Exhibit 99.1

Change Healthcare Inc. Reports First Quarter Fiscal 2020 Financial Results

Nashville, TN., August 13, 2019 (BUSINESS WIRE) – Change Healthcare Inc. (Nasdaq: CHNG), a leading independent healthcare technology company, today reported financial results for Change Healthcare LLC (“Change Healthcare”) for the first quarter of fiscal year 2020 ended June 30, 2019.

“Change Healthcare delivered on our financial objectives and executed well across several strategic initiatives, advancing existing and new innovative solutions.” said Neil de Crescenzo, President and Chief Executive Officer. “The success of our initial public offering places us in a strong financial position to support our growth initiatives. Our comprehensive suite of software and analytics, technology-enabled services, and network solutions places us in a unique position to partner with payers and providers to reduce costs, improve quality, and continue to transition towards value-based care.”

Adoption of the New Revenue Recognition Standard—ASC 606

Change Healthcare adopted the new revenue recognition accounting standard Accounting Standards Codification (“ASC”) 606 effective April 1, 2019 on a modified retrospective basis. Financial results for reporting periods during fiscal year 2020 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to fiscal year 2020 are presented in conformity with the prior revenue recognition standard ASC 605. This press release includes additional information to reconcile the impacts of the adoption of the new revenue recognition standard on Change Healthcare’s financial results for the quarter ended June 30, 2019. This includes the presentation of financial results during fiscal year 2020 under ASC 605 for comparison to the prior year.

Fiscal 2020 First Quarter Highlights for Change Healthcare LLC:

Financial Summary—ASC 606 (standard adopted effective April 1, 2019)

 

   

Total revenue of $855.6 million, including solutions revenue of $797.1 million

 

   

Net income of $71.9 million, resulting in net income of $0.28 per diluted unit

 

   

Adjusted net income of $141.5 million, resulting in adjusted net income of $0.56 per diluted unit.

 

   

Adjusted EBITDA of $281.1 million

Financial Summary—ASC 605 for Change Healthcare LLC:

 

   

Total revenue of $814.0 million, including solutions revenue of $755.5 million

 

   

Net income of $26.7 million, resulting in net income of $0.11 per diluted unit

 

   

Adjusted net income of $96.2 million, resulting in adjusted net income of $0.38 per diluted unit.(1)

 

   

Adjusted EBITDA of $233.5 million

 

(1)

Common units of Change Healthcare LLC are equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

1


Following our initial public offering, the Securities & Exchange Commission (“SEC”) provided us with updated feedback regarding Change Healthcare LLC’s calculation of adjusted net income. As a result, Change Healthcare LLC will now define and report adjusted net Income as net income (loss) before amortization expense from acquired intangible assets, as adjusted to exclude the impact of certain items that are not reflective of its core operations, and the tax effects of the foregoing adjustments. Based on prior feedback reflected in Change Healthcare Inc.’s prospectus filed with the SEC on June 26, 2019, Change Healthcare LLC did not distinguish between amortization resulting from acquired intangible assets and amortization attributable to developed software. As a result, under the previous formulation, adjusted net income was defined as net income (loss) before total amortization expense, as adjusted to exclude the impact of certain items that are not reflective of its core operations, and the tax effects of the foregoing adjustments.

Financial Results—ASC 606 (standard adopted effective April 1, 2019)

First Quarter Fiscal 2020

 

   

Solutions revenue was $797.1 million. The primary difference resulting from the new accounting standard is that more of our revenue is recognized upon delivery of the related product or service as compared to over time under the prior revenue recognition standard.

 

   

Net Income was $71.9 million, resulting in net income of $0.28 per diluted unit. In addition to the revenue impact noted above, net income under the new accounting standard also was impacted favorably by an extended recognition period for commissions, decreasing expenses by $5.9 million.

 

   

Adjusted net Income was $141.5 million, resulting in adjusted net income of $0.56 per diluted unit.

 

   

Adjusted EBITDA was $281.1 million. Adjusted EBITDA as percent of Solutions revenue for the first quarter of 2020 was 35.3%

Financial Results—ASC 605 (standard before April 1, 2019)

First Quarter Fiscal 2020

 

   

Solutions revenue was $755.5 million, compared to $757.7 million for the first fiscal quarter of 2019. Total revenue for the current period, which includes Postage revenue, was $814.0 million compared to $823.3 million in the same period of the prior year. Growth in both the Software & Analytics and Network Solutions businesses was more than offset by an unfavorable impact of $9.2 million from divestitures as well as planned contract eliminations in our Technology-enabled Services business.

