Change Healthcare Inc. Reports Fourth Quarter and Full Year Fiscal 2021 Financial Results
05/26/2021 - 04:05 PM
Change Healthcare Inc. (Nasdaq: CHNG) (the “Company” or “Change Healthcare”), a leading healthcare technology company, today reported financial results for the fourth quarter and fiscal year ended March 31, 2021.
“The fourth quarter performance demonstrates the execution of our growth strategy, delivering on our financial objectives while continuing to make investments to support our customers and employees, and advance our capabilities,” said Neil de Crescenzo, president and chief executive officer. “As we enter fiscal 2022, we remain focused on delivering the next phase of growth by advancing our technology-first approach to innovation and further integrating our diverse capabilities to advance connectivity, enhance efficiency, and drive better experiences and outcomes throughout the healthcare industry.”
Fiscal 2021 Fourth Quarter Highlights:
Financial Summary
Total revenue of $855.2 million , including solutions revenue of $804.3 million
Net loss of $13.1 million , resulting in net loss of $0.04 per diluted share
Adjusted net income of $134.0 million , resulting in adjusted net income of $0.42 per diluted share
Adjusted EBITDA of $272.0 million
Recent Business Highlights
Announced in collaboration with AWS a new Data Science as a Service (DSaaS) offering to drive improved outcomes and healthcare economics for vulnerable health communities
Awarded “Best in KLAS” for Provider Eligibility Enrollment Services and for Payer IT Consulting Services
Impact of McKesson Exit on Comparability of Results
On March 10, 2020, Change Healthcare Inc. acquired the interest in Change Healthcare LLC (“the Joint Venture”) previously held by McKesson. The transaction resulted in Change Healthcare Inc. acquiring control of the Joint Venture, which was accounted for as a business combination and resulted in a new basis of accounting, and all of the business activities of the Joint Venture are now reported by the Company. Change Healthcare Inc.’s financial statements for periods prior to the acquisition were primarily limited to the equity method investment in the Joint Venture, and therefore did not reflect revenue, adjusted EBITDA, and other key measures. As a result, Change Healthcare Inc. does not consider comparison of the current operating results to the reported results for the same period in the prior year to be meaningful, and instead will compare our current quarter results to the prior quarter results of the Joint Venture, which have been recast to reflect the current segment structure, including the allocation of all corporate costs to the business units. This press release includes supplemental information for the recast results of the Joint Venture for the three months and year ended March 31, 2021. The recast results for all quarters in fiscal year 2019 and fiscal year 2020 are available in the appendix to the earnings presentation and will be included as an exhibit to Change Healthcare Inc.’s Form 10-K.
Financial Results for Fourth Quarter of Fiscal 2021
Solutions revenue was $804.3 million for the current period, inclusive of the impact of the fair value adjustment to deferred revenue resulting from the McKesson exit, which reduced revenue recognized in the quarter by $10.1 million . Total revenue, which includes postage revenue, was $855.2 million . For the fourth quarter of fiscal 2020, the Joint Venture reported $786.6 million of solutions revenue and $843.4 million of total revenue. Solutions revenue for the current period reflects the $10.7 million net favorable impact of acquisitions and divestitures including the negative $6.9 million impact during the quarter from the divestiture of the Capacity Management business which closed on December 2, 2020.
Net loss was $13.1 million , resulting in net loss of $0.04 per diluted share. For the fourth quarter of fiscal 2020, the Joint Venture reported net loss of $108.6 million or $0.34 per diluted unit. Net loss for the current period was positively impacted by new sales volumes, productivity improvements and cost initiatives.
Adjusted net income was $134.0 million , resulting in adjusted net income of $0.42 per diluted share. For the fourth quarter of fiscal 2020, the Joint Venture reported adjusted net income of $133.2 million or $0.42 per diluted unit. Net loss per diluted share and adjusted net income per diluted share for the current period is based on 321 million shares compared to 320 million units in the prior year period.
Adjusted EBITDA was $272.0 million for the current period. For the fourth quarter of fiscal 2020, the Joint Venture reported adjusted EBITDA of $264.4 million . The results in the current quarter reflect continued productivity and synergy realization.
Cash Flow and Balance Sheet Highlights
Net cash provided by operating activities was $586.2 million , free cash flow was $339.8 million , and adjusted free cash flow was $429.9 million , in each case, for the twelve months ended March 31, 2021. For the twelve months ended March 31, 2020, the Joint Venture reported net cash provided by operating activities, free cash flow, and adjusted free cash flow of $593.3 million , $334.7 million , and $481.5 million , respectively.
