The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
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. and its wholly-owned subsidiaries and majority-owned 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 and majority-owned subsidiaries, unless otherwise stated.
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements as of and for the three months ended March 31, 2016 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim consolidated financial statements are unaudited and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the consolidated financial statements for the periods presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting, although the Company believes that the disclosures made are adequate to make that information not misleading. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015 (our “Form 10-K”).
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.
Significant Accounting Policies
There have been no changes to our significant accounting policies from those disclosed in our Form 10-K.
Accounting Pronouncements Not yet Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers: Topic
606 (“ASU 2014-09”), to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The new standard permits the use of either the retrospective or cumulative effect transition methods. As issued, ASU 2014-09 is effective for us for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. On August 12, 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, while also permitting companies to voluntarily adopt the new revenue standard as of the original effective date. In addition, in March 2016 the FASB issued ASU 2016-08 and ASU 2016-10, both of which clarify certain implementation guidance within ASU 2014-09. We have initiated an assessment of our systems, data and processes related to the implementation of this accounting standard. This assessment is expected to be completed during fiscal 2016. Additionally, we are currently evaluating the potential impact that the implementation of this standard will have on our consolidated financial statements, as well as the selection of the method of adoption. We currently do not expect to implement this standard prior to its mandatory effective date.
7
In March 2016, the FASB issued Accounting Standards Update No. 2016-07,
Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to
the Equity Method of Accounting
(“ASU 2016-07”). The guidance in ASU 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an
investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that th
e equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity
method accounting. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated
other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for interim and annual periods beginning after December 15, 2016, and should be applied prospectively. Earlier application is per
mitted. We are currently evaluating the impact of this new accounting guidance.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting
(“ASU 2016-09”). The guidance in ASU 2016-09 affects several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Excess tax benefits and deficiencies will now be recognized as income tax expense or benefit in the income statement. Entities will also be able to make an accounting policy election to account for forfeitures as they occur rather than estimating the number of awards expected to vest. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. We are currently in the process of evaluating this new guidance, which we expect to have an impact on our consolidated financial statements and results of operations.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.
2. Fair Value Measurements and Investments
We carry a portion of our financial assets and liabilities at fair value that are measured at a reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclosed according to the quality of valuation inputs under the following hierarchy:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Our Level 2 derivative financial instruments include foreign currency forward contracts valued based upon observable values of spot and forward foreign currency exchange rates. Refer to Note 9, “Derivative Financial Instruments,” for further information regarding these derivative financial instruments.
Level 3: Unobservable inputs that are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Our Level 3 financial instruments include derivative financial instruments comprising the 1.25% Call Option asset and the 1.25% embedded cash conversion option liability that are not actively traded. These derivative instruments were designed with the intent that changes in their fair values would substantially offset, with limited net impact to our earnings. Therefore, we believe the sensitivity of changes in the unobservable inputs to the option pricing model for these instruments is substantially mitigated. Refer to Note 9, “Derivative Financial Instruments,” for further information regarding these derivative financial instruments.
8
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
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
(In thousands)
|
|
Classifications
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
1.25% Call
Option
|
|
Other assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
49,005
|
|
|
$
|
49,005
|
|
|
$
|
0
|
|
|
$
|
-
|
|
|
$
|
80,208
|
|
|
$
|
80,208
|
|
1.25% Embedded cash
conversion option
|
|
Other liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
(49,817
|
)
|
|
|
(49,817
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(81,210
|
)
|
|
|
(81,210
|
)
|
Foreign
exchange
derivative assets
|
|
Prepaid expenses and other current assets
|
|
|
0
|
|
|
|
866
|
|
|
|
0
|
|
|
|
866
|
|
|
|
0
|
|
|
|
424
|
|
|
|
0
|
|
|
|
424
|
|
Foreign
exchange
derivative
liabilities
|
|
Accrued expenses
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
|
$
|
0
|
|
|
$
|
866
|
|
|
$
|
(812
|
)
|
|
$
|
54
|
|
|
$
|
0
|
|
|
$
|
424
|
|
|
$
|
(1,002
|
)
|
|
$
|
(578
|
)
|
Investments
The following table summarizes our equity investments which are included in other assets in the accompanying consolidated balance sheet:
|
|
Number of
|
|
|
Original
|
|
|
Carrying Value at
|
|
(In thousands)
|
|
Investees
|
|
|
Investment
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Equity method investments (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nant Health, LLC
|
|
|
1
|
|
|
$
|
205,393
|
|
|
$
|
200,514
|
|
|
$
|
203,117
|
|
Other
|
|
|
3
|
|
|
|
1,658
|
|
|
|
2,436
|
|
|
|
2,436
|
|
Total equity method investments
|
|
|
4
|
|
|
|
207,051
|
|
|
|
202,950
|
|
|
|
205,553
|
|
Cost method investments
|
|
|
3
|
|
|
|
19,776
|
|
|
|
15,826
|
|
|
|
17,876
|
|
Total equity investments
|
|
|
7
|
|
|
$
|
226,827
|
|
|
$
|
218,776
|
|
|
$
|
223,429
|
|
|
(1)
|
Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.