 

   

Net Income was $26.7 million, resulting in net income of $0.11 per diluted unit, compared with net income of $12.5 million and net income of $0.05 per diluted unit, respectively, for the first fiscal quarter of 2019. The favorable impact of productivity improvements and growth across our Software & Analytics and Network Solutions businesses was partially offset by divestitures as well as planned contract eliminations in our Technology Enabled Service business. As part of our stated strategy, we are repositioning certain of our Revenue Cycle Management (“RCM”) service solutions to better address end-market dynamics, enhance efficiency and to improve the long-term growth potential of these solutions.

 

   

Adjusted net income was $96.2 million, resulting in Adjusted Net Income of $0.38 per diluted unit, compared with adjusted net income of $97.6 million or $0.39 per diluted unit, respectively, for the first fiscal quarter of 2019. Adjusted net income reflects the items noted above.

 

2


   

Adjusted EBITDA was $233.5 million, compared with $227.8 million for the first fiscal quarter of 2019. Adjusted EBITDA as a percent of Solutions revenue for the first fiscal quarter of 2020 was 30.9%, compared with 30.1% for the first quarter of 2019. The favorable impact of productivity improvements and growth across our Software and Analytics and Network Solutions segment was partially offset by the unfavorable impact of divestitures as well as planned contract elimination in our Technology Enabled Services business.

Change Healthcare LLC Cash Flow and Balance Sheet Highlights

Net cash provided by operating activities was $84.5 million for three months ended June 30, 2019, a decrease of 55.7% from $190.9 million for the three months ended June 30, 2018. Free cash flow was $17.1 million for the three months ended June 30, 2019, a decrease of 86.4% from $125.7 million for the three months ended June 30, 2018. Adjusted free cash flow was $60.8 million, a decrease of $138.5 million year over year.

Net cash provided by operating activities, free cash flow, and adjusted free cash flow each are 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. The decrease in cash flow from operations, free cash flow and adjusted free cash flow primarily resulted from the inclusion of $154.6 million of such pass-thru funds in the three months ended June 30, 2018 as compared to $12.3 million for the three months ended June 30, 2019.

Change Healthcare LLC ended the quarter with over $27.4 million of cash, cash equivalents and restricted cash and approximately $5,790.6 million of total long-term debt. Subsequent to quarter end, Change Healthcare Inc. closed an initial public offering of common stock and a concurrent offering of tangible equity units providing approximately $888 million in net proceeds and redeemed $805 million in Term Loan Facility obligations.

As of June 30, 2019, no amounts had been drawn under the senior secured revolving line of credit. On July 3, 2019, the company amended its Revolving Credit Facility to increase the current commitment amount from $500 million to $785 million and to extend the maturity to July 3, 2024.

Recent Business Highlights

 

   

Introduced Assurance Reimbursement Management Denial Propensity Scoring and Revenue Performance Advisor Denial Prevention. With performance enhanced by Claims Lifecycle Artificial Intelligence, providers of any size now can proactively identify problem claims that could result in denials, and remediate potential issues before the claims are filed.

 

   

Awarded a six-year contract by CommonWell Health Alliance ® to continue to provide clinical interoperability services, including patient identification, record locator services, and document retrieval to improve patient access and care delivery.

 

   

Introduced the first patient liability solution across the entire patient journey. Developed in partnership with our customers, our Patient Liability Management suite combines revenue cycle management solutions with expert advisory and patient engagement services. The resulting synchronized and engaging patient experience increases collections while improving patient satisfaction.

 

3


   

Introduced InterQual 2019, our latest edition of the industry’s flagship clinical decision support solution. Among the new features is support for ‘Hospital in the Home’ programs, which are increasingly used as alternatives to some acute inpatient stays. This latest edition also advances the technology in InterQual AutoReview with Episode Day One review functionality.

Full Year Fiscal 2020 Outlook and 2021 Guidance—ASC 606

Change Healthcare expects Full-Year Fiscal 2020 Solutions Revenue growth of 1-2% including the impact of the sale of our extended care business and planned contract exits in our Technology-enabled Services business; Adjusted EBITDA growth of 6% - 8% and Adjusted Net Income Growth of 9% -11%.

