Clinical and Financial Solutions reportable segment includes the Ambulatory, Hospitals and Health Systems, previously named “Acute”, and the Payer and Life Sciences strategic business units, each of which represents a separate operating segment. This reportable segment derives its revenue from the sale of integrated clinical software applications and financial and information solutions, which primarily include electronic health record-related software, financial and practice management software, related installation, support and maintenance, outsourcing, private cloud hosting, revenue cycle management, training and electronic claims administration services. The Population Health reportable segment is comprised of three separate operating segments: Population Health, FollowMyHealth® and EPSiTM. This reportable segment derives its revenue from the sale of health management and coordinated care solutions, which are mainly targeted at hospitals, health systems, other care facilities and Accountable Care Organizations (“ACOs”). These solutions enable clients to connect, transition, analyze and coordinate care across the entire care community. The Netsmart reportable segment is comprised of the Netsmart strategic business unit, which represents a separate operating segment.  Netsmart operates in the home care and behavioral healthcare information technology field throughout the United States and provides software and technology solutions to the health and human services industry, which comprises behavioral health, addiction treatment, intellectual and developmental disability services, child and family services, and public health segment, as well as to post-acute home care organizations.

Our Chief Operating Decision Maker (“CODM”) uses segment revenues, gross profit and income from operations as measures of performance and to make decisions on allocation of resources. With the exception of the Netsmart segment, in determining these performance measures, we do not include in revenue the amortization of acquisition-related deferred revenue adjustments, which reflect the fair value adjustments to deferred revenues acquired in a business acquisition. With the exception of the Netsmart segment, we also exclude the amortization of intangible assets, stock-based compensation expense, non-recurring expenses and transaction-related costs, and non-cash asset impairment charges from the operating segment data provided to our CODM. Non-recurring expenses relate to certain severance, product consolidation, legal, consulting and other charges incurred in connection with activities that are considered one-time. Accordingly, these amounts are not included in our reportable segment results and are included in an “Unallocated Amounts” category within our segment disclosure. The “Unallocated Amounts” category also includes corporate general and administrative expenses (including marketing expenses), which are centrally managed, as well as revenue and the associated cost from the resale of certain ancillary products, primarily hardware, other than the respective amounts associated with the Netsmart segment. The historical results of our HomecareTM business prior to the Netsmart Transaction, which were previously reported as part of Population Health, are also included in the “Unallocated Amounts” category. The Netsmart segment, as presented, includes all revenue and expenses incurred by Netsmart since it operates as a stand-alone business entity and its resources allocation and performance are reviewed and measured at such all-inclusive level. The eliminations of intercompany transactions between Allscripts and Netsmart are included in the “Unallocated Amounts” category. We do not track our assets by segment.

23


 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical and Financial Solutions

 

$

286,674

 

 

$

282,254

 

 

$

567,129

 

 

$

553,697

 

Population Health

 

 

59,736

 

 

 

54,026

 

 

 

118,798

 

 

 

109,081

 

Netsmart

 

 

78,421

 

 

 

44,233

 

 

 

151,428

 

 

 

44,233

 

Unallocated Amounts

 

 

1,260

 

 

 

6,008

 

 

 

2,211

 

 

 

25,068

 

Total revenue

 

$

426,091

 

 

$

386,521

 

 

$

839,566

 

 

$

732,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical and Financial Solutions

 

$

119,286

 

 

$

121,319

 

 

$

233,004

 

 

$

235,340

 

Population Health

 

 

41,775

 

 

 

38,775

 

 

 

83,588

 

 

 

78,815

 

Netsmart

 

 

37,271

 

 

 

14,949

 

 

 

71,845

 

 

 

14,949

 

Unallocated Amounts

 

 

(10,841

)

 

 

(8,359

)

 

 

(22,294

)

 

 

(10,522

)

Total gross profit

 

$

187,491

 

 

$

166,684

 

 

$

366,143

 

 

$

318,582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical and Financial Solutions

 

$

63,023

 

 

$

67,386

 

 

$

118,009

 

 

$

128,224

 

Population Health

 

 

28,439

 

 

 

24,028

 

 

 

56,984

 

 

 

48,918

 

Netsmart

 

 

7,828

 

 

 

(2,399

)

 

 

16,757

 

 

 

(2,399

)

Unallocated Amounts

 

 

(78,186

)

 

 

(70,441

)

 

 

(159,383

)

 

 

(144,273

)

Total income from operations

 

$

21,104

 

 

$

18,574

 

 

$

32,367

 

 

$

30,470

 

 

14. Supplemental Disclosures

Restricted Cash

The majority of the restricted cash balance as of June 30, 2017 represents Netsmart’s cash deposits to maintain two letters of credit with a financial institution related to customer agreements.

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

82,714

 

 

$

90,055

 

Restricted cash

 

 

6,400

 

 

 

600

 

Total cash, cash equivalents and restricted cash

 

$

89,114

 

 

$

90,655

 

 

 

 

 

 

 

 

 

 

Supplemental non-cash information:

 

 

 

 

 

 

 

 

Exchange of Netsmart, Inc. common stock for redeemable convertible

   preferred stock - Netsmart by Netsmart, Inc. management

 

$

0

 

 

$

25,543

 

Accretion of redemption preference on redeemable convertible non-controlling

   interest - Netsmart

 

$

21,925

 

 

$

8,153

 

Obligations incurred to purchase capitalized software or enter into capital leases

 

$

7,684

 

 

$

0

 

Issuance of treasury stock to commercial partner

 

$

334

 

 

$

0

 

 

15. Subsequent Events

On July 17, 2017, Netsmart completed the acquisition of DeVero, Inc., a healthcare technology company that develops electronic medical record solutions for home healthcare and hospice, for an aggregate purchase price of approximately $51 million. The purchase price was funded through incremental borrowings under Netsmart’s debt facilities. The financial results of this company will be consolidated with our financial results starting on the date of the transaction. As of the date of this Form 10-Q, the preliminary allocation of the fair value of the consideration transferred has not yet been completed.

On August 1, 2017, Allscripts Healthcare, LLC, a wholly-owned subsidiary of the Company (“Healthcare LLC”), and McKesson Corporation (“McKesson”) entered into a Purchase Agreement (the “Purchase Agreement”), pursuant to which, and subject to the terms and conditions thereof, Healthcare LLC will purchase McKesson’s Enterprise Information Solutions (EIS) Business division (the “EIS Business”), which provides certain software solutions and services to hospitals and health systems, by acquiring all

24


of the outstanding equity interests of two indirect, wholly-owned subsidiaries of McKesson for a purchase price of $185 million, subject to adjustments for net working capital and net debt.  Consummation of the acquisition is subject to customary conditions, including (i) the expiration or termination of the waiting period applicable to consummation of the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1975, as amended, (ii) the absence of any law, order or injunction prohibiting the closing of the acquisition and (iii) the accuracy of the other party’s representations, warranties, covenants and agreements (subject to customary materiality qualifiers).  Additional information about the Purchase Agreement is contained in a Current Report on Form 8-K filed with the SEC by Allscripts on August 4, 2017. We plan to fund the purchase price under the Purchase Agreement for the EIS Business using cash on hand and borrowings under our senior secured credit facilities.

On August 3, 2017, the Company and NantHealth entered into an asset purchase agreement pursuant to which, and subject to the terms and conditions thereof, the Company would acquire certain assets relating to NantHealth’s provider/patient engagement solutions business.  The consideration for the transaction is the 15,000,000 shares of common stock of NantHealth owned by the Company.  The transaction also includes adjustments for working capital and deferred revenue obligations, as well as a modification of the commercial agreement between the parties.  Consummation of the transaction is subject to customary conditions.

25


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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. 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. 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, those discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 (our “Form 10-K”) under the heading “Risk Factors” and elsewhere. Certain factors that could cause Allscripts actual results to differ materially from those described in the forward-looking statements include, but are not limited to: the expected financial contribution and results of the Netsmart joint business entity, including consolidation for financial reporting purposes, and the Enterprise Information Solutions (EIS) Business division (the “EIS Business”) of McKesson Corporation (“McKesson”); the failure to satisfy the conditions precedent to the closing of the transaction between Allscripts and McKesson pursuant to which it is contemplated that Allscripts will acquire the EIS Business, including failure to receive regulatory approvals on the terms desired or anticipated; the expected financial contribution and results of the EIS Business; the failure to successfully integrate the EIS Business; the anticipated and unanticipated expenses and liabilities related to such transaction and the EIS Business; Allscripts failure to compete successfully; consolidation in Allscripts industry; current and future laws, regulations and industry initiatives; increased government involvement in Allscripts industry; the failure of markets in which Allscripts operates to develop as quickly as expected; Allscripts or its customers’ failure to see the benefits of government programs; changes in interoperability or other regulatory standards; the effects of the realignment of Allscripts sales, services and support organizations; market acceptance of Allscripts products and services; the unpredictability of the sales and implementation cycles for Allscripts products and services; Allscripts ability to manage future growth; Allscripts ability to introduce new products and services; Allscripts ability to establish and maintain strategic relationships; risks related to the acquisition of new companies or technologies; the performance of Allscripts products; Allscripts ability to protect its intellectual property rights; the outcome of legal proceedings involving Allscripts; Allscripts ability to hire, retain and motivate key personnel; performance by Allscripts content and service providers; liability for use of content; security breaches; price reductions; Allscripts ability to license and integrate third party technologies; Allscripts ability to maintain or expand its business with existing customers; risks related to international operations; changes in tax rates or laws; business disruptions; Allscripts ability to maintain proper and effective internal controls; and asset and long-term investment impairment charges. 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 (unaudited)” in this Form 10-Q, as well as our Form 10-K filed with the Securities and Exchange Commission. 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” or “company” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and 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”), connectivity, private cloud hosting, outsourcing, analytics, patient engagement, clinical decision support and population health management.

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 face 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 increasing pressure to demonstrate the delivery of high quality care at lower costs. Population health management, analytics, connectivity based on open Application Programming Interfaces, and patient engagement are strategic imperatives that can help address these challenges. In the United States, for example, such initiatives will be critical tools for success under the framework of the new Quality Payment Program (“QPP”), launched by the

26


Centers for Medicare & Medicaid Services (“CMS”) in response to the passage of the Medicare Access and CHIP Reauthorization Act (“MACRA”).  As healthcare providers and payers migrate from volume-based to value-based care delivery, interoperable solutions that are connected to the consumer marketplace are the key to market leadership in the new healthcare reality.

We believe our solutions are delivering value to our clients by providing them with powerful connectivity, patient engagement and care coordination tools, enabling United States users to successfully participate in alternate payment models that reward high value care delivery. Population health management is commonly viewed as one of the critical next frontiers in healthcare delivery, and we expect this rapidly emerging area to be a key driver of our future growth, both domestically and globally.

Recent advances in molecular science and computer technology are creating opportunities for the delivery of personalized medicine solutions. We believe these solutions will transform the coordination and delivery of health care, ultimately improving patient outcomes.