|
The decline in the carrying value of our equity method investments from December 31, 2015 to March 31, 2016 was primarily due to the recognition of $2.6 million representing our equity share of the net losses of our investees for the period and the amortization of cost basis differences. The carrying amount of our equity method investment in Nant Health, LLC (“NantHealth”) at March 31, 2016 exceeded the amount of our share of underlying equity in net assets of NantHealth at December 31, 2015 by $182.0 million. The excess carrying value over the underlying equity in net assets of NantHealth is primarily comprised of amortizable intangible assets and nonamortizable goodwill. The decline in the carrying value of our cost method investments from December 31, 2015 to March 31, 2016 was primarily due to the recognition of an impairment charge of $2.1 million on one investment during the first quarter of 2016.
As of March 31, 2016, i
t is not practicable to estimate the fair value of our equity investments primarily because of their illiquidity and restricted marketability. The factors we considered in trying to determine fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and the issuer’s subsequent or planned raises of capital
.
During first quarter of 2016, we acquired a $0.5 million non-marketable convertible note of a third party with which we have an existing license and distribution agreement. This investment is accounted as an available-for-sale security with changes in fair value recorded in accumulated other comprehensive loss. The fair value of the convertible note was $0.5 million as of March 31, 2016 and was included in other assets in the accompanying consolidated balance sheet as of March 31, 2016.
9
Summarized Financial Infor
mation for Equity Method Investments
Summarized financial information for our equity method investments on an aggregated basis since the date of acquisition is as follows:
|
|
December 31,
|
|
|
September 30,
|
|
(In thousands)
|
|
2015
|
|
|
2015
|
|
Current assets
|
|
$
|
42,239
|
|
|
$
|
58,550
|
|
Noncurrent assets
|
|
|
397,519
|
|
|
|
411,159
|
|
Current liabilities
|
|
|
52,482
|
|
|
|
77,188
|
|
Noncurrent liabilities
|
|
|
191,563
|
|
|
|
166,898
|
|
Equity of equity method investments
|
|
$
|
195,713
|
|
|
$
|
225,623
|
|
(In thousands)
|
|
Trailing Three Months Ended December 31, 2015
|
|
|
Trailing Three Months Ended December 31, 2014
|
|
Revenue
|
|
$
|
23,336
|
|
|
$
|
2,470
|
|
Net loss
|
|
|
(24,540
|
)
|
|
|
(216
|
)
|
Long-Term Financial Liabilities
Our long-term financial liabilities include amounts outstanding under our senior secured credit facility, with carrying values that approximate fair value since the interest rates approximate current market rates. In addition, the carrying amount of our 1.25% Cash Convertible Senior Notes (the “1.25% Notes”) approximates fair value as of March 31, 2016, since the effective interest rate on the 1.25% Notes approximates current market rates. See Note 7, “Debt,” for further information regarding our long-term financial liabilities.
3. Stockholders' Equity
Stock-based Awards
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 restricted stock units and restricted stock awards is measured at the underlying closing share price of our common stock on the date of grant. The fair value of market-based restricted stock units is measured using the Monte Carlo pricing model. No stock options were granted during the three months ended March 31, 2016 and 2015.
Stock-based compensation expense recognized during the three months ended March 31, 2016 and 2015 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. No stock-based compensation costs were capitalized during the three months ended March 16, 2016 and 2015.
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
1,169
|
|
|
$
|
1,096
|
|
Client services
|
|
|
1,490
|
|
|
|
1,408
|
|
Total cost of revenue
|
|
|
2,659
|
|
|
|
2,504
|
|
Selling, general and administrative expenses
|
|
|
5,166
|
|
|
|
5,011
|
|
Research and development
|
|
|
2,576
|
|
|
|
2,003
|
|
Total stock-based compensation expense
|
|
$
|
10,401
|
|
|
$
|
9,518
|
|
10
We granted stock-based
awards as follows:
|
|
Three Months Ended March 31, 2016
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
(In thousands, except per share amounts)
|
|
Shares
|
|
|
Fair Value
|
|
Service-based restricted stock units
|
|
|
1,802
|
|
|
$
|
13.13
|
|
Performance-based restricted stock units with a service
condition
|
|
|
545
|
|
|
$
|
12.39
|
|
Market-based restricted stock units with a service
condition
|
|
|
621
|
|
|
$
|
13.49
|
|
|
|
|
2,968
|
|
|
$
|
13.07
|
|
During the three months ended March 31, 2016 and the year ended December 31, 2015, 0.6 million and 1.4 million shares of stock, respectively, were issued in connection with the exercise of options and the release of restrictions on stock awards.