For Fiscal year 2021, the Company expects Solutions Revenue growth of 4%-6%, Adjusted EBITDA growth of 6%-8%.

Second Quarter Fiscal 2020 Guidance—ASC 606

Change Healthcare expects Second Quarter Fiscal 2020 Solutions Revenue in the range of $710 million -$730 million; Adjusted EBITDA in the range of $210 million - $220 million and; Adjusted Net Income in the range of $80 million -$90 million.

While fiscal first quarter revenue increased as a result of ASC 606 implementation, full year revenue is not expected to differ materially between the two accounting standards. Hence, the acceleration of revenue to the first quarter of the fiscal year will reduce the quarterly reported revenue in subsequent Fiscal 2020 reported results versus the prior revenue recognition standard. The impact from extended recognition periods for commission expense as a result of the adoption of ASC 606 is expected to be favorable about $4 million per quarter pre-tax for the remainder of fiscal 2020.

A reconciliation of the forward-looking second-quarter and full-year fiscal 2020 Adjusted EBITDA outlook to net income cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted. For the same reasons, Change Healthcare LLC is unable to assess the probable significance of the unavailable information, which could have a material impact on its future GAAP financial results.

Conference Call and Webcast Information

Change Healthcare will host a conference call on August 14, 2019 at 8:00 a.m. ET. Investors and other interested parties are invited to listen to the conference call by dialing 1-(877) 279-0788 in the U.S.; 1-(270) 215-9894 from abroad, including the conference ID number: 5461017; or via a live, audio webcast on the Company’s website at https://ir.changehealthcare.com/.

A webcast replay will be available for on-demand listening shortly after the completion of the call until the first-quarter fiscal 2021 earnings call, at the aforementioned URL. In addition, a digital audio playback will be available until 11:00 a.m. Eastern Time on Wednesday, August 21, 2019, by dialing 1-855-859-2056 or 1-404-537-3406 and referencing confirmation 5461017.

 

4


About Change Healthcare

Change Healthcare is a leading independent healthcare technology company that provides data and analytics-driven solutions to improve clinical, financial and patient engagement outcomes in the U.S. healthcare system. We are a key catalyst of a value-based healthcare system, accelerating the journey toward improved lives and healthier communities. Learn more at changehealthcare.com.

CHNG-IR

Contacts

Kerry Kelly

External Communications

339-236-2756

Kerry.Kelly@changehealthcare.com

Evan Smith

Investor Relations

404-338-2225

Evan.Smith@changehealthcare.com

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of federal securities laws. Any statements made in this quarterly report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plans and strategies. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,” “predicts,” and the negatives of these words and other similar expressions. Forward-looking statements involve known and unknown risks, uncertainties, including factors disclosed in the Registration Statement on Form S-1 (No. 333-230345) in the section entitled “Risk Factors,” and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this release. All forward-looking statements are based on information currently available to Change Healthcare and are qualified in their entirety by this cautionary statement. The statements herein speak only as of the date such statements were first made. Except to the extent required by law, Change Healthcare assumes no obligation to update any such forward-looking statements or other statements included in this release.

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 regard 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

 

5


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 generally accepted accounting principles in the United States of America (“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.

 

6


Change Healthcare Inc.

Statements of Operations (unaudited and amounts in thousands, except share and per share amounts)

 

     Three Months Ended  
     June 30,  
     2019     2018  

Revenue

   $ —       $ —    

Operating expenses

    

General and administrative

     251       31  
  

 

 

   

 

 

 

Total operating expenses

     251       31  
  

 

 

   

 

 

 

Operating income (loss)

     (251     (31

Non-operating (income) expense

    

Loss from Equity Method Investment in the Joint Venture

     39,554       22,766  

(Gain) Loss on Sale of Interests in the Joint Venture

     —         (464

Management fee income

     (104     (31
  

 

 

   

 

 

 

Total non-operating (income) expense

     39,450       22,271  
  

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     (39,701     (22,302

Income tax provision (benefit)

     (2,184     (4,801
  

 

 

   

 

 

 

Net income (loss)

   $ (37,517   $ (17,501
  

 

 

   

 

 

 

Net income (loss) per share:

    

Basic

   $ (0.50   $ (0.23
  

 

 

   

 

 

 

Diluted

   $ (0.50   $ (0.23
  

 

 

   

 

 

 

Weighted average common shares outstanding:

    

Basic

     75,474,654       75,604,775  
  

 

 

   

 

 

 

Diluted

     75,474,654       75,604,775  
  

 

 

   

 

 

 

 

7


Change Healthcare Inc.

