UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, Zip Code)
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange on which Registered |
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(Nasdaq Global Select Market) |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of October 26, 2020, there were
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
FORM 10-Q
For the Fiscal Quarter Ended September 30, 2020
TABLE OF CONTENTS
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PAGE |
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3 |
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Item 1. |
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3 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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29 |
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Item 3. |
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41 |
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Item 4. |
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41 |
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Item 1. |
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42 |
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Item 1A. |
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Item 2. |
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42 |
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Item 6. |
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2
PART I. FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In thousands, except per share amounts) |
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September 30, 2020 |
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December 31, 2019 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net of allowance of $ September 30, 2020 and December 31, 2019, respectively |
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Contract assets, net of allowance of $ |
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Prepaid expenses and other current assets |
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Assets held for sale |
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Total current assets |
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Fixed assets, net |
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Software development costs, net |
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Intangible assets, net |
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Goodwill |
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Deferred taxes, net |
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Contract assets - long-term, net of allowance of $ |
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Right-of-use assets - operating leases |
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Other assets |
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Total assets |
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$ |
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$ |
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3
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
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(In thousands, except per share amounts) |
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September 30, 2020 |
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December 31, 2019 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Accrued compensation and benefits |
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Deferred revenue |
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Current maturities of long-term debt |
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Current operating lease liabilities |
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Liabilities related to assets held for sale |
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Total current liabilities |
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Long-term debt |
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Deferred revenue |
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Deferred taxes, net |
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Long-term operating lease liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock: $ |
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Common stock: $ and December 31, 2019; as of September 30, 2020, respectively; and outstanding as of December 31, 2019, respectively |
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Treasury stock: at cost, December 31, 2019, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(In thousands, except per share amounts) |
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2020 |
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2019 |
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2020 |
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2019 |
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Revenue: |
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Software delivery, support and maintenance |
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$ |
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$ |
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$ |
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$ |
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Client services |
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Total revenue |
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Cost of revenue: |
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Software delivery, support and maintenance |
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Client services |
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Amortization of software development and acquisition-related assets |
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Total cost of revenue |
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Gross profit |
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Selling, general and administrative expenses |
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Research and development |
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Asset impairment charges |
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Amortization of intangible and acquisition-related assets |
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Income (loss) from operations |
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Interest expense |
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Other income (loss), net |
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(Impairment) recovery of long-term investments |
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Equity in net income (loss) of unconsolidated investments |
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Income (loss) before income taxes |
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( |
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Income tax (provision) benefit |
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( |
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Net income (loss) |
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Net loss attributable to non-controlling interests |
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Net income (loss) attributable to Allscripts Healthcare Solutions, Inc. stockholders |
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$ |
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$ |
( |
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$ |
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$ |
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Net income (loss) attributable to Allscripts Healthcare Solutions, Inc. stockholders per share - Basic |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income (loss) attributable to Allscripts Healthcare Solutions, Inc. stockholders per share - Diluted |
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$ |
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$ |
( |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
5
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(In thousands) |
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2020 |
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2019 |
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2020 |
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2019 |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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( |
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Change in fair value of derivatives qualifying as cash flow hedges |
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( |
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Other comprehensive income (loss) before income tax (expense) benefit |
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( |
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Income tax (expense) benefit related to items in other comprehensive income (loss) |
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( |
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Total other comprehensive income (loss) |
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( |
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Comprehensive income (loss) |
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( |
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Comprehensive loss attributable to non-controlling interests |
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Comprehensive income (loss), net |
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$ |
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$ |
( |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
6
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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(In thousands) |
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2020 |
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2019 |
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2020 |
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2019 |
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Number of common shares |
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Balance at beginning of period |
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Common stock issued under stock compensation plans, net of shares withheld for employee taxes |
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Balance at end of period |
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Common stock |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Common stock issued under stock compensation plans, net of shares withheld for employee taxes |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Number of treasury stock shares |
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Balance at beginning of period |
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( |
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( |
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Issuance of treasury stock |
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Purchase of treasury stock |
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( |
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( |
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( |
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Balance at end of period |
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( |
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Treasury stock |
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Balance at beginning of period |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Issuance of treasury stock |
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Purchase of treasury stock |
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( |
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( |
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( |
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( |
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Balance at end of period |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Additional paid-in capital |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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Common stock issued under stock compensation plans, net of shares withheld for employee taxes |
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( |
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( |
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( |
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Capped call transactions |
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Issuance of treasury stock |
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( |
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( |
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Warrants issued |
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Acquisition of non-controlling interest |
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( |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Retained earnings (accumulated deficit) |
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Balance at beginning of period |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net income (loss) less net loss attributable to non-controlling interests |
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( |
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( |
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( |
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ASU 2016-13 implementation adjustments |
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( |
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Balance at end of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Accumulated other comprehensive loss |
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Balance at beginning of period |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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Foreign currency translation adjustments, net |
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( |
) |
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( |
) |
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( |
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Unrecognized gain (loss) on derivatives qualifying as cash flow hedges, net of tax |
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( |
) |
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( |
) |
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Balance at end of period |
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$ |
( |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Acquisition of non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Net loss attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Balance at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total Stockholders’ Equity at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total Stockholders’ Equity at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
7
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Nine Months Ended September 30, |
|
|
|||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
Operating right-of-use asset amortization |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
Deferred taxes |
|
|
|
|
|
|
( |
) |
|
|
Asset impairment charges |
|
|
|
|
|
|
|
|
|
|
Impairment (recovery) of long-term investments |
|
|
|
|
|
|
( |
) |
|
|
Equity in net (income) loss of unconsolidated investments |
|
|
( |
) |
|
|
( |
) |
|
|
Other (income) loss, net |
|
|
( |
) |
|
|
|
|
|
|
Changes in operating assets and liabilities (net of businesses acquired): |
|
|
|
|
|
|
|
|
|
|
Accounts receivable and contract assets, net |
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
|
|
|
|
Accrued expenses |
|
|
( |
) |
|
|
|
|
|
|
Accrued compensation and benefits |
|
|
|
|
|
|
( |
) |
|
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
|
Other liabilities |
|
|
|
|
|
|
( |
) |
|
|
Operating leases |
|
|
( |
) |
|
|
( |
) |
|
|
Accrued DOJ settlement |
|
|
( |
) |
|
|
|
|
|
|
Net cash provided by operating activities - continuing operations |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities - discontinued operations |
|
|
|
|
|
|
( |
) |
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
Capitalized software |
|
|
( |
) |
|
|
( |
) |
|
|
Cash paid for business acquisitions, net of cash acquired |
|
|
|
|
|
|
( |
) |
|
|
Sales (purchases) of equity securities, other investments and related intangible assets, net |
|
|
|
|
|
|
( |
) |
|
|
Other proceeds from investing activities |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Taxes paid related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
|
|
Repayment of Convertible Senior Notes |
|
|
( |
) |
|
|
|
|
|
|
Payments for issuance costs on 0.875% Convertible Senior Notes |
|
|
( |
) |
|
|
|
|
|
|
Credit facility payments |
|
|
( |
) |
|
|
( |
) |
|
|
Credit facility borrowings, net of issuance costs |
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
( |
) |
|
|
( |
) |
|
|
Repurchase of unsettled common stock |
|
|
|
|
|
|
( |
) |
|
|
Payment of acquisition and other financing obligations |
|
|
( |
) |
|
|
( |
) |
|
|
Purchases of subsidiary shares owned by non-controlling interest |
|
|
|
|
|
|
( |
) |
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
8
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 nine months ended September 30, 2020 and 2019 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 nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020.
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. The Company believes that the disclosures made are adequate to make these unaudited interim consolidated financial statements not misleading. They 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, 2019 (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. Our estimates and assumptions consider the economic implications of COVID-19 on our critical and significant accounting estimates. Actual results could differ materially from these estimates.
Change in Presentation
During the first quarter of 2020, we changed our reportable segments from Provider, Veradigm and Unallocated to Core Clinical and Financial Solutions, Data, Analytics and Care Coordination, and Unallocated. The business units reported within the historical segments have been reallocated into the new segments. Refer to Note 15 “Business Segments” for further discussion on the impact of the change.
Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported consolidated prior period financial results.
Significant Accounting Policies
We adopted Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) on
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 will be effective for all entities for interim and annual periods beginning after December 15, 2019, with early adoption permitted. We adopted ASU 2018-13 on
9
In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 will be effective for all entities as of March 12, 2020 through December 31, 2022. We adopted ASU 2020-04 on
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740)” (“ASU 2019-12”), which is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 simplifies accounting guidance for intraperiod allocations, deferred tax liabilities, year-to-date losses in interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of tax laws or rate changes. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and adoption must be as of the beginning of the fiscal year. We are currently evaluating the impact of this accounting guidance.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, will have a material impact on our consolidated financial statements.
2. Revenue from Contracts with Customers
Our
At September 30, 2020 and December 31, 2019, we had capitalized costs to obtain or fulfill a contract of $
The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable, contract assets and customer advances and deposits. Accounts receivable, net includes both billed and unbilled amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets include amounts where revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Deferred revenue includes advanced payments and billings in excess of revenue recognized. Our contract assets and deferred revenue are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term based on the timing of when we expect to complete the related performance obligations and bill the customer. Deferred revenue is classified as current or long-term based on the timing of when we expect to recognize revenue.
10
The breakdown of revenue recognized based on the origination of performance obligations and elected accounting expedients is presented in the table below:
|
(In thousands) |
|
Three Months Ended March 31, 2020 |
|
|
Three Months Ended June 30, 2020 |
|
|
Three Months Ended September 30, 2020 |
|
|||
|
Revenue related to deferred revenue balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Revenue related to new performance obligations satisfied during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized under "right-to-invoice" expedient |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed travel expenses, shipping and other revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(In thousands) |
|
Three Months Ended March 31, 2019 |
|
|
Three Months Ended June 30, 2019 |
|
|
Three Months Ended September 30, 2019 |
|
|||
|
Revenue related to deferred revenue balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Revenue related to new performance obligations satisfied during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue recognized under "right-to-invoice" expedient |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursed travel expenses, shipping and other revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The aggregate amount of contract transaction price related to remaining unsatisfied performance obligations (commonly referred to as “backlog”) represents contracted revenue that has not yet been recognized and includes both deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog equaled $
Revenue Recognition
We recognize revenue only when we satisfy an identified performance obligation (or bundle of obligations) by transferring control of a promised product or service to a customer. We consider a product or service to be transferred when a customer obtains control because a customer has sole possession of the right to use (or the right to direct the use of) the product or service for the remainder of its economic life or to consume the product or service in its own operations. We evaluate the transfer of control primarily from the customer’s perspective as this reduces the risk that revenue is recognized for activities that do not transfer control to the customer.
The majority of our revenue is recognized over time because a customer continuously and simultaneously receives and consumes the benefits of our performance. The exceptions to this pattern are our sales of perpetual and term software licenses, and hardware, where we determined that a customer obtains control of the asset upon granting of access, delivery or shipment.