Specific to the United States, the healthcare IT industry in which we operate is in the midst of a period of rapid evolution, primarily due to new laws and regulations, as well as changes in industry standards. Various incentives that exist today (including the EHR Incentive Program (a.k.a. Meaningful Use) and alternative payment models that reward high value care delivery) are rapidly moving health care toward a time where EHRs are as common as practice management systems in all provider offices. As a result, we believe that legislation, such as the aforementioned MACRA, as well as other government-driven initiatives, possibly at the state level, will continue to affect healthcare IT adoption and expansion, including products and solutions like ours. We also believe that we are well-positioned in the market to take advantage of the ongoing opportunity presented by these changes.

Given that we expect CMS will release further future regulations related to EHRs, even as we comply with the previously published Final Rules associated with the QPP, as well as Stage 3 of the Meaningful Use program for those organizations not eligible for the QPP, our industry is preparing for additional areas in which we must execute compliance. Similarly, our ability to achieve applicable product certifications, any changing frequency of the Office of the National Coordinator for Health Information Technology (“ONC”) certification program, and the length, if any, of additional related development and other efforts required to meet regulatory standards could materially impact our capacity to maximize the market opportunity. All of our market-facing EHR solutions, as well as the Allscripts EDTM, dbMotion and FollowMyHealth® products, have successfully completed the testing process and will soon be certified as 2015 Edition-compliant by an ONC-Authorized Certification Body, in accordance with the applicable provider or hospital certification criteria adopted by the United States Secretary of Health and Human Services.

Conversations around the Medicare Sustainable Growth Rate reimbursement model concluded in the United States Congress in 2015 when the MACRA was passed, which further encouraged the adoption of health IT necessary to satisfy new requirements more closely associating the report of quality measurements to Medicare payments. With the finalization of the rule for the QPP in 2017, providers accepting payment from Medicare will have an opportunity to select one of two payment models: the Merit-based Incentive Payment System (“MIPS”) or an Advanced Alternative Payment Model (“APM”), as allowed by the regulation. These programs will require increased reporting on quality measures, which will likely be changed, but not abolished, by the new Secretary of Health and Human Services, Dr. Tom Price; additionally, the MIPS consolidates several preexisting incentive programs, including Meaningful Use and Physician Quality Reporting System, under one umbrella, as required by statute. The implementation of this new law could drive additional interest in our products among providers who were not eligible for or chose not to participate in the Health Information Technology for Economic and Clinical Health Act (“HITECH”) incentive program but now see sufficient reason to adopt EHRs and other health information technologies or by those needing to purchase more robust systems to help them be successful under the more complex MACRA requirements. Regulations released in the fourth quarter of 2016 in response to the MACRA also addressed, at least in part, current ambiguities among physician populations and healthcare organizations, enabling them to make strategic decisions about the purchase of analytic software or other solutions important to comply with the new law and associated regulations.  Such regulations are expected to be released on an annual basis and are in process for 2017.

We believe that HITECH resulted in additional related new orders for our EHR products. Large physician groups will continue to purchase and enhance their use of EHR technology; however, the number of very large practices with over 100 physicians that have not yet acquired such technology is quickly decreasing. Such practices may choose to replace older EHR technology in the future as regulatory requirements (such as those related to QPP-related programs for Advanced APMs) and business realities dictate the need for updates and upgrades, as well as additional features and functionality. Additionally, we believe that a number of companies who certified their EHR products for Stage 1 or Stage 2 of Meaningful Use will demonstrate that they have not been able to comply with the requirements for the 2015 Edition, which continues to present additional opportunities in the replacement market, particularly in the smaller physician space. As the incentive payments have begun to wind down and shifts in policies related to payment adjustments from the new presidential Administration in the United States is revealed, the role of commercial payers and their continued expansion of alternative payment models, as well as the anticipated growth in Medicaid payment models, is expected to provide a different motivation for purchase and expansion.

27


We also continue to see activity in local community-based buying whereby individual hospitals, health systems and integrated delivery networks are subsidizing the purchase of EHR licenses or related services for local, affiliated physicians and across their employed physician base as part of an offer to leverage buying power and help those practices take advantage of payment reform opportunities. This activity has also resulted in a pull-through effect where smaller practices affiliated with a community hospital are motivated to participate in the incentive program, while the subsidizing health system expands connectivity within the local provider community. We believe that the 2013 extension of the Stark and Anti-kickback exceptions, which allowed hospitals and other organizations to subsidize the purchase of EHRs, will continue to contribute to the continuation of this market dynamic. We also believe that new orders driven by the MACRA legislation and related to EHR and community-based activity will continue to come in as physicians in those small- and medium-sized practices who have not yet participated seek to avoid payment adjustments stemming from the QPP. The associated challenge we face is to successfully position, sell, implement and support our products to the hospital, health system or integrated delivery network that is subsidizing its affiliated physicians. We believe the community programs we have in place will aid us in penetrating this market.

We believe we have taken and continue to take the proper steps to maximize the opportunity presented by the QPP and other new payment programs. However, given the effects the laws are having on our clients, there can be no assurance that they will result in significant new orders for us in the near term, and if they do, that we will have the capacity to meet the additional market demand in a timely fashion.

Additionally, other public laws to reform the United States healthcare system contain various provisions which may impact us and our clients. Continued attempts by the new Administration and Congress to repeal or adjust the Patient Protection and Affordable Care Act (as amended, the “PPACA”) creates uncertainty for us and for our clients for the near term. Some laws currently in place may have a positive impact by requiring the expanded use of EHRs, quality measurement and analytics tools to participate in certain federal, state or private sector programs.  Others, such as the repeal of or any adjustments made to the PPACA by the new Administration and Congress, laws or regulations mandating reductions in reimbursement for certain types of providers, decreasing insurance coverage of patients, decisions not to continue policies from the previous Administration, or increasing regulatory oversight of our products or our business practices, may have a negative impact by reducing the resources available to purchase our products. Increases in fraud and abuse enforcement and payment adjustments for non-participation in certain programs or overpayment of certain incentive payments may also adversely affect participants in the healthcare sector, including us. Generally, Congressional oversight of EHRs and health information technology has increased in recent years, including a specific focus on perceived interoperability failures in the industry, including any contributive factors to such failures, which could impact our clients and our business.  However, passage of the 21st Century Cures legislation in December 2016, with components included to address concerns about interoperability, as well as any continued Congressional focus on repealing or adjusting the PPACA, may lead to a decrease in such activity.

Starting October 1, 2015, all entities covered by HIPAA were required to have upgraded to the tenth revision of the International Statistical Classification of Diseases and Related Health Problems promulgated by the World Health Organization, also known as ICD-10, for use in reporting medical diagnoses and inpatient procedures. These changes in coding standards presented a significant opportunity for our clients in the United States to get to the most advanced versions of our products, but also posed a challenge due to the scale of the challenge for the industry, particularly among smaller independent physician practices. New payment and delivery system reform programs, as have been launched related to the Medicare program, are also increasingly being rolled out at the state level through Medicaid administrators, as well as through the private sector, presenting additional opportunity for us to provide software and services to our clients who participate.

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.

Critical Accounting Policies and Estimates

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

28


Second Quarter 2017 Summary and Recent Developments

During the second quarter of 2017, we continued to make incremental progress on our key strategic, financial and operational imperatives aimed at driving higher client satisfaction, improving our competitive position by expanding the depth and breadth of our products and, ultimately, positioning the company for sustainable long-term growth both domestically and globally. Additionally, we believe that there are still opportunities for continuing to improve our operating leverage and further streamline our operations and such efforts are ongoing.

Total revenue for the second quarter of 2017 was $426 million, an increase of 10% compared to the second quarter of 2016. For the three months ended June 30, 2017, software delivery, support and maintenance revenue and client services revenue totaled $279 million, for an increase of 12%, and $147 million, for an increase of 7%, respectively, as compared to the three months ended June 30, 2016 which only includes results of Netsmart since the date of the Netsmart Transaction in April 2016.

Gross profit and gross margin increased during the second quarter of 2017 compared with the prior year period, primarily due to the consolidation of Netsmart beginning in the second quarter of 2016 and improved profitability from the delivery of recurring client services, particularly private-cloud hosting, as we continue to expand our customer base for these services.

During the three months ended June 30, 2017, we recognized other-than-temporary non-cash impairment charges of $144.6 million associated with two of the Company’s long-term investments based on management’s assessment of the likelihood of near-term recovery of the investments’ value. The majority of the impairment charges relate to our investment in NantHealth common stock.

During the three months ended June 30, 2017, we repurchased 1.0 million shares of our common stock under our existing share repurchase program for a total of $12.1 million.

Our contract backlog as of June 30, 2017 was at a record high of $4.1 billion, 3% higher than March 31, 2017 and June 30, 2016.

Our bookings, which reflect the value of executed contracts for software, hardware, other client services, private-cloud hosting, outsourcing and subscription-based services, totaled $407 million for the three months ended June 30, 2017, which represented an increase of 12% over the comparable prior period amount of $362 million and an increase of 42% over the first quarter of 2017 amount of $286 million. The growth in bookings during the three months ended June 30, 2017 compared with the prior year comparable period was primarily driven by growth in bookings from Netsmart. The growth in bookings compared to the first quarter of 2017 was primarily driven by bookings related to a large new multi-year relationship with a commercial partner that was executed during the second quarter of 2017. New client business totaled approximately one-third of bookings for the second quarter of 2017. The composition of our bookings for the three months ended June 30, 2017 was 49% of client services-related bookings and 51% software delivery-related bookings. The corresponding ratios for the three months ended June 30, 2016 were 39% and 61%, respectively.

On August 1, 2017, Allscripts Healthcare, LLC, a wholly-owned subsidiary of the Company (“Healthcare LLC”), and McKesson entered into a Purchase Agreement (the “Purchase Agreement”), pursuant to which, and subject to the terms and conditions thereof, Healthcare LLC will purchase the EIS Business, which provides certain software solutions and services to hospitals and health systems, for a purchase price of $185 million, subject to adjustments for net working capital and net debt.  Consummation of the acquisition is subject to customary conditions.  Additional information about the Purchase Agreement is contained in a Current Report on Form 8-K filed with the SEC by Allscripts on August 4, 2017.

On August 3, 2017, the Company and NantHealth entered into an asset purchase agreement pursuant to which, and subject to the terms and conditions thereof, the Company would acquire certain assets relating to NantHealth’s provider/patient engagement solutions business.  The consideration for the transaction is the 15,000,000 shares of common stock of NantHealth owned by the Company.  The transaction also includes adjustments for working capital and deferred revenue obligations, as well as a modification of the commercial agreement between the parties.  Consummation of the transaction is subject to customary conditions.