Balance Sheets (unaudited and amounts in thousands, except share and per share amounts)

 

     June 30,     March 31,  
     2019     2019  

Assets

 

Current Assets:

    

Cash

   $ 3,409     $ 3,409  

Due from the Joint Venture

     574       373  

Income taxes receivable

     1,601       1,781  
  

 

 

   

 

 

 

Total current assets

     5,584       5,563  

Dividend receivable

     48,807       81,264  

Investment in the Joint Venture

     1,253,535       1,211,996  
  

 

 

   

 

 

 

Total assets

   $ 1,307,926     $ 1,298,823  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

 

Current liabilities:

    

Accrued expenses

   $ 343     $ 176  

Due to the Joint Venture

     6,167       6,167  
  

 

 

   

 

 

 

Total current liabilities

     6,510       6,343  

Deferred income tax liabilities

     169,992       159,993  

Commitments and contingencies (see Note 4)

    

Stockholders’ Equity:

    

Common Stock (par value, $.001), 9,000,000,000 and 252,800,000 shares authorized and 75,474,654 and 75,474,654 shares issued and outstanding at June 30, 2019 and March 31, 2019, respectively

     75       75  

Class X common stock (par value, $.001), 1 and 1 share authorized and no shares issued and outstanding at June 30, 2019 and March 31, 2019, respectively

     —         —    

Preferred stock (par value, $.001), 900,000,000 and 0 shares authorized and no shares issued and outstanding at June 30, 2019 and March 31, 2019, respectively

     —         —    

Additional paid-in capital

     1,159,371       1,153,509  

Accumulated other comprehensive income (loss)

     (8,039     (3,256

Retained earnings (deficit)

     (19,983     (17,841
  

 

 

   

 

 

 

Total stockholders’ equity

     1,131,424       1,132,487  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 1,307,926     $ 1,298,823  
  

 

 

   

 

 

 

 

8


Change Healthcare Inc.

Statements of Cash Flows (unaudited and amounts in thousands)

 

     Three Months Ended  
     June 30,  
     2019     2018  

Cash flows from operating activities:

    

Net income (loss)

   $ (37,517   $ (17,501

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Loss from Equity Method Investment in the Joint Venture

     39,554       22,766  

Deferred income tax expense (benefit)

     (2,184     (4,801

(Gain) Loss on Sale of Interests in the Joint Venture

     —         (464

Changes in operating assets and liabilities:

    

Due from the Joint Venture

     (201     (31

Income taxes receivable

     180       (208

Accrued expenses

     168       31  

Due to the Joint Venture

     —         208  
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     —         —    
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Proceeds from sale of interests in Joint Venture

     —         4,782  
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     —         4,782  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Payments to acquire common stock

     —         (4,782
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     —         (4,782
  

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     —         —    

Cash, cash equivalents and restricted cash at beginning of period

     3,409       —    
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $ 3,409     $ —    
  

 

 

   

 

 

 

 

9


Change Healthcare LLC

Consolidated Statements of Operations (unaudited and amounts in thousands, except unit and per unit amounts)

 

     Three Months Ended        
     June 30,        
     2019     2018        

Revenue:

      

Solutions revenue

   $ 797,072     $ 757,705    

Postage revenue

     58,484       65,558    
  

 

 

   

 

 

   

Total revenue

     855,556       823,263    

Operating expenses:

      

Cost of operations (exclusive of depreciation and amortization below)

     326,947       337,430    

Research and development

     49,339       55,324    

Sales, marketing, general and administrative

     193,273       206,914    

Customer postage

     58,484       65,558    

Depreciation and amortization

     71,316       68,527    

Accretion and changes in estimate with related parties, net

     3,880       3,824    
  

 

 

   

 

 

   

Total operating expenses

     703,239       737,577    
  

 

 

   

 

 

   

Operating income (loss)

     152,317       85,686    

Non-operating (income) and expense

      

Interest expense, net

     83,406       78,549    

Contingent consideration

     (791     272    

Other, net

     (3,778     (5,532  
  

 

 

   

 

 

   

Total non-operating (income) and expense

     78,837       73,289    
  

 

 

   

 

 

   

Income (loss) before income tax provision (benefit)