We disaggregate our revenue from contracts with customers based on the type of revenue and nature of revenue stream, as we believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Non-recurring revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended September 30, 2020 |
|
|||||||||||||
|
(In thousands) |
|
Core Clinical and Financial Solutions |
|
|
Data, Analytics and Care Coordination |
|
|
Unallocated Amounts |
|
|
Total |
|
||||
|
Software delivery, support and maintenance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Client services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
11
|
|
|
Three Months Ended September 30, 2019 |
|
|||||||||||||
|
(In thousands) |
|
Core Clinical and Financial Solutions |
|
|
Data, Analytics and Care Coordination |
|
|
Unallocated Amounts |
|
|
Total |
|
||||
|
Software delivery, support and maintenance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Client services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Nine Months Ended September 30, 2020 |
|
|||||||||||||
|
(In thousands) |
|
Core Clinical and Financial Solutions |
|
|
Data, Analytics and Care Coordination |
|
|
Unallocated Amounts |
|
|
Total |
|
||||
|
Software delivery, support and maintenance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Client services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|||||||||||||
|
(In thousands) |
|
Core Clinical and Financial Solutions |
|
|
Data, Analytics and Care Coordination |
|
|
Unallocated Amounts |
|
|
Total |
|
||||
|
Software delivery, support and maintenance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Client services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Contract Assets – Estimate of Credit Losses
We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The new guidance required the recognition of lifetime estimated credit losses expected to occur for contract assets. The guidance also required that we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of ASU 2016-13 for contract assets was recorded as a debit to retained earnings of $
At adoption, we segmented the contract asset population into pools based on their risk assessment. Risks related to contract assets are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment, and business size. The pools are aligned with management’s review of financial performance. For the nine months ended September 30, 2020, no adjustment to the pools was necessary.
We utilized a loss-rate method to measure expected credit loss for each pool. The loss rate is calculated using a twenty-four-month lookback period of credit memos and adjustments divided by the average contract asset balance for each pool during that period. We considered current economic conditions, including how the COVID-19 pandemic is impacting the global economy, internal forecasts, cash collection and credit memos written during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data. The September 30, 2020 analysis resulted in no change in the ending estimate of credit losses.
Changes in the estimate of credit losses for contract assets are presented in the table below.
|
(In thousands) |
|
Total |
|
|
|
Balance at January 1, 2020 |
|
$ |
|
|
|
Current period provision |
|
|
|
|
|
Balance at September 30, 2020 |
|
$ |
|
|
|
Less: Contract assets, short-term |
|
|
|
|
|
Total contract assets, long-term |
|
$ |
|
|
3. Accounts Receivable
Trade Accounts Receivable – Estimate of Credit Losses
We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The new guidance required the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable. The guidance also required that we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of ASU 2016-13 for trade accounts receivable was recorded as a debit to retained earnings of $
At adoption, we segmented the accounts receivable population into pools based on their risk assessment. Risks related to trade accounts receivable are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment, and business size. The pools are aligned with management’s review of financial performance. For the nine months ended September 30, 2020, no adjustment to the pools was necessary.
12
We utilized a loss-rate method to measure expected credit loss for each pool. The loss rate is calculated using a twelve-month lookback period of credit memos and adjustments divided by the average accounts receivable balance for each pool during that period. We considered current economic conditions, including how the COVID-19 pandemic is impacting the global economy, internal forecasts, cash collection and credit memos written during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data.
Changes in the estimate of credit losses for trade accounts receivable are presented in the tables below.
|
(In thousands) |
|
Total |
|
|
|
Balance at January 1, 2020 |
|
$ |
|
|
|
Current period provision |
|
|
|
|
|
Write-offs |
|
|
( |
) |
|
Recoveries |
|
|
|
|
|
Less: Reclassified allowance against receivables held for sale (1) |
|
|
( |
) |
|
Balance at September 30, 2020 |
|
$ |
|
|
(1) During the three months ended September 30, 2020, a portion of accounts receivable and the allowance thereon were reclassified to current assets held for sale in the accompanying consolidated balance sheets due to the Company’s entry into an asset purchase agreement with Strata Decision Technology LLC, to sell the EPSiTM business. Refer to Note 5 “Business Combinations” for further discussion about the pending sale of the EPSiTM business.
4. Leases
We determine whether an arrangement is a lease at inception. Assets leased under an operating lease arrangement are recorded in Right-of-use assets – operating leases and the associated lease liabilities are included in Current operating lease liabilities and Long-term operating lease liabilities within the consolidated balance sheets. Assets leased under finance lease arrangements are recorded within fixed assets and the associated lease liabilities are recorded within Accrued expenses and Other liabilities within the consolidated balance sheets.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate in conjunction with the market swap rate for the expected remaining lease term at the commencement date for new leases in determining the present value of future lease payments. Our expected lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.
We have elected the group of practical expedients under ASU 2016-02 to forego assessing upon adoption: (1) whether any expired contracts are or contain leases; (2) the lease classification for any existing or expired leases and (3) any indirect costs that would have qualified for capitalization for any existing leases. We have lease agreements with lease and non-lease components, which are generally accounted for separately except for real estate and vehicle leases, which we have elected to combine through a practical expedient under ASU 2016-02. Non-lease components for our leases typically consist of executory costs, and the practical expedient allows for all executory costs to be recorded as lease payments. Additionally, for certain equipment leases, we apply a portfolio approach to effectively record right-of-use assets and liabilities.
Our operating leases mainly include office leases and our finance leases include office and computer equipment leases. Our finance leases are not significant. Our leases have remaining lease terms up to
|
(In thousands) |
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Operating lease cost (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less: Sublease income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total operating lease costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
|
Supplemental information for operating leases is as follows:
|
(In thousands) |
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
Operating cash flows from operating leases |
|
$ |
|
|
|
$ |
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations |
|
$ |
|
|
|
$ |
|
|
13
The balance sheet location and balances for operating leases are as follows:
|
(In thousands, except lease term and discount rate) |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
Right-of-use assets - operating leases |
|
$ |
|
|
|
$ |
|
|
|
Current operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Long-term operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Weighted average remaining lease term (in years) |
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
|
% |
|
|
|
% |
The future maturities of our leasing arrangements including lease and non-lease components are shown in the below table. The maturities are calculated using foreign currency exchange rates in effect as of September 30, 2020.
|
|
|
September 30, 2020 |
|
|
|
(In thousands) |
|
Operating Leases |
|
|
|
Remainder of 2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total lease liabilities |
|
|
|
|
|
Less: Amount representing interest |
|
|
( |
) |
|
Less: Reclassified lease liabilities held for sale (1) |
|
|
( |
) |
|
Less: Short-term lease liabilities |
|
|
( |
) |
|
Total long-term lease liabilities |
|
$ |
|
|
|
(1) |
During the three months ended September 30, 2020, a portion of short-term and long-term lease liabilities were reclassified to current and long-term liabilities held for sale in the accompanying consolidated balance sheets due to the Company’s entry into an asset purchase agreement with Strata Decision Technology LLC, to sell the EPSiTM business. Refer to Note 5 “Business Combinations” for further discussion about the pending sale of the EPSiTM business. |
5. Business Combinations
Acquisitions
On July 2, 2019, we acquired the Pinnacle and Diabetes Collaborative Registries from the American College of Cardiology (“ACC”) as part of our broader strategic partnership with the ACC. The total purchase price was $
On June 10, 2019, we acquired the assets of a business engaged in the development, implementation, customization, marketing, licensing and sale of a specialty prescription drug platform, including software that collects, saves and transmits information required to fill a prescription. The drug platform and software enables healthcare providers, pharmacists and payors to digitally interact with one another to fill a prescription. The business is included in our Data, Analytics and Care Coordination business segment.
On March 1, 2019, we acquired all of the outstanding minority interests in Pulse8, Inc., a healthcare analytics and technology company that provides business intelligence software solutions for health plans and at-risk providers to enable them to analyze their risk adjustment and quality management programs, for $
14
Divestitures
On July 30, 2020, we signed an asset purchase agreement with Strata Decision Technology LLC, an Illinois limited liability company (“Strata”), and Roper Technologies, Inc., a Delaware corporation (the “EPSi Purchase Agreement”), pursuant to which Strata has agreed to purchase substantially all of the assets of our EPSiTM business for $
The following table provides the components of those assets and liabilities related to the EPSi Purchase Agreement which are classified as held-for-sale as of September 30, 2020:
|
(In thousands) |
|
September 30, 2020 |
|
|
|
Assets held for sale: |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Accounts receivable, net of allowance of $ |
|
$ |
|
|
|
Contract assets |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
Total current assets classified as held for sale |
|
|
|
|
|
Fixed assets, net |
|
|
|
|
|
Software development costs, net |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Contract assets - long-term |
|
|
|
|
|
Right-of-use assets - operating leases |
|
|
|
|
|
Total assets held for sale |
|
$ |
|
|
|
|
|
|
|
|
|
Liabilities related to assets held for sale: |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accrued expenses |
|
$ |
|
|
|
Accrued compensation and benefits |
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
Current operating lease liabilities |
|
|
|
|
|
Total current liabilities classified as held for sale |
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
Long-term operating lease liabilities |
|
|
|
|
|
Total liabilities related to assets held for sale |
|
$ |
|
|
6. Fair Value Measurements and Long-term Investments
Fair value measurements are based upon observable and unobservable inputs.
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Quoted prices for similar instruments in active markets with inputs that are observable, 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.
Level 3: Unobservable inputs 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 instruments include the fair value of contingent consideration related to completed acquisitions. The fair values are based on discounted cash flow analyses reflecting the likelihood of achieving specified performance measures or events and captures the contractual nature of the contingencies, commercial risk or time value of money. Level 3 instruments also included the
15
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 |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
|||||||||||||||||||||||||||
|
(In thousands) |
|
Classifications |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||||||
|
Foreign exchange derivative assets |
|
Prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration - current |
|
Accrued expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Contingent consideration - long-term |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cash conversion option |
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis at September 30, 2020 are summarized as follows:
|
(In thousands) |
|
Contingent Consideration |
|
|
1.25% Notes Call Spread Overlay |
|
||
|
Balance at December 31, 2019 |
|
$ |
|
|
|
$ |
( |
) |
|
Additions |
|
|
|
|
|
|
|
|
|
Payments |
|
|
( |
) |
|
|
|
|
|
Fair value adjustments |
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020 |
|
$ |
|
|
|
$ |
|
|
The following table summarizes the quantitative information about our Level 3 fair value measurements at September 30, 2020:
|
|
|
September 30, 2020 |
|
|||||||||||
|
(In thousands, except the discount rate) |
|
Fair Value |
|
|
Valuation Technique |
|
Significant Unobservable Inputs |
|
Ranges of Inputs |
|
Weighted Average (1) |
|
||
|
Financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
$ |
|
|
|
Probability Weighted Discounted cash flow |
|
Discount rate |
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Registry members |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient data volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected year of payment |
|
|
|
|
|
|
|
Total financial instruments |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
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 for number of investees) |
|
at September 30, 2020 |
|
|
Cost |
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||||
|
Equity method investments (1) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cost less impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term equity investments |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
|
16
During the nine months ended September 30, 2020, we recorded a $
As of September 30, 2020, it is not possible 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, the issuer’s subsequent or planned raises of capital and observable price changes in orderly transactions.
Impairment and Recovery of Long-term Investments
During the three and nine months ended September 30, 2020, we recorded non-cash impairment charges of $
Long-term Financial Liabilities
Our long-term financial liabilities include amounts outstanding under our senior secured credit facility (as described in Note 10, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. As of December 31, 2019, the carrying amount of our
7. Stockholders' Equity
Stock-based Compensation Expense
Stock-based compensation expense recognized during the three and nine months ended September 30, 2020 and 2019 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.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Client services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
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.
We granted stock-based awards as follows:
17
|
|
|
Three Months Ended September 30, 2020 |
|
|
Nine Months Ended September 30, 2020 |
|
||||||||||
|
|
|
|
|
|
|
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 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Performance-based restricted stock units with a service condition |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Market-based restricted stock units with a service condition |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
During the nine months ended September 30, 2020 and the year ended December 31, 2019,
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 nine months ended September 30, 2020 and 2019 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 nine months ended September 30, 2020 and 2019 were
Stock Repurchases
On August 2, 2018, we announced that our Board of Directors approved a stock purchase program (the “2018 Program”) under which we may repurchase up to $
8. 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.
