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.
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. (“Allscripts”) and its wholly-owned subsidiaries and controlled affiliates. All significant intercompany balances and transactions have been eliminated. Each of the terms “we,” “us,” “our” or the “Company” as used herein refers collectively to Allscripts Healthcare Solutions, Inc. and its wholly-owned subsidiaries and controlled affiliates, unless otherwise stated.
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements as of and for the three and nine months ended September 30, 2021 and 2020 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim consolidated financial statements are unaudited and, in the opinion of our management, include all adjustments, consisting of normal recurring adjustments and accruals, necessary to present fairly the consolidated financial statements for the periods presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The consolidated results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year ending December 31, 2021.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting. The Company believes that the disclosures made are adequate to make these unaudited interim consolidated financial statements not misleading. They should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “Form 10-K”).
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Our estimates and assumptions consider the economic implications of COVID-19 on our critical and significant accounting estimates. Actual results could differ materially from these estimates.
Change in Presentation
During the third quarter of 2021, we changed our reportable segments from Core Clinical and Financial Solutions, Data, Analytics and Care Coordination, and Unallocated to Hospital and Large Physician Practices, Veradigm, and Unallocated. Certain business units reported within the historical segments have been reallocated into the new segments. Refer to Note 16 “Business Segments” for further discussion on the impact of the change.
Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported consolidated prior period financial results.
Significant Accounting Policies
There have been no changes to our significant accounting policies from those disclosed in our Form 10-K.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740)” (“ASU 2019-12”), which is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 simplifies accounting guidance for intraperiod allocations, deferred tax liabilities, year-to-date losses in interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of tax laws or rate changes. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020. We adopted ASU 2019-12 on January 1, 2021, and the adoption did not have a significant impact on our consolidated financial statements.
9
Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The amendments in ASU 2020-06 simplify the accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exceptions and also simplifies the diluted earnings per share calculation in certain areas. The standard is effective for public business entities, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years and interim periods within those fiscal years, beginning after December 15, 2021. We are currently evaluating the impact of this accounting guidance.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, will have a material impact on our consolidated financial statements.
2. Revenue from Contracts with Customers
Our two primary revenue streams are (i) software delivery, support and maintenance and (ii) client services. Software delivery, support and maintenance revenue consists of all of our proprietary software sales (either under a perpetual or term license delivery model), subscription-based software sales, transaction-related revenue, the resale of hardware and third-party software and revenue from post-contract client support and maintenance services, which include telephone support services, maintaining and upgrading software and ongoing enhanced maintenance. Client services revenue consists of revenue from managed services solutions, such as private cloud hosting, outsourcing and revenue cycle management, as well as other client services and project-based revenue from implementation, training and consulting services. For some clients, we host the software applications licensed from us using our own or third-party servers. For other clients, we offer an outsourced service in which we assume partial to total responsibility for a healthcare organization’s IT operations using our employees.
At September 30, 2021 and December 31, 2020, we had capitalized costs to obtain or fulfill a contract of $15.1 million and $16.8 million, respectively, in Prepaid and other current assets and $26.1 million and $27.9 million, respectively, in Other assets. During the three months ended September 30, 2021 and 2020, we recognized $5.0 million and $6.0 million, respectively, of amortization expense related to such capitalized costs. During the nine months ended September 30, 2021 and 2020, we recognized $15.7 million and $18.5 million, respectively, of amortization expense related to such capitalized costs. The amortization of these capitalized costs to obtain a contract are included in Selling, general and administrative expense within our consolidated statements of operations.
The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable, contract assets and customer advances and deposits. Accounts receivable, net includes both billed and unbilled amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets include amounts where revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Deferred revenue includes advanced payments and billings in excess of revenue recognized. Our contract assets and deferred revenue are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term based on the timing of when we expect to complete the related performance obligations and bill the customer. Deferred revenue is classified as current or long-term based on the timing of when we expect to recognize revenue.
The breakdown of revenue recognized based on the origination of performance obligations and elected accounting expedients is presented in the table below:
(In thousands)
|
|
Three Months
Ended
March 31, 2021
|
|
|
Three Months
Ended
June 30, 2021
|
|
|
Three Months
Ended
September 30, 2021
|
|
Revenue related to deferred revenue balance at beginning of period
|
|
$
|
137,848
|
|
|
$
|
151,857
|
|
|
$
|
144,696
|
|
Revenue related to new performance obligations satisfied during the period
|
|
|
173,316
|
|
|
|
158,910
|
|
|
|
159,149
|
|
Revenue recognized under "right-to-invoice" expedient
|
|
|
56,811
|
|
|
|
62,422
|
|
|
|
64,820
|
|
Reimbursed travel expenses, shipping and other revenue
|
|
|
377
|
|
|
|
525
|
|
|
|
607
|
|
Total revenue
|
|
$
|
368,352
|
|
|
$
|
373,714
|
|
|
$
|
369,272
|
|
10
(In thousands)
|
|
Three Months
Ended
March 31, 2020
|
|
|
Three Months
Ended
June 30, 2020
|
|
|
Three Months
Ended
September 30, 2020
|
|
Revenue related to deferred revenue balance at beginning of period
|
|
$
|
105,366
|
|
|
$
|
119,545
|
|
|
$
|
118,300
|
|
Revenue related to new performance obligations satisfied during the period
|
|
|
216,580
|
|
|
|
195,308
|
|
|
|
192,658
|
|
Revenue recognized under "right-to-invoice" expedient
|
|
|
58,059
|
|
|
|
54,082
|
|
|
|
54,313
|
|
Reimbursed travel expenses, shipping and other revenue
|
|
|
1,359
|
|
|
|
369
|
|
|
|
347
|
|
Total revenue
|
|
$
|
381,364
|
|
|
$
|
369,304
|
|
|
$
|
365,618
|
|
The aggregate amount of contract transaction price related to remaining unsatisfied performance obligations (commonly referred to as “backlog”) represents contracted revenue that has not yet been recognized and includes both deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog equaled $3.9 billion as of September 30, 2021, of which we expect to recognize approximately 35% over the next 12 months, and the remaining 65% thereafter.
Revenue Recognition
We recognize revenue only when we satisfy an identified performance obligation (or bundle of obligations) by transferring control of a promised product or service to a customer. We consider a product or service to be transferred when a customer obtains control because a customer has sole possession of the right to use (or the right to direct the use of) the product or service for the remainder of its economic life or to consume the product or service in its own operations. We evaluate the transfer of control primarily from the customer’s perspective as this reduces the risk that revenue is recognized for activities that do not transfer control to the customer.
The majority of our revenue is recognized over time because a customer continuously and simultaneously receives and consumes the benefits of our performance. The exceptions to this pattern are our sales of perpetual and term software licenses, and hardware, where we determined that a customer obtains control of the asset upon granting of access, delivery or shipment.