 

29


Overview of Consolidated Results

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

279,272

 

 

$

249,871

 

 

 

11.8

%

 

$

551,730

 

 

$

479,029

 

 

 

15.2

%

Client services

 

 

146,819

 

 

 

136,650

 

 

 

7.4

%

 

 

287,836

 

 

 

253,050

 

 

 

13.7

%

Total revenue

 

 

426,091

 

 

 

386,521

 

 

 

10.2

%

 

 

839,566

 

 

 

732,079

 

 

 

14.7

%

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

 

89,071

 

 

 

79,154

 

 

 

12.5

%

 

 

172,468

 

 

 

154,323

 

 

 

11.8

%

Client services

 

 

122,229

 

 

 

118,683

 

 

 

3.0

%

 

 

247,168

 

 

 

219,542

 

 

 

12.6

%

Amortization of software development and

   acquisition-related assets

 

 

27,300

 

 

 

22,000

 

 

 

24.1

%

 

 

53,787

 

 

 

39,632

 

 

 

35.7

%

Total cost of revenue

 

 

238,600

 

 

 

219,837

 

 

 

8.5

%

 

 

473,423

 

 

 

413,497

 

 

 

14.5

%

Gross profit

 

 

187,491

 

 

 

166,684

 

 

 

12.5

%

 

 

366,143

 

 

 

318,582

 

 

 

14.9

%

Gross margin %

 

 

44.0

%

 

 

43.1

%

 

 

 

 

 

 

43.6

%

 

 

43.5

%

 

 

 

 

Selling, general and administrative expenses

 

 

112,037

 

 

 

94,802

 

 

 

18.2

%

 

 

222,882

 

 

 

178,955

 

 

 

24.5

%

Research and development

 

 

46,459

 

 

 

47,891

 

 

 

(3.0

%)

 

 

95,691

 

 

 

94,928

 

 

 

0.8

%

Asset impairment charges

 

 

0

 

 

 

0

 

 

 

0.0

%

 

 

0

 

 

 

4,650

 

 

 

(100.0

%)

Amortization of intangible and

   acquisition-related assets

 

 

7,891

 

 

 

5,417

 

 

 

45.7

%

 

 

15,203

 

 

 

9,579

 

 

 

58.7

%

Income from operations

 

 

21,104

 

 

 

18,574

 

 

 

13.6

%

 

 

32,367

 

 

 

30,470

 

 

 

6.2

%

Interest expense

 

 

(20,290

)

 

 

(16,421

)

 

 

23.6

%

 

 

(40,470

)

 

 

(23,390

)

 

 

73.0

%

Other (loss) income, net

 

 

(214

)

 

 

106

 

 

NM

 

 

 

25

 

 

 

472

 

 

 

(94.7

%)

Impairment of long-term investments

 

 

(144,590

)

 

 

0

 

 

 

100.0

%

 

 

(144,590

)

 

 

0

 

 

 

100.0

%

Equity in net (loss) income of unconsolidated

    investments

 

 

(28

)

 

 

(4,898

)

 

 

(99.4

%)

 

 

257

 

 

 

(7,501

)

 

 

(103.4

%)

Income (loss) before income taxes

 

 

(144,018

)

 

 

(2,639

)

 

NM

 

 

 

(152,411

)

 

 

51

 

 

NM

 

Income tax benefit (provision)

 

 

1,007

 

 

 

503

 

 

 

100.2

%

 

 

835

 

 

 

(60

)

 

NM

 

Effective tax rate

 

 

0.7

%

 

 

19.1

%

 

 

 

 

 

 

0.5

%

 

 

117.6

%

 

 

 

 

Net loss

 

 

(143,011

)

 

 

(2,136

)

 

NM

 

 

 

(151,576

)

 

 

(9

)

 

NM

 

Less: Net loss (income) attributable to

   non-controlling interest

 

 

264

 

 

 

87

 

 

NM

 

 

 

(189

)

 

 

9

 

 

NM

 

Less: Accretion of redemption preference

   on redeemable convertible non-controlling

   interest - Netsmart

 

 

(10,963

)

 

 

(8,153

)

 

 

34.5

%

 

 

(21,925

)

 

 

(8,153

)

 

 

168.9

%

Net loss attributable to Allscripts

   Healthcare Solutions, Inc. stockholders

 

$

(153,710

)

 

$

(10,202

)

 

NM

 

 

$

(173,690

)

 

$

(8,153

)

 

NM

 

NM – We define “NM” as not meaningful for increases or decreases greater than 200%.

30


Revenue

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring revenue

 

$

227,970

 

 

$

207,773

 

 

 

9.7

%

 

$

459,354

 

 

$

402,304

 

 

 

14.2

%

Non-recurring revenue

 

 

51,302

 

 

 

42,098

 

 

 

21.9

%

 

 

92,376

 

 

 

76,725

 

 

 

20.4

%

Total software delivery, support and

   maintenance

 

 

279,272

 

 

 

249,871

 

 

 

11.8

%

 

 

551,730

 

 

 

479,029

 

 

 

15.2

%

Client services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring revenue

 

 

99,200

 

 

 

87,652

 

 

 

13.2

%

 

 

196,500

 

 

 

161,177

 

 

 

21.9

%

Non-recurring revenue

 

 

47,619

 

 

 

48,998

 

 

 

(2.8

%)

 

 

91,336

 

 

 

91,873

 

 

 

(0.6

%)

Total client services

 

 

146,819

 

 

 

136,650

 

 

 

7.4

%

 

 

287,836

 

 

 

253,050

 

 

 

13.7

%

Total revenue

 

$

426,091

 

 

$

386,521

 

 

 

10.2

%

 

$

839,566

 

 

$

732,079

 

 

 

14.7

%

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

The increase in revenue for the three and six months ended June 30, 2017 is primarily due to the consolidation of Netsmart beginning in the second quarter of 2016, including lower amortization of acquisition-related deferred revenue adjustment related to the Netsmart acquisition totaling $1 million and $3 million for the three and six months ended June 30, 2017, respectively, compared with $10 million for the three and six months ended June 30, 2016.

Software delivery, support and maintenance revenue consists of recurring subscription-based software sales, support and maintenance revenue, recurring transactions revenue, and non-recurring perpetual software licenses sales, hardware resale and non-recurring transactions revenue. Client services revenue consists of recurring revenue from managed services solutions, such as outsourcing, private cloud hosting and revenue cycle management, as well as non-recurring project-based client services revenue. The growth in both recurring and non-recurring software delivery, support and maintenance and recurring client services revenue for the three and six months ended June 30, 2017 compared with the prior year periods was largely driven by incremental revenue from Netsmart as well as higher revenue from Allscripts other businesses. Non-recurring client services revenue decreased slightly for the three and six months ended June 30, 2017 compared with the prior year periods as higher revenue from Netsmart was offset by lower revenue from Allscripts acute and ambulatory businesses.

The percentage of recurring and non-recurring revenue of our total revenue was 77% and 23% and 78% and 22%, during the three and six months ended June 30, 2017, respectively, representing a slight shift compared with 77% and 23% during both the three and six months ended June 30, 2016.

Gross Profit

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Total cost of revenue

 

$

238,600

 

 

$

219,837

 

 

 

8.5

%

 

$

473,423

 

 

$

413,497

 

 

 

14.5

%

Gross profit

 

$

187,491

 

 

$

166,684

 

 

 

12.5

%

 

$

366,143

 

 

$

318,582

 

 

 

14.9

%

Gross margin %

 

 

44.0

%

 

 

43.1

%

 

 

 

 

 

 

43.6

%

 

 

43.5

%

 

 

 

 

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Gross profit and gross margin increased during the three and six months ended June 30, 2017 compared with the prior year comparable periods, primarily due to the consolidation of Netsmart beginning in the second quarter of 2016 and improved profitability from the delivery of recurring client services, particularly private cloud hosting, as we continue to expand our customer base for these services. Additionally, gross profit increased for the three and six months ended June 30, 2017 due to improved profitability from non-recurring perpetual software licenses sales and hardware resale. These increases were partly offset by lower gross profit and gross margin associated with the delivery of non-recurring project-based client services as well as higher amortization of software development and acquisition-related assets compared with prior year.

31


Selling, General and Administrative Expenses

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Selling, general and administrative expenses

 

$

112,037

 

 

$

94,802

 

 

 

18.2

%

 

$

222,882

 

 

$

178,955

 

 

 

24.5

%

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Selling, general and administrative expenses increased during the three and six months ended June 30, 2017 compared with the prior year comparable periods, primarily due to additional personnel expenses from acquisitions completed during 2016, including the Netsmart Transaction in the second quarter of 2016, as well as higher transaction-related and legal expenses.

Research and Development

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Research and development

 

$

46,459

 

 

$

47,891

 

 

 

(3.0

%)

 

$

95,691

 

 

$

94,928

 

 

 

0.8

%

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Research and development expense decreased during the three months ended June 30, 2017 compared with the prior year comparable period primarily due to an increase in the amount of capitalized software costs in 2017 compared with 2016. Research and development expense increased slightly during the six months ended June 30, 2017 compared with the prior year comparable period as additional expenses from Netsmart were mostly offset by an increase in the amount of capitalized software costs in 2017 compared with 2016.

Asset and Long-term Investment Impairment Charges

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Asset impairment charges

 

$

0

 

 

$

0

 

 

 

0.0

%

 

$

0

 

 

$

4,650

 

 

 

(100.0

%)

Impairment of long-term investments

 

$

144,590

 

 

$

0

 

 

 

100.0

%

 

$

144,590

 

 

$

0

 

 

 

100.0

%

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

During the first quarter of 2016, we incurred non-cash asset impairment charges that included $2.2 million for the impairment of capitalized software as a result of our decision to discontinue several software development projects, $2.1 million for the impairment of one of our cost method equity investments, and other charges of $0.4 million to write down a long-term asset to its estimated net realizable value.

During the three months ended June 30, 2017, we recognized other-than-temporary non-cash impairment charges of $144.6 million associated with two of the Company’s long-term investments based on management’s assessment of the likelihood of near-term recovery of the investments’ value. The majority of the impairment charges relate to our investment in NantHealth common stock. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 11, “Other Comprehensive Income,” in the notes to consolidated financial statements for further information regarding these impairments. Refer to Note 15, “Subsequent Events,” for information regarding our agreement to divest our investment in NantHealth common stock.

Amortization of Intangible Assets

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Amortization of intangible and acquisition-related

   assets

 

$

7,891

 

 

$

5,417

 

 

 

45.7

%

 

$

15,203

 

 

$

9,579

 

 

 

58.7

%

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

The increase in amortization expense for the three and six months ended June 30, 2017 compared with the prior year comparable periods was primarily driven by additional amortization expense associated with the value of intangible assets recognized in connection with the Netsmart Transaction in the second quarter of 2016 and the acquisitions of HealthMEDX and controlling interests in third parties during the fourth quarter of 2016.