18
The calculations of earnings (loss) per share are as follows:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands, except per share amounts) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Basic earnings (loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net loss attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Allscripts Healthcare Solutions, Inc. stockholders |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders per Common Share |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net loss attributable to non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Allscripts Healthcare Solutions, Inc. stockholders |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Dilutive effect of stock options, restricted stock unit awards and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding assuming dilution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Allscripts Healthcare Solutions, Inc. stockholders per Common Share |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Due to the net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019, we used basic weighted-average common shares outstanding in the calculation of diluted loss per share for those periods, 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 September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Shares subject to anti-dilutive stock options, restricted stock unit awards and warrants excluded from calculation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||||||||||
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
||
|
|
|
Carrying |
|
|
Accumulated |
|
|
Intangible |
|
|
Carrying |
|
|
Accumulated |
|
|
Intangible |
|
||||||
|
(In thousands) |
|
Amount |
|
|
Amortization |
|
|
Assets, Net |
|
|
Amount |
|
|
Amortization |
|
|
Assets, Net |
|
||||||
|
Intangibles subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Customer contracts and relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered trademarks |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
19
Changes in the carrying amounts of goodwill by reportable segment for the nine months ended September 30, 2020 were as follows:
|
(In thousands) |
|
Core Clinical and Financial Solutions |
|
|
Data, Analytics and Care Coordination |
|
|
Unallocated Amounts (2) |
|
|
Total |
|
||||
|
Balance as of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Reclassification to assets held for sale (1) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of September 30, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
During the three months ended September 30, 2020, the carrying amount of goodwill assigned to the EPSiTM business was reclassified to assets held for sale in the accompanying consolidated balance sheets due to the Company’s entry into an asset purchase agreement with Strata Decision Technology LLC, to sell the EPSiTM business. Refer to Note 5 “Business Combinations” for further discussion about the pending sale of the EPSiTM business. |
|
(2) |
The EPSiTM operating segment is included in the “Unallocated Amounts” category as it does not meet the requirements to be a reportable segment nor the criteria to be aggregated into the two reportable segments. |
There are $
10. Debt
Debt outstanding, excluding lease obligations, consists of the following:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||||||||||
|
(In thousands) |
|
Principal Balance |
|
|
Unamortized Discount and Debt Issuance Costs |
|
|
Net Carrying Amount |
|
|
Principal Balance |
|
|
Unamortized Discount and Debt Issuance Costs |
|
|
Net Carrying Amount |
|
||||||
|
0.875% Convertible Senior Notes (1) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
1.25% Cash Convertible Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less: Debt payable within one year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, less current maturities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
Principal balance is $ |
Interest expense consists of the following:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Interest expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Amortization of discounts and debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest expense related to the 0.875% Convertible Senior Notes and the 1.25% Cash Convertible Senior Notes, included in the table above, consisted of the following:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Coupon interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Amortization of discounts and debt issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense related to the convertible notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Allscripts Senior Secured Credit Facility
On February 15, 2018, Allscripts and Healthcare LLC entered into a Second Amended and Restated Credit Agreement (the “Second Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent. The Second Amended Credit Agreement provides for a $
20
facility (the “Revolving Facility”), each with a term.
As of September 30, 2020, $
As of September 30, 2020, the interest rate on the borrowings under the Second Amended Credit Agreement was LIBOR plus
In connection with the sale of our EPSiTM business on October 15, 2020, which is further discussed in Note 17, “Subsequent Events”, the terms of our Second Amended and Restated Credit Agreement required us to make a mandatory prepayment of our Term Loan in the amount of $
On August 7, 2019, we entered into a First Amendment to the Second Amended Credit Agreement in order to remain compliant with the covenants of our Second Amended Credit Agreement. The First Amendment provided the financial flexibility to settle the U.S. Department of Justice’s investigations as discussed in Note 14, “Contingencies” while maintaining our compliance with the covenants of our Second Amended Credit Agreement. None of the original terms of our Second Amended Credit Agreement relating to scheduled future principal payments, applicable interest rates and margins or borrowing capacity under our Revolving Facility were amended. In connection with this amendment, we incurred fees and other costs totaling $
On July 20, 2020, we entered into a Second Amendment to the Second Amended Credit Agreement. None of the original terms of our Second Amended Credit Agreement relating to scheduled future principal payments, applicable interest rates and margins or borrowing capacity under our Revolving Facility were amended. In connection with this amendment, we incurred fees and other costs totaling $
As of September 30, 2020, we had $
0.875% Convertible Senior Notes
The issuance in December 2019 of the combined $
1.25% Cash Convertible Senior Notes
On
21
The following table summarizes future debt payment obligations as of September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Total |
|
|
Remainder of 2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Thereafter |
|
|||||||
|
0.875% Convertible Senior Notes (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Term Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving Facility (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
Amount represents face value of the 0.875% Convertible Senior Notes, which includes both the liability and equity portion. |
|
(2) |
Assumes no additional borrowings after September 30, 2020, payment of any required periodic installments of principal and that all drawn amounts are repaid upon maturity. |
11. 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, 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.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands, except effective tax rate) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Income (loss) before income taxes |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Income tax (provision) benefit |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Effective tax rate |
|
|
|
% |
|
|
|
% |
|
|
( |
%) |
|
|
( |
%) |
Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate primarily due to permanent differences, income attributable to foreign jurisdictions taxed at different rates, state taxes, tax credits and certain discrete items. Our effective tax rate for the three and nine months ended September 30, 2020, compared with the prior year comparable periods, differs primarily due to the fact that the permanent items, credits and the impact of foreign earnings had less impact on the pre-tax income (loss) of $
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
Our unrecognized income tax benefits were $
22
12. Derivative Financial Instruments
The following tables provide information about the fair values of our derivative financial instruments as of the respective balance sheet dates:
|
|
|
September 30, 2020 |
|
|||||||||
|
|
|
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 |
|
$ |
|
|
|
Accrued expenses |
|
$ |
|
|
|
Derivatives not subject to hedge accounting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option |
|
Other assets |
|
|
|
|
|
N/A |
|
|
|
|
|
1.25% Embedded cash conversion option |
|
N/A |
|
|
|
|
|
Other liabilities |
|
|
|
|
|
Total derivatives |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
December 31, 2019 |
|
|||||||||
|
|
|
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 |
|
$ |
|
|
|
Accrued expenses |
|
$ |
|
|
|
Derivatives not subject to hedge accounting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option |
|
Other assets |
|
|
|
|
|
N/A |
|
|
|
|
|
1.25% Embedded cash conversion option |
|
N/A |
|
|
|
|
|
Other liabilities |
|
|
|
|
|
Total derivatives |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
N/A – We define “N/A” as disclosure not being applicable
Foreign Exchange Contracts
We have entered into non-deliverable forward foreign currency exchange contracts with reputable banking counterparties 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 percentage of forecasted monthly INR expenses over time. As of September 30, 2020, there were
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 |
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income |
|
||||||||||
|
(In thousands) |
|
Three Months Ended September 30, 2020 |
|
|
Nine Months Ended September 30, 2020 |
|
|
Location of Gain (Loss) Reclassified from AOCI into Income |
|
Three Months Ended September 30, 2020 |
|
|
Nine Months Ended September 30, 2020 |
|
||||
|
Foreign exchange contracts |
|
$ |
|
|
|
$ |
|
|
|
Cost of Revenue |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
|
|
|
$ |
|
|
23
|
|
|
Amount of Gain (Loss) Recognized in OCI |
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income |
|
||||||||||
|
(In thousands) |
|
Three Months Ended September 30, 2019 |
|
|
Nine Months Ended September 30, 2019 |
|
|
Location of Gain (Loss) Reclassified from AOCI into Income |
|
Three Months Ended September 30, 2019 |
|
|
Nine Months Ended September 30, 2019 |
|
||||
|
Foreign exchange contracts |
|
$ |
( |
) |
|
$ |
|
|
|
Cost of Revenue |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
|
|
|
$ |
|
|
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 was intended to offset cash payments in excess of the principal amount due upon any conversion of the 1.25% Notes. On
1.25% Notes Embedded Cash Conversion Option
The embedded cash conversion option within the 1.25% Notes was 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 cash conversion option expired without ever having required settlement prior to the maturity of the 1.25% Notes. The initial fair value liability of the embedded cash conversion option was $
The following table shows the net impact of the changes in fair values of the
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
1.25% Call Option |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
1.25% Embedded cash conversion option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income included in Other income, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
13. 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 Gains on Foreign Exchange Contracts |
|
|
Total |
|
|||
|
Balance as of December 31, 2019 (1) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Other comprehensive loss (income) before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Net losses (gains) reclassified from accumulated other comprehensive loss |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2020 (2) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) Net of taxes of $
(2) Net of taxes of $
24
|
(In thousands) |
|
Foreign Currency Translation Adjustments |
|
|
Unrealized Net Gains on Foreign Exchange Contracts |
|
|
Total |
|
|||
|
Balance as of December 31, 2018 (1) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Net (gains) losses reclassified from accumulated other comprehensive loss |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Net other comprehensive income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance as of September 30, 2019 (2) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) Net of taxes of $
(2) Net of taxes of $
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 September 30, |
|
|||||||||||||||||||||
|
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||
|
(In thousands) |
|
Before-Tax Amount |
|
|
Tax Effect |
|
|
Net Amount |
|
|
Before-Tax Amount |
|
|
Tax Effect |
|
|
Net Amount |
|
||||||
|
Foreign currency translation adjustments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Derivatives qualifying as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) arising during the period |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net losses (gains) reclassified into income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net change in unrealized gains (losses) on foreign exchange contracts |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net gain (loss) on cash flow hedges |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||
|
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||
|
(In thousands) |
|
Before-Tax Amount |
|
|
Tax Effect |
|
|
Net Amount |
|
|
Before-Tax Amount |
|
|
Tax Effect |
|
|
Net Amount |
|
||||||
|
Foreign currency translation adjustments |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Derivatives qualifying as cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) arising during the period |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Net losses (gains) reclassified into income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net change in unrealized gains (losses) on foreign exchange contracts |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net gain (loss) on cash flow hedges |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive (loss) income |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
14. 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, as appropriate, 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.
25
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, except as set forth below with respected to the resolution of the Practice Fusion investigations, 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 additional legal proceedings were resolved against or settled by us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that and subsequent reporting periods 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 or cause us to incur increased compliance costs, either of which could further adversely affect our operating results.
The Enterprise Information Solutions business (the “EIS Business”) acquired from McKesson Corporation (“McKesson”) on October 2, 2017 is subject to a May 2017 civil investigative demand (“CID”) from the U.S. Attorney’s Office for the Eastern District of New York. The CID requests documents and information related to the certification McKesson obtained for Horizon Clinicals in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program. In August 2018, McKesson received an additional CID seeking similar information for Paragon. McKesson has agreed, with respect to the CIDs, to indemnify Allscripts for amounts paid or payable to the government (or any private relator) involving any products or services marketed, sold or licensed by the EIS Business as of or prior to the closing of the acquisition.
Practice Fusion, acquired by Allscripts on February 13, 2018, received in March 2017 a request for documents and information from the U.S. Attorney’s Office for the District of Vermont pursuant to a CID. Between April 2018 and June 2019, Practice Fusion received from the U.S. Department of Justice (the “DOJ”) seven additional requests for documents and information through four additional CIDs and three Health Insurance Portability and Accountability Act (“HIPAA”) subpoenas. The document and information requests received by Practice Fusion related to both the certification Practice Fusion obtained in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program and Practice Fusion’s compliance with the Anti-Kickback Statute (“AKS”) and HIPAA as it relates to certain business practices engaged in by Practice Fusion. In March 2019, Practice Fusion received a grand jury subpoena in connection with a criminal investigation related to Practice Fusion’s compliance with the AKS. On August 6, 2019, Practice Fusion reached an agreement in principle with the DOJ to resolve all of the DOJ’s outstanding civil and criminal investigations, including the investigation by the U.S. Attorney’s Office for the District of Vermont, and we announced that on January 27, 2020, Practice Fusion entered into a deferred prosecution agreement and various civil settlement agreements, including with the Medicaid programs for each U.S. state, the District of Columbia and Puerto Rico (collectively, the “Settlement Agreements”) resolving the investigations conducted by the DOJ and the U.S. Attorney’s Office. The Settlement Agreements require Practice Fusion to, among other matters, pay a criminal fine of $
15. 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.