We disaggregate our revenue from contracts with customers based on the type of revenue and nature of revenue stream, as we believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. The below tables summarize revenue by type and nature of revenue stream as well as by our reportable segments:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue
|
|
$
|
304,724
|
|
|
$
|
301,616
|
|
|
$
|
904,016
|
|
|
$
|
914,792
|
|
Non-recurring revenue
|
|
|
64,548
|
|
|
|
64,002
|
|
|
|
207,322
|
|
|
|
201,494
|
|
Total revenue
|
|
$
|
369,272
|
|
|
$
|
365,618
|
|
|
$
|
1,111,338
|
|
|
$
|
1,116,286
|
|
|
|
Three Months Ended September 30, 2021
|
|
(In thousands)
|
|
Hospital and Large Physician Practices
|
|
|
Veradigm
|
|
|
Unallocated Amounts
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
104,809
|
|
|
$
|
113,075
|
|
|
$
|
4,842
|
|
|
$
|
222,726
|
|
Client services
|
|
|
120,876
|
|
|
|
24,093
|
|
|
|
1,577
|
|
|
|
146,546
|
|
Total revenue
|
|
$
|
225,685
|
|
|
$
|
137,168
|
|
|
$
|
6,419
|
|
|
$
|
369,272
|
|
|
|
Three Months Ended September 30, 2020
|
|
(In thousands)
|
|
Hospital and Large Physician Practices
|
|
|
Veradigm
|
|
|
Unallocated Amounts
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
113,112
|
|
|
$
|
101,171
|
|
|
$
|
5,567
|
|
|
$
|
219,850
|
|
Client services
|
|
|
120,518
|
|
|
|
23,902
|
|
|
|
1,348
|
|
|
|
145,768
|
|
Total revenue
|
|
$
|
233,630
|
|
|
$
|
125,073
|
|
|
$
|
6,915
|
|
|
$
|
365,618
|
|
11
|
|
Nine Months Ended September 30, 2021
|
|
(In thousands)
|
|
Hospital and Large Physician Practices
|
|
|
Veradigm
|
|
|
Unallocated Amounts
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
333,277
|
|
|
$
|
323,462
|
|
|
$
|
14,101
|
|
|
$
|
670,840
|
|
Client services
|
|
|
362,150
|
|
|
|
73,525
|
|
|
|
4,823
|
|
|
|
440,498
|
|
Total revenue
|
|
$
|
695,427
|
|
|
$
|
396,987
|
|
|
$
|
18,924
|
|
|
$
|
1,111,338
|
|
|
|
Nine Months Ended September 30, 2020
|
|
(In thousands)
|
|
Hospital and Large Physician Practices
|
|
|
Veradigm
|
|
|
Unallocated Amounts
|
|
|
Total
|
|
Software delivery, support and maintenance
|
|
$
|
351,098
|
|
|
$
|
314,550
|
|
|
$
|
14,476
|
|
|
$
|
680,124
|
|
Client services
|
|
|
361,440
|
|
|
|
70,975
|
|
|
|
3,747
|
|
|
|
436,162
|
|
Total revenue
|
|
$
|
712,538
|
|
|
$
|
385,525
|
|
|
$
|
18,223
|
|
|
$
|
1,116,286
|
|
Contract Assets – Estimate of Credit Losses
We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The guidance required the recognition of lifetime estimated credit losses expected to occur for contract assets and trade receivables. The guidance also required that we pool assets with similar risk characteristics and consider current economic conditions when estimating losses. The adoption of ASU 2016-13 for contract assets was recorded as a debit to retained earnings of $5.3 million as of January 1, 2020. Refer to Note 3, “Accounts Receivable”, for the adoption impact related to trade receivables.
At adoption, we segmented the contract asset population into pools based on their risk assessment. Risks related to contract assets are a customer’s inability to pay or bankruptcy. Each pool was defined by an internal credit assessment and business size. The pools were aligned with management’s review of financial performance at the time. In the fourth quarter of 2020, we used each customer’s primary business unit in our pooling determination. This assessment provides additional information of the customer including size, segment and industry. Using this perspective, we added one new pool. We reallocated pools and loss rates accordingly and noted slight shifts in each pool. The new pools are aligned with management’s current review of financial performance. For the nine months ended September 30, 2021, no adjustment to the pools was necessary.
We utilized a loss-rate method to measure expected credit loss for each pool. The loss rate is calculated using a twenty-four-month lookback period of credit memos and adjustments divided by the average contract asset balance for each pool during that period. We considered current economic conditions, including how the COVID-19 pandemic is impacting the global economy, internal forecasts, cash collection and credit memos written during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data. The September 30, 2021 analysis resulted in no change in the ending estimate of credit losses.
Changes in the estimate of credit losses for contract assets are presented in the table below.
(In thousands)
|
|
Total
|
|
Balance at December 31, 2020
|
|
$
|
5,341
|
|
Current period provision
|
|
|
0
|
|
Balance at September 30, 2021
|
|
$
|
5,341
|
|
Less: Contract assets, short-term
|
|
|
1,068
|
|
Total contract assets, long-term
|
|
$
|
4,273
|
|
3. Accounts Receivable
Trade Accounts Receivable – Estimate of Credit Losses
We adopted ASU 2016-13 on January 1, 2020 using the cumulative-effect adjustment transition method. The guidance required the recognition of lifetime estimated credit losses expected to occur for trade accounts receivable, which resulted in the recording of a debit to retained earnings of $12.6 million as of January 1, 2020. Refer to Note 2, “Revenue from Contracts with Customers” for additional information regarding the adoption of ASU 2016-13.
Changes in the estimate of credit losses for trade accounts receivable are presented in the table below.
(In thousands)
|
|
Total
|
|
Balance at December 31, 2020
|
|
$
|
31,596
|
|
Current period provision
|
|
|
2,110
|
|
Write-offs
|
|
|
(4,164
|
)
|
Recoveries
|
|
|
480
|
|
Balance at September 30, 2021
|
|
$
|
30,022
|
|
12
4. Leases
We determine whether an arrangement is a lease at inception. Assets leased under an operating lease arrangement are recorded in Right-of-use assets – operating leases and the associated lease liabilities are included in Current operating lease liabilities and Long-term operating lease liabilities within the consolidated balance sheets. Assets leased under finance lease arrangements are recorded within fixed assets and the associated lease liabilities are recorded within Accrued expenses and Other liabilities within the consolidated balance sheets.
Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our incremental borrowing rate in conjunction with the market swap rate for the expected remaining lease term at the commencement date for new leases in determining the present value of future lease payments. Our expected lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.