32


Interest Expense

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Interest expense

 

$

20,290

 

 

$

16,421

 

 

 

23.6

%

 

$

40,470

 

 

$

23,390

 

 

 

73.0

%

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Interest expense during the three and six months ended June 30, 2017 was higher compared with the prior year comparable periods, primarily due to incremental interest expense associated with Netsmart’s non-recourse debt.

Other (Loss) Income, Net

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

2017

 

 

2016

 

 

% Change

 

Other (loss) income, net

 

$

(214

)

 

$

106

 

 

NM

 

$

25

 

 

$

472

 

 

 

(94.7

%)

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Other (loss) income, net for the three and six months ended June 30, 2017 and 2016 consists of miscellaneous (payments) receipts.

Equity in Net (Loss) Income of Unconsolidated Investments

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Equity in net (loss) income of unconsolidated

    investments

 

$

(28

)

 

$

(4,898

)

 

 

(99.4

%)

 

$

257

 

 

$

(7,501

)

 

 

(103.4

%)

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Equity in net (loss) income of unconsolidated investments represents our share of the equity (losses) earnings of our investments in third parties accounted for under the equity method, including the amortization of cost basis adjustments. The amount recognized during the three and six months ended June 30, 2016 represents our share of the net loss incurred by NantHealth prior to NantHealth’s initial public offering (“IPO”) in June 2016. Our investment in NantHealth common stock is accounted for as an available-for-sale marketable security after the IPO.

Income Taxes

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

Income tax benefit (provision)

 

$

1,007

 

 

$

503

 

 

 

100.2

%

 

$

835

 

 

$

(60

)

 

NM

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate due primarily to valuation allowance, permanent differences, income attributable to foreign jurisdictions taxed at lower rates, state taxes, tax credits and certain discrete items. Our effective tax rate for the three and six months ended June 30, 2017, compared with the prior year comparable periods, differs primarily due to $56.5 million of valuation allowance in the six months ended June 30, 2017 for deferred taxes on investment impairment not deductible for tax until disposal of the investment. The classification of the loss at this later disposal time is yet to be determined, but likely would result in a capital loss which can only can be deductible to the extent of offsetting capital gains.

33


Non-Controlling Interests

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Net loss (income) attributable to

   non-controlling interest

 

$

264

 

 

$

87

 

 

NM

 

 

$

(189

)

 

$

9

 

 

NM

 

Accretion of redemption preference

   on redeemable convertible

   non-controlling interest - Netsmart

 

$

(10,963

)

 

$

(8,153

)

 

 

34.5

%

 

$

(21,925

)

 

$

(8,153

)

 

 

168.9

%

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

The net (loss) income attributable to non-controlling interest represents the share of earnings of consolidated affiliates that is attributable to the affiliate’s common stock that is not owned by us for each of the periods presented. The accretion of redemption preference on redeemable convertible non-controlling interest represents the accretion of liquidation preference at 11% per annum to the value of the preferred units of Netsmart for each of the periods presented. Refer to Note 2, “Business Combinations and Other Investments” to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for additional information regarding such liquidation preference.

Segment Operations

Overview of Segment Results

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical and Financial Solutions

 

$

286,674

 

 

$

282,254

 

 

 

1.6

%

 

$

567,129

 

 

$

553,697

 

 

 

2.4

%

Population Health

 

 

59,736

 

 

 

54,026

 

 

 

10.6

%

 

 

118,798

 

 

 

109,081

 

 

 

8.9

%

Netsmart

 

 

78,421

 

 

 

44,233

 

 

 

77.3

%

 

 

151,428

 

 

 

44,233

 

 

NM

 

Unallocated Amounts

 

 

1,260

 

 

 

6,008

 

 

 

(79.0

%)

 

 

2,211

 

 

 

25,068

 

 

 

(91.2

%)

Total revenue

 

$

426,091

 

 

$

386,521

 

 

 

10.2

%

 

$

839,566

 

 

$

732,079

 

 

 

14.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical and Financial Solutions

 

$

119,286

 

 

$

121,319

 

 

 

(1.7

%)

 

$

233,004

 

 

$

235,340

 

 

 

(1.0

%)

Population Health

 

 

41,775

 

 

 

38,775

 

 

 

7.7

%

 

 

83,588

 

 

 

78,815

 

 

 

6.1

%

Netsmart

 

 

37,271

 

 

 

14,949

 

 

 

149.3

%

 

 

71,845

 

 

 

14,949

 

 

NM

 

Unallocated Amounts

 

 

(10,841

)

 

 

(8,359

)

 

 

29.7

%

 

 

(22,294

)

 

 

(10,522

)

 

 

111.9

%

Total gross profit

 

$

187,491

 

 

$

166,684

 

 

 

12.5

%

 

$

366,143

 

 

$

318,582

 

 

 

14.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clinical and Financial Solutions

 

$

63,023

 

 

$

67,386

 

 

 

(6.5

%)

 

$

118,009

 

 

$

128,224

 

 

 

(8.0

%)

Population Health

 

 

28,439

 

 

 

24,028

 

 

 

18.4

%

 

 

56,984

 

 

 

48,918

 

 

 

16.5

%

Netsmart

 

 

7,828

 

 

 

(2,399

)

 

NM

 

 

 

16,757

 

 

 

(2,399

)

 

NM

 

Unallocated Amounts

 

 

(78,186

)

 

 

(70,441

)

 

 

11.0

%

 

 

(159,383

)

 

 

(144,273

)

 

 

10.5

%

Total income from operations

 

$

21,104

 

 

$

18,574

 

 

 

13.6

%

 

$

32,367

 

 

$

30,470

 

 

 

6.2

%


34


Clinical and Financial Solutions

Our Clinical and Financial Solutions segment derives its revenue from the sale of integrated clinical software applications and financial and information solutions, which primarily include EHR-related software, financial and practice management software, related installation, support and maintenance, outsourcing, private cloud hosting, revenue cycle management, training and electronic claims administration services.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Revenue

 

$

286,674

 

 

$

282,254

 

 

 

1.6

%

 

$

567,129

 

 

$

553,697

 

 

 

2.4

%

Gross profit

 

$

119,286

 

 

$

121,319

 

 

 

(1.7

%)

 

$

233,004

 

 

$

235,340

 

 

 

(1.0

%)

Gross margin %

 

 

41.6

%

 

 

43.0

%

 

 

 

 

 

 

41.1

%

 

 

42.5

%

 

 

 

 

Income from operations

 

$

63,023

 

 

$

67,386

 

 

 

(6.5

%)

 

$

118,009

 

 

$

128,224

 

 

 

(8.0

%)

Operating margin %

 

 

22.0

%

 

 

23.9

%

 

 

 

 

 

 

20.8

%

 

 

23.2

%

 

 

 

 

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Clinical and Financial Solutions revenue increased during the three and six months ended June 30, 2017 compared with the prior year comparable periods, as higher revenue from software delivery, support and maintenance, and recurring revenue cycle management and other transaction-based services and private cloud hosting client services were partly offset by lower non-recurring client services revenue. The higher software delivery, support and maintenance revenue was driven by increases in both recurring subscription-based revenue and non-recurring software license sales of our acute solutions. The increase in revenue cycle management revenue was due to the activation of several new accounts, which more than offset certain other projects that ended in 2016. Revenue related to private cloud hosting also increased primarily due to several new client go-lives during the fourth quarter of 2016 and first half of 2017. The decrease in non-recurring client services revenue was partly due to the realization of certain deferred revenue amounts during the first quarter of 2016 that did not re-occur in 2017. In addition, non-recurring client services revenue was lower as result of a decrease in implementation services attributable to fewer large implementations of our ambulatory and acute solutions as certain large service projects were mostly completed in 2016.

The overall profitability of the clinical and financial solutions segment decreased during the three and six months ended June 30, 2017 compared with the prior year comparable periods, primarily due to the decrease in non-recurring client services revenue, a greater reliance on third-party products and services, and higher amortization of capitalized software development and acquired technology-related intangible assets. These decreases were partly offset by certain credits related to our hosting partners during the three months ended June 30, 2017 as compared to the prior year comparable period.  

Population Health

Our Population Health segment derives its revenue from the sale of health management and coordinated care solutions, which are mainly targeted at hospitals, health systems, other care facilities and ACOs. These solutions enable clients to connect, transition, analyze and coordinate care across the entire care community.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Revenue

 

$

59,736

 

 

$

54,026

 

 

 

10.6

%

 

$

118,798

 

 

$

109,081

 

 

 

8.9

%

Gross profit

 

$

41,775

 

 

$

38,775

 

 

 

7.7

%

 

$

83,588

 

 

$

78,815

 

 

 

6.1

%

Gross margin %

 

 

69.9

%

 

 

71.8

%

 

 

 

 

 

 

70.4

%

 

 

72.3

%

 

 

 

 

Income from operations

 

$

28,439

 

 

$

24,028

 

 

 

18.4

%

 

$

56,984

 

 

$

48,918

 

 

 

16.5

%

Operating margin %

 

 

47.6

%

 

 

44.5

%

 

 

 

 

 

 

48.0

%

 

 

44.8

%

 

 

 

 

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Population Health revenue and gross profit increased during the three and six months ended June 30, 2017 compared with the prior year comparable periods, due to higher non-recurring software delivery revenue associated with client expansion and new client sales of population health solutions, and higher non-recurring project-related client services revenue during the first half of 2017. Additionally, recurring subscription-based revenue associated with our CareInMotion™ population health management portfolio increased during the three and six months ended June 30, 2017. Income from operations and operating margin also increased during the three and six months ended June 30, 2017 compared with the prior year, due to the same factors, in addition to an overall decline in operating expenses.

35


Gross margin decreased during the three and six months ended June 30, 2017 compared with the prior year comparable periods, primarily due to an unfavorable mix of lower margin projects utilizing third party resources in addition to slightly higher third party expenses associated with new solutions.