During the first quarter of 2020, we realigned our reporting structure to organize the Company around strategic business units to maximize delivery of client commitments, operational effectiveness and competitiveness. As a result, we have
During the second quarter of 2020, (i) certain operations were moved between Core Clinical and Financial Solutions, and Data, Analytics and Care Coordination and (ii) a transfer price allocation was recorded between Core Clinical and Financial Solutions, and Data, Analytics and Care Coordination. In addition, the (i) corporate general and administrative expenses (including marketing expenses) and (ii) revenue and the associated cost from the resale of certain ancillary products, primarily hardware that were previously in the “Unallocated Amounts” have been allocated between the three operating segments.
26
The new reportable segments are (i) Core Clinical and Financial Solutions and (ii) Data, Analytics and Care Coordination. The new Core Clinical and Financial Solutions segment derives its revenue from the sale of software applications for patient engagement, integrated clinical and financial management solutions, which primarily include EHR-related software, financial and practice management software, related installation, support and maintenance, outsourcing, private cloud hosting and revenue cycle management. The new Data, Analytics and Care Coordination segment derives its revenue from the sale of care coordination, practice reimbursement and payer and life sciences solutions, which are mainly targeted at hospitals, health systems, other care facilities, payers, life sciences companies and other key healthcare stakeholders. These solutions enable clients to transition, analyze, coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community. The EPSiTM operating segment is included in the “Unallocated Amounts” category as it does not meet the requirements to be a reportable segment nor the criteria to be aggregated into the
Our Chief Operating Decision Maker (“CODM”) uses segment revenues, gross profit and income (loss) from operations as measures of performance and to make decisions about the allocation of resources. We do not track our assets by segment.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Clinical and Financial Solutions |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Data, Analytics and Care Coordination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Clinical and Financial Solutions |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Data, Analytics and Care Coordination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Clinical and Financial Solutions |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Data, Analytics and Care Coordination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income (loss) from operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
16. Supplemental Disclosures
Supplemental Consolidated Statements of Cash Flows Information
The majority of the restricted cash balance as of September 30, 2020 and 2019 represents the remaining balance of the escrow account established as part of the acquisition of Netsmart in 2016, to be used by Netsmart to facilitate the integration of Allscripts’ former HomecareTM business.
|
|
|
September 30, |
|
|||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
||
|
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
||
|
Supplemental non-cash information: |
|
|
|
|
|
|
|
|
|
Issuance of treasury stock to commercial partner |
|
$ |
|
|
|
$ |
|
|
27
17. Subsequent Events
On October 12, 2020, we signed a purchase agreement (the “CarePort Purchase Agreement”) with a subsidiary of WellSky Corp., a Delaware corporation (“WellSky”), pursuant to which WellSky has agreed to purchase substantially all of the assets of our CarePort Health business, and to assume certain liabilities in connection therewith, for $
On October 15, 2020, we completed the transactions contemplated by the EPSi Purchase Agreement, by which Strata purchased substantially all of the assets of the EPSiTM business. The total consideration for the EPSiTM business was $
28
|
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, including statements regarding the potential impacts of the COVID-19 pandemic and steps we have taken or plan to take in response thereto, statements related to the effect of macroeconomic trends, statements regarding evolving patient care models, statements regarding legislative, administrative and regulatory actions on our business and opportunities related to accumulated patient data, statements regarding our settlement agreements with the Department of Justice (the “DOJ”) and other governmental authorities, and statements regarding our expected future investment in research and development efforts. Forward-looking statements can also be identified by the use of words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance. Actual results could differ significantly from those set forth in the forward-looking statements, and reported results should not be considered an indication of future performance or events. Certain factors that could cause Allscripts actual results to differ materially from those described in the forward-looking statements include, but are not limited to: the timing or ultimate completion of the sale of our Careport Health business, as the transaction is subject to certain closing conditions, including the expiration or termination of the waiting period under U.S. antitrust laws; our use of the proceeds from the sale of our EPSi business and the contemplated sale of our CarePort Health business; our ability to achieve the margin targets associated with our margin improvement initiatives within the contemplated time periods, if at all; the magnitude, severity and duration of the COVID-19 pandemic, including the impacts of the pandemic, along with the impacts of our responses and the responses by governments and other businesses to the pandemic, on our business, our employees, our clients and our suppliers; the failure by Practice Fusion to comply with the terms of the settlement agreements with the DOJ; the costs and burdens of compliance by Practice Fusion with the terms of its settlement agreements with the DOJ; additional investigations and proceedings from governmental entities or third parties other than the DOJ related to the same or similar conduct underlying the DOJ’s investigations into Practice Fusion’s business practices; our ability to recover from third parties (including insurers) any amounts required to be paid in connection with Practice Fusion’s settlement agreements with the DOJ and related inquiries; the expected financial results of businesses acquired by us; the successful integration of businesses recently acquired by us; the anticipated and unanticipated expenses and liabilities related to businesses acquired by us, including the civil investigation by the U.S. Attorney’s Office involving our Enterprise Information Solutions business; security breaches resulting in unauthorized access to our or our clients’ computer systems or data, including denial-of-services, ransomware or other Internet-based attacks; our failure to compete successfully; consolidation in our industry; current and future laws, regulations and industry initiatives; increased government involvement in our industry; the failure of markets in which we operate to develop as quickly as expected; our or our customers’ failure to see the benefits of government programs; changes in interoperability or other regulatory standards; the effects of the realignment of our sales, services and support organizations; market acceptance of our products and services; the unpredictability of the sales and implementation cycles for our products and services; our ability to manage future growth; our ability to introduce new products and services; our ability to establish and maintain strategic relationships; the performance of our products; our ability to protect our intellectual property rights; the outcome of legal proceedings involving us; our ability to hire, retain and motivate key personnel; performance by our content and service providers; liability for use of content; price reductions; our ability to license and integrate third-party technologies; our ability to maintain or expand our business with existing customers; risks related to international operations; changes in tax rates or laws; business disruptions; our ability to maintain proper and effective internal controls; asset and long-term investment impairment charges; and the other factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 (our “Form 10-K”) and Part II, Item 1A of this Form 10-Q under the headings “Risk Factors” and elsewhere. The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements” in this Form 10-Q, as well as our Form 10-K filed with the Securities and Exchange Commission (the “SEC”). We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Each of the terms “we,” “us,” “our,” “Company,” or “Allscripts” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and/or its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.
Overview
Our Business Overview and Regulatory Environment
We deliver information technology (“IT”) solutions and services to help healthcare organizations achieve optimal clinical, financial and operational results. We sell our solutions to physicians, hospitals, governments, health systems, health plans, life sciences companies, retail clinics, retail pharmacies, pharmacy benefit managers, insurance companies, employer wellness clinics, and post-acute organizations, such as home health and hospice agencies. We help our clients improve the quality and efficiency of health care with solutions that include electronic health records (“EHRs”), information connectivity, private cloud hosting, outsourcing, analytics, patient access and population health management.
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
29
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 the urgency of the COVID-19 crisis, as well as an aging population and the challenge of caring for an increasing number of patients with chronic diseases. At the same time, practitioners worldwide are also under growing pressure to demonstrate the delivery of high-quality care at lower costs and to fully embrace expectations of efficient, patient-centered information exchange. Congressional oversight of EHRs and health information technology has increased in recent years. This increased oversight could impact our clients and our business. The passage of the 21 Century Cures Act in December 2016 assuaged some concerns about interoperability and possible U.S. Food and Drug Administration (“FDA”) oversight of EHRs, and the ensuing regulations on data blocking and interoperability were just released by the Department of Health and Human Services (“HHS”) in March 2020. Certain of the elements of the new regulation may have a significant effect on our business processes and how our clients must exchange patient information. In particular, Allscripts will need to complete development work to satisfy the revised and new certification criterion just released, and we and our clients will be making adjustments to business practices associated with information exchange and provision of Electronic Health Information.
Population health management, analytics, data connectivity based on open Application Programming Interfaces (“APIs”) and other exchange mechanisms, and patient engagement are strategic imperatives that can help address these challenges. In the United States, for example, such initiatives are critical tools for success under the framework of the Quality Payment Program (“QPP”), launched by the 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 continue to migrate from volume-based to value-based care delivery and also weigh compliance with the newly finalized information blocking and interoperability regulations from the Office of the National Coordinator for Health Information Technology (“ONC”) and CMS, solutions that are connected to the consumer marketplace are the key to market leadership in the new healthcare reality. Additionally, there is a small but growing portion of the market interested in payment models not reliant on insurance, such as the direct primary care model, where doctors and other healthcare professionals understand the clinical value of the interoperable EHR separate and apart from payment mechanisms established by public or commercial payers or associated reporting requirements.
We believe our solutions are delivering value to our clients by providing them with powerful connectivity, as well as increasingly robust patient engagement and care coordination tools, enabling users to successfully participate in alternative 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 evolving 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 continues to experience a period of change, primarily due to new laws and regulations, as well as modifications to industry standards. Various incentives that exist today (including alternative payment models that reward high value care delivery) have been rapidly moving health care toward a time where EHRs are as common as practice management or other financial systems in all provider offices. As a result, we believe that legislation, such as the aforementioned MACRA, as well as other government-driven initiatives (including 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.
The recently finalized ONC regulation on interoperability, information blocking and certification is the most recent major issuance from the government that will affect the health IT industry. The rule requires that we evaluate changes to business processes related to requests for the access, exchange or use of Electronic Health Information, as defined in the ONC regulation. The rule, which involves complex and specific requirements, will necessitate adjustments in our interactions with the market, but we also believe it may lead healthcare organizations to further invest in technologies, such as those sold by Allscripts, that facilitate the exchange of health data and support patients’ access to their information. Given Allscripts’ OPEN strategy, the Company’s application programming interface-based approach to connectivity launched more than a decade ago that exemplified for policy makers the potential benefits of APIs, we expect that Allscripts may be better positioned to adjust more quickly than some other companies in our sector to the requirement to remove barriers to information exchange.
In addition, given that CMS annually proposes new and revised regulations, including payment rules for upcoming years, which require the use of EHRs and other health information technology even as we comply with previously published rules, Allscripts continues to prepare on an ongoing basis for additional areas in which we must execute compliance. Similarly, our ability to achieve newly expanded applicable product certification requirements resulting from changing strategies at the ONC and the scope of related development and other efforts required to meet regulatory standards could both materially impact our capacity to maximize the market opportunity. All our market-facing EHR solutions and several other relevant products have successfully completed the testing process and are certified as 2015 Edition-compliant by an ONC-Authorized Certification Body (the most recent edition), and we remain committed to satisfying the new certification requirements and meeting the 2015 Cures Edition conditions of certification that were recently finalized by the ONC.
30
The MACRA encouraged the adoption of health IT necessary to satisfy new requirements more closely associating the report of quality measurements to Medicare payments. Following the finalization of the Physician Fee Schedule rule each year, providers accepting payment from Medicare must select one of two payment models: the Merit-based Incentive Payment System (“MIPS”) or an Advanced Alternative Payment Model (“APM”). Both of these approaches require substantive reporting on quality measures. Additionally, the MIPS consolidated several preexisting incentive programs, including Medicare Meaningful Use and Physician Quality Reporting System, under one umbrella, as required by statute. We believe this law, coupled with other pay for value programs, continues to 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 need an EHR and other health IT solutions and among those looking to purchase more robust systems to comply with increasingly complex MACRA requirements. Additional regulations continue to be released annually, clarifying requirements related to reporting and quality measures, which will enable physician populations and healthcare organizations to make strategic decisions about the purchase of analytic software or other solutions important to comply with the new law and associated regulations.