We have elected the group of practical expedients under ASU 2016-02 to forego assessing upon adoption: (1) whether any expired contracts are or contain leases; (2) the lease classification for any existing or expired leases and (3) any indirect costs that would have qualified for capitalization for any existing leases. We have lease agreements with lease and non-lease components, which are generally accounted for separately except for real estate and vehicle leases, which we have elected to combine through a practical expedient under ASU 2016-02. Non-lease components for our leases typically consist of executory costs, and the practical expedient allows for executory costs to be recorded as lease payments. Additionally, for certain equipment leases, we apply a portfolio approach to effectively record right-of-use assets and liabilities.
Our operating leases mainly include office leases and our finance leases include office and computer equipment leases. Our finance leases are not significant. Our leases have remaining lease terms up to 7 years, some of which include options to extend the leases for up to 5 years, which may include options to terminate the leases within 1 year. Operating costs associated with leased assets are as follows:
(In thousands)
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Operating lease cost (1)
|
|
$
|
5,366
|
|
|
$
|
6,251
|
|
|
$
|
17,063
|
|
|
$
|
19,265
|
|
Less: Sublease income
|
|
|
(64
|
)
|
|
|
(257
|
)
|
|
|
(221
|
)
|
|
|
(1,026
|
)
|
Total operating lease costs
|
|
$
|
5,302
|
|
|
$
|
5,994
|
|
|
$
|
16,842
|
|
|
$
|
18,239
|
|
(1)
|
Operating lease costs are recognized on a straight-line basis and are included in Selling, general and administrative expenses within the consolidated statements of operations.
|
Supplemental cash flow information for operating leases is as follows:
(In thousands)
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Operating cash flows from operating leases
|
|
$
|
16,035
|
|
|
$
|
20,571
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
|
$
|
307
|
|
|
$
|
22,262
|
|
The balance sheet location and balances for operating leases are as follows:
(In thousands, except lease term and discount rate)
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Right-of-use assets - operating leases
|
|
$
|
70,297
|
|
|
$
|
96,601
|
|
Current operating lease liabilities
|
|
$
|
19,264
|
|
|
$
|
22,264
|
|
Long-term operating lease liabilities
|
|
$
|
67,057
|
|
|
$
|
93,463
|
|
Weighted average remaining lease term (in years)
|
|
|
5
|
|
|
|
6
|
|
Weighted average discount rate
|
|
|
3.3
|
%
|
|
|
3.6
|
%
|
13
The future maturities of our leasing arrangements including lease and non-lease components are shown in the below table. The maturities are calculated using foreign currency exchange rates in effect as of September 30, 2021.
|
|
September 30, 2021
|
|
(In thousands)
|
|
Operating Leases
|
|
Remainder of 2021
|
|
$
|
5,669
|
|
2022
|
|
|
21,469
|
|
2023
|
|
|
19,650
|
|
2024
|
|
|
14,105
|
|
2025
|
|
|
12,748
|
|
Thereafter
|
|
|
20,130
|
|
Total lease liabilities
|
|
|
93,771
|
|
Less: Amount representing interest
|
|
|
(7,450
|
)
|
Less: Short-term lease liabilities
|
|
|
(19,264
|
)
|
Total long-term lease liabilities
|
|
$
|
67,057
|
|
5. Business Combinations and Divestitures
Acquisitions
On July 2, 2019, we acquired the Pinnacle and Diabetes Collaborative Registries from the American College of Cardiology (“ACC”) as part of our broader strategic partnership with the ACC. The total purchase price was $19.7 million, consisting of an initial payment of $11.7 million plus up to an aggregate of $8.0 million pending the attainment of certain milestones over the next 18 months. The contingent consideration of up to $8.0 million was valued at $5.0 million at the time of closing. As part of this partnership, we operate Pinnacle and Diabetes Collaborative Registries, which extends our EHR-enabled ambulatory network to create a large-scale chronic disease network. During the first quarter of 2021, we extended the ACC earnout agreement to June 30, 2021. In the second quarter of 2021, we paid $0.9 million related to the earnout agreement. The remaining payment was accrued as contingent consideration within our consolidated financial statements. Refer to Note 6, “Fair Value Measurements and Long-term Investments” for additional information regarding the contingent consideration. The business is included in our Veradigm business segment.
Divestitures
On August 23, 2021, we completed the sale of substantially all of the assets of our 2bPrecise business to a third party for a non-controlling interest in the combined entity. We realized a pre-tax gain upon the sale of $8.4 million, which was included in the Gain on sale of businesses, net line in our consolidated statements of operations for the three and nine months ended September 30, 2021. The 2bPrecise business was previously reported within our Data, Analytics and Care Coordination segment. However, due to the reportable segment changes in the third quarter of 2021, the historical 2bPrecise business is now presented in our “Unallocated Amounts” category. Refer to Note 16, “Business Segments” for additional information.
On December 31, 2020, we completed the sale of substantially all of the assets of our CarePort business to a subsidiary of WellSky Corp., a Delaware corporation (“WellSky”), pursuant to a purchase agreement (the “CarePort Purchase Agreement”). The total consideration for CarePort was $1.35 billion, which was subject to certain adjustments for liabilities assumed by WellSky and net working capital as described in the CarePort Purchase Agreement. We realized a pre-tax gain upon the sale of $933.9 million, which was included in the Gain on sale of discontinued operations line in our consolidated statements of operations for the year ended December 31, 2020. For the nine months ended September 30, 2021, we recorded a $0.6 million gain that primarily related to net working capital adjustments in the Gain on sale of discontinued operations line in our consolidated statements of operations. The divestiture was treated as a discontinued operation as of December 31, 2020. Refer to Note 15, “Discontinued Operations” for additional information. On December 31, 2020, we repaid $161.0 million of the Term Loan (as defined below) as a result of the sale, which was a mandatory prepayment in accordance with the Second Amended Credit Agreement (as defined below).
On October 15, 2020, we completed the sale of substantially all of the assets of our EPSiTM business (“EPSi”) to Strata Decision Technology LLC, an Illinois limited liability company (“Strata”), and Roper Technologies, Inc., a Delaware corporation, pursuant to a purchase agreement (the “EPSi Purchase Agreement”). The total consideration for EPSi was $365.0 million, which was subject to certain adjustments for liabilities assumed by Strata and net working capital as described in the EPSi Purchase Agreement. We realized a pre-tax gain upon the sale of $222.6 million, which was included in the Gain on sale of discontinued operations line in our consolidated statements of operations for the year ended December 31, 2020. The divestiture was treated as a discontinued operation as of December 31, 2020. Refer to Note 15, “Discontinued Operations” for additional information. On October 29, 2020, we repaid $19.0 million of the Term Loan (as defined below) as a result of the sale, which was a mandatory prepayment in accordance with the Second Amended Credit Agreement (as defined below).
14
6. Fair Value Measurements and Long-term Investments
Fair value measurements are based upon observable and unobservable inputs.
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2: Quoted prices for similar instruments in active markets with inputs that are observable, either directly or indirectly. Our Level 2 derivative financial instruments include foreign currency forward contracts valued based upon observable values of spot and forward foreign currency exchange rates.