Net Share-settlements
Beginning in 2011, upon vesting, restricted stock units and awards 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 in 2016 and 2015 were net-share settled such that we withheld shares with 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 three months ended March 31, 2016 and 2015 were 323 thousand and 179 thousand, respectively, and were based on the value of the restricted stock units and awards on their vesting date as determined by our closing stock price. These net-share settlements had the effect of share repurchases by us as they reduced the number of shares that would have otherwise been issued as a result of the vesting.
Stock Repurchases
In November 2015, our Board of Directors authorized a stock repurchase program under which we may repurchase up to $150 million of our common stock through December 31, 2018. Any share repurchase transactions may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means, subject to market conditions. Any repurchase activity will depend on many factors such as our working capital needs, cash requirements for investments, debt repayment obligations, economic and market conditions at the time, including the price of our common stock, and other factors that we consider relevant. Our stock repurchase program may be accelerated, suspended, delayed or discontinued at any time. During the three months ended March 31, 2016, we repurchased 2.9 million shares of our common stock for $37.5 million pursuant to this stock repurchase program. As of March 31, 2016, the amount available for repurchase of common stock under this program was $112.5 million.
4. 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.
11
The calculations of earnings (loss) per share are as follows:
|
|
Three Months Ended March 31,
|
|
|
(In thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
|
Basic Earnings (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,127
|
|
|
$
|
(10,084
|
)
|
|
Less: Net income attributable to non-controlling interest
|
|
$
|
(78
|
)
|
|
$
|
0
|
|
|
Net loss attributable to Allscripts Healthcare Solutions, Inc.
stockholders
|
|
$
|
2,049
|
|
|
$
|
(10,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
188,561
|
|
|
|
180,581
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Common Share
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,127
|
|
|
$
|
(10,084
|
)
|
|
Less: Net income attributable to non-controlling interest
|
|
$
|
(78
|
)
|
|
$
|
0
|
|
|
Net loss attributable to Allscripts Healthcare Solutions, Inc.
stockholders
|
|
$
|
2,049
|
|
|
$
|
(10,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
188,561
|
|
|
|
180,581
|
|
|
Dilutive effect of stock options, restricted stock unit awards
and warrants
|
|
|
2,180
|
|
|
|
0
|
|
|
Weighted-average common shares outstanding assuming dilution
|
|
|
190,741
|
|
|
|
180,581
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Common Share
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
As a result of the net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders for the three months ended March 31, 2015, we used basic weighted-average common shares outstanding in the calculation of diluted loss per share for that period, since the inclusion of any stock equivalents would be anti-dilutive.
The following stock options, restricted stock unit awards and warrants are not included in the computation of diluted earnings (loss) per share as the effect of including such stock options, restricted stock unit awards and warrants in the computation would be anti-dilutive:
|
|
Three Months Ended March 31,
|
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
|
Shares subject to anti-dilutive stock options, restricted stock
unit awards and warrants excluded from calculation
|
|
|
25,201
|
|
|
|
25,144
|
|
|
12
5. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
$
|
450,692
|
|
|
$
|
(309,721
|
)
|
|
$
|
140,971
|
|
|
$
|
450,852
|
|
|
$
|
(302,284
|
)
|
|
$
|
148,568
|
|
Customer contracts and relationships
|
|
|
552,200
|
|
|
|
(409,449
|
)
|
|
|
142,751
|
|
|
|
552,395
|
|
|
|
(405,317
|
)
|
|
|
147,078
|
|
Total
|
|
$
|
1,002,892
|
|
|
$
|
(719,170
|
)
|
|
$
|
283,722
|
|
|
$
|
1,003,247
|
|
|
$
|
(707,601
|
)
|
|
$
|
295,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered trademarks
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,222,283
|
|
|
|
|
|
|
|
|
|
|
|
1,222,601
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,274,283
|
|
|
|
|
|
|
|
|
|
|
$
|
1,274,601
|
|
Effective January 1, 2016, we made an organizational change within our Clinical and Financial Solutions reportable segment. Refer to Note 12, “Business Segments” for additional information. As a result of this organizational change, we assessed our revised reporting units and allocated the goodwill previously assigned to our former Touchworks reporting unit to our new Acute and Ambulatory reporting units based on the relative fair value allocation method as applied to the separate Touchworks acute and ambulatory businesses.
We performed our annual goodwill impairment test as of October 1, 2015, our annual testing date, and again as of January 1, 2016 in conjunction with the organizational change within our Clinical and Financial Solutions reportable segment. The January 1, 2016 goodwill impairment test was performed on a before and after basis, which included impairment tests for each of the separate Touchworks acute and ambulatory businesses and for each of the new Acute and Ambulatory reporting units. The fair values of the separate Touchworks acute and ambulatory businesses and of the Acute and Ambulatory reporting unit substantially exceeded their carrying values and no indicators of impairment were identified as a result of each of these goodwill impairment tests.