     73,480       12,397    

Income tax provision (benefit)

     1,565       (109  
  

 

 

   

 

 

   

Net income (loss)

   $ 71,915     $ 12,506    
  

 

 

   

 

 

   

Net income (loss) per common unit(1):

      

Basic

   $ 0.29     $ 0.05    
  

 

 

   

 

 

   

Diluted

   $ 0.28     $ 0.05    
  

 

 

   

 

 

   

Weighted average common units outstanding(1):

      

Basic

     251,469,846       251,599,967    
  

 

 

   

 

 

   

Diluted

     253,124,478       253,447,527    
  

 

 

   

 

 

   

 

(1)

Common units of Change Healthcare LLC are equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

10


Change Healthcare LLC

Consolidated Balance Sheets (unaudited and amounts in thousands)

 

     June 30,     March 31,  
     2019     2019  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 27,122     $ 47,718  

Restricted cash

     264       1,176  

Accounts receivable, net of allowance for doubtful accounts

     727,205       759,502  

Contract assets

     145,054       —    

Prepaid expenses and other current assets

     159,489       172,067  
  

 

 

   

 

 

 

Total current assets

     1,059,134       980,463  

Property and equipment, net

     194,027       197,263  

Goodwill

     3,284,979       3,284,266  

Intangible assets, net

     1,284,369       1,320,161  

Other noncurrent assets, net

     480,463       421,985  
  

 

 

   

 

 

 

Total assets

   $ 6,302,972     $ 6,204,138  
  

 

 

   

 

 

 

Liabilities and members’ deficit

    

Current liabilities:

    

Drafts and accounts payable

   $ 48,855     $ 98,550  

Accrued expenses

     332,750       316,179  

Deferred revenues

     361,663       437,636  

Due to related parties, net

     28,359       34,629  

Current portion of long-term debt

     7,085       2,789  
  

 

 

   

 

 

 

Total current liabilities

     778,712       889,783  

Long-term debt, excluding current portion

     5,783,537       5,787,150  

Deferred income tax liabilities

     107,255       106,099  

Tax receivable agreement obligations to related parties

     196,696       212,698  

Other long-term liabilities

     121,655       113,194  

Commitments and contingencies (see Note 6)

    

Members’ deficit

     (684,883     (904,786
  

 

 

   

 

 

 

Total liabilities and members’ deficit

   $ 6,302,972     $ 6,204,138  
  

 

 

   

 

 

 

 

11


Change Healthcare LLC

Consolidated Statements of Cash Flows (unaudited and amounts in thousands)

 

     Three Months Ended  
     June 30,  
     2019     2018  

Cash flows from operating activities:

    

Net income (loss)

   $  71,915   $ 12,506

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     71,316     68,527

Amortization of capitalized software developed for sale

     3,452     3,760

Accretion and changes in estimate, net

     3,880     3,824

Equity compensation

     5,862     5,300

Deferred income tax expense (benefit)

     1,158     (613

Amortization of debt discount and issuance costs

     5,524     5,470

Contingent consideration

     (791     272

Other

     (460     (215

Changes in operating assets and liabilities:

    

Accounts receivable

     7,748     16,996

Contract assets

     (3,049     —    

Prepaid expenses and other

     (16,338     (28,733

Accounts payable

     (33,954     (7,647

Accrued expenses, deferred revenue and other liabilities

     (25,524     115,602

Due to related party, net

     (6,269     (4,196
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     84,470     190,853
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Capitalized expenditures

     (67,414     (65,166
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (67,414     (65,166
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Payments under tax receivable agreements with related parties

     (27,227     (25,096

Payments on Term Loan Facility

     (12,750     (12,750

Receipts (payments) on derivative instruments

     2,112     1,013

Payments of deferred financing obligations

     —         (2,035

Capital contribution from Members from exercise of equity awards

     —         205

Repurchase of equity awards

     —         (4,838

Advances to Member and Other

     —         (208

Other

     (759     598
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (38,624     (43,111
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     60     (812
  

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

     (21,508     81,764

Cash, cash equivalents and restricted cash at beginning of period

     48,894     50,011
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash at end of period

   $  27,386   $  131,775
  

 

 

   

 

 

 

 

12


Change Healthcare LLC

Reconciliation of Net Income (Loss) to Adjusted EBITDA

 

     Three Months Ended June 30,  
     2019     2018  
Unaudited and amounts in thousands    As
Reported
    Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As
Reported
(ASC 605)
 