Given the ongoing expansion of payment models requiring analytics, reporting and greater data connectivity, we believe large physician groups will continue to purchase and enhance their use of EHR technology; while the number of very large practices with over 100 physicians that have not yet acquired such technology is insignificant, those considering replacement purchases are increasing. Such practices may choose to replace older EHR technology in the future as regulatory requirements (such as those related to Advanced APMs) and business realities dictate the need for updates and upgrades, as well as additional features and functionality. As incentive payment strategies shift in policies released under the current Presidential Administration in the United States, the role of commercial payers and their continued expansion of alternative payment models and interest in attaining larger volumes of clinical data, as well as the anticipated growth in Medicaid payment models, are expected to provide additional incentives for purchase and expansion.
We also continue to see activity in local community-based buying, whereby individual hospitals, health systems and integrated delivery networks subsidize the purchase of EHR licenses or related services for local, affiliated physicians and physicians across their employed physician base in order to leverage buying power and to 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 a variety of incentive programs, while the subsidizing health system expands connectivity within the local provider community. We believe that the rules related to exceptions to the Stark Law and Anti-Kickback Statute, which were recently released in proposed form and would continue to allow hospitals and other organizations to subsidize the purchase of EHRs, will possibly further contribute to the growth of this market dynamic. We expect that these regulatory revisions from HHS will further support value-based payment models and their associated purchasing arrangements between hospitals and physician practices, including allowing subsidization of replacement EHRs and not just initial purchases. The associated challenge we face is to successfully position, sell, implement and support our products sold to hospitals, health systems or integrated delivery networks that subsidize their affiliated physicians. We believe the community programs we have in place will help us penetrate these markets.
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 efforts by the current Presidential Administration and several state governments to alter aspects of the Patient Protection and Affordable Care Act (as amended, the “PPACA”) or to make other policy changes through Executive Orders and United States Supreme Court appointments create uncertainty for us and for our clients. Certain lawsuits related to the PPACA also create uncertainty for us and our clients. Some laws currently in place may have a positive impact by requiring the expanded use of EHRs, quality measurement, prescription drug monitoring and analytics tools to participate in certain federal, state or private sector programs. Others, such as adjustments made to the PPACA by the Administration, laws or regulations mandating reductions in reimbursement for certain types of providers, decreasing insurance coverage of patients, state-level requests for waivers from CMS related to Medicaid modeling, 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.
Allscripts continues to see increased opportunities stemming from the large stores of patient data accumulated from our industry-leading client base and partnerships with other EHR companies, including NextGen Healthcare Inc., a leading provider of ambulatory-focused healthcare technology solutions. Through collaboration with researchers and life sciences companies, we believe Allscripts may play a role in the study of real-world evidence as it relates to post-market surveillance of new medicines or the study of therapeutics related to COVID-19, as examples. We continue to closely monitor regulations and/or guidance from HHS, the CDC and the FDA, as well as any new laws that take shape in Congress that may touch third-party uses of patient data and/or any related privacy implications for patient consent.
Congressional focus on addressing the opioid epidemic in part through technological applications and reducing clinician burden is likely to continue. The Administration is also taking action in some areas that may directly or indirectly affect Allscripts and
31
our clients, including efforts to increase health-related price transparency in order to support patients in applying market-based pressures to the nation’s challenge of health cost containment. Further, CMS has finalized changes to the Evaluation & Management coding structure that ties closely to our clients’ requirements to document the care they are delivering prior to payment. We expect these changes may have a positive effect on clinician satisfaction with our EHRs, though the fundamentals of payment will remain in transition to value-based payment models.
New payment and delivery system reform programs, including those modeled after those of the Medicare program, are increasingly being rolled out at the state level through Medicaid administrators, as well as through the private sector, presenting additional opportunities for us to provide software and services to our clients who participate. We also must take steps to comply with state-specific laws and regulations governing companies in the health information technology space.
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.
Impacts of COVID-19
The global outbreak of the novel coronavirus (COVID-19) has severely restricted the level of economic activity around the world and the degrees of any economic recovery in various jurisdictions have not been linear. We have been carefully monitoring the COVID-19 pandemic and its impact on our global operations. We are conducting business with certain modifications to employee travel, employee work locations, and cost reduction initiatives, among other modifications. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, partners and stockholders.
Allscripts, as is true of other health IT vendors, has been asked by the White House, HHS, the CDC, and state and local governments to support public health efforts to contain the pandemic by expanding COVID-19 reporting options available to our clients. Our technology has been instrumental to the provision of high-quality care, aiding not only public health surveillance but also in clinical decision support interventions to aid in triage, diagnosis and treatment; information exchange as patients are moved from site to site; predictive analytics based on local data for surge anticipation; and patient transitions as they leave the acute care environment for post-acute rehabilitative care.
The COVID-19 pandemic negatively impacted revenue for the three and nine months ended September 30, 2020, as we saw delays in deals with upfront software revenue and professional services implementations across our inpatient and outpatient base. Over the past six months, we implemented cost actions that included headcount reductions and temporary salary measures. We believe our cost reduction actions and liquidity serve to position us appropriately and provide operating and financial flexibility to assist us in navigating through this uncertain environment.
The extent to which the COVID-19 pandemic will continue to impact the Company’s results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the duration and severity of the COVID-19 pandemic, resurgences or additional “waves” of outbreaks of COVID-19 in various jurisdictions, the impact of COVID-19 on economic activity, and the actions taken by health authorities and policy makers to contain its impacts on public health and the global economy. See Part II, Item 1A, Risk Factors, for an additional discussion of risks related to COVID-19.
Critical Accounting Policies and Estimates
We adopted Accounting Standards Update No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) on January 1, 2020 using the cumulative-effect adjustment transition method. The guidance in ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Refer to Note 2 “Revenue from Contracts with Customers” and Note 3 “Accounts Receivable” to our consolidated financial statements included in Part I, Item 1, “Financial Statements” of this Form 10-Q for further information regarding the impact of adopting ASU 2016-13.
There were no other material changes to our critical accounting policies and estimates from those previously disclosed in our Form 10-K.
32
Third Quarter 2020 Summary
During the third quarter of 2020, we continued to make progress on our key strategic, financial and operational imperatives, which are aimed at driving higher client satisfaction, increasing operating margins, improving our competitive position by expanding the depth and breadth of our products and integrating recent acquisitions. Additionally, we believe there are still opportunities to continue to improve our operating leverage and further streamline our operations and such efforts are ongoing.
Total revenue for the third quarter of 2020 was $402 million, a decrease of $42 million compared to the third quarter of 2019. For the three months ended September 30, 2020, software delivery, support and maintenance revenue and client services revenue was $251 million and $151 million, respectively, compared with $284 million and $160 million, respectively, during the three months ended September 30, 2019. Gross profit for the third quarter was $162 million, a decrease of $13 million compared to the third quarter of 2019. Gross margin increased to 40.2% in the third quarter of 2020 compared to a 39.5% gross margin in the third quarter of 2019.
Our contract backlog as of September 30, 2020 was $4.4 billion, which remained consistent compared with our contract backlog of $4.4 billion as of December 31, 2019, while increasing compared with contract backlog as of September 30, 2019 of $3.9 billion.
Our bookings, which reflect the value of executed contracts for software, hardware, other client services, private cloud hosting, outsourcing and subscription-based services, totaled $187 million for the three months ended September 30, 2020, which represents a decrease of 21% over the comparable prior period amount of $236 million and a decrease of less than 1% from the second quarter 2020 amount of $188 million.
Overview of Consolidated Results
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands, except percentages) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance |
|
$ |
250,547 |
|
|
$ |
284,373 |
|
|
|
(11.9 |
%) |
|
$ |
770,180 |
|
|
$ |
844,908 |
|
|
|
(8.8 |
%) |
|
Client services |
|
|
151,483 |
|
|
|
159,811 |
|
|
|
(5.2 |
%) |
|
|
454,786 |
|
|
|
475,785 |
|
|
|
(4.4 |
%) |
|
Total revenue |
|
|
402,030 |
|
|
|
444,184 |
|
|
|
(9.5 |
%) |
|
|
1,224,966 |
|
|
|
1,320,693 |
|
|
|
(7.2 |
%) |
|
Cost of revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance |
|
|
75,311 |
|
|
|
83,312 |
|
|
|
(9.6 |
%) |
|
|
225,879 |
|
|
|
248,401 |
|
|
|
(9.1 |
%) |
|
Client services |
|
|
131,915 |
|
|
|
156,275 |
|
|
|
(15.6 |
%) |
|
|
420,185 |
|
|
|
452,226 |
|
|
|
(7.1 |
%) |
|
Amortization of software development and acquisition-related assets |
|
|
33,207 |
|
|
|
29,295 |
|
|
|
13.4 |
% |
|
|
95,860 |
|
|
|
86,547 |
|
|
|
10.8 |
% |
|
Total cost of revenue |
|
|
240,433 |
|
|
|
268,882 |
|
|
|
(10.6 |
%) |
|
|
741,924 |
|
|
|
787,174 |
|
|
|
(5.7 |
%) |
|
Gross profit |
|
|
161,597 |
|
|
|
175,302 |
|
|
|
(7.8 |
%) |
|
|
483,042 |
|
|
|
533,519 |
|
|
|
(9.5 |
%) |
|
Gross margin % |
|
|
40.2 |
% |
|
|
39.5 |
% |
|
|
|
|
|
|
39.4 |
% |
|
|
40.4 |
% |
|
|
|
|
|
Selling, general and administrative expenses |
|
|
97,231 |
|
|
|
101,152 |
|
|
|
(3.9 |
%) |
|
|
309,139 |
|
|
|
306,939 |
|
|
|
0.7 |
% |
|
Research and development |
|
|
48,476 |
|
|
|
63,873 |
|
|
|
(24.1 |
%) |
|
|
158,913 |
|
|
|
191,597 |
|
|
|
(17.1 |
%) |
|
Asset impairment charges |
|
|
210 |
|
|
|
248 |
|
|
|
(15.3 |
%) |
|
|
210 |
|
|
|
4,037 |
|
|
|
(94.8 |
%) |
|
Amortization of intangible and acquisition-related assets |
|
|
6,301 |
|
|
|
6,847 |
|
|
|
(8.0 |
%) |
|
|
19,347 |
|
|
|
20,376 |
|
|
|
(5.1 |
%) |
|
Income (loss) from operations |
|
|
9,379 |
|
|
|
3,182 |
|
|
|
194.8 |
% |
|
|
(4,567 |
) |
|
|
10,570 |
|
|
|
(143.2 |
%) |
|
Interest expense |
|
|
(7,662 |
) |
|
|
(10,839 |
) |
|
|
(29.3 |
%) |
|
|
(31,280 |
) |
|
|
(31,447 |
) |
|
|
(0.5 |
%) |
|
Other income (loss), net |
|
|
398 |
|
|
|
781 |
|
|
|
(49.0 |
%) |
|
|
45 |
|
|
|
(143,700 |
) |
|
|
(100.0 |
%) |
|
(Impairment) recovery of long-term investments |
|
|
(1,025 |
) |
|
|
0 |
|
|
NM |
|
|
|
(1,575 |
) |
|
|
1,045 |
|
|
NM |
|
||
|
Equity in net income (loss) of unconsolidated investments |
|
|
383 |
|
|
|
386 |
|
|
|
(0.8 |
%) |
|
|
17,417 |
|
|
|
540 |
|
|
NM |
|
|
|
Income (loss) before income taxes |
|
|
1,473 |
|
|
|
(6,490 |
) |
|
|
(122.7 |
%) |
|
|
(19,960 |
) |
|
|
(162,992 |
) |
|
|
(87.8 |
%) |
|
Income tax (provision) benefit |
|
|
(931 |
) |
|
|
765 |
|
|
NM |
|
|
|
(7,457 |
) |
|
|
(640 |
) |
|
NM |
|
||
|
Effective tax rate |
|
|
63.2 |
% |
|
|
11.8 |
% |
|
|
|
|
|
|
(37.4 |
%) |
|
|
(0.4 |
%) |
|
|
|
|
|
Net income (loss) |
|
|
542 |
|
|
|
(5,725 |
) |
|
|
(109.5 |
%) |
|
|
(27,417 |
) |
|
|
(163,632 |
) |
|
|
(83.2 |
%) |
|
Net loss attributable to non-controlling interests |
|
|
0 |
|
|
|
0 |
|
|
- |
|
|
|
0 |
|
|
|
424 |
|
|
NM |
|
||
|
Net income (loss) attributable to Allscripts Healthcare Solutions, Inc. stockholders |
|
$ |
542 |
|
|
$ |
(5,725 |
) |
|
|
(109.5 |
%) |
|
$ |
(27,417 |
) |
|
$ |
(163,208 |
) |
|
|
(83.2 |
%) |
NM – We define “NM” as not meaningful for increases or decreases greater than 200%.