Changes in the carrying amounts of goodwill by reportable segment for the three months ended March 31, 2016 were as follows:
|
|
Clinical and
|
|
|
Population
|
|
|
|
|
|
(In thousands)
|
|
Financial Solutions
|
|
|
Health
|
|
|
Total
|
|
Balance as of December 31, 2015
|
|
$
|
796,367
|
|
|
$
|
426,234
|
|
|
$
|
1,222,601
|
|
Foreign exchange translation
|
|
|
(318
|
)
|
|
|
0
|
|
|
|
(318
|
)
|
Balance as of March 31, 2016
|
|
$
|
796,049
|
|
|
$
|
426,234
|
|
|
$
|
1,222,283
|
|
There were no accumulated impairment losses associated with our goodwill as of March 31, 2016 or December 31, 2015.
6. Asset Impairment Charges
During the first quarter of 2016, we incurred non-cash asset impairment charges totaling $4.7 million. Included in these charges was $2.2 million for the impairment of capitalized software as a result of our decision to discontinue several software development projects, $2.1 million for the impairment of one of our cost method equity investments, and other charges of $0.4 million to write down a long-term asset to its estimated net realizable value. Asset impairment charges for the first quarter of 2015 were not significant.
13
7. Debt
Debt outstanding, excluding capital leases, consisted of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
(In thousands)
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
1.25% Cash Convertible Senior Notes
|
|
$
|
345,000
|
|
|
$
|
58,663
|
|
|
$
|
286,337
|
|
|
$
|
345,000
|
|
|
$
|
61,771
|
|
|
$
|
283,229
|
|
Senior Secured Credit Facility
(long-term portion)
|
|
|
306,250
|
|
|
|
5,232
|
|
|
|
301,018
|
|
|
|
334,375
|
|
|
|
5,225
|
|
|
|
329,150
|
|
Senior Secured Credit Facility
(current portion)
|
|
|
12,500
|
|
|
|
473
|
|
|
|
12,027
|
|
|
|
12,500
|
|
|
|
479
|
|
|
|
12,021
|
|
Other debt
|
|
|
144
|
|
|
|
0
|
|
|
|
144
|
|
|
|
183
|
|
|
|
0
|
|
|
|
183
|
|
Total debt
|
|
$
|
663,894
|
|
|
$
|
64,368
|
|
|
$
|
599,526
|
|
|
$
|
692,058
|
|
|
$
|
67,475
|
|
|
$
|
624,583
|
|
Interest expense consisted of the following:
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Interest expense
|
|
$
|
3,538
|
|
|
$
|
3,861
|
|
Amortization of discounts and debt issuance costs
|
|
|
3,431
|
|
|
|
3,395
|
|
Total interest expense
|
|
$
|
6,969
|
|
|
$
|
7,256
|
|
Interest expense related to the 1.25% Notes was comprised of the following:
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Coupon interest at 1.25%
|
|
$
|
1,078
|
|
|
$
|
1,078
|
|
Amortization of discounts and debt issuance costs
|
|
|
3,108
|
|
|
|
2,948
|
|
Total interest expense related to the 1.25% Notes
|
|
$
|
4,186
|
|
|
$
|
4,026
|
|
Senior Secured Credit Facility Amendment
On March 28, 2016, we entered into a First Amendment with JPMorgan Chase Bank, N.A., as administrative agent, and certain other lenders to our senior secured credit facility agreement executed on September 30, 2015. This amendment allows us greater flexibility to make selective cash investments in third parties while continuing to remain in compliance with the original covenants of our senior secured credit facility agreement. In addition, this amendment clarifies certain definitions and clauses contained in our original senior secured credit facility agreement. None of the original terms of our senior secured credit facility relating to scheduled future principal payments, applicable interest rates and margins, and borrowing capacity under our revolving facility were amended. In connection with this amendment, we incurred fees and other costs totaling $0.3 million, which were capitalized and included in the net carrying amounts outstanding under our senior secured credit facility as of March 31, 2016. The capitalized fees and other costs will be amortized to interest expense over the remaining term of our senior secured credit facility.
As of March 31, 2016, $243.8 million under a term loan, $75.0 million under our revolving credit facility, and $0.7 million in letters of credit were outstanding under our senior secured credit facility.
As of March 31, 2016, the interest rate on the United States dollars-denominated borrowings under the senior secured credit facility was LIBOR plus 1.75%, which totaled 2.18%. We were in compliance with all covenants under the senior secured credit facility agreement as of March 31, 2016.
As of March 31, 2016, we had $474.3 million available, net of outstanding letters of credit, under our revolving credit facility. There can be no assurance that we will be able to draw on the full available balance of our revolving credit facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings.
As of March 31, 2016, the if-converted value of the 1.25% Notes did not exceed the 1.25% Notes’ principal amount.