Net cash provided by operating activities, free cash flow, and adjusted free cash flow each is affected by pass-thru funds we receive from certain pharmaceutical industry participants in advance of our obligation to remit these funds to participating retail pharmacies. Such pass-thru funds on hand decreased by $12.8 million in the twelve months ended March 31, 2021, reducing free cash flow for the period by that amount, and increased by $21.7 million for the Joint Venture for the twelve months ended March 31, 2020. Net cash flow from operating activities, free cash flow, and adjusted free cash flow in the current period reflect working capital improvements driven by strong collections.
The Company ended the quarter with approximately $113.1 million of cash and cash equivalents, and approximately $4,762.1 million of total debt. During the current period, the Company repaid $50.0 million on its Term Loan Facility.
Proposed Merger with OptumInsight
On January 5, 2021, OptumInsight, a diversified health services company and part of UnitedHealth Group, and Change Healthcare agreed to combine (the “Merger”). Under the terms of the merger agreement, UnitedHealth Group, through a wholly-owned subsidiary, will acquire all of the outstanding shares of Change Healthcare common stock for $25.75 per share in cash. The Boards of Directors of both UnitedHealth Group and Change Healthcare have unanimously approved the terms of the Merger. At a special meeting held April 13, 2021, Change Healthcare stockholders voted to approve the Merger. Of the approximately 222 million shares voted, 99.9% voted in favor of the adoption of the merger agreement. The closing of the Merger is subject to applicable regulatory approval and other customary closing conditions.
Guidance
Due to the recently announced transaction with OptumInsight, we will no longer be providing financial guidance.
Webcast Information
Change Healthcare will host a conference call on Thursday, May 27, 2021, at 8:00 a.m. ET. Due to the previously announced transaction with OptumInsight, the Company will not be taking questions during the conference call.
Investors and other interested parties are invited to listen to the conference call via the Company's website at https://ir.changehealthcare.com/ . The webcast will be available for on-demand listening at the aforementioned URL until May 27, 2022.
About Change Healthcare
Change Healthcare (Nasdaq: CHNG) is a leading healthcare technology company, focused on insights, innovation, and accelerating the transformation of the U.S. healthcare system through the power of the Change Healthcare platform. We provide data and analytics-driven solutions to improve clinical, financial, administrative, and patient engagement outcomes in the U.S. healthcare system. Learn more at changehealthcare.com .
CHNG-IR
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and businesses of Change Healthcare. Some of these statements can be identified by terms and phrases such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “continue,” “could,” “should,” “may,” “plan,” “project,” “predict” and similar expressions. Change Healthcare cautions readers of this press release that such “forward looking statements,” including without limitation, those relating to the timing of the proposed merger and Change Healthcare’s future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, wherever they occur in this press release or in other statements attributable to Change Healthcare, are necessarily estimates reflecting the judgment of Change Healthcare’s senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the “forward looking statements.”
Factors that could cause Change Healthcare’s actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to, the inability to complete the proposed merger due to the failure to satisfy conditions to completion of the proposed merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction; risks related to disruption of management’s attention from Change Healthcare’s ongoing business operations due to the transaction; the effect of the announcement of the proposed merger on Change Healthcare’s relationships with its customers, operating results and business generally; the risk that the proposed merger will not be consummated in a timely manner; exceeding the expected costs of the merger; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; macroeconomic and industry trends and adverse developments in the debt, consumer credit and financial services markets; uncertainty and risks related to the impact of the COVID-19 pandemic on the national and global economy, Change Healthcare’s business, suppliers, customers, and employees; Change Healthcare’s ability to retain or renew existing customers and attract new customers; Change Healthcare’s ability to connect a large number of payers and providers; Change Healthcare’s ability to provide competitive services and prices while maintaining its margins; further consolidation in end-customer markets; Change Healthcare’s ability to effectively manage costs; Change Healthcare’s ability to effectively develop and maintain relationships with channel partners; Change Healthcare’s ability to timely develop new services and the market’s willingness to adopt new services; Change Healthcare’s ability to deliver services timely without interruption; a decline in transaction volume in the U.S. healthcare industry; Change Healthcare’s ability to maintain access to its data sources; Change Healthcare’s ability to maintain the security and integrity of its data; Change Healthcare’s reliance on key management personnel; Change Healthcare’s ability to manage and expand its operations and keep up with rapidly changing technologies; the ability of outside service providers and key vendors to fulfill their obligations to Change Healthcare; risks related to international operations; Change Healthcare’s ability to protect and enforce its intellectual property, trade secrets and other forms of unpatented intellectual property; Change Healthcare’s ability to defend its intellectual property from infringement claims by third parties; government regulation and changes in the regulatory environment; changes in local, state, federal and international laws and regulations, including related to taxation; economic and political instability in the U.S. and international markets where Change Healthcare operates; litigation or regulatory proceedings; losses against which Change Healthcare does not insure; Change Healthcare’s ability to make acquisitions and integrate the operations of acquired businesses; Change Healthcare’s ability to make timely payments of principal and interest on its indebtedness; Change Healthcare’s ability to satisfy covenants in the agreements governing its indebtedness; Change Healthcare’s ability to maintain liquidity; our adoption of new, or amendments to existing, accounting standards, and other risks. For a more detailed discussion of these factors, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Change Healthcare’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 4, 2020, as such factors may be updated from time to time in our periodic filings with the SEC, including in Change Healthcare’s most recent Quarterly Report on Form 10-Q filed with the SEC on February 4, 2021.