Net income (loss)

   $ 71,915   $ (45,257   $ 26,658   $ 12,506

Net interest expense

     83,406     —         83,406     78,549

Income tax provision (benefit)

     1,565     (2,251     (686     (109

Depreciation and amortization

     71,316     —         71,316     68,527

Amortization of capitalized software developed for sale

     3,452     —         3,452     3,760
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

     231,654     (47,508     184,146     163,233

Adjustments to EBITDA:

        

Equity compensation

     5,862     —         5,862     5,300

Acquisition accounting adjustments

     373     —         373     1,985

Acquisition and divestiture-related costs

     658     —         658     4,188

Integration and related costs

     25,725     —         25,725     20,951

Strategic initiatives, duplicative and transition costs

     3,569     —         3,569     10,774

Severance costs

     7,170     —         7,170     7,676

Costs related to recently issued accounting standards

     —         —         —         3,741

Accretion and changes in estimate with related parties, net

     3,880     —         3,880     3,824

Management fees and related costs

     2,648     —         2,648     2,677

Impairment of long-lived assets and other

     (840     —         (840     1,017

Contingent consideration

     (791     —         (791     272

Other non-routine, net

     1,148     —         1,148     2,149
  

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA Adjustments

     49,402       49,402     64,554
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $  281,056   $ (47,508   $  233,548   $  227,787
  

 

 

   

 

 

   

 

 

   

 

 

 

 

13


Change Healthcare LLC

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)

 

     Three Months Ended June 30,  
     2019     2018  
Unaudited and amounts in thousands    As
Reported
    Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As
Reported
(ASC 605)
 

Net income (loss)

   $ 71,915   $ (45,257   $  26,658   $  12,506

Amortization expense resulting from acquisition method adjustments

     34,648     —         34,648     37,943

EBITDA Adjustments

     49,402     —         49,402     64,554

Tax effect of EBITDA Adjustments and amortization expense

     (14,465     —         (14,465     (17,401
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $  141,500   $ (45,257   $  96,243   $  97,602
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net income (loss) per diluted unit(1)

   $ 0.56       $ 0.38     $ 0.39  
  

 

 

     

 

 

   

 

 

 

 

(1)

Common units of Change Healthcare LLC are equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

14


Change Healthcare LLC

Segment Results

 

     Three Months Ended June 30,  
     2019      2018  
Unaudited and amounts in thousands    As
Reported
     Impacts
from
Adoption
     Without
Adoption
(ASC 605)
     As
Reported
(ASC 605)
 

Segment revenue

           

Software and Analytics

   $ 437,344      $ (41,627    $ 395,717      $ 396,402  

Network Solutions

     141,612        —          141,612        136,603  

Technology-enabled Services

     243,990        96        244,086        249,995  

Corporate and Eliminations

     32,610        —          32,610        40,263  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net revenue

   $ 855,556      $ (41,531    $ 814,025      $ 823,263  
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment Adjusted EBITDA

           

Software and Analytics

   $ 202,314      $ (45,985    $ 156,329      $ 142,637  

Network Solutions

     84,973        (518      84,455        82,237  

Technology-enabled Services

     45,151        (757      44,394        49,972  

Corporate and Eliminations

     (51,382      (248      (51,630      (47,059
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 281,056      $ (47,508    $ 233,548      $ 227,787  
  

 

 

    

 

 

    

 

 

    

 

 

 

Change Healthcare LLC

Reconciliation of Cash Provided by (Used in) Operating Activities to Free Cash Flow and

Adjusted Free Cash Flow

 

     Three Months Ended  
     June 30,  
Unaudited and amounts in thousands    2019     2018  

Cash provided by (used in) operating activities (1)

   $ 84,470   $ 190,853

Capital expenditures

     (67,414     (65,166
  

 

 

   

 

 

 

Free Cash Flow

     17,056     125,687

Adjustments to Free Cash Flow (2):

    

Integration and related costs

     25,725     20,951

Strategic initiatives, duplicative and transition costs

     3,569     10,774

Severance costs

     7,170     7,676

Costs related to recently issued accounting standards

     —         3,741

Integration capital expenditures

     7,247     30,479
  

 

 

   

 

 

 

Adjusted Free Cash Flow

   $ 60,767   $ 199,308
  

 

 

   

 

 

 

 

(1) 

Includes pass-thru cash of $12.3 million and $154.6 million for the three months ended June 30, 2019 and 2018, respectively.