Level 3: Unobservable inputs are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Our Level 3 instrument includes the fair value of contingent consideration related to a completed acquisition. The fair value is based on a discounted cash flow analysis reflecting the likelihood of achieving specified performance measures or events and captures the contractual nature of the contingencies, commercial risk, or time value of money.
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of the respective balance sheet dates:
|
|
Balance Sheet
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
(In thousands)
|
|
Classifications
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Foreign exchange
derivative assets
|
|
Prepaid expenses
and other
current assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,509
|
|
|
$
|
0
|
|
|
$
|
1,509
|
|
Total assets
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,509
|
|
|
$
|
0
|
|
|
$
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
- current
|
|
Accrued
expenses
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
153
|
|
|
$
|
153
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,011
|
|
|
$
|
1,011
|
|
Total liabilities
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
153
|
|
|
$
|
153
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,011
|
|
|
$
|
1,011
|
|
The changes in our Level 3 liability measured at fair value on a recurring basis at September 30, 2021 is summarized as follows:
(In thousands)
|
|
Contingent Consideration
|
|
Balance at December 31, 2020
|
|
$
|
1,011
|
|
Payments
|
|
|
(858
|
)
|
Balance at September 30, 2021
|
|
$
|
153
|
|
The following table summarizes the quantitative information about our Level 3 fair value measurements at September 30, 2021:
|
|
September 30, 2021
|
|
(In thousands, except the discount rate)
|
|
Fair Value
|
|
|
Valuation Technique
|
|
Significant Unobservable Inputs
|
|
Ranges of Inputs
|
|
Weighted Average (1)
|
|
Financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
153
|
|
|
Probability Weighted Discounted cash flow
|
|
Discount rate
|
|
5.3% to 5.5%
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
Registry members
|
|
0 to 1,551
|
|
|
776
|
|
|
|
|
|
|
|
|
|
Patient data volume
|
|
0 to 52,845
|
|
|
26,422
|
|
|
|
|
|
|
|
|
|
Projected year of payment
|
|
2021
|
|
|
|
|
Total financial instruments
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The weighted average is calculated based upon the absolute fair value of the instruments.
|
Long-term Investments
The following table summarizes our long-term equity investments which are included in Other assets in the accompanying consolidated balance sheets:
|
|
Number of Investees
|
|
|
Original
|
|
|
Carrying Value at
|
|
(In thousands, except for number of investees)
|
|
at September 30, 2021
|
|
|
Cost
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Equity method investments (1)
|
|
|
3
|
|
|
$
|
7,099
|
|
|
$
|
10,181
|
|
|
$
|
10,744
|
|
Cost less impairment
|
|
|
8
|
|
|
|
49,336
|
|
|
|
49,127
|
|
|
|
25,059
|
|
Total long-term equity investments
|
|
|
11
|
|
|
$
|
56,435
|
|
|
$
|
59,308
|
|
|
$
|
35,803
|
|
(1)
|
Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.
|
15
During the three months ended September 30, 2021, we divested one of our businesses to a new third-party in exchange for a non-controlling interest in the combined entity, which is a cost method investment. The divestiture resulted in an $8.4 million gain, which is included in the Gain on sale of businesses, net line in our consolidated statements of operations for the three and nine months ended September 30, 2021. During the nine months ended September 30, 2021, one of our third-party cost method investments converted its notes and we received 475 thousand shares as a result of the conversion. We also revalued our existing investment based on the note conversion share price. The note conversion and the revaluation of the existing investment resulted in a $9.7 million gain, which is included in the Other income (loss), net line in our consolidated statements of operations for the nine months ended September 30, 2021.
During the nine months ended September 30, 2020, we recorded a $16.8 million gain from the sale of a third-party equity method investment.
As of September 30, 2021, it is not possible to estimate the fair value of our non-marketable cost and equity method investments, primarily because of their illiquidity and restricted marketability. The factors we considered in trying to determine fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations, the issuer’s subsequent or planned raises of capital and observable price changes in orderly transactions.
Impairment of Long-term Investments
Each quarter, management performs an assessment of each of our investments on an individual basis to determine if there have been any declines in fair value. Based on our assessment, we determined no impairment charges were necessary for the nine months ended September 30, 2021.
Long-term Financial Liabilities
Our long-term financial liabilities include amounts outstanding under our senior secured credit facility (as described in Note 10, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. Refer to Note 10, “Debt,” for further information regarding our long-term financial liabilities.
7. Stockholders' Equity
Stock-based Compensation Expense
Stock-based compensation expense recognized during the three and nine months ended September 30, 2021 and 2020 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 and nine months ended September 30, 2021 and 2020.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
305
|
|
|
$
|
295
|
|
|
$
|
1,112
|
|
|
$
|
1,213
|
|
Client services
|
|
|
816
|
|
|
|
1,519
|
|
|
|
3,162
|
|
|
|
3,418
|
|
Total cost of revenue
|
|
|
1,121
|
|
|
|
1,814
|
|
|
|
4,274
|
|
|
|
4,631
|
|
Selling, general and administrative expenses
|
|
|
7,832
|
|
|
|
6,728
|
|
|
|
23,426
|
|
|
|
18,851
|
|
Research and development
|
|
|
1,361
|
|
|
|
2,127
|
|
|
|
4,828
|
|
|
|
5,950
|
|
Total stock-based compensation expense
|
|
$
|
10,314
|
|
|
$
|
10,669
|
|
|
$
|
32,528
|
|
|
$
|
29,432
|
|
Allscripts Long-Term Incentive Plan
We measure stock-based compensation expense at the grant date based on the fair value of the award. We recognize the expense for service-based share awards over the requisite service period on a straight-line basis, net of estimated forfeitures. We recognize the expense for performance-based and market-based share awards over the vesting period under the accelerated attribution method, net of estimated forfeitures. In addition, we recognize stock-based compensation cost for awards with performance conditions if and when we conclude that it is probable that the performance conditions will be achieved.
The fair value of service-based and performance-based restricted stock units is measured at the underlying closing share price of our common stock on the date of grant. The fair value of market-based restricted stock units is measured using the Monte Carlo pricing model. No stock options were granted during the three and nine months ended September 30, 2021 and 2020.
16
We granted stock-based awards as follows:
|
|
Three Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2021
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Grant Date
|
|
(In thousands, except per share amounts)
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Service-based restricted stock units
|
|
|
42
|
|
|
$
|
16.59
|
|
|
|
2,487
|
|
|
$
|
15.38
|
|
Performance-based restricted stock units with a service condition
|
|
|
33
|
|
|
$
|
15.35
|
|
|
|
268
|
|
|
$
|
15.18
|
|
Market-based restricted stock units with a service condition
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
235
|
|
|
$
|
17.19
|
|
|
|
|
75
|
|
|
$
|
16.04
|
|
|
|
2,990
|
|
|
$
|
15.51
|
|
During the nine months ended September 30, 2021 and the year ended December 31, 2020, 2.1 million and 1.9 million shares of common stock, respectively, were issued in connection with the release of restrictions on stock awards.