Change Healthcare’s forward-looking statements speak only as of the date of this press release or as of the date they are made. Change Healthcare disclaims any intent or obligation to update any “forward looking statement” made in this press release to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.
Non-GAAP Financial Measures
In the Company’s earnings releases, prepared remarks, conference calls, slide presentations and webcasts, there may be use or discussion of non-GAAP financial measures. We believe such measures provide supplemental information to investors with regards to our operating performance and assist investors’ ability to compare our financial results to those of other companies in the same industry. The GAAP financial measure most directly comparable to each non-GAAP financial measure used or discussed, and a reconciliation of the differences between the comparable GAAP financial measure and each non-GAAP financial measure are included in this press release after the consolidated financial statements. These non-GAAP financial measures are calculated and presented on the basis of methodologies other than in accordance with GAAP. These non-GAAP financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP and may be defined and calculated differently by others in the same industry.
Consolidated Statements of Operations
(unaudited and amounts in thousands, except share and per share amounts)
Three Months Ended March 31,
2021
2020
2020
Change Healthcare Inc.
Change
Healthcare LLC
Revenue:
Solutions revenue
$
804,299
$
184,161
$
786,589
Postage revenue
50,861
12,631
56,791
Total revenue
855,160
196,792
843,380
Operating expenses:
Cost of operations (exclusive of depreciation and amortization below)
357,506
71,435
346,977
Research and development
58,926
11,559
53,257
Sales, marketing, general and administrative
187,606
37,389
175,725
Customer postage
50,861
12,631
56,791
Depreciation and amortization
154,495
30,838
89,852
Accretion and changes in estimate with related parties, net
2,744
(31,349
)
4,627
Gain on sale of businesses
1,344
—
—
Tax receivable agreement charge
—
164,633
164,633
Goodwill impairment charge
—
561,164
—
Total operating expenses
813,482
858,300
891,862
Operating income (loss)
41,678
(661,508
)
(48,482
)
Non-operating (income) and expense
Interest expense, net
59,508
16,248
64,084
Contingent consideration
—
—
(1,900
)
Loss on extinguishment of debt
1,289
—
561
Loss from Equity Method Investment in the Joint Venture
—
276,216
—
(Gain) loss on forward purchase contract
—
55,768
—
Other, net
(2,253
)
(169
)
(3,749
)
Total non-operating (income) and expense
58,544
348,063
58,996
Income (loss) before income tax provision (benefit)
(16,866
)
(1,009,571
)
(107,478
)
Income tax provision (benefit)
(3,776
)
(142,690
)
1,112
Net income (loss)
$
(13,090
)
$
(866,881
)
$
(108,590
)
Net income (loss) per common share:
Basic and diluted
$
(0.04
)
$
(1.64
)
$
(0.34
)
Weighted average common shares outstanding: (1)
Basic and diluted
321,393,600
186,342,936
319,789,840
(1)
Prior to the McKesson exit common units of Change Healthcare LLC were equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.
Consolidated Statements of Operations
(unaudited and amounts in thousands, except share and per share amounts)
Year Ended March 31,
2021
2020
2020
Change Healthcare Inc.
Change
Healthcare LLC
Revenue:
Solutions revenue
$
2,893,889
$
184,161
$
3,074,894
Postage revenue
196,532
12,631
228,079
Total revenue
3,090,421
196,792
3,302,973
Operating expenses:
Cost of operations (exclusive of depreciation and amortization below)
1,335,075
71,435
1,345,920
Research and development
227,036
11,559
205,035
Sales, marketing, general and administrative
686,645
39,893
743,311
Customer postage
196,532
12,631
228,079
Depreciation and amortization
591,048
30,838
315,946
Accretion and changes in estimate with related parties, net
13,158
15,823
14,966
Gain on sale of businesses
(59,143
)
—
—
Tax receivable agreement charge
—
164,633
164,633
Goodwill impairment charge
—
561,164
—
Total operating expenses
2,990,351
907,976
3,017,890
Operating income (loss)
100,070
(711,184
)
285,083
Non-operating (income) and expense
Interest expense, net
245,241
16,652
283,745
Contingent consideration
(3,000
)
—
(91
)
Loss on extinguishment of debt
8,924
—
19,975
Loss from Equity Method Investment in the Joint Venture
—
380,713
—
(Gain) loss on forward purchase contract
—
(15,881
)
—
Other, net
(3,698
)
(1,817
)
(14,630
)
Total non-operating (income) and expense
247,467
379,667
288,999
Income (loss) before income tax provision (benefit)
(147,397
)
(1,090,851
)
(3,916
)
Income tax provision (benefit)
(35,187
)
(143,254
)
1,701
Net income (loss)
$
(112,210
)
$
(947,597
)
$
(5,617
)
Net income (loss) per common share:
Basic and diluted
$
(0.35
)
$
(6.92
)
$
(0.02
)
Weighted average common shares outstanding: (1)
Basic and diluted
320,771,789
136,996,624
302,412,870
(1)
Prior to the McKesson exit common units of Change Healthcare LLC were equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.