14
The following table summarizes our future payment obligations under the 1.25% Notes and our senior secured credit facility as of March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Remainder of 2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
1.25% Cash Convertible Senior Notes
(1)
|
|
$
|
345,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
345,000
|
|
Term Loan
|
|
|
243,750
|
|
|
|
9,375
|
|
|
|
15,625
|
|
|
|
28,125
|
|
|
|
40,625
|
|
|
|
150,000
|
|
Revolving Facility
|
|
|
75,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
75,000
|
|
Other debt
|
|
|
144
|
|
|
|
144
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total debt
|
|
$
|
663,894
|
|
|
$
|
9,519
|
|
|
$
|
15,625
|
|
|
$
|
28,125
|
|
|
$
|
40,625
|
|
|
$
|
570,000
|
|
(1)
Assumes no cash conversions of the 1.25% Notes prior to their maturity on July 1, 2020.
8. Income Taxes
We account for income taxes under FASB Accounting Standards Codification 740,
Income Taxes
(“ASC 740”). We calculate the quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby we forecast the estimated annual effective tax rate and then apply that rate to the year-to-date pre-tax book (loss) income. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective rate, including factors such as the valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, or changes in or the interpretation of tax laws in jurisdictions where the Company conducts business. There is no tax benefit recognized on certain of the net operating losses incurred due to insufficient evidence supporting the Company’s ability to use these losses in the future. The effective tax rates were as follows:
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Income (loss) before income taxes
|
|
$
|
2,690
|
|
|
$
|
(11,065
|
)
|
Income tax (provision) benefit
|
|
$
|
(563
|
)
|
|
$
|
981
|
|
Effective tax rate
|
|
|
20.9
|
%
|
|
|
8.9
|
%
|
Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate due primarily to valuation allowance, permanent differences, income attributable to foreign jurisdictions taxed at lower rates, state taxes, tax credits and certain discrete items.
Our effective tax rate for the three months ended March 31, 2016, compared with the prior year comparable period, differs primarily due to the fact that t
he income tax (provision) benefit for the three months ended March 31, 2015 did not include any tax benefit for year to date losses due to our estimate of income at that time for overall annual results of operation for 2015.
Additionally, no estimate of the research and development credit was included in the effective tax rate for the three months ended March 31, 2015 as the credit had not been reinstated for 2015 until December 18, 2015.
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). Due to the level of forecasted operating income for the year ending December 31, 2016, we released $0.9 million of valuation allowance during the three months ended March 31, 2016 related to deferred tax assets associated with net operating loss carryforwards.
Our unrecognized income tax benefits were $12.3 million and $11.8 million as of March 31, 2016 and December 31, 2015, respectively. If any portion of our unrecognized tax benefits is recognized, it could impact our effective tax rate. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations, and changes in tax law.
15
9. Derivative Financial Instruments
The following tables provide information about the fair values of our derivative financial instruments as of the respective balance sheet dates:
|
|
March 31, 2016
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
866
|
|
|
Accrued expenses
|
|
$
|
-
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
49,005
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
49,817
|
|
Total derivatives
|
|
|
|
$
|
49,871
|
|
|
|
|
$
|
49,817
|
|
|
|
December 31, 2015
|
|
|
|
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
|
|
$
|
424
|
|
|
Accrued expenses
|
|
$
|
-
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
80,208
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
81,210
|
|
Total derivatives
|
|
|
|
$
|
80,632
|
|
|
|
|
$
|
81,210
|
|
N/A – We define “N/A” as disclosure not being applicable
Foreign Exchange Contracts
In 2015, we entered into non-deliverable forward foreign currency exchange contracts with reputable banking counterparties in order to hedge a portion of our forecasted future Indian Rupee-denominated (“INR”) expenses against foreign currency fluctuations between the United States dollar and the INR. These forward contracts cover a decreasing percentage of forecasted monthly INR expenses over time. As of March 31, 2016, there were 30 forward contracts outstanding that were staggered to mature monthly starting in April 2016 and ending in December 2017. In the future, we may enter into additional forward contracts to increase the amount of hedged monthly INR expenses or initiate hedges for monthly periods beyond December 2017. As of March 31, 2016, the notional amounts of outstanding forward contracts ranged from 20 million to 140 million INR, or the equivalent of $0.3 million to $2.1 million, based on the exchange rate between the United States dollar and the INR in effect as of March 31, 2016. These amounts also approximate the ranges of forecasted future INR expenses we target to hedge in any one month in the future.
The critical terms of the forward contracts and the related hedged forecasted future expenses matched and allowed us to designate the forward contracts as highly effective cash flow hedges. The effective portion of the change in fair value is initially recorded in accumulated other comprehensive loss (“AOCI”) and subsequently reclassified to income in the period in which the cash flows from the associated hedged transactions affect income. Any ineffective portion of the change in fair value of the cash flow hedges is recognized in current period income. During the three months ended March 31, 2016, no amount was excluded from the effectiveness assessment and no gains or losses were reclassified from AOCI into income as a result of forecasted transactions that failed to occur. As of March 31, 2016, we estimate that $0.7 million of net unrealized derivative gains included in AOCI will be reclassified into income within the next twelve months.