33
Revenue
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue |
|
$ |
333,900 |
|
|
$ |
349,455 |
|
|
|
(4.5 |
%) |
|
$ |
1,010,207 |
|
|
$ |
1,048,204 |
|
|
|
(3.6 |
%) |
|
Non-recurring revenue |
|
|
68,130 |
|
|
|
94,729 |
|
|
|
(28.1 |
%) |
|
|
214,759 |
|
|
|
272,489 |
|
|
|
(21.2 |
%) |
|
Total revenue |
|
$ |
402,030 |
|
|
$ |
444,184 |
|
|
|
(9.5 |
%) |
|
$ |
1,224,966 |
|
|
$ |
1,320,693 |
|
|
|
(7.2 |
%) |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Recurring revenue consists of subscription-based software sales, support and maintenance revenue, recurring transactions revenue and recurring revenue from managed services solutions, such as outsourcing, private cloud hosting and revenue cycle management. Non-recurring revenue consists of perpetual software licenses sales, hardware resale and non-recurring transactions revenue, and project-based client services revenue.
Recurring revenue decreased for the three and nine months ended September 30, 2020 compared to the prior year comparable periods, primarily due to attrition. The decrease was partially offset by an increase in subscription revenue. Non-recurring revenue decreased for the three and nine months ended September 30, 2020 compared to the prior year comparable periods, primarily due to lower upfront software revenues and project delays that impacted client services revenue. The decrease was partially offset by new business in client services revenue.
The percentage of recurring and non-recurring revenue of our total revenue was 83% and 17%, respectively, during the three months ended September 30, 2020 and 79% and 21%, respectively, during the three months ended September 30, 2019. The percentage of recurring and non-recurring revenue of our total revenue was 82% and 18%, respectively, during the nine months ended September 30, 2020 and 79% and 21%, respectively, during the nine months ended September 30, 2019.
Gross Profit
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands, except percentages) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Total cost of revenue |
|
$ |
240,433 |
|
|
$ |
268,882 |
|
|
|
(10.6 |
%) |
|
$ |
741,924 |
|
|
$ |
787,174 |
|
|
|
(5.7 |
%) |
|
Gross profit |
|
$ |
161,597 |
|
|
$ |
175,302 |
|
|
|
(7.8 |
%) |
|
$ |
483,042 |
|
|
$ |
533,519 |
|
|
|
(9.5 |
%) |
|
Gross margin % |
|
|
40.2 |
% |
|
|
39.5 |
% |
|
|
|
|
|
|
39.4 |
% |
|
|
40.4 |
% |
|
|
|
|
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Gross profit decreased during the three and nine months ended September 30, 2020 compared with the prior year comparable periods, primarily due to attrition, revenue mix and project delays. The decrease was partially offset by new business in software subscription revenues and the cost reduction initiatives.
Gross margin slightly increased during the three months ended September 30, 2020 compared with the prior year comparable period, primarily due to the cost reduction initiatives. Gross margin decreased during the nine months ended September 30, 2020 compared with the prior year comparable period, due to the previously mentioned items for the gross profit decline.
Selling, General and Administrative Expenses
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Selling, general and administrative expenses |
|
$ |
97,231 |
|
|
$ |
101,152 |
|
|
|
(3.9 |
%) |
|
$ |
309,139 |
|
|
$ |
306,939 |
|
|
|
0.7 |
% |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Selling, general and administrative expenses decreased during the three months ended September 30, 2020, compared with the prior year comparable period, primarily due to the impact of the cost reduction initiatives. Selling, general and administrative expenses increased during the nine months ended September 30, 2020, compared with the prior year comparable period, primarily due to higher severance related expenses. The increase was partially offset by the impact of the cost reduction initiatives.
Research and Development
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Research and development |
|
$ |
48,476 |
|
|
$ |
63,873 |
|
|
|
(24.1 |
%) |
|
$ |
158,913 |
|
|
$ |
191,597 |
|
|
|
(17.1 |
%) |
34
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Research and development expenses decreased during the three and nine months ended September 30, 2020 compared with the prior year comparable periods, primarily due to the impact of the cost reduction initiatives.
Asset Impairment Charges
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Asset impairment charges |
|
$ |
210 |
|
|
$ |
248 |
|
|
|
(15.3 |
%) |
|
$ |
210 |
|
|
$ |
4,037 |
|
|
|
(94.8 |
%) |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Asset impairment charges for the three and nine months ended September 30, 2019 were primarily the result of retiring certain hosting assets due to data center migrations.
Amortization of Intangible and Acquisition-related Assets
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Amortization of intangible and acquisition-related assets |
|
$ |
6,301 |
|
|
$ |
6,847 |
|
|
|
(8.0 |
%) |
|
$ |
19,347 |
|
|
$ |
20,376 |
|
|
|
(5.1 |
%) |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
The decrease in amortization expense for the three and nine months ended September 30, 2020, compared with the prior year comparable periods, was due to normal amortization expense in 2020 and certain intangible assets being fully amortized in 2019.
Interest Expense
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Interest expense |
|
$ |
7,662 |
|
|
$ |
10,839 |
|
|
|
(29.3 |
%) |
|
$ |
31,280 |
|
|
$ |
31,447 |
|
|
|
(0.5 |
%) |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Interest expense decreased during the three and nine months ended September 30, 2020 compared to the prior year comparable periods, primarily due to a decline in the effective interest rates on outstanding debt. The decrease was partially offset by higher total debt levels in the current year periods.
Other Income (loss), Net
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Other income (loss), net |
|
$ |
398 |
|
|
$ |
781 |
|
|
|
(49.0 |
%) |
|
$ |
45 |
|
|
$ |
(143,700 |
) |
|
|
(100.0 |
%) |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Other income (loss), net for the three and nine months ended September 30, 2020 and 2019 consisted of a combination of interest income, and miscellaneous receipts and expenses. The large increase during the nine months ended September 30, 2020 compared to the prior year comparable period was due to the $145 million settlement with the DOJ related to its civil and criminal investigations of Practice Fusion.
(Impairment) Recovery of Long-term Investments
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
2020 |
|
|
2019 |
|
|
% Change |
||||
|
(Impairment) recovery of long-term investments |
|
$ |
(1,025 |
) |
|
$ |
0 |
|
|
NM |
|
$ |
(1,575 |
) |
|
$ |
1,045 |
|
|
NM |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
During the three months ended September 30, 2020, we recorded a $1.0 million impairment for a third-party cost-method investment. During the nine months ended September 30, 2020, we also recorded a $0.6 million impairment for a third-party equity-method investment. During the nine months ended September 30, 2019, we recovered $1.0 million from a third-party cost-method investment that we had previously impaired.
Equity in Net Income (Loss) of Unconsolidated Investments
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|||||
|
Equity in net income (loss) of unconsolidated investments |
|
$ |
383 |
|
|
$ |
386 |
|
|
|
(0.8 |
%) |
|
$ |
17,417 |
|
|
$ |
540 |
|
|
NM |
35
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Equity in net income (loss) of unconsolidated investments represents our share of the equity earnings of our investments in third parties accounted for under the equity method of accounting based on a one quarter lag. During the nine months ended September 30, 2020, we recorded a $16.8 million gain from the sale of a third-party equity-method investment.
Income Taxes
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||||||||||||||
|
(In thousands, except percentages) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
2020 |
|
|
2019 |
|
|
% Change |
||||
|
Income tax (provision) benefit |
|
$ |
(931 |
) |
|
$ |
765 |
|
|
NM |
|
$ |
(7,457 |
) |
|
$ |
(640 |
) |
|
NM |
|
Effective tax rate |
|
|
63.2 |
% |
|
|
11.8 |
% |
|
|
|
|
(37.4 |
%) |
|
|
(0.4 |
%) |
|
|
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate primarily due to permanent differences, income attributable to foreign jurisdictions taxed at different rates, state taxes, tax credits and certain discrete items. Our effective tax rate for the three and nine months ended September 30, 2020, compared with the prior year comparable periods, differs primarily due to the fact that the permanent items, credits and the impact of foreign earnings had less impact on the pre-tax income (loss) of $1.5 million and ($20.0) million in the three and nine months ended September 30, 2020, respectively, compared to the impacts of these items on a pre-tax loss of $6.5 million and $163.0 million for the three and nine months ended September 30, 2019, respectively.
In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). During the nine months ended September 30, 2020, we recorded valuation allowances of $1.2 million related to U.S. and foreign net operating loss carryforwards.
Non-Controlling Interests
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
2020 |
|
|
2019 |
|
|
% Change |
||||
|
Net loss attributable to non-controlling interest |
|
$ |
0 |
|
|
$ |
0 |
|
|
- |
|
$ |
0 |
|
|
$ |
424 |
|
|
NM |
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
The net loss attributable to non-controlling interest represents the share of earnings of consolidated affiliates that is attributable to the affiliates’ common stock that is not owned by us for each of the periods presented. We purchased all of the outstanding minority interests in Pulse8, Inc. during the first quarter of 2019.
Segment Operations
The segment disclosures below for the three and nine months ended September 30, 2019 have been revised to conform to the current year presentation. Refer to Note 15 “Business Segments” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for further discussion on the impact of the change.