Net Share-settlements
Upon vesting, restricted stock units are generally net share-settled to cover the required withholding tax, and the remaining amount is converted into an equivalent number of shares of common stock. The majority of restricted stock units and awards that vested during the nine months ended September 30, 2021 and 2020 were net-share settled such that we withheld shares with fair value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities. Total payments for the employees' minimum statutory tax obligations to the taxing authorities are reflected as a financing activity within the accompanying consolidated statements of cash flows. The total shares withheld for the nine months ended September 30, 2021 and 2020 were 900 thousand and 770 thousand, respectively, and were based on the value of the restricted stock units on their vesting date as determined by our closing stock price. These net-share settlements had the effect of share repurchases by us as they reduced the number of shares that would have otherwise been issued as a result of the vesting.
Stock Repurchases
On November 18, 2020, we announced that our Board approved a stock purchase program (the “2020 Program”) under which we may repurchase up to $300 million of our common stock through December 31, 2021. The 2020 Program replaced a previous program and the 2020 program was fully exhausted by May of 2021. During the nine months ended September 30, 2021, we repurchased 5.6 million shares of our common stock under the 2020 Program, which was inclusive of the shares we received at final settlement of the accelerated share repurchase program we entered into on November 30, 2020, described below. During the three months ended September 30, 2020, we repurchased 5.0 million shares of our common stock under the previous program for a total of $45.6 million. During the nine months ended September 30, 2020, we repurchased 6.5 million shares of our common stock under the previous program for a total of $55.3 million.
On May 26, 2021, we announced that our Board approved a new stock purchase program (the “2021 Program”) under which we may repurchase up to $350 million of our common stock. The 2021 Program replaced the 2020 Program and does not have a termination date. During the three months ended September 30, 2021, we received 2.4 million shares of our common stock at final settlement of the accelerated share repurchase program entered into on June 14, 2021, described below. During the nine months ended September 30, 2021, we repurchased 13.9 million shares of our common stock under the 2021 Program. This is inclusive of the shares we received at initial and final settlement of the accelerated share repurchase program entered into on June 14, 2021, described below.
On November 30, 2020, we entered into separate Master Confirmations (each, a “Master Confirmation”) and Supplemental Confirmations (each, together with the related Master Confirmation, an “ASR Agreement”), with JPMorgan Chase Bank, National Association and Wells Fargo Bank, National Association (each, an “ASR Counterparty”, or collectively, the “ASR Counterparties”), to purchase shares of our common stock for a total payment of $200.0 million (the “Prepayment Amount”). Under the terms of the ASR Agreements, on November 30, 2020, we paid the Prepayment Amount to the ASR Counterparties and received on December 2, 2020 an initial delivery of approximately 11.7 million shares of our common stock, which is approximately 80% of the total number of shares that could be repurchased under the ASR Agreements if the final purchase price per share equaled the closing price of our common stock on November 30, 2020. These repurchased shares became treasury shares and were recorded as a $165.7 million reduction to stockholders’ equity. The remaining $34.3 million of the Prepayment Amount was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our common stock. The total number of shares received under the ASR Agreements, after final settlement, was based on the average daily volume weighted average price of our common stock during the repurchase period, less an agreed upon discount. Final settlement of the ASR Agreements occurred in May 2021, resulting in the receipt of 1.6 million additional shares, which yielded a weighted-average share repurchase price of approximately $15.07.
17
On June 14, 2021, we entered into Supplemental Confirmations (each, a “June 2021 Supplemental Confirmation”) to the Master Confirmations dated November 30, 2020 (each, as supplemented by the corresponding June 2021 Supplemental Confirmation, a “June 2021 ASR Agreement”), with each of the ASR Counterparties, to purchase shares of our common stock for a total payment of $200.0 million (the “June 2021 Prepayment Amount”). Under the terms of the June 2021 ASR Agreements, on June 14, 2021, we paid the June 2021 Prepayment Amount to the ASR Counterparties and received on June 16, 2021 an initial delivery of approximately 9.1 million shares of our common stock, which is approximately 80% of the total number of shares that could be repurchased under the June 2021 ASR Agreements if the final purchase price per share equaled the closing price of our common stock on June 14, 2021. These repurchased shares became treasury shares and were recorded as a $161.2 million reduction to stockholders’ equity. The remaining $38.8 million of the June 2021 Prepayment Amount was recorded as a reduction to stockholders’ equity as an unsettled forward contract indexed to our common stock. The total number of shares received under the June 2021 ASR Agreements, after final settlement, was based on the average daily volume weighted average price of our common stock during the repurchase period, less an agreed upon discount. Final settlement of the June 2021 ASR Agreements occurred in August 2021, resulting in the receipt of 2.4 million additional shares, which yielded a weighted-average share repurchase price of approximately $17.28.
The approximate dollar value of shares of our common stock that may yet be purchased under the 2021 Program was $108.4 million as of September 30, 2021. Any future stock 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.
8. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average shares of common stock outstanding. For purposes of calculating diluted earnings (loss) per share, the denominator includes both the weighted-average shares of common stock outstanding and dilutive common stock equivalents. Dilutive common stock equivalents consist of restricted stock unit awards and warrants calculated under the treasury stock method.
18
The calculations of earnings (loss) per share are as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands, except per share amounts)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Basic earnings (loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
|
$
|
16,194
|
|
|
$
|
(13,956
|
)
|
|
$
|
46,692
|
|
|
$
|
(67,920
|
)
|
(Loss) income from discontinued operations, net of tax
|
|
|
(14
|
)
|
|
|
14,498
|
|
|
|
471
|
|
|
|
40,503
|
|
Net income (loss)
|
|
$
|
16,180
|
|
|
$
|
542
|
|
|
$
|
47,163
|
|
|
$
|
(27,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
123,892
|
|
|
|
161,144
|
|
|
|
133,517
|
|
|
|
162,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) from continuing operations per Common Share
|
|
$
|
0.13
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.35
|
|
|
$
|
(0.42
|
)
|
Basic earnings from discontinued operations per Common Share
|
|
|
0.00
|
|
|
|
0.09
|
|
|
|
0.00
|
|
|
|
0.25
|
|
Net earnings (loss) per Common Share
|
|
$
|
0.13
|
|
|
$
|
0.00
|
|
|
$
|
0.35
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of tax
|
|
$
|
16,194
|
|
|
$
|
(13,956
|
)
|
|
$
|
46,692
|
|
|
$
|
(67,920
|
)
|
(Loss) income from discontinued operations, net of tax
|
|
|
(14
|
)
|
|
|
14,498
|
|
|
|
471
|
|
|
|
40,503
|
|
Net income (loss)
|
|
$
|
16,180
|
|
|
$
|
542
|
|
|
$
|
47,163
|
|
|
$
|
(27,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
123,892
|
|
|
|
161,144
|
|
|
|
133,517
|
|
|
|
162,092
|
|
Plus: Dilutive effect of restricted stock unit awards and warrants
|
|
|
7,460
|
|
|
|
0
|
|
|
|
8,564
|
|
|
|
0
|
|
Weighted-average common shares outstanding assuming dilution
|
|
|
131,352
|
|
|
|
161,144
|
|
|
|
142,081
|
|
|
|
162,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) from continuing operations per Common Share
|
|
$
|
0.12
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.33
|
|
|
$
|
(0.42
|
)
|
Diluted earnings from discontinued operations per Common Share
|
|
|
0.00
|
|
|
|
0.09
|
|
|
|
0.00
|
|
|
|
0.25
|
|
Net earnings (loss) per Common Share
|
|
$
|
0.12
|
|
|
$
|
0.00
|
|
|
$
|
0.33
|
|
|
$
|
(0.17
|
)
|
Due to the loss from continuing operations, net of tax and the net loss for the three and nine months ended September 30, 2020, respectively, we used basic weighted-average common shares outstanding in the calculation of diluted loss per share, since the inclusion of any stock equivalents would be anti-dilutive.