Netsmart

Our Netsmart segment is a new segment that was established as part of the Netsmart Transaction and is comprised of the combination of our HomecareTM business with Netsmart, Inc. The Netsmart segment operates in and provides software and technology solutions to the health and human services and post-acute sectors of health care throughout the United States. The health and human services sector comprises behavioral health, addiction treatment, intellectual and developmental disability services, child and family services and public health market segments. The post-acute sector includes homecare and long-term care which is comprised of home health, hospice, private duty, assisted living and skilled nursing. The human services, home care and long term care markets combined represent the second largest category of health care spending in the United States.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

Revenue

 

$

78,421

 

 

$

44,233

 

 

 

77.3

%

 

$

151,428

 

 

$

44,233

 

 

NM

Gross profit

 

$

37,271

 

 

$

14,949

 

 

 

149.3

%

 

$

71,845

 

 

$

14,949

 

 

NM

Gross margin %

 

 

47.5

%

 

 

33.8

%

 

 

 

 

 

 

47.4

%

 

 

33.8

%

 

 

Income from operations

 

$

7,828

 

 

$

(2,399

)

 

NM

 

 

$

16,757

 

 

$

(2,399

)

 

NM

Operating margin %

 

 

10.0

%

 

 

(5.4

%)

 

 

 

 

 

 

11.1

%

 

 

(5.4

%)

 

 

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Revenue for the three and six months ended June 30, 2017 includes two revenue categories, business services and system sales. Business services includes both subscription revenue and services and support revenue. System sales includes revenue from software licenses, sold either as perpetual licenses or fixed-term licenses, and revenue from third party software licenses and hardware products. Revenue for the three and six months ended June 30, 2017 increased primarily due to the 2016 comparable period only including results of Netsmart since the date of the Netsmart Transaction in April 2016. In addition, results of our HomecareTM business are included in the Netsmart reportable segment in the current year periods and in the Unallocated Amounts category for the 2016 periods prior to the Netsmart Transaction.  Revenue for the three and six months ended June 30, 2017 also includes incremental revenue from the acquisition of HealthMEDX during the fourth quarter of 2016. In addition, system sales revenue was higher due to several large contracts that were executed during the second quarter of 2017.  Total revenue is reduced by acquisition-related deferred revenue adjustments related to the Netsmart Transaction totaling $1 million and $3 million for the three and six months ended June 30, 2017, respectively, and $10 million for the three and six months ended June 30, 2016. Overall profitability improved primarily driven by higher revenues and the impact of a lower deferred revenue adjustment in 2017 as compared to 2016.

36


Unallocated Amounts

In determining revenue, gross profit and income from operations for our segments, with the exception of the Netsmart segment, we do not include in revenue the amortization of acquisition-related deferred revenue adjustments, which reflect the fair value adjustments to deferred revenues acquired in a business acquisition. With the exception of the Netsmart segment, we also exclude the amortization of intangible assets, stock-based compensation expense, non-recurring expenses and transaction-related costs, and non-cash asset impairment charges from the operating segment data provided to our CODM. Non-recurring expenses relate to certain severance, product consolidation, legal, consulting and other charges incurred in connection with activities that are considered one-time. Accordingly, these amounts are not included in our reportable segment results and are included in the “Unallocated Amounts” category. The “Unallocated Amounts” category also includes corporate general and administrative expenses (including marketing expenses), which are centrally managed, as well as revenue and the associated cost from the resale of certain ancillary products, primarily hardware, other than the respective amounts associated with the Netsmart segment. The historical results of our HomecareTM business prior to the Netsmart Transaction are also included in the “Unallocated Amounts” category. The Netsmart segment, as presented, includes all revenue and expenses incurred by Netsmart since it operates as a stand-alone business entity and its resources allocation and performance are reviewed and measured at such all-inclusive level. The eliminations of intercompany transactions between Allscripts and Netsmart are also included in the “Unallocated Amounts” category.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

% Change

 

 

2017

 

 

2016

 

 

% Change

 

Revenue

 

$

1,260

 

 

$

6,008

 

 

 

(79.0

%)

 

$

2,211

 

 

$

25,068

 

 

 

(91.2

%)

Gross profit

 

$

(10,841

)

 

$

(8,359

)

 

 

29.7

%

 

$

(22,294

)

 

$

(10,522

)

 

 

111.9

%

Gross margin %

 

NM

 

 

 

(139.1

%)

 

 

 

 

 

NM

 

 

 

(42.0

%)

 

 

 

 

Loss from operations

 

$

(78,186

)

 

$

(70,441

)

 

 

11.0

%

 

$

(159,383

)

 

$

(144,273

)

 

 

10.5

%

Operating margin %

 

NM

 

 

NM

 

 

 

 

 

 

NM

 

 

NM

 

 

 

 

 

Three and Six Months Ended June 30, 2017 Compared with the Three and Six Months Ended June 30, 2016

Revenue from the resale of ancillary products, primarily consisting of hardware, is customer and project driven and, as a result, can fluctuate from period to period. Revenue for the three and six months ended June 30, 2017 decreased primarily due to the results of our HomecareTM business being included in the Netsmart reportable segment in the current year and in the Unallocated Amounts category for the prior year quarter. Revenue for the three and six months ended June 30, 2017 includes the elimination of $2 million and $5 million, respectively, of revenue associated with transactions between Allscripts and Netsmart. Revenue for the three and six months ended June 30, 2016 includes the elimination of $2 million of revenue associated with transactions between Allscripts and Netsmart. Hardware revenue for the three and six months ended June 30, 2016 was also higher compared with the three and six months ended June 30, 2017.

Gross unallocated expenses, which represent the unallocated loss from operations excluding the impact of revenue, totaled $79 million and $162 million for the three and six months ended June 30, 2017, respectively, compared to $76 million and $169 million for the three and six months ended June 30, 2016, respectively. The increase during the three months ended June 30, 2017 was primarily due to an increase in selling, general and administrative expenses due to higher transaction-related and legal expenses, partly offset by a decrease in cost of revenue. The decline during the six months ended June 30, 2017 was primarily the result of a $11 million decrease in cost of revenue which was partly due to the results of our HomecareTM business being included in the Netsmart reportable segment in the current year periods and in the Unallocated Amounts category for the 2016 periods prior to the Netsmart Transaction. The remaining decrease for the six months ended June 30, 2017 compared with the prior year comparable period was primarily driven by a $5 million asset impairment charge recorded during the 2016 period and a $2 million decrease in research and development costs. These decreases were partially offset by a $11 million increase in selling, general and administrative expenses due to higher transaction-related and legal expenses for the six months ended June 30, 2017.

37


Contract Backlog

Contract backlog represents the value of bookings and support and maintenance contracts that have not yet been recognized as revenue. A summary of contract backlog by revenue category is as follows:

 

 

As of

 

 

As of

 

 

As of

 

 

% Change from June 30, 2017

 

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

June 30,

 

(In millions)

 

2017

 

 

2016

 

 

2016

 

 

2016

 

 

2016

 

Software delivery, support and maintenance

 

$

2,401

 

 

$

2,379

 

 

$

2,342

 

 

 

0.9

%

 

 

2.5

%

Client services

 

 

1,707

 

 

 

1,671

 

 

 

1,634

 

 

 

2.2

%

 

 

4.5

%

Total contract backlog

 

$

4,108

 

 

$

4,050

 

 

$

3,976

 

 

 

1.4

%

 

 

3.3

%

Total contract backlog as of June 30, 2017 increased compared with December 31, 2016 and June 30, 2016. Total contract backlog can fluctuate between periods based on the level of revenue and bookings as well as the timing and mix of renewal activity and periodic revalidations.

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. As of June 30, 2017, our principal sources of liquidity consisted of cash and cash equivalents of $83 million, net of restricted cash of $6 million, and available borrowing capacity of $324 million under our revolving credit facility and $49 million under the Netsmart revolving credit 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)

 

2017

 

 

2016

 

 

$ Change

 

Net loss

 

$

(151,576

)

 

$

(9

)

 

$

(151,567

)

Non-cash adjustments to net loss

 

 

261,726

 

 

 

107,225

 

 

 

154,501

 

Cash impact of changes in operating assets and liabilities

 

 

(791

)

 

 

24,883

 

 

 

(25,674

)

Net cash provided by operating activities

 

$

109,359

 

 

$

132,099

 

 

$

(22,740

)

Six Months Ended June 30, 2017 Compared with the Six Months Ended June 30, 2016

Net cash provided by operating activities decreased during the six months ended June 30, 2017 compared with the prior year comparable period primarily due to unfavorable working capital changes and higher costs during the first half of 2017 compared with 2016, which included increased interest expense attributable to Netsmart’s non-recourse debt and higher transaction-related and legal expenses. The increase in non-cash adjustments to net loss was primarily driven by other-than-temporary impairment charges associated with long-term investments.

38


Investing Cash Flow Activities

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

$ Change

 

Capital expenditures

 

$

(25,035

)

 

$

(16,632

)

 

$

(8,403

)

Capitalized software

 

 

(71,582

)

 

 

(37,106

)

 

 

(34,476

)

Cash paid for business acquisitions, net of cash acquired

 

 

(3,975

)

 

 

(905,540

)

 

 

901,565

 

Purchases of equity securities, other investments

   and related intangible assets

 

 

(1,323

)

 

 

(20,685

)

 

 

19,362

 

Proceeds received from sale of fixed assets

 

 

0

 

 

 

37

 

 

 

(37

)

Net cash used in investing activities

 

$

(101,915

)

 

$

(979,926

)

 

$

878,011

 

Six Months Ended June 30, 2017 Compared with the Six Months Ended June 30, 2016

Net cash used in investing activities decreased during the six months ended June 30, 2017 compared with the prior year comparable period, primarily due to the acquisition of Netsmart, Inc. for $906 million, net of cash acquired, and $21 million of new third-party investments during the six months ended June 30, 2016, partly offset by increased spending for capital expenditures and capitalized software costs. We also acquired a $1.3 million equity investment in a third party during the six months ended June 30, 2017.  The increase in capital spending during the six months ended June 30, 2017 is partly due to Netsmart. In addition, during the first quarter of 2017, Netsmart entered into a Purchase Agreement with a third party, for an aggregate cash consideration of $4.0 million, to acquire a business consisting of intellectual property, certain contractual relationships and certain associates.

Financing Cash Flow Activities

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

$ Change

 

Proceeds from sale or issuance of common stock

 

$

0

 

 

$

5

 

 

$

(5

)

Proceeds from issuance of redeemable

   convertible preferred stock - Netsmart

 

 

0

 

 

 

333,605

 

 

 

(333,605

)

Excess tax benefits from stock-based compensation

 

 

0

 

 

 

962

 

 

 

(962

)

Taxes paid related to net share settlement of equity awards

 

 

(6,554

)

 

 

(7,363

)

 

 

809

 

Payments on debt instruments

 

 

(116,905

)

 

 

(53,000

)

 

 

(63,905

)

Credit facility borrowings, net of issuance costs

 

 

120,000

 

 

 

599,135

 

 

 

(479,135

)

Repurchase of common stock

 

 

(12,077

)

 

 

(52,075

)

 

 

39,998

 

Net cash (used in) provided by financing activities

 

$

(15,536

)

 

$

821,269

 

 

$

(836,805

)

Six Months Ended June 30, 2017 Compared with the Six Months Ended June 30, 2016

During the six months ended June 30, 2017, we had net cash outflows from financing activities, while during the six months ended June 30, 2016, we had net cash inflows. The change in our net cash flows from financing activities was primarily due to $534 million, net of issuance costs, borrowed under Netsmart’s non-recourse Credit Agreements and $45 million borrowed under our revolving credit facility to partially finance the Netsmart Acquisition during the six months ended June 30, 2016. In addition, Netsmart received $334 million in proceeds from the issuance of redeemable convertible preferred stock during the second quarter of 2016. 