36
Overview of Segment Results
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Clinical and Financial Solutions |
|
$ |
306,451 |
|
|
$ |
343,016 |
|
|
|
(10.7 |
%) |
|
$ |
937,882 |
|
|
$ |
1,031,210 |
|
|
|
(9.1 |
%) |
|
Data, Analytics and Care Coordination |
|
|
88,834 |
|
|
|
91,295 |
|
|
|
(2.7 |
%) |
|
|
262,353 |
|
|
|
261,686 |
|
|
|
0.3 |
% |
|
Unallocated Amounts |
|
|
6,745 |
|
|
|
9,873 |
|
|
|
(31.7 |
%) |
|
|
24,731 |
|
|
|
27,797 |
|
|
|
(11.0 |
%) |
|
Total revenue |
|
$ |
402,030 |
|
|
$ |
444,184 |
|
|
|
(9.5 |
%) |
|
$ |
1,224,966 |
|
|
$ |
1,320,693 |
|
|
|
(7.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care Coordination and Financial Solutions |
|
$ |
104,045 |
|
|
$ |
115,403 |
|
|
|
(9.8 |
%) |
|
$ |
312,901 |
|
|
$ |
357,850 |
|
|
|
(12.6 |
%) |
|
Data, Analytics and Care Coordination |
|
|
52,402 |
|
|
|
53,382 |
|
|
|
(1.8 |
%) |
|
|
153,099 |
|
|
|
156,788 |
|
|
|
(2.4 |
%) |
|
Unallocated Amounts |
|
|
5,150 |
|
|
|
6,517 |
|
|
|
(21.0 |
%) |
|
|
17,042 |
|
|
|
18,881 |
|
|
|
(9.7 |
%) |
|
Total gross profit |
|
$ |
161,597 |
|
|
$ |
175,302 |
|
|
|
(7.8 |
%) |
|
$ |
483,042 |
|
|
$ |
533,519 |
|
|
|
(9.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care Coordination and Financial Solutions |
|
$ |
(8,387 |
) |
|
$ |
(9,514 |
) |
|
|
11.8 |
% |
|
$ |
(45,132 |
) |
|
$ |
(26,772 |
) |
|
|
(68.6 |
%) |
|
Data, Analytics and Care Coordination |
|
|
15,039 |
|
|
|
9,548 |
|
|
|
57.5 |
% |
|
|
31,971 |
|
|
|
26,402 |
|
|
|
21.1 |
% |
|
Unallocated Amounts |
|
|
2,727 |
|
|
|
3,148 |
|
|
|
(13.4 |
%) |
|
|
8,594 |
|
|
|
10,940 |
|
|
|
(21.4 |
%) |
|
Total income (loss) from operations |
|
$ |
9,379 |
|
|
$ |
3,182 |
|
|
|
194.8 |
% |
|
$ |
(4,567 |
) |
|
$ |
10,570 |
|
|
|
(143.2 |
%) |
Core Clinical and Financial Solutions
Our Core Clinical and Financial Solutions segment derives its revenue from the sale of software applications for patient engagement, integrated clinical and financial management solutions, which primarily include EHR-related software, financial and practice management software, related installation, support and maintenance, outsourcing, private cloud hosting and revenue cycle management.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands, except percentages) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Revenue |
|
$ |
306,451 |
|
|
$ |
343,016 |
|
|
|
(10.7 |
%) |
|
$ |
937,882 |
|
|
$ |
1,031,210 |
|
|
|
(9.1 |
%) |
|
Gross profit |
|
$ |
104,045 |
|
|
$ |
115,403 |
|
|
|
(9.8 |
%) |
|
$ |
312,901 |
|
|
$ |
357,850 |
|
|
|
(12.6 |
%) |
|
Gross margin % |
|
|
34.0 |
% |
|
|
33.6 |
% |
|
|
|
|
|
|
33.4 |
% |
|
|
34.7 |
% |
|
|
|
|
|
Loss from operations |
|
$ |
(8,387 |
) |
|
$ |
(9,514 |
) |
|
|
(11.8 |
%) |
|
$ |
(45,132 |
) |
|
$ |
(26,772 |
) |
|
|
68.6 |
% |
|
Operating margin % |
|
|
(2.7 |
%) |
|
|
(2.8 |
%) |
|
|
|
|
|
|
(4.8 |
%) |
|
|
(2.6 |
%) |
|
|
|
|
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Core Clinical and Financial Solutions revenue decreased during the three and nine months ended September 30, 2020, compared with the prior year comparable periods primarily due to lower upfront software revenues, attrition and project delays that impacted client services revenue.
Gross profit decreased during the three and nine months ended September 30, 2020 compared with the prior year comparable periods, primarily due to the previously mentioned attrition, revenue profile and project delays. The decrease was partially offset by the cost reduction initiatives. Gross margin slightly increased during the three months ended September 30, 2020 compared with the prior year comparable period, primarily due to the cost reduction initiatives. Gross margin decreased during the nine months ended September 30, 2020 compared with the prior year comparable period, due to the previously mentioned items for the gross profit decline.
Loss from operations slightly decreased for the three months ended September 30, 2020, compared with the prior year comparable period, primarily due to lower operating expenses driven by the cost reduction initiatives. The decrease was partially offset by the decline in gross profit. Loss from operations increased for the nine months ended September 30, 2020, compared with the prior year comparable period due to a decline in gross profit. The decrease was partially offset by the cost reduction initiatives.
Data, Analytics and Care Coordination
Our Data, Analytics and Care Coordination segment derives its revenue from the sale of care coordination, practice reimbursement and payer and life sciences solutions, which are mainly targeted at hospitals, health systems, other care facilities, payers, life sciences companies and other key healthcare stakeholders. These solutions enable clients to transition, analyze and coordinate care while improving the quality, efficiency and value of healthcare delivery across the entire care community.
37
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands, except percentages) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Revenue |
|
$ |
88,834 |
|
|
$ |
91,295 |
|
|
|
(2.7 |
%) |
|
$ |
262,353 |
|
|
$ |
261,686 |
|
|
|
0.3 |
% |
|
Gross profit |
|
$ |
52,402 |
|
|
$ |
53,382 |
|
|
|
(1.8 |
%) |
|
$ |
153,099 |
|
|
$ |
156,788 |
|
|
|
(2.4 |
%) |
|
Gross margin % |
|
|
59.0 |
% |
|
|
58.5 |
% |
|
|
|
|
|
|
58.4 |
% |
|
|
59.9 |
% |
|
|
|
|
|
Income from operations |
|
$ |
15,039 |
|
|
$ |
9,548 |
|
|
|
57.5 |
% |
|
$ |
31,971 |
|
|
$ |
26,402 |
|
|
|
21.1 |
% |
|
Operating margin % |
|
|
16.9 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
12.2 |
% |
|
|
10.1 |
% |
|
|
|
|
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Data, Analytics and Care Coordination revenue decreased for the three months ended September 30, 2020 compared with the prior year comparable period due to a decrease in transaction-related revenues. The decrease was partially offset by an increase in subscription revenue. New business in subscription revenue and client services contributed to the slight increase in revenue for the nine months ended September 30, 2020 compared with the prior year comparable period.
Gross profit decreased during the three and nine months ended September 30, 2020 compared with the prior year comparable periods, primarily due to the decrease in revenue and revenue profile. Gross margin slightly increased during the three months ended September 30, 2020 compared with the prior year comparable period, primarily due to the cost reduction initiatives. Gross margin decreased during the nine months ended September 30, 2020 compared with the prior year comparable period, due to the previously mentioned items for the gross profit decline.
Income from operations increased during the three and nine months ended September 30, 2020 compared with the prior year comparable periods, primarily due to lower operating expenses driven by the cost reduction initiatives. The increase was partially offset by a decline in gross profit.
Unallocated Amounts
The EPSiTM operating segment is included in the “Unallocated Amounts” category as it does not meet the requirements to be a reportable segment nor the criteria to be aggregated into the two reportable segments.
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
|
(In thousands, except percentages) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
|
Revenue |
|
$ |
6,745 |
|
|
$ |
9,873 |
|
|
|
(31.7 |
%) |
|
$ |
24,731 |
|
|
$ |
27,797 |
|
|
|
(11.0 |
%) |
|
Gross profit |
|
$ |
5,150 |
|
|
$ |
6,517 |
|
|
|
(21.0 |
%) |
|
$ |
17,042 |
|
|
$ |
18,881 |
|
|
|
(9.7 |
%) |
|
Gross margin % |
|
|
76.4 |
% |
|
|
66.0 |
% |
|
|
|
|
|
|
68.9 |
% |
|
|
67.9 |
% |
|
|
|
|
|
Income from operations |
|
$ |
2,727 |
|
|
$ |
3,148 |
|
|
|
(13.4 |
%) |
|
$ |
8,594 |
|
|
$ |
10,940 |
|
|
|
(21.4 |
%) |
|
Operating margin % |
|
|
40.4 |
% |
|
|
31.9 |
% |
|
|
|
|
|
|
34.7 |
% |
|
|
39.4 |
% |
|
|
|
|
Three and Nine Months Ended September 30, 2020 Compared with the Three and Nine Months Ended September 30, 2019
Revenue decreased during the three and nine months ended September 30, 2020, compared with the prior year comparable periods, primarily due to a decrease in maintenance and transaction-related revenues.
Gross profit decreased during the three and nine months ended September 30, 2020, compared with the prior year comparable periods, primarily due to a decrease in maintenance revenues. Gross margin increased during the three and nine months ended September 30, 2020 compared with the prior years comparable periods, primarily due to the transfer price allocation for the two reportable segments related to increased transaction-related revenues.
Income from operations decreased during the three and nine months ended September 30, 2020, compared with the prior year comparable periods, primarily due to the decline in gross profit. The decrease was partially offset by the cost reduction initiatives.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change vs. September 30, 2020 |
|
|||||
|
(In millions) |
|
As of September 30, 2020 |
|
|
As of December 31, 2019 |
|
|
As of September 30, 2019 |
|
|
December 31, 2019 |
|
|
September 30, 2019 |
|
|||||
|
Software delivery, support and maintenance |
|
$ |
2,434 |
|
|
$ |
2,519 |
|
|
$ |
2,550 |
|
|
|
(3.4 |
%) |
|
|
(4.5 |
%) |
|
Client services |
|
|
1,949 |
|
|
|
1,848 |
|
|
|
1,359 |
|
|
|
5.5 |
% |
|
|
43.4 |
% |
|
Total contract backlog |
|
$ |
4,383 |
|
|
$ |
4,367 |
|
|
$ |
3,909 |
|
|
|
0.4 |
% |
|
|
12.1 |
% |
Total contract backlog as of September 30, 2020 increased compared with December 31, 2019 and September 30, 2019. 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.
38
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. Our liquidity was influenced by the COVID-19 pandemic during the nine months ended September 30, 2020. We increased cash on hand through additional credit facility borrowings to provide financial flexibility and enhance our ability to address potential future uncertainties regarding the impact of the COVID-19 pandemic. Our principal sources of liquidity consisted of cash and cash equivalents of $225 million and available borrowing capacity of $299 million under our revolving credit facility as of September 30, 2020. The change in our cash and cash equivalents balance is reflective of the following:
Operating Cash Flow Activities
|
|
|
Nine Months Ended September 30, |
|
|||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
Net loss |
|
$ |
(27,417 |
) |
|
$ |
(163,632 |
) |
|
$ |
136,215 |
|
|
Non-cash adjustments to net loss |
|
|
182,271 |
|
|
|
200,717 |
|
|
|
(18,446 |
) |
|
Cash impact of changes in operating assets and liabilities |
|
|
(82,949 |
) |
|
|
26,859 |
|
|
|
(109,808 |
) |
|
Net cash provided by operating activities - continuing operations |
|
|
71,905 |
|
|
|
63,944 |
|
|
|
7,961 |
|
|
Net cash used in operating activities - discontinued operations |
|
|
0 |
|
|
|
(30,000 |
) |
|
|
30,000 |
|
|
Net cash provided by operating activities |
|
$ |
71,905 |
|
|
$ |
33,944 |
|
|
$ |
37,961 |
|
Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019
Net cash provided by operating activities – continuing operations increased during the nine months ended September 30, 2020 compared with the prior year comparable period. Non-cash adjustments to net loss decreased primarily due to the sale of a third-party equity-method investment, a decrease in stock-based compensation expenses and a decrease in asset impairment charges. Net loss and Cash impact of changes in operating assets and liabilities for the nine months ended September 30, 2020 and 2019 reflects $89 million of payments and the $145 million settlement related to the DOJ Settlement Agreements, respectively. The decrease in Cash impact of changes in operating assets and liabilities was partially offset by working capital changes.
Net cash used in operating activities – discontinued operations during the nine months ended September 30, 2019 reflects an advance income tax payment related to the gain realized upon the sale of our investment in Netsmart on December 31, 2018.