16
The following tables show the impact of derivative instruments designated as cash flow hedges on the consolidat
ed statements of operations and the consolidated statements of comprehensive loss:
|
|
Amount of Gain (Loss) Recognized in OCI (Effective Portion)
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
|
(In thousands)
|
|
Three Months ended March 31, 2016
|
|
|
Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
|
Three Months ended March 31, 2016
|
|
Foreign exchange contracts
|
|
$
|
342
|
|
|
Cost of Revenue
|
|
$
|
(31
|
)
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
(25
|
)
|
|
|
|
|
|
|
Research and development
|
|
|
(43
|
)
|
|
|
Amount of Gain (Loss) Recognized in OCI (Effective Portion)
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
|
(In thousands)
|
|
Three Months ended March 31, 2015
|
|
|
Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
|
Three Months ended March 31, 2015
|
|
Foreign exchange contracts
|
|
$
|
0
|
|
|
Cost of Revenue
|
|
$
|
0
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
0
|
|
|
|
|
|
|
|
Research and development
|
|
0
|
|
1.25% Call Option
In June 2013, concurrent with the issuance of the 1.25% Notes, we entered into privately negotiated hedge transactions with certain of the initial purchasers of the 1.25% Notes (collectively, the “1.25% Call Option”). Assuming full performance by the counterparties, the 1.25% Call Option is intended to offset cash payments in excess of the principal amount due upon any conversion of the 1.25% Notes.
The 1.25% Call Option, which is indexed to our common stock, is a derivative asset that requires mark-to-market accounting treatment due to the cash settlement features until the 1.25% Call Option settles or expires. The 1.25% Call Option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the 1.25% Call Option, refer to Note 2, “Fair Value Measurements and Investments.”
The 1.25% Call Option does not qualify for hedge accounting treatment. Therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of operations in other income, net. Because the terms of the 1.25% Call Option are substantially similar to those of the 1.25% Notes embedded cash conversion option, discussed below, we expect the net effect of those two derivative instruments on our earnings to be minimal.
1.25% Notes Embedded Cash Conversion Option
The embedded cash conversion option within the 1.25% Notes is required to be separated from the 1.25% Notes and accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of operations in other income, net until the cash conversion option settles or expires. The initial fair value liability of the embedded cash conversion option was $82.8 million, which simultaneously reduced the carrying value of the 1.25% Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the embedded cash conversion option, refer to Note 2, “Fair Value Measurements and Investments.”
17
The following table shows the net impact of the changes in fair values of the 1.25% Call Option and the 1.25% Notes embedded cash conversion option in the consolidated statements of operations:
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
1.25% Call Option
|
|
$
|
(31,203
|
)
|
|
$
|
(7,209
|
)
|
1.25% Embedded cash conversion option
|
|
|
31,393
|
|
|
|
7,234
|
|
Net gain (loss) included in other income, net
|
|
$
|
190
|
|
|
$
|
25
|
|
10. 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 (Losses) on Marketable Securities
|
|
|
Unrealized Net Gains (Losses) on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2015
(1)
|
|
$
|
(4,500
|
)
|
|
$
|
0
|
|
|
$
|
258
|
|
|
$
|
(4,242
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
744
|
|
|
|
0
|
|
|
|
207
|
|
|
|
951
|
|
Net losses (gains) reclassified from accumulated
other comprehensive loss
|
|
|
0
|
|
|
|
0
|
|
|
|
60
|
|
|
|
60
|
|
Net other comprehensive (loss) income
|
|
|
744
|
|
|
|
0
|
|
|
|
267
|
|
|
|
1,011
|
|
Balance as of March 31, 2016
(2)
|
|
$
|
(3,756
|
)
|
|
$
|
0
|
|
|
$
|
525
|
|
|
$
|
(3,231
|
)
|
(1)
Net of taxes of $166 thousand for unrealized net gains on foreign exchange contract derivatives
(2)
Net of taxes of $340 thousand for unrealized net gains on foreign exchange contract derivatives
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
|
Unrealized Net Gains (Losses) on Marketable Securities
|
|
|
Unrealized Net Gains (Losses) on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2014
(1)
|
|
$
|
(2,119
|
)
|
|
$
|
140
|
|
|
$
|
0
|
|
|
$
|
(1,979
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
(1,067
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(1,067
|
)
|
Net losses (gains) reclassified from accumulated
other comprehensive loss
|
|
|
0
|
|
|
|
(140
|
)
|
|
|
0
|
|
|
|
(140
|
)
|
Net other comprehensive income
|
|
|
(1,067
|
)
|
|
|
(140
|
)
|
|
|
0
|
|
|
|
(1,207
|
)
|
Balance as of March 31, 2015
|
|
$
|
(3,186
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
(3,186
|
)
|
(1)
Net of taxes of $88 thousand for unrealized net gains on marketable securities
18
Income Tax Effects Related to Components of Other Compreh
ensive Income (Loss)
The following tables reflect the tax effects allocated to each component of other comprehensive income (loss) (“OCI”):
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
(In thousands)
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation adjustments
|
|
$
|
744
|
|
|
$
|
0
|
|
|
$
|
744
|
|
|
$
|
(1,067
|
)
|
|
$
|
0
|
|
|
$
|
(1,067
|
)
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain arising during the period
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net gain reclassified into income
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(228
|
)
|
|
|
88
|
|
|
|
(140
|
)
|
Net change in unrealized gains on marketable securities
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(228
|
)
|
|
|
88
|
|
|
|
(140
|
)
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) arising during the period
|
|
|
342
|
|
|
|
(135
|
)
|
|
|
207
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net (gains) losses reclassified into income
|
|
|
99
|
|
|
|
(39
|
)
|
|
|
60
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net change in unrealized gains (losses) on foreign exchange contracts
|
|
|
441
|
|
|
|
(174
|
)
|
|
|
267
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net gain (loss) on cash flow hedges
|
|
|
441
|
|
|
|
(174
|
)
|
|
|
267
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other comprehensive (loss) income
|
|
$
|
1,185
|
|
|
$
|
(174
|
)
|
|
$
|
1,011
|
|
|
$
|
(1,295
|
)
|
|
$
|
88
|
|
|
$
|
(1,207
|
)
|
11. 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, certain of which are discussed below. We intend to vigorously defend ourselves in these matters.