39


Future Capital Requirements

The following table summarizes our required minimum future payments under the 1.25% Notes, the Senior Secured Credit Facility and Netsmart’s Non-Recourse Debt as of June 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Total

 

 

Remainder of 2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

Thereafter

 

Principal payments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.25% Cash Convertible Senior

  Notes (1)

 

$

345,000

 

 

$

0

 

 

$

0

 

 

$

0

 

 

$

345,000

 

 

$

0

 

 

$

0

 

Senior Secured Credit Facility (2)

 

 

453,125

 

 

 

9,375

 

 

 

28,125

 

 

 

40,625

 

 

 

375,000

 

 

 

0

 

 

 

0

 

Netsmart Non-Recourse Debt (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien Term Loan

 

 

430,749

 

 

 

2,176

 

 

 

4,351

 

 

 

4,351

 

 

 

4,351

 

 

 

4,351

 

 

 

411,169

 

Second Lien Term Loan

 

 

167,000

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

167,000

 

   Total principal payments

 

 

1,395,874

 

 

 

11,551

 

 

 

32,476

 

 

 

44,976

 

 

 

724,351

 

 

 

4,351

 

 

 

578,169

 

Interest payments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.25% Cash Convertible Senior

  Notes (1)

 

 

15,095

 

 

 

2,156

 

 

 

4,313

 

 

 

4,313

 

 

 

4,313

 

 

 

0

 

 

 

0

 

Senior Secured Credit Facility (2) (3)

 

 

43,117

 

 

 

7,770

 

 

 

14,986

 

 

 

13,927

 

 

 

6,434

 

 

 

0

 

 

 

0

 

Netsmart Non-Recourse Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Lien Term Loan (4)

 

 

145,538

 

 

 

12,475

 

 

 

24,761

 

 

 

24,509

 

 

 

24,256

 

 

 

24,004

 

 

 

35,533

 

First Lien Revolver (5)

 

 

971

 

 

 

121

 

 

 

243

 

 

 

243

 

 

 

243

 

 

 

121

 

 

 

0

 

Second Lien Term Loan (6)

 

 

116,149

 

 

 

8,935

 

 

 

17,869

 

 

 

17,869

 

 

 

17,869

 

 

 

17,869

 

 

 

35,738

 

   Total interest payments

 

 

320,870

 

 

 

31,457

 

 

 

62,172

 

 

 

60,861

 

 

 

53,115

 

 

 

41,994

 

 

 

71,271

 

Total future debt payments

 

$

1,716,744

 

 

$

43,008

 

 

$

94,648

 

 

$

105,837

 

 

$

777,466

 

 

$

46,345

 

 

$

649,440

 

(1)

Assumes no cash conversions of the 1.25% Notes prior to their maturity on July 1, 2020.

(2)

Assumes no additional borrowings after June 30, 2017, payment of any required periodic installments of principal and that all drawn amounts are repaid upon maturity.

(3)

Assumes LIBOR plus the applicable margin remain constant at the rate in effect on June 30, 2017, which was 3.23%.

(4)

Assumes Adjusted LIBO Rate plus the applicable margin remain constant at the rate in effect on June 30, 2017, which was 5.80%.

(5)

Assumes commitment fee remains constant at the rate in effect on June 30, 2017, which was 0.50%.

(6)

Assumes Adjusted LIBO Rate plus the applicable margin remain constant at the rate in effect on June 30, 2017, which was 10.70%.

Other Matters Affecting Future Capital Requirements

We are currently in our seventh year of a ten-year agreement with Atos (formerly known as Xerox Consultant Services) to provide services to support our private cloud hosting services for our Sunrise acute care clients. We maintain all client relationships and domain expertise with respect to the hosted applications. The agreement includes the payment of an initial base amount of $50 million per year plus charges for services incremental to the base agreement. We incur approximately $5.0 million of expenses per month under this agreement, which are included in client services cost of revenue in our consolidated statements of operations.

Our total investment in research and development efforts during 2017 is expected to increase compared with 2016 as we continue to build and expand our capabilities in emerging areas of health care, such as precision medicine and population health analytics, and our traditional offerings in the ambulatory and acute markets. Our total spending consists of research and development costs directly recorded to expense which are offset by the capitalization of eligible development costs. Capitalized software development costs for the three and six months ended June 30, 2017, include $6.8 million and $16.8 million, respectively, of third-party software purchases to supplement our internal software development efforts, while there were no such purchases during the three and six months ended June 30, 2016.

We plan to fund the purchase price under the Purchase Agreement for the EIS Business using cash on hand and borrowings under our senior secured credit facilities.

40


To supplement our statement of operations, the table below presents a non-GAAP measure of research and development-related expenses that we believe is a useful metric for evaluating how we are investing in research and development.

 

 

Three Months Ended June 30

 

 

Six Months Ended June 30,

 

(In thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Research and development costs directly recorded to expense

 

$

46,459

 

 

$

47,891

 

 

$

95,691

 

 

$

94,928

 

Capitalized software development costs per consolidated

   statement of cash flows

 

 

37,571

 

 

 

21,972

 

 

 

71,582

 

 

 

37,106

 

Total non-GAAP R&D-related spending

 

$

84,030

 

 

$

69,863

 

 

$

167,273

 

 

$

132,034

 

Total revenue

 

$

426,091

 

 

$

386,521

 

 

$

839,566

 

 

$

732,079

 

Total non-GAAP R&D-related spending as a % of total revenue

 

 

19.7

%

 

 

18.1

%

 

 

19.9

%

 

 

18.0

%

We believe that our cash and cash equivalents of $83 million, net of restricted cash of $6 million, as of June 30, 2017, our future cash flows, and our borrowing capacity under our revolving credit facility and the Netsmart revolving credit facility, taken together, provide adequate resources to fund our ongoing cash requirements for the next twelve months. 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, each of which might impact our liquidity requirements or cause us to issue additional equity or debt securities.

If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we might be required to obtain additional sources of funds through additional operating improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.

Contractual Obligations, Commitments and Off Balance Sheet Arrangements

We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as operating lease contract obligations, are not recognized as liabilities in our consolidated financial statements but are required to be disclosed.

During the six months ended June 30, 2017, in the ordinary course of business, we amended or renewed multi-year service agreements with third-party software vendors, which resulted in increases of approximately $20 million, $33 million, $27 million, $10 million and $2 million to our future purchase obligations amounts for the years ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively, previously disclosed in our Form 10-K.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Form 10-K have not changed materially during the quarter ended June 30, 2017.

 

Item 4.

Controls and Procedures 

Evaluation of disclosure controls and procedures

Under the direction of our chief executive officer and chief financial officer, we evaluated our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and concluded that our disclosure controls and procedures were effective as of June 30, 2017.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2017, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  We included Netsmart from our evaluation of internal control over financial reporting as of June 30, 2017 because the acquisition was completed during the second quarter of 2016, as further described in Note 2, “Business Combinations” in the notes to consolidated financial statements.

41


PART II OTHER INFORMATION

 

 

Item 1.

Legal Proceedings 

We hereby incorporate by reference Note 12, “Contingencies,” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

 

Item 1A.

Risk Factors 

There have been no material changes during the quarter ended June 30, 2017 from the risk factors as previously disclosed in our Form 10-K.

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

On November 17, 2016, we announced that our Board approved a new stock purchase program under which we may repurchase up to $200 million of our common stock through December 31, 2019. Any share repurchases may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means, subject to market conditions.

Any repurchase activity will depend on many factors such as our working capital needs, cash requirements for investments, debt repayment obligations, economic and market conditions at the time, including the price of our common stock, and other factors that we consider relevant. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time.

The following table summarizes the stock repurchase activity for the three months ended June 30, 2017 and the approximate dollar value of shares that may yet to be purchased pursuant to our stock repurchase program:

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

 

Of Shares

 

 

Dollar Value

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

Of Shares

 

 

 

 

 

 

 

 

 

 

 

As Part Of

 

 

That May Yet

 

 

 

Total

 

 

Average

 

 

Publicly

 

 

Be Purchased

 

 

 

Number

 

 

Price

 

 

Announced

 

 

Under The

 

 

 

Of Shares

 

 

Paid Per

 

 

Plans Or

 

 

Plans Or

 

Period (Based on Trade Date)

 

Purchased

 

 

Share

 

 

Programs

 

 

Programs

 

04/01/17—04/30/17

 

 

0

 

 

$

0.00

 

 

 

0

 

 

$

175,995

 

05/01/17—05/31/17

 

 

890

 

 

$

11.55

 

 

 

890

 

 

$

165,713

 

06/01/17—06/30/17

 

 

149

 

 

$

11.91

 

 

 

149

 

 

$

163,939

 

 

 

 

1,039

 

 

$

11.60

 

 

 

1,039

 

 

 

 

 

 

Item 6.

Exhibits 

(a)     Exhibits

See Index to Exhibits.

42


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

 

 

By:

 

/s/ Dennis M. Olis

 

 

Dennis M. Olis

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

Date: August 4, 2017

43


INDEX TO EXHIBITS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incorporated by Reference

Exhibit Number

 

 

Exhibit Description

 

Filed Herewith

 

Furnished Herewith

 

Form

 

Exhibit

 

Filing Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.1

 

 

Allscripts Healthcare Solutions, Inc. Second Amended and Restated 2011 Stock Incentive Plan

 

 

 

 

 

8-K

 

10.1

 

May 24, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.2

 

 

Separation Agreement, dated as of May 11, 2017, between Allscripts Healthcare Solutions, Inc. and Melinda D. Whittington

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

 

 

Rule 13a - 14(a) Certification of Chief Executive Officer

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.2

 

 

Rule 13a - 14(a) Certification of Chief Financial Officer

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32.1

 

 

Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.INS

 

 

XBRL Instance Document

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.SCH

 

 

XBRL Taxonomy Extension Schema

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.CAL

 

 

XBRL Taxonomy Extension Calculation Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.LAB

 

 

XBRL Taxonomy Extension Label Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.PRE

 

 

XBRL Taxonomy Extension Presentation Linkbase

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101.DEF

 

 

XBRL Taxonomy Definition Linkbase

 

X

 

 

 

 

 

 

 

 

 

44

mdrx-ex102_689.htm

 

Exhibit 10.2

SEPARATION AGREEMENT

This Separation Agreement (this “Agreement”), by and between Melinda D. Whittington (“Executive”) and Allscripts Healthcare Solutions, Inc., a corporation organized and existing under the laws of the State of Delaware (“Company”) is effective as of the 11th day of May, 2017 (the “Effective Date”).  Terms used in this Agreement but not specifically defined herein shall have the same meaning as in the Employment Agreement (defined below).

WHEREAS, Company and Executive entered into an Employment Agreement with an effective date of February 1, 2016 (the “Employment Agreement”), a copy of such agreement is attached hereto as Exhibit A; and

WHEREAS, Company and Executive desire to set forth the terms of Executive’s termination of employment with the Company, severance benefits, and other matters related thereto.

NOW, THEREFORE, in consideration of the foregoing premises, of the mutual agreements and covenants contained herein and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Termination Date; Cessation of Duties.