Investing Cash Flow Activities
|
|
|
Nine Months Ended September 30, |
|
|||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
Capital expenditures |
|
$ |
(7,896 |
) |
|
$ |
(13,475 |
) |
|
$ |
5,579 |
|
|
Capitalized software |
|
|
(78,032 |
) |
|
|
(86,190 |
) |
|
|
8,158 |
|
|
Cash paid for business acquisitions, net of cash acquired |
|
|
0 |
|
|
|
(23,443 |
) |
|
|
23,443 |
|
|
Sales (purchases) of equity securities, other investments and related intangible assets, net |
|
|
20,996 |
|
|
|
(7,191 |
) |
|
|
28,187 |
|
|
Other proceeds from investing activities |
|
|
0 |
|
|
|
14 |
|
|
|
(14 |
) |
|
Net cash used in investing activities |
|
$ |
(64,932 |
) |
|
$ |
(130,285 |
) |
|
$ |
65,353 |
|
Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019
Net cash used in investing activities decreased during the nine months ended September 30, 2020, compared with the prior year comparable period. The decrease in the use of cash during 2020 was primarily due to the absence of an acquisition, the sale of a third-party equity-method investment and decreased spending for capital expenditures and capitalized software costs.
39
Financing Cash Flow Activities
|
|
|
Nine Months Ended September 30, |
|
|||||||||
|
(In thousands) |
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|||
|
Taxes paid related to net share settlement of equity awards |
|
$ |
(5,589 |
) |
|
$ |
(6,762 |
) |
|
$ |
1,173 |
|
|
Repayment of Convertible Senior Notes |
|
|
(352,361 |
) |
|
|
0 |
|
|
|
(352,361 |
) |
|
Payments for issuance costs on 0.875% Convertible Senior Notes |
|
|
(758 |
) |
|
|
0 |
|
|
|
(758 |
) |
|
Credit facility payments |
|
|
(175,000 |
) |
|
|
(15,000 |
) |
|
|
(160,000 |
) |
|
Credit facility borrowings, net of issuance costs |
|
|
673,625 |
|
|
|
249,241 |
|
|
|
424,384 |
|
|
Repurchase of common stock |
|
|
(55,282 |
) |
|
|
(102,160 |
) |
|
|
46,878 |
|
|
Repurchase of unsettled common stock |
|
|
0 |
|
|
|
(9,301 |
) |
|
|
9,301 |
|
|
Payment of acquisition and other financing obligations |
|
|
(4,369 |
) |
|
|
(11,581 |
) |
|
|
7,212 |
|
|
Purchases of subsidiary shares owned by non-controlling interest |
|
|
0 |
|
|
|
(54,064 |
) |
|
|
54,064 |
|
|
Net cash provided by financing activities |
|
$ |
80,266 |
|
|
$ |
50,373 |
|
|
$ |
29,893 |
|
Nine Months Ended September 30, 2020 Compared with the Nine Months Ended September 30, 2019
Net cash provided by financing activities increased during the nine months ended September 30, 2020, compared with the prior year comparable period. The increase was a result of higher net credit facility borrowings to repay the 1.25% Notes in full, as well as to increase cash on hand and provide financial flexibility to enhance our ability to address potential future uncertainties regarding the impact of the COVID-19 pandemic. During the nine months ended September 30, 2020, we also repurchased a lower amount of our common stock, increased payments on debt instruments and had an absence of minority interest purchases compared with the nine months ended September 30, 2019.
Future Capital Requirements
The following table summarizes our required minimum future payments under the 0.875% Convertible Senior Notes and the Senior Secured Credit Facility as of September 30, 2020.
|
(In thousands) |
|
Total |
|
|
Remainder of 2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Thereafter |
|
|||||||
|
Principal payments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.875% Convertible Senior Notes (1) |
|
$ |
207,911 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
207,911 |
|
|
Senior Secured Credit Facility (2) |
|
|
910,000 |
|
|
|
26,500 |
|
|
|
30,000 |
|
|
|
37,500 |
|
|
|
816,000 |
|
|
|
0 |
|
|
|
0 |
|
|
Total principal payments |
|
|
1,117,911 |
|
|
|
26,500 |
|
|
|
30,000 |
|
|
|
37,500 |
|
|
|
816,000 |
|
|
|
0 |
|
|
|
207,911 |
|
|
Interest payments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.875% Convertible Senior Notes |
|
|
11,824 |
|
|
|
0 |
|
|
|
1,819 |
|
|
|
1,819 |
|
|
|
1,819 |
|
|
|
1,819 |
|
|
|
4,548 |
|
|
Senior Secured Credit Facility (2) (3) |
|
|
47,826 |
|
|
|
5,002 |
|
|
|
19,471 |
|
|
|
18,787 |
|
|
|
4,566 |
|
|
|
0 |
|
|
|
0 |
|
|
Total interest payments |
|
|
59,650 |
|
|
|
5,002 |
|
|
|
21,290 |
|
|
|
20,606 |
|
|
|
6,385 |
|
|
|
1,819 |
|
|
|
4,548 |
|
|
Total future debt payments |
|
$ |
1,177,561 |
|
|
$ |
31,502 |
|
|
$ |
51,290 |
|
|
$ |
58,106 |
|
|
$ |
822,385 |
|
|
$ |
1,819 |
|
|
$ |
212,459 |
|
|
(1) |
Amount represents the face value of the 0.875% Convertible Senior Notes, which includes both the liability and equity portions. |
|
(2) |
Assumes no additional borrowings after September 30, 2020, 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 September 30, 2020, which was 2.15%. |
Other Matters Affecting Future Capital Requirements
Research and development investment is expected to decline for the remainder of 2020 as the Company is implementing cost reduction initiatives. Total spending consists of research and development costs directly recorded to expense, which are offset by the capitalization of eligible development costs.
We believe that our cash and cash equivalents of $225 million as of September 30, 2020, our future cash flows, expected proceeds from dispositions, our borrowing capacity under our senior secured revolving facility (the “Revolving Facility”) and access to capital markets, taken together, provide adequate resources to meet future operating needs as well as scheduled payments of short and long-term debt. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of this Form 10-Q. We will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies and the repurchase of our common stock under our 2018 stock repurchase program, each of which might impact our liquidity requirements or cause us to borrow under our Revolving Facility or issue additional equity or debt securities.
40
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. During the nine months ended September 30, 2020, in the ordinary course of business, we amended or renewed multi-year service agreements with a third-party software vendor, which resulted in increases of approximately $14.4 million, $18.0 million, $13.3 million, $8.2 million, $4.5 million, and $1.9 million to our future purchase obligation amounts for the years ending December 31, 2020, 2021, 2022, 2023, 2024, and 2025, 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 nine months ended September 30, 2020.
|
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, which were designed to a level of reasonable assurance, were effective as of September 30, 2020. In the course of this evaluation, our management considered the fact that, on October 15, 2020, the Company timely filed a Form 8-K reporting the sale of our EPSi business, as further discussed in Note 17, “Subsequent Events,” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. The Form 8-K did not include the required pro forma financial information reflecting the sale of our EPSi business, which was subsequently included on a Form 8-K/A filed on October 30, 2020.
Changes in Internal Control over Financial Reporting
We have implemented, and continue to refine, internal controls related to the new credit loss accounting standard which we adopted on January 1, 2020. There have been no other changes in our internal control over financial reporting during the three months ended September 30, 2020, 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.
41
PART II. OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
We hereby incorporate by reference Note 14, “Contingencies,” of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.
|
Item 1A. |
Risk Factors |
Except as follows, there have been no material changes during the nine months ended September 30, 2020 from the risk factors as previously disclosed in our Form 10-K.
The novel coronavirus (COVID-19) pandemic has and could continue to materially and adversely impact the business, results of operations, financial condition, liquidity and cash flows of us and our clients.
The COVID-19 pandemic and efforts to control its spread is having a significant impact on our operations and the operations of our healthcare clients. The magnitude and duration of the disruption and resulting decline in business activity will largely depend on future developments which are highly uncertain and cannot be predicted. Because our hospital and other health care provider clients have understandably prioritized their resources towards the COVID-19 outbreak, we expect that our business will continue to be adversely affected, including by negatively impacting the demand for our solutions (including the timeframes for the implementation of our solutions) and the timing of the payment for our solutions, while restricting our sales, marketing, and other important business activities. For example, the COVID-19 pandemic negatively impacted revenue for the three and nine months ended September 30, 2020, as we saw delays in deals with upfront software revenue and professional services implementations across our inpatient and outpatient base. We are unable to predict the continuing magnitude of any such affect.
As a result of the COVID-19 pandemic, certain industry events that we sponsor or at which we present and certain client events have been canceled, postponed or moved to virtual-only experiences, and we have instituted a work-from-home policy for most of our employees and have significantly restricted employee travel. In addition, concerns over the economic impact of the COVID-19 pandemic have also caused extreme volatility in financial and other capital markets which has adversely impacted and may continue to adversely impact our stock price and our ability to access capital markets. The extent to which the COVID-19 pandemic will continue to impact our results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the duration and severity of the COVID-19 pandemic, resurgences or additional “waves” of outbreaks of COVID-19 in various jurisdictions, the impact of COVID-19 on economic activity, and the actions taken by health authorities and policy makers to contain its impacts on public health and the global economy. The COVID-19 pandemic may also have the effect of heightening many of the other risks described in the other “Risk Factors” included in our Form 10-K, such as those relating to our products and services, sales cycles and implementation schedules, the retention of key employees, financial performance and debt obligations.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
On August 2, 2018, we announced that our Board of Directors approved a stock repurchase program under which we may repurchase up to $250 million of our common stock through December 31, 2020. 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 purchase program may be accelerated, suspended, delayed or discontinued at any time.
The following table summarizes the stock repurchase activity during the three months ended September 30, 2020 and the approximate dollar value of shares that may yet be purchased under 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 |
|
||||
|
07/01/20—07/31/20 |
|
|
0 |
|
|
$ |
0.00 |
|
|
|
0 |
|
|
$ |
92,116 |
|
|
08/01/20—08/31/20 |
|
|
3,200 |
|
|
$ |
9.22 |
|
|
|
3,200 |
|
|
$ |
62,614 |
|
|
09/01/20—09/30/20 |
|
|
1,800 |
|
|
$ |
8.87 |
|
|
|
1,800 |
|
|
$ |
46,647 |
|
|
|
|
|
5,000 |
|
|
$ |
9.09 |
|
|
|
5,000 |
|
|
|
|
|
42
|
Item 6. |
Exhibits |
|
Exhibit Number |
|
|
Exhibit Description |
|
Filed Herewith |
|
Furnished Herewith |
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
|
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer |
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
101.INS |
|
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline document |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
|
Inline XBRL Taxonomy Extension Schema |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB |
|
|
Inline XBRL Taxonomy Extension Label Linkbase |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE |
|
|
Inline XBRL Taxonomy Extension Presentation Linkbase |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
|
|
Inline XBRL Taxonomy Definition Linkbase |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL and included in Exhibit 101. |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
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/ Richard J. Poulton |
|
|
|
Richard J. Poulton |
|
|
|
President and Chief Financial Officer |
|
|
|
(Principal Financial and Accounting Officer and Duly Authorized Officer) |
Date: October 30, 2020
44
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: October 30, 2020 |
|
/s/ Paul M. Black |
|
|
|
Chief Executive Officer |
Exhibit 31.2
Certification
I, Richard J. Poulton, 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: October 30, 2020 |
|
/s/ Richard J. Poulton |
|
|
|
President and Chief Financial Officer |
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 September 30, 2020, 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 September 30, 2020, fairly presents, in all material respects, the financial condition and results of operations of Allscripts Healthcare Solutions, Inc.
Dated as of this 30th day of October, 2020.
|
/s/ Paul M. Black |
|
|
|
/s/ Richard J. Poulton |
|
Paul M. Black Chief Executive Officer |
|
|
|
Richard J. Poulton President and 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.