No less than quarterly, we review the status of each significant matter and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made.
The outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. If one or more of these legal proceedings were resolved against us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that reporting period could be materially adversely affected. Additionally, the resolution of a legal proceeding against us could prevent us from offering our products and services to current or prospective clients, which could further adversely affect our operating results.
In the opinion of our management, based on the information currently available, there was not at least a reasonable possibility that we may have incurred any material loss, or any material loss in excess of a recorded accrual, with respect to the following matters. Our management will continue to evaluate the potential exposure related to these matters in future periods.
19
On September 14, 2010, Pegasus Imaging Corporation filed a complaint against us in the Circuit Court of the Thirteenth Judicial Circuit of the State of Florida in and for Hillsborough County, Florida, which we transferred to the Special Superior Court f
or Complex Business Cases. The lawsuit also named former officers Jeffrey Amrein and John Reinhart as defendants. The amended complaint added two defunct Florida corporations that did business with us, and asserted causes of action against defendants for f
raudulent misrepresentations, negligent misrepresentations, and deceptive and unfair trade practices under Florida law, allegedly arising from previous business dealings between the plaintiff and Advanced Imaging Concepts, Inc., a software company that we
acquired in August 2003, and from our testing of a software development toolkit pursuant to a free trial license from the plaintiff in approximately 1999. On April 16, 2013, the plaintiff filed a Second Amended Complaint adding claims against us for breach
of contract, fraud, and negligence. On June 27, 2013, we filed our First Amended Answer, Defenses, and Counterclaims to the plaintiff’s Second Amended Complaint, denying all material allegations, and asserting counterclaims against the plaintiff for breac
h of two license agreements, breach of warranty, breach of a settlement and arbitration agreement, and three counts of negligent misrepresentation. On July 7, 2014, the Court granted our motion for summary judgment on the plaintiff’s claim of unfair trade
practices under Florida law and our motion for summary judgment as to the aforementioned defunct corporations, and granted the plaintiff’s motion for summary judgment on our counterclaims, for which the plaintiff has moved for reconsideration. A hearing to
hear the plaintiff’s motions was held September 21 and 22, 2015, and we are awaiting a ruling. No trial date has been scheduled.
On May 1, 2012, Physicians Healthsource, Inc. filed a class action complaint in U.S. District Court for the Northern District of Illinois against us. The complaint alleges that on multiple occasions between July 2008 and December 2011, we or our agent sent advertisements by fax to the plaintiff and a class of similarly situated persons, without first receiving the recipients’ express permission or invitation in violation of the Telephone Consumer Protection Act, 47 U.S.C. § 227 (the “TCPA”). The plaintiff seeks $500 for each alleged violation of the TCPA; treble damages if the Court finds the violations to be willful, knowing or intentional; and injunctive and other relief. Allscripts answered the complaint denying all material allegations and asserting a number of affirmative defenses, as well as counterclaims for breach of a license agreement. After plaintiff’s motion to compel arbitration of the counterclaims was granted, Allscripts made a demand in arbitration where the counterclaims remain pending. Discovery in the proposed class action has now concluded.
On March 31, 2016, plaintiff filed its motion for class certification.
Our opposition to the motion is due May 16, 2016, and plaintiff’s reply is to be filed on May 31, 2016. No trial date has been scheduled.