(a)Executive’s employment with Company will terminate effective as of the close of business on June 5, 2017 (the “Termination Date”).  As of the Termination Date, Executive’s service as an officer and employment with Company is terminated and Executive irrevocably resigns from all other positions with any subsidiaries and affiliated companies of Company.

(b)Executive’s Employment Agreement remains in full force and effect until the Termination Date, except as modified by this Agreement.  Through and including the Termination Date, Executive shall continue to receive her Base Salary as in effect on the Effective Date and to participate in any benefit plans or programs of Company provided or made available to Executive as of the Effective Date.

(c)As of May 12, 2017, Executive is relieved of all duties for the Company other than the transition of Executive’s duties to others within the Company, shall take no other actions on behalf of Company, and shall have no authority as an officer or agent of the Company.  Executive’s access to the Company’s systems and offices shall cease as of the close of business on May 15, 2017, except to the extent that Executive is invited to the Company’s offices or given consent to such access by a Company officer on or prior to June 5, 2017.  

2.Severance Benefits.  Subject to Executive’s compliance with the terms of this Agreement, including without limitation Sections 4, 5, 6, 7, 8, and 10, Executive shall receive, after the Termination Date, the payments and benefits set forth in Section 4.5.1 of the Employment

 

 


 

Agreement, including the Accrued Obligations as defined therein, which are described and shall be paid or provided in accordance with Schedule 1 attached to this Agreement.

3.No Other Payments.  Executive expressly acknowledges and agrees that, other than as specifically provided for in this Agreement and on Schedule 1, no additional payments or benefits are due from Company on any basis whatsoever, including but not limited to any Performance Bonus payment under Company’s 2017 corporate bonus program, and that Executive’s outstanding, unvested equity awards are forfeited as of the Termination Date, other than as described on Schedule 1.

4.Release.  The pay and benefits provided under Section 2 of this Agreement are subject to Executive’s execution of (without revocation) and delivery to Company by the forty-fifth (45th) day following the Termination Date (but not before the Termination Date) of a release and waiver of all claims (the “Release”) up to the date of the Release with such Release in the form attached hereto as Exhibit B.

5.Restrictive Covenants.  Executive expressly acknowledges and agrees that Section 5 (“Restrictive Covenants”) of the Employment Agreement remains in full force and effect as provided therein.

6.Return of Company Property.  Executive represents and warrants that, within seven days of the Effective Date, Executive shall return to Company all Company property and information in any form (whether, paper, electronic media or otherwise), and not retain copies of any such property or information (excluding, however, information relating solely to Executive’s own employment, compensation and benefits).  

7.Non-Disparagement.  Executive agrees not to make any adverse or disparaging comments (oral or written, including but not limited to, via any form of electronic media) about the Company, its affiliates, or any of their respective officers, directors, managers or employees which may tend to impugn or injure their reputation, goodwill and relationships with their past, present and future customers, employees or vendors or with the business community generally.    Nothing in this Section 7 is intended to prohibit, limit or prevent Executive from providing truthful testimony in a court of law, to a regulatory or law enforcement agency or pursuant to a properly issued subpoena, and such testimony would not be deemed to be a violation of this Section 7.  The Company agrees that the Company will not, and will instruct the members of the Board and its senior executives not to, make any adverse or disparaging comments (oral or written, including but not limited to, via any form of electronic media) about Executive which may tend to impugn or injure Executive’s reputation or goodwill, or contribute to Executive being held in disrepute by the public or any future employer of Executive.  

8.Cooperation.  Executive agrees to cooperate, within reason, subject to reimbursement by Company of reasonable out of pocket costs and expenses, with Company and its counsel with respect to any matter (including any litigation, investigation or governmental proceeding) which relates to matters with which Executive was involved during her employment with Company.  Such cooperation shall include appearing from time to time at the offices of Company or Company’s counsel for conferences and interviews and in generally providing the officers of Company and its counsel with the full benefit of Executive’s knowledge with respect

2

 


 

to any such matter.  Executive agrees to render such cooperation in a timely fashion and at such times and places as may be mutually agreeable to the parties.  Executive’s cooperation shall not require her to give Company more time and attention than may reasonably be accommodated to her work schedule and other commitments, from time to time.

9.Waiver of Any Re-Employment Right.  Executive waives all interest in and right to reinstatement or re-employment with Company and any of its affiliates and agrees that any application for re-employment may be rejected without explanation or liability pursuant to this provision.  This waiver shall not apply to any instance where Executive’s then-current employer becomes acquired by the Company or any of its affiliates, or where the Company desires to re-hire Executive.

10.Nondisclosure.  Executive shall not disclose or cause to be disclosed the terms of this Agreement or the negotiations leading to it to any person (other than to her spouse, attorneys or tax advisors, who shall also be bound by this nondisclosure provision), except pursuant to a lawful subpoena or as otherwise required by law.  The Company shall not disclose or cause to be disclosed the terms of the Agreement or the negotiations leading to it to any unaffiliated person (other than the Company’s attorneys or advisors), except pursuant to a lawful subpoena or as otherwise required by law, including, but not limited to, the reporting requirements applicable to the Company under the Securities Exchange Act of 1934.

11.Miscellaneous.

(a)Binding Effect.  This Agreement shall be binding upon each of the parties and upon their respective heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of each party and to their respective heirs, administrators, representatives, executors, successors and assigns.

(b)Applicable Law.  This Agreement shall be construed in accordance with the laws of the State of Illinois, without regard to the conflict of law provisions of any jurisdiction.

(c)Dispute Resolution; No Set-Off or Mitigation; Indemnification.  Executive and the Company expressly acknowledge and agree that Section 6 (“No Set-Off or Mitigation”), Section 7.9 (“Dispute Resolution and Arbitration”) and Section 7.16 (“Indemnification; Insurance Coverage”) of the Employment Agreement remain in full force and effect and shall apply to this Agreement.

(d)Scope of Agreement.  This Agreement and, as indicated, the Employment Agreement reflect the entire agreement between Executive and Company with respect to the terms and conditions of Executive’s employment relationship with Company and the termination of such employment relationship and, except as specifically provided herein, supersede all prior agreements and understandings, written or oral relating to the subject matter hereof.

(e)Notices.  Any notice pertaining to this Agreement shall be in writing and shall be given in accordance with Section 7.6 of the Employment Agreement.

(f)Waiver of Breach.  The waiver by either party to this Agreement of a breach of any provision of this Agreement shall not operate as or be deemed a waiver of any subsequent

3

 


 

breach by such party.  Continuation of benefits hereunder by Company following a breach by Executive of any provision of this Agreement shall not preclude Company from thereafter exercising any right that it may otherwise independently have to terminate said benefits based upon the same violation.

(g)Amendment.  This Agreement may not be modified or amended except by a writing signed by the parties to this Agreement.

(h)Counterparts.  This Agreement may be signed in multiple counterparts, each of which shall be deemed an original.  Any executed counterpart returned by facsimile or PDF shall be deemed an original executed counterpart.

(i)No Third Party Beneficiaries.  Unless specifically provided herein, the provisions of this Agreement are for the sole benefit of the parties to this Agreement and are not intended to confer upon any person not a party to this Agreement any rights hereunder.

(j)Terms and Construction.  Each party has cooperated in the drafting and preparation of this Agreement.  The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and not strictly for or against either party.

(k)Admissions.  Nothing in this Agreement is intended to be, or will be deemed to be, an admission of liability by Executive or Company to each other, or an admission that they or any of their agents, affiliates, or employees have violated any state, federal or local statute, regulation or ordinance or any principle of common law of any jurisdiction, or that they have engaged in any wrongdoing towards each other.

(l)Withholding.  Company may withhold from any amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to applicable laws or regulations.

(m)Severability.  The holding of any provision of this Agreement to be illegal, invalid or unenforceable by a court of competent jurisdiction shall not affect any other provisions of this Agreement, which shall remain in full force and effect.

(n)Calculations.  The terms of Schedule 1 are intended to provide Executive the payments and benefits due per the terms of Section 4.5.1 of the Employment Agreement and other applicable compensation-related documents per terms applicable to a termination of Executive’s employment without Cause.  In the event of manifest error in any calculation reflected on Schedule 1, Company and Executive agree that the calculation shall be corrected and Executive provided the correct payment or benefit.

(o)Section 409A of the Code.  Executive expressly acknowledges and agrees that Section 7.14 (“Internal Revenue Code Section 409A”) of the Employment Agreement remains in full force and effect and shall apply to this Agreement.  Executive is a “specified employee” of Company and its affiliates (as defined in Treasury Regulation Section 1.409A-1(i)), and Executive is therefore subject to a delay in payment until six months after the date of Executive’s separation from service from Company (pursuant to Treasury Regulation Section 1.409A-3(i)(2)(ii)) to receive payments provided hereunder to the extent such amounts are subject to, and not exempt

4

 


 

from, Section 409A.  If the sixty (60)-day period following a “separation from service” begins in one calendar year and ends in a second calendar year (a “Crossover 60-Day Period”), then any severance payments that would otherwise occur during the portion of the Crossover 60-Day Period that falls within the first year will be delayed and paid in a lump sum during the portion of the Crossover 60-Day Period that falls within the second year.


5

 


 

IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as of the dates respectively set forth below.





Dated: May 12, 2017  

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.


/s/ Brian P. Farley
Brian P. Farley
Senior Vice President,
General Counsel and Corporate Secretary




Dated: May 11, 2017

EXECUTIVE:


/s/ Melinda D. Whittington
Melinda D. Whittington

 

 

6

 


 

SCHEDULE 1

ACCRUED OBLIGATIONS

The Accrued Obligations, as defined in Section 4.5.1 of the Employment Agreement.

CASH PAYMENTS

Amount Payable

Date[s] Payable

Comments

$788,000

Paid in twelve equal monthly installments with the first two installments to be paid on the sixtieth (60th) day following June 5, 2017 (the “Termination Date”) and the remaining ten installments to be paid on the ten following monthly anniversaries of such date.

Constituting the payments required by Section 4.5.1(i) of the Employment Agreement (lx (base salary + current target performance bonus) paid over 12 months).

 

BENEFITS CONTINUATION

Benefits Description

Continuation Period

Continuation of Executive’s enrollment in health and/or dental insurance benefits immediately prior to the Termination Date, with Executive contributing to such benefits as if she were employed by Company.

Until the earlier of:

(i)the end of the 12-month period following the Termination Date (i.e., through June 5, 2017); or

(ii)Executive’s failure to make a required contribution within 10 days of written notice or the COBRA grace period, whichever comes later; or

(iii)the date on which Executive becomes eligible to receive comparable benefits from a subsequent employer.

 

 


 

Schedule 1 – Page 1

 

 


 

RESTRICTED STOCK UNIT (“RSU”) AND OPTION VESTING AND FORFEITURE

 

Award

Vesting Per Sec. 4.5.1(iii) of Employment Agreement or Award

Delivery of Shares

RSUs / Options Forfeited from Award

1.