(2) 

All operating costs and integration capital expenditures in the table are presented on an as-incurred basis.

 

15


Change Healthcare LLC

Consolidated Statements of Operations (unaudited and amounts in thousands, except share and per share amounts)

Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

 

     Three months ended June 30,  
     2019     2018  
     As
Reported
    Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As
Reported
(ASC 605)
 

Revenue:

        

Solutions revenue

   $  797,072     $ (41,531   $  755,541     $  757,705  

Postage revenue

     58,484       —         58,484       65,558  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     855,556       (41,531     814,025       823,263  

Operating expenses:

        

Cost of operations (exclusive of depreciation and amortization below)

     326,947       808       327,755       337,430  

Research and development

     49,339       —         49,339       55,324  

Sales, marketing, general and administrative

     193,273       5,169       198,442       206,914  

Customer postage

     58,484       —         58,484       65,558  

Depreciation and amortization

     71,316       —         71,316       68,527  

Accretion and changes in estimate with related parties, net

     3,880       —         3,880       3,824  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     703,239       5,977       709,216       737,577  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     152,317       (47,508     104,809       85,686  

Non-operating (income) and expense

        

Interest expense, net

     83,406       —         83,406       78,549  

Contingent consideration

     (791     —         (791     272  

Other, net

     (3,778     —         (3,778     (5,532
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating (income) and expense

     78,837       —         78,837       73,289  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax provision (benefit)

     73,480       (47,508     25,972       12,397  

Income tax provision (benefit)

     1,565       (2,251     (686     (109
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 71,915     $ (45,257   $ 26,658     $ 12,506  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common unit(1):

        

Basic

   $ 0.29       $ 0.11     $ 0.05  
  

 

 

     

 

 

   

 

 

 

Diluted

   $ 0.28       $ 0.11     $ 0.05  
  

 

 

     

 

 

   

 

 

 

 

(1)

Common units of Change Healthcare LLC are equivalent to the number of outstanding common shares of Change Healthcare Inc. and membership interests of Change Healthcare LLC held by subsidiaries of McKesson.

 

16


Change Healthcare LLC

Consolidated Balance Sheets (unaudited and amounts in thousands)

Reconciliation of the Impacts from the Adoption of the New Revenue Recognition Standard

 

     June 30, 2019     March 31,
2019
 
     As Reported     Impacts
from
Adoption
    Without
Adoption
(ASC 605)
    As Reported
(ASC 605)
 

Assets

   $       $       $       $    

Current assets:

        

Cash and cash equivalents

     27,122       —         27,122       47,718  

Restricted cash

     264       —         264       1,176  

Accounts receivable, net of allowance for doubtful accounts

     727,205       24,428       751,633       759,502  

Contract assets

     145,054       (145,054     —         —    

Prepaid expenses and other current assets

     159,489       20,084       179,573       172,067  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     1,059,134       (100,542     958,592       980,463  

Property and equipment, net

     194,027       —         194,027       197,263  

Goodwill

     3,284,979       —         3,284,979       3,284,266  

Intangible assets, net

     1,284,369       —         1,284,369       1,320,161  

Other noncurrent assets, net

     480,463       (40,335     440,128       421,985  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 6,302,972     $ (140,877   $ 6,162,095     $ 6,204,138  
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and members’ deficit

        

Current liabilities:

        

Drafts and accounts payable

   $ 48,855     $ (62   $ 48,793     $ 98,550  

Accrued expenses

     332,750       —         332,750       316,179  

Deferred revenues

     361,663       66,023       427,686       437,636  

Due to related parties, net

     28,359       —         28,359       34,629  

Current portion of long-term debt

     7,085       —         7,085       2,789  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     778,712       65,961       844,673       889,783  

Long-term debt, excluding current portion

     5,783,537       —         5,783,537       5,787,150  

Deferred income tax liabilities

     107,255       —         107,255       106,099  

Tax receivable agreement obligations to related parties

     196,696       —         196,696       212,698  

Other long-term liabilities

     121,655       566       122,221       113,194  

Commitments and contingencies

        

Members’ deficit

     (684,883     (207,404     (892,287     (904,786
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and members’ deficit

   $ 6,302,972     $ (140,877   $ 6,162,095     $ 6,204,138  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

17

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