The following restricted stock unit awards and warrants are not included in the computation of diluted earnings (loss) per share as the effect of including such restricted stock unit awards and warrants in the computation would be anti-dilutive:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Shares subject to anti-dilutive restricted stock unit awards and warrants excluded from calculation
|
|
|
1,504
|
|
|
|
47,162
|
|
|
|
1,502
|
|
|
|
48,816
|
|
19
9. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
$
|
534,999
|
|
|
$
|
(485,810
|
)
|
|
$
|
49,189
|
|
|
$
|
535,092
|
|
|
$
|
(465,292
|
)
|
|
$
|
69,800
|
|
Customer contracts and relationships
|
|
|
674,034
|
|
|
|
(526,815
|
)
|
|
|
147,219
|
|
|
|
674,336
|
|
|
|
(509,534
|
)
|
|
|
164,802
|
|
Total
|
|
$
|
1,209,033
|
|
|
$
|
(1,012,625
|
)
|
|
$
|
196,408
|
|
|
$
|
1,209,428
|
|
|
$
|
(974,826
|
)
|
|
$
|
234,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered trademarks
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
|
|
|
|
|
|
|
|
|
$
|
52,000
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
974,427
|
|
|
|
|
|
|
|
|
|
|
|
974,729
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,026,427
|
|
|
|
|
|
|
|
|
|
|
$
|
1,026,729
|
|
Changes in the carrying amounts of goodwill by reportable segment for the nine months ended September 30, 2021 were as follows:
(In thousands)
|
|
Hospital & Large Physician Practices
|
|
|
Veradigm
|
|
|
Unallocated
|
|
|
Total
|
|
Balance as of December 31, 2020
|
|
|
531,393
|
|
|
|
433,188
|
|
|
|
10,148
|
|
|
|
974,729
|
|
Foreign exchange translation
|
|
|
(302
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(302
|
)
|
Balance as of September 30, 2021
|
|
$
|
531,091
|
|
|
$
|
433,188
|
|
|
$
|
10,148
|
|
|
$
|
974,427
|
|
There were no accumulated impairment losses associated with goodwill as of September 30, 2021 and December 31, 2020.
10. Debt
Debt outstanding, excluding lease obligations, consists of the following:
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
(In thousands)
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
0.875% Convertible Senior Notes (1)
|
|
$
|
167,853
|
|
|
$
|
(7,578
|
)
|
|
$
|
175,431
|
|
|
$
|
167,853
|
|
|
$
|
(3,166
|
)
|
|
$
|
171,019
|
|
Senior Secured Credit Facility
|
|
|
200,000
|
|
|
|
2,244
|
|
|
|
197,756
|
|
|
|
0
|
|
|
|
3,432
|
|
|
|
(3,432
|
)
|
Total debt
|
|
$
|
367,853
|
|
|
$
|
(5,334
|
)
|
|
$
|
373,187
|
|
|
$
|
167,853
|
|
|
$
|
266
|
|
|
$
|
167,587
|
|
(1)
|
Principal balance is $207,911 thousand; $167,853 thousand is recognized in debt and $40,058 thousand is recognized in additional paid-in capital.
|
Interest expense consists of the following:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Interest expense
|
|
$
|
1,742
|
|
|
$
|
4,651
|
|
|
$
|
4,109
|
|
|
$
|
14,199
|
|
Amortization of discounts and debt issuance costs
|
|
|
1,875
|
|
|
|
2,016
|
|
|
|
5,600
|
|
|
|
13,447
|
|
Total interest expense
|
|
$
|
3,617
|
|
|
$
|
6,667
|
|
|
$
|
9,709
|
|
|
$
|
27,646
|
|
Interest expense related to the 0.875% Convertible Senior Notes and the 1.25% Cash Convertible Senior Notes (which matured and were repaid in full on July 1, 2020), included in the table above, consisted of the following:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Coupon interest
|
|
$
|
454
|
|
|
$
|
451
|
|
|
$
|
1,364
|
|
|
$
|
3,561
|
|
Amortization of discounts and debt issuance costs
|
|
|
1,479
|
|
|
|
1,454
|
|
|
|
4,412
|
|
|
|
12,030
|
|
Total interest expense related to the convertible notes
|
|
$
|
1,933
|
|
|
$
|
1,905
|
|
|
$
|
5,776
|
|
|
$
|
15,591
|
|
20
Allscripts Senior Secured Credit Facility
On February 15, 2018, Allscripts and Allscripts Healthcare LLC entered into a Second Amended and Restated Credit Agreement (the “Second Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent. The Second Amended Credit Agreement provides for a $400 million senior secured term loan (the “Term Loan”) and a $900 million senior secured revolving facility (the “Revolving Facility”), each with a five-year term. The Term Loan was repayable in quarterly installments, which began on June 30, 2018. We repaid the Term Loan in full on December 31, 2020. A total of up to $50 million of the Revolving Facility is available for the issuance of letters of credit, up to $10 million of the Revolving Facility is available for swingline loans, and up to $100 million of the Revolving Facility could be borrowed under certain foreign currencies.
As of September 30, 2021, $200.0 million under the Revolving Facility and $1.0 million in letters of credit were outstanding under the Second Amended Credit Agreement.
As of September 30, 2021, the interest rate on the borrowings under the Second Amended Credit Agreement was LIBOR plus 1.50%, which totaled 1.58%. We were in compliance with all covenants under the Second Amended Credit Agreement as of September 30, 2021.
In connection with the sale of our EPSi business on October 15, 2020, which is further discussed in Note 5, “Business Combinations and Divestitures”, the terms of our Second Amended Credit Agreement required us to make a mandatory prepayment of our Term Loan in the amount of $19.0 million on October 29, 2020.