Consolidated Balance Sheets
(unaudited and amounts in thousands, except share and per share amounts)
March 31, 2021
March 31, 2020
Assets
Current assets:
Cash and cash equivalents
$
113,101
$
410,405
Accounts receivable, net
732,614
740,105
Contract assets, net
132,856
132,704
Prepaid expenses and other current assets
140,258
117,967
Total current assets
1,118,829
1,401,181
Property and equipment, net
174,370
206,196
Operating lease right-of-use assets, net
93,412
—
Goodwill
4,108,792
3,795,325
Intangible assets, net
4,187,072
4,365,806
Investment in business purchase option
—
146,500
Other noncurrent assets, net
430,141
192,372
Total assets
$
10,112,616
$
10,107,380
Liabilities
Current liabilities:
Accounts payable
$
57,449
$
68,169
Accrued expenses
484,293
390,294
Deferred revenue
436,666
302,313
Due to related parties, net
10,766
20,234
Current portion of long-term debt
27,339
278,779
Current portion of operating lease liabilities
30,608
—
Total current liabilities
1,047,121
1,059,789
Long-term debt, excluding current portion
4,734,775
4,710,294
Long-term operating lease liabilities
75,396
—
Deferred income tax liabilities
605,291
615,904
Tax receivable agreement obligations to related parties
103,151
177,826
Tax receivable agreement obligations
229,082
164,633
Other long-term liabilities
65,572
93,487
Total liabilities
6,860,388
6,821,933
Commitments and contingencies
Stockholders' Equity
Common Stock (par value, $.001), 9,000,000,000 and 9,000,000,000 shares authorized and 306,796,076 and 303,428,142 shares issued and outstanding at March 31, 2021 and 2020, respectively
307
303
Preferred stock (par value, $.001), 900,000,000 shares authorized and no shares issued and outstanding at both March 31, 2021 and 2020
—
—
Additional paid-in capital
4,283,391
4,222,580
Accumulated other comprehensive income (loss)
11,221
(7,372
)
Accumulated deficit
(1,042,691
)
(930,064
)
Total stockholders' equity
3,252,228
3,285,447
Total liabilities and stockholders' equity
$
10,112,616
$
10,107,380
Consolidated Statements of Cash Flows
(unaudited and amounts in thousands)
Year Ended March 31,
2021
2020
2020
Change Healthcare Inc.
Change
Healthcare LLC
Cash flows from operating activities:
Net income (loss)
$
(112,210
)
$
(947,597
)
$
(5,617
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization
591,048
30,838
315,946
Amortization of capitalized software developed for sale
1,326
—
14,415
Accretion and changes in estimate, net
11,644
15,823
14,966
Equity compensation
59,016
1,701
31,808
Deferred income tax expense (benefit)
(50,114
)
(143,822
)
(2,613
)
Amortization of debt discount and issuance costs
32,532
2,235
18,807
Contingent consideration
(3,000
)
—
(91
)
Gain on sale of businesses
(59,143
)
—
—
Loss on extinguishment of debt
8,924
—
19,975
(Gain) loss on other investments
—
(15,881
)
—
Non-cash lease expense
29,114
—
—
Goodwill impairment charge
—
561,164
—
Loss from Equity Method Investment in the Joint Venture
—
380,713
—
Tax receivable agreement charge
—
164,633
164,633
Other, net
11,257
(1,110
)
6,896
Changes in operating assets and liabilities:
Accounts receivable, net
(6,064
CHNG Rankings
N/A Ranked by Stock Gains
CHNG Stock Data
Industry
Data Processing, Hosting, and Related Services
Sector
Information
Tags
Technology Services, Packaged Software, Information, Data Processing, Hosting, and Related Services
Country
US
City
Nashville
About CHNG
Change Healthcare is a leading independent healthcare technology company, focused on insights, innovation and accelerating the transformation of the U.S. healthcare system through the power of the Change Healthcare Platform. The company provides data and analytics-driven solutions to improve clinical, financial, administrative, and patient engagement outcomes in the U.S. healthcare system.