2/24/16 Relative TSR PSU Grant (80,711 granted)

Actual performance pro-rated to 42.6% (467/1096)

Upon later of certification of performance by Compensation Committee or sixtieth (60th) day following the Termination Date

TBD

2.

3/6/17 Relative TSR PSU Grant (54,485 granted)

Actual performance pro-rated to 8.3% (91/1096)

Upon later of certification of performance by Compensation Committee or sixtieth (60th) day following the Termination Date

TBD

3.

2/24/16 Time-Based RSU Grant
(80,711 granted)

34,348

Sixtieth (60th) day following the Termination Date (Performance hurdle satisfied in full)

19,458

4.

3/6/17 Time-Based RSU Grant
(54,485 granted)

22,690

*If performance condition is satisfied.

Upon later of certification of performance by Compensation Committee or sixtieth (60th) day following the Termination

31,796

 

 

 

 

Schedule 1 – Page 2

 

 


 

EXHIBIT A

EMPLOYMENT AGREEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

EXHIBIT B

GENERAL RELEASE

WHEREAS, this General Release (this “Release”) is given by Melinda D. Whittington (“Executive”) on the date indicated below at Executive’s signature, pursuant to the Separation Agreement between Allscripts Healthcare Solutions, Inc. (the “Company”) and Executive effective as of May 11, 2017 (the “Agreement”); and

WHEREAS, in consideration for the payments and benefits provided by Company to Executive under the Agreement, which are conditioned upon her execution of a release and waiver of claims for the benefit of Company, Executive agrees to execute this Release.

NOW THEREFORE, in consideration of the mutual covenants contained under the Agreement and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, Executive agrees as follows:

1.In exchange for the benefits described in the Agreement, Executive hereby agrees to WAIVE any and all rights in connection with, and to fully RELEASE and forever discharge Company and its predecessors, parents, subsidiaries, divisions, related or affiliated companies, benefit plans, plan administrators and other plan fiduciaries, officers, directors, stockholders, members, employees, heirs, successors, assigns, representatives, agents and counsel (the “Released Parties”) from any and all torts, contracts, claims, suits, actions, causes of action, demands, rights, damages, costs, expenses, attorneys’ fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which Executive has or ever had (from the beginning of time through and including the date hereof) against any of the Released Parties, including without limitation on account of or in any way arising out of, relating to or in connection with Executive’s employment by or separation of employment from any of the Released Parties, and any and all claims for damages or injury to any entity, person, property or reputation arising therefrom, claims for wages, employment benefits, tort claims and claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Employee Retirement Income Security Act of 1974 (except that Executive does not waive her right to receive notices and disclosures, monies and other benefits due in accordance with any employee retirement or welfare benefit plan), the National Labor Relations Act, the Fair Labor Standards Act, the Rehabilitation Act of 1973, the Family and Medical Leave Act of 1993, the Americans with Disabilities Act of 1990 and any other federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle of any state relating to employment, employment contracts, wrongful discharge or any other matter; provided, however, that the foregoing waiver and release shall not apply to Executive’s rights in respect of any benefit or claim to which Executive is entitled under employee pension or welfare benefit plans and programs of the Released Parties in which Executive is a participant prior to the date below, or to Executive’s rights to enforce the Agreement.

2.Release of Age Discrimination Claims.  In further consideration of the promises made by Company in the Agreement, Executive specifically WAIVES any and all rights in connection with, and fully RELEASES and forever discharges the Released Parties from, any and all torts, contracts, claims, suits, actions, causes of action, demands, rights, damages, costs,

 

B-1

 

 


 

expenses, attorneys’ fees, and compensation in any form whatsoever, whether now known or unknown, in law or in equity, which Executive has or ever had (from the beginning of time through and including the date hereof) against any of the Released Parties, arising under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Sec. 621, et seq. (“ADEA”).  Executive further agrees that:

(a)Executive’s waiver of rights under this Release is knowing and voluntary and in compliance with the Older Workers Benefit Protection Act of 1990;

(b)Executive understands the terms of this Release;

(c)the consideration provided in the Agreement represents consideration over and above that to which Executive otherwise would be entitled, that the consideration would not have been provided had Executive not signed this Release, and that the consideration is in exchange for the signing of this Release;

(d)Company is hereby advising Executive in writing to consult with Executive’s attorney prior to executing this Release;

(e)Company is giving Executive a period of at least forty-five (45) days within which to consider this Release;

(f)Following the execution of this Release Executive has seven (7) days in which to revoke this Release by written notice.  To be effective, the revocation must be made in writing and delivered to and received by the General Counsel, Allscripts Healthcare Solutions, Inc., 222 Merchandise Mart Plaza, Suite 2024, Chicago, Illinois 60654, no later than 4:00 p.m. on the seventh day after Executive executes this Release.  An attempted revocation not actually received by the General Counsel before the revocation deadline will not be effective; and

(g)This entire Release shall be void and of no force and effect if Executive chooses to so revoke, and, if Executive chooses not to so revoke, this Release shall then become fully effective and enforceable.

This Section 2 does not waive rights or claims that may arise under the ADEA after the date Executive signs this Release.  In addition, nothing in this Release shall in any way affect Executive’s right to indemnification, coverage and expense advancement to the extent provided by Company’s operating agreement or other applicable Company or insurance policies; provided, however, that Company shall not be liable, and shall not provide a defense and indemnification for any claim wherein Executive has not satisfied the applicable standard of conduct set forth in such operating agreement or other applicable policies, or wherein Executive has committed any acts of fraud, embezzlement or gross misconduct.

3.Proceedings; No Admissions.

(a)Executive hereby represents and warrants that she has no pending claims against any of the Released Parties with any municipal, state, federal or other governmental or nongovernmental entity.  Notwithstanding anything to the contrary, this Release shall not prevent Executive from (A) initiating or causing to be initiated on Executive’s behalf any complaint,

 

B-2

 

 


 

charge, claim or proceeding against any of the Released Parties before any local, state or federal agency, court or other body challenging the validity of the waiver of Executive’s claims under the ADEA contained in this Release (but no other portions of the waivers and releases described in Sections 1 or 2); or (B) initiating or participating in an investigation or proceeding conducted by the Equal Employment Opportunity Commission with respect to the ADEA.

(b)Both parties acknowledge and agree that this Release does not constitute, is not intended to be, and shall not be construed, interpreted or treated in any respect as, and shall not be admissible in any proceeding as, an admission of liability, error, violation, omission or wrongdoing by either party for any purpose whatsoever.  Further, both parties acknowledge and agree that there has been no determination that either party has violated any federal, state or local law, statute, ordinance, guideline, regulation, order or common-law principle.  Executive further acknowledges that no precedent, practice, policy or usage shall be established by this Release or the offer to Executive of compensation and benefits in the Agreement.

4.Effect of Claim.  Executive also understands and agrees that in the event Executive, by herself, or in conjunction with Executive’s heirs, spouse, family members, executors, or administrators, attempt(s) to institute or institute(s) any charge, claim, suit or action against any of the Released Parties in violation of this Release, Executive shall be obligated, as an express condition of bringing such action, to tender back to Company the full amount of the compensation and benefits that Executive has received under the Agreement; and Executive further agrees that Executive will pay all of the Released Parties’ costs, expenses and fees of defending against such action, including, among other things, reasonable attorneys’ fees.  The immediately prior sentence does not apply to claims under ADEA or to challenge the release of ADEA claims under this Release; provided, however, nothing in this Release is intended to reflect any party’s belief that Executive’s waiver of claims under ADEA is invalid or unenforceable under this Release, it being the intent of Executive and Company that such claims are waived.  This Section 4 does not grant Executive an option to return the money and institute an action.  Instead this paragraph merely creates an additional term and condition precedent to bringing an action regardless of the fact that such action is expressly barred by this Release, and is without merit.

5.Communication with Governmental Entities. Notwithstanding anything to the contrary herein, this Release does not prohibit either party, where applicable, from confidentially or otherwise communicating or filing a charge or complaint with a governmental or regulatory entity, participating in a governmental or regulatory entity investigation, or giving truthful testimony or statements or other disclosures to a federal, state or local governmental or regulatory entity, in each case without having to disclose any such conduct to the other party, or from responding if properly subpoenaed or otherwise required to do so under applicable law. Nothing in this Release shall limit Executive’s ability to disclose in confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law or to disclose trade secrets in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure. To the extent permitted by law, Executive agrees that if any claim is made based on any matter released herein, Executive hereby waives, and agrees that Executive shall not be entitled to recover and the Released Parties shall not be liable for, any further monetary or other relief arising out of or related to any such matter for any actual or alleged personal injury or damages to Executive, including without limitation any costs, expenses and attorneys’ fees incurred by or on

 

B-3

 

 


 

behalf of Executive (it being understood, however, that this Release does not limit Executive’s right to receive an award from a governmental or regulatory entity for information provided to such an entity, and not as compensation for actual or alleged personal injury or damages to Executive).

6.Executive’s Right to Enforce Agreement.  Nothing in this Release shall be construed as a waiver or release by Executive of any claim or right to enforce the terms of the Agreement or to bring a claim for damages arising out of Company’s breach of the Agreement.

 

B-4

 

 


 

IN WITNESS WHEREOF, Executive has executed and delivered this Release on the date set forth below.




Date: June 5, 2017

NOT TO BE SIGNED PRIOR TO
JUNE 5, 2017

/s/ Melinda D. Whittington
Melinda D. Whittington

 

 

 

B-5

 

 

mdrx-ex311_6.htm

Exhibit 31.1

Certification

I, Paul M. Black, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Allscripts Healthcare Solutions, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

 

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: August 4, 2017

 

/s/ Paul M. Black

 

 

Chief Executive Officer

 

mdrx-ex312_7.htm

Exhibit 31.2

Certification

I, Dennis M. Olis, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Allscripts Healthcare Solutions, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

 

a.

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: August 4, 2017

 

/s/ Dennis M. Olis

 

 

Chief Financial Officer

 

mdrx-ex321_8.htm

Exhibit 32.1

 

The following statement is being made to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), which carries with it certain criminal penalties in the event of a knowing or willful misrepresentation.

Securities and Exchange Commission

100 F Street, NE

Washington, D.C. 20549

Re: Allscripts Healthcare Solutions, Inc.

Ladies and Gentlemen:

In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC 1350), each of the undersigned hereby certifies that:

(i) this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, which this statement accompanies, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(ii) the information contained in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, fairly presents, in all material respects, the financial condition and results of operations of Allscripts Healthcare Solutions, Inc.

Dated as of this 4th day of August, 2017.

 

/s/ Paul M. Black

 

 

 

/s/ Dennis M. Olis

Paul M. Black

Chief Executive Officer

 

 

 

Dennis M. Olis

Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Allscripts Healthcare Solutions, Inc. and will be retained by Allscripts Healthcare Solutions, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.