In connection with the sale of our CarePort business on December 31, 2020, which is further discussed in Note 5, “Business Combinations and Divestitures”, the terms of our Second Amended Credit Agreement required us to make a mandatory prepayment of our Term Loan in the amount of $161.0 million on December 31, 2020.
On August 7, 2019, we entered into a First Amendment to the Second Amended Credit Agreement in order to remain compliant with the covenants of our Second Amended Credit Agreement. The First Amendment provided the financial flexibility to settle the U.S. Department of Justice’s investigations as discussed in Note 14, “Contingencies”, while maintaining our compliance with the covenants of our Second Amended Credit Agreement. None of the original terms of our Second Amended Credit Agreement relating to scheduled future principal payments, applicable interest rates and margins or borrowing capacity under our Revolving Facility were amended.
On July 20, 2020, we entered into a Second Amendment to the Second Amended Credit Agreement. None of the original terms of our Second Amended Credit Agreement relating to scheduled future principal payments, applicable interest rates and margins or borrowing capacity under our Revolving Facility were amended. In connection with this amendment, we incurred fees and other costs totaling $1.4 million, of which a majority was capitalized.
As of September 30, 2021, we had $699.0 million available borrowing capacity, net of outstanding letters of credit, under the Revolving Facility. There can be no assurance that we will be able to draw on the full available balance of the Revolving Facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings or if we are unable to maintain compliance with applicable covenants.
0.875% Convertible Senior Notes
The issuance in December 2019 of the combined $218.0 million aggregate principal amount of the 0.875% Convertible Senior Notes resulted in $0.7 million in debt issuance costs, which were paid in January 2020. We have separately recorded liability and equity components of the 0.875% Convertible Senior Notes, including any discounts and issuance costs, by allocating the proceeds from the issuance between the liability component and the embedded conversion option, or equity component. This allocation was completed by first estimating an interest rate at the time of issuance for similar notes that do not include an embedded conversion option. The semi-annual interest rate of 1.95% was used to compute the initial fair value of the liability component, which totaled $177.9 million at the time of issuance. The excess of the initial proceeds received from the 0.875% Convertible Senior Notes and the $177.9 million liability component was allocated to the equity component, which totaled $40.1 million at the time of issuance before deducting any paid capped call fees. The equity component of $40.1 million, the $17.2 million in paid capped call fees and an allocation of $1.1 million in combined discounts and issuance costs were recorded in Additional paid-in capital within the consolidated balance sheets in December 2019. These were recorded as a discount that will be accreted into interest expense through January 1, 2027 using the interest method. In June 2020, we paid $7.7 million to repurchase $10.1 million of the aggregate principal amount of the 0.875% Convertible Senior Notes, which resulted in a $0.5 million gain. In connection with the repurchase, the capped call transaction was partially terminated, and we received $0.3 million, which resulted in a recognition of $0.8 million in equity to offset the capped call fees and a $0.5 million loss. The remaining principal amount of the 0.875% Convertible Senior Notes at September 30, 2021 totaled $207.9 million. The carrying value of the combined equity component, net of capped call fees, issuance costs and accretion, at September 30, 2021 totaled $12.2 million.
21
Future Debt Payments
The following table summarizes future debt principal payment obligations as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Remainder
of 2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
0.875% Convertible Senior Notes (1)
|
|
$
|
207,911
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
207,911
|
|
Revolving Facility (2)
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total debt
|
|
$
|
407,911
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
200,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
207,911
|
|
(1)
|
Amount represents face value of the 0.875% Convertible Senior Notes, which includes both the liability and equity portion.
|
(2)
|
Assumes no additional borrowings after September 30, 2021, payment of any required periodic installments of principal when due and that all drawn amounts are repaid upon maturity.
|
11. Income Taxes
We account for income taxes under FASB Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). We calculate the quarterly tax provision consistent with the guidance provided by ASC 740, whereby we forecast the estimated annual effective tax rate and then apply that rate to the year-to-date pre-tax book (loss) income. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective rate, including factors such as the valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, or changes in or the interpretation of tax laws in jurisdictions where the Company conducts business. There is no tax benefit recognized on certain of the net operating losses incurred due to insufficient evidence supporting the Company’s ability to use these losses in the future. The effective tax rates were as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands, except effective tax rate)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Income (loss) from continuing operations before income taxes
|
|
$
|
21,293
|
|
|
$
|
(18,072
|
)
|
|
$
|
56,646
|
|
|
$
|
(74,561
|
)
|
Income tax (provision) benefit
|
|
$
|
(5,099
|
)
|
|
$
|
4,116
|
|
|
$
|
(9,954
|
)
|
|
$
|
6,641
|
|
Effective tax rate
|
|
|
23.9
|
%
|
|
|
22.8
|
%
|
|
|
17.6
|
%
|
|
|
8.9
|
%
|
Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate primarily due to permanent differences, income attributable to foreign jurisdictions taxed at different rates, state taxes, tax credits and certain discrete items including a windfall benefit of $4.6 million for the nine months ended September 30, 2021 and a shortfall expense of $6.9 million for the nine months ended September 30, 2020. Our effective tax rates for the three and nine months ended September 30, 2021, compared with the prior year comparable periods, differ primarily due to the fact that the permanent items, credits and the impact of foreign earnings had more impact on the pre-tax income of $21.3 million and $56.6 million in the three and nine months ended September 30, 2021, respectively, compared to the impact of these items on a pre-tax loss of $18.1 million and $74.6 million for the three and nine months ended September 30, 2020, respectively.
In evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all available evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). During the nine months ended September 30, 2021, we released valuation allowances of $0.7 million related to U.S. and foreign net operating loss carryforwards.
Our unrecognized income tax benefits were $29.9 million and $28.9 million as of September 30, 2021 and December 31, 2020, 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 considering changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations and changes in tax law.
12. Derivative Financial Instruments
The following tables provide information about the fair values of our derivative financial instruments as of the respective balance sheet dates:
|
|
September 30, 2021
|
|
|
|
Asset Derivatives
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
0
|
|
Total derivatives
|
|
|
|
$
|
0
|
|
22
|
|
December 31, 2020
|
|
|
|
Asset Derivatives
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
$
|
1,509
|
|
Total derivatives
|
|
|
|
$
|
1,509
|
|
Foreign Exchange Contracts
We have entered into non-deliverable forward foreign currency exchange contracts with reputable banking counterparties to hedge a portion of our forecasted future Indian Rupee-denominated (“INR”) expenses against foreign currency fluctuations between the United States dollar and the INR. These forward contracts cover a percentage of forecasted monthly INR expenses over time. As of September 30, 2021, we had no forward contracts outstanding. In the future, we may enter into additional forward contracts to increase the amount of hedged monthly INR expenses or initiate hedges.