Other Matters
On May 2, 2012, a lawsuit was filed in the United States District Court for the Northern District of Illinois against us; Glen Tullman, our former Chief Executive Officer; and William Davis, our former Chief Financial Officer, by the Bristol County Retirement System for itself and on behalf of a purported class consisting of stockholders who purchased our common stock between November 18, 2010 and April 26, 2012. In April 2015, the Court granted a motion for preliminary approval of the class settlement in this lawsuit and on July 21, 2015, the Court approved the settlement and entered a final judgment binding on members of the class, minus stockholders who excluded themselves from the settlement, including certain entities affiliated with HealthCor Management, L.P. On March 29, 2016, we reached a settlement with the stockholders who had excluded themselves from the class settlement, and this matter is now resolved.
12. 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, remote hosting and revenue cycle management.
In an effort to further streamline and align our operating structure around our key ambulatory and acute products, effective January 1, 2016, we made changes to our organizational and reporting structure. These changes included (i) the separation of the former Touchworks strategic business unit and its separate leadership team into acute and ambulatory businesses, and (ii) the transfer of several ancillary analytics-type products between our two existing reportable segments. In conjunction with these changes, we formed new Ambulatory and Acute strategic business units, which are deemed to be operating segments within the Clinical and Financial Solutions reportable segment. The ancillary products are extensions of our key ambulatory and acute solutions and in the future will be managed within the new Ambulatory and Acute strategic business units. The prior period segment disclosures below were revised to conform to the current year presentation.
20
After the finalization of the a
bove changes to our organizational and reporting structure, effective January 1, 2016, we had four operating segments which are aggregated into our two existing reportable segments. The Clinical and Financial Solutions reportable segment includes the new A
mbulatory and Acute, and the Payer and Life Sciences strategic business units, each of which represents a separate operating segment. This reportable segment derives its revenue from the sale of integrated clinical software applications and financial and i
nformation solutions, which primarily include Electronic Health Record-related software, financial and practice management software, related installation, support and maintenance, outsourcing, hosting, revenue cycle management, training and electronic clai
ms administration services. The Population Health reportable segment is comprised of a single strategic business unit, which represents a separate operating segment, and derives its revenue from the sale of health management and coordinated care solutions,
which are mainly targeted at hospitals, health systems, other care facilities and Accountable Care Organizations. These solutions enable clients to connect, transition, analyze, and coordinate care across the entire care community.
Our CODM uses segment revenues, gross profit and income from operations as measures of performance and to allocate resources. In determining these performance measures, we do not include in revenue the amortization of acquisition-related deferred revenue adjustments, which reflect the fair value adjustments to deferred revenues acquired in a business acquisition. We exclude the amortization of intangible assets, stock-based compensation expense, non-recurring expenses and transaction-related costs, and non-cash asset impairment charges from the operating segment data provided to our CODM. Non-recurring expenses relate to certain severance, product consolidation, legal, consulting, and other charges incurred in connection with activities that are considered one-time. Accordingly, these amounts are not included in our reportable segment results and are included in an “Unallocated Amounts” category within our segment disclosure. The “Unallocated Amounts” category also includes corporate general and administrative expenses (including marketing expenses), which are centrally managed, as well as revenue and the associated cost from the resale of certain ancillary products, primarily hardware. We do not track our assets by segment.
|
|
Three Months Ended March 31,
|
|
(In thousands)
|
|
2016
|
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Clinical and Financial Solutions
|
|
$
|
271,654
|
|
|
$
|
263,875
|
|
Population Health
|
|
|
66,383
|
|
|
|
64,948
|
|
Unallocated Amounts
|
|
|
7,521
|
|
|
|
5,729
|
|
Total revenue
|
|
$
|
345,558
|
|
|
$
|
334,552
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
Clinical and Financial Solutions
|
|
$
|
114,200
|
|
|
$
|
98,273
|
|
Population Health
|
|
|
48,995
|
|
|
|
43,199
|
|
Unallocated Amounts
|
|
|
(11,297
|
)
|
|
|
(11,682
|
)
|
Total gross profit
|
|
$
|
151,898
|
|
|
$
|
129,790
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
Clinical and Financial Solutions
|
|
$
|
61,017
|
|
|
$
|
43,185
|
|
Population Health
|
|
|
32,834
|
|
|
|
26,247
|
|
Unallocated Amounts
|
|
|
(81,955
|
)
|
|
|
(75,127
|
)
|
Total income (loss) from operations
|
|
$
|
11,896
|
|
|
$
|
(5,695
|
)
|
13. Subsequent Events
On March 20, 2016, we entered into a Contribution and Investment Agreement with GI Netsmart Holdings LLC, a Delaware limited liability company, Andrews Henderson LLC, a Delaware limited liability company, and Nathan Holding LLC, a Delaware limited liability company to form a joint venture (the “Netsmart JV”). The establishment of the Netsmart JV, combining our Allscripts Homecare
TM
business with Netsmart Technologies, Inc.’s well-established behavioral health technology business completed on April 19, 2016. The results of the joint venture will be consolidated with Allscripts financial results in future periods.
21