The following tables show the impact of derivative instruments designated as cash flow hedges on the consolidated statements of operations and the consolidated statements of comprehensive loss:
|
|
Amount of Gain (Loss) Recognized
in OCI
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
(In thousands)
|
|
Three Months
Ended
September 30, 2021
|
|
|
Nine Months
Ended
September 30, 2021
|
|
|
Location of Gain (Loss) Reclassified
from AOCI into Income
|
|
Three Months
Ended
September 30, 2021
|
|
|
Nine Months
Ended
September 30, 2021
|
|
Foreign exchange contracts
|
|
$
|
0
|
|
|
$
|
121
|
|
|
Cost of Revenue
|
|
$
|
0
|
|
|
$
|
611
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
0
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
0
|
|
|
$
|
668
|
|
|
|
Amount of Gain (Loss) Recognized
in OCI
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income
|
|
(In thousands)
|
|
Three Months
Ended
September 30, 2020
|
|
|
Nine Months
Ended
September 30, 2020
|
|
|
Location of Gain (Loss) Reclassified
from AOCI into Income
|
|
Three Months
Ended
September 30, 2020
|
|
|
Nine Months
Ended
September 30, 2020
|
|
Foreign exchange contracts
|
|
$
|
1,280
|
|
|
$
|
1,798
|
|
|
Cost of Revenue
|
|
$
|
107
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
52
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
111
|
|
|
$
|
73
|
|
23
13. Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Loss
Changes in the balances of each component included in accumulated other comprehensive income (loss) (“AOCI”) are presented in the tables below. All amounts are net of tax.
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
|
Unrealized Net Gains (Losses) on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2020 (1)
|
|
$
|
(2,957
|
)
|
|
$
|
1,119
|
|
|
$
|
(1,838
|
)
|
Other comprehensive (loss) income before
reclassifications
|
|
|
(285
|
)
|
|
|
90
|
|
|
|
(195
|
)
|
Net losses (gains) reclassified from accumulated
other comprehensive loss
|
|
|
0
|
|
|
|
(1,209
|
)
|
|
|
(1,209
|
)
|
Net other comprehensive income (loss)
|
|
|
(285
|
)
|
|
|
(1,119
|
)
|
|
|
(1,404
|
)
|
Balance as of September 30, 2021
|
|
$
|
(3,242
|
)
|
|
$
|
0
|
|
|
$
|
(3,242
|
)
|
(1)
|
Net of taxes of $390 thousand for unrealized net gains on foreign exchange contract derivatives.
|
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
|
Unrealized Net Gains (Losses) on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2019 (1)
|
|
$
|
(4,392
|
)
|
|
$
|
0
|
|
|
$
|
(4,392
|
)
|
Other comprehensive (loss) income before
reclassifications
|
|
|
(611
|
)
|
|
|
1,334
|
|
|
|
723
|
|
Net losses (gains) reclassified from accumulated
other comprehensive loss
|
|
|
0
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
Net other comprehensive income (loss)
|
|
|
(611
|
)
|
|
|
1,202
|
|
|
|
591
|
|
Balance as of September 30, 2020 (2)
|
|
$
|
(5,003
|
)
|
|
$
|
1,202
|
|
|
$
|
(3,801
|
)
|
(1)
|
Net of taxes of $149 thousand arising from the revaluation of tax effects included in AOCI.
|
(2)
|
Net of taxes of $418 thousand for unrealized net gains on foreign exchange contract derivatives.
|
Income Tax Effects Related to Components of Other Comprehensive Income (Loss)
The following tables reflect the tax effects allocated to each component of other comprehensive income (loss) (“OCI”):
|
|
Three Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
(In thousands)
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation adjustments
|
|
$
|
(805
|
)
|
|
$
|
0
|
|
|
$
|
(805
|
)
|
|
$
|
983
|
|
|
$
|
0
|
|
|
$
|
983
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) arising during the period
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,280
|
|
|
|
(330
|
)
|
|
|
950
|
|
Net (gains) losses reclassified into income
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(271
|
)
|
|
|
70
|
|
|
|
(201
|
)
|
Net change in unrealized gains (losses) on foreign exchange contracts
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,009
|
|
|
|
(260
|
)
|
|
|
749
|
|
Other comprehensive (loss) income
|
|
$
|
(805
|
)
|
|
$
|
0
|
|
|
$
|
(805
|
)
|
|
$
|
1,992
|
|
|
$
|
(260
|
)
|
|
$
|
1,732
|
|
24
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
(In thousands)
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation adjustments
|
|
$
|
(285
|
)
|
|
$
|
0
|
|
|
$
|
(285
|
)
|
|
$
|
(611
|
)
|
|
$
|
0
|
|
|
$
|
(611
|
)
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) arising during the period
|
|
|
121
|
|
|
|
(31
|
)
|
|
|
90
|
|
|
|
1,798
|
|
|
|
(464
|
)
|
|
|
1,334
|
|
Net (gains) losses reclassified into income
|
|
|
(1,630
|
)
|
|
|
421
|
|
|
|
(1,209
|
)
|
|
|
(178
|
)
|
|
|
46
|
|
|
|
(132
|
)
|
Net change in unrealized (losses) gains on foreign exchange contracts
|
|
|
(1,509
|
)
|
|
|
390
|
|
|
|
(1,119
|
)
|
|
|
1,620
|
|
|
|
(418
|
)
|
|
|
1,202
|
|
Other comprehensive (loss) income
|
|
$
|
(1,794
|
)
|
|
$
|
390
|
|
|
$
|
(1,404
|
)
|
|
$
|
1,009
|
|
|
$
|
(418
|
)
|
|
$
|
591
|
|
14. Contingencies
In addition to commitments and obligations in the ordinary course of business, we are currently subject to various legal proceedings and claims that have not been fully adjudicated. We intend to vigorously defend ourselves, as appropriate, in these matters.
No less than quarterly, we review the status of each significant matter and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made.
The outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. In the opinion of our management, the ultimate disposition of pending legal proceedings or claims will not have a material adverse effect on our consolidated financial position, liquidity or results of operations. However, if one or more of these legal proceedings were resolved against or settled by us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that and subsequent reporting periods could be materially adversely affected. Additionally, the resolution of a legal proceeding against us could prevent us from offering our products and services to current or prospective clients or cause us to incur increased compliance costs, either of which could further adversely affect our operating results.
The Enterprise Information Solutions business (the “EIS Business”) acquired from McKesson Corporation (“McKesson”) on October 2, 2017 is subject to a May 2017 civil investigative demand (“CID”) related to the Horizon Clinicals software from the U.S. Attorney’s Office for the Eastern District of New York. In August 2018, McKesson received an additional CID (together with the May 2017 CID, the “McKesson CIDs”), which relates to the Paragon software. The McKesson CIDs request documents and information related to the certification McKesson obtained in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program. McKesson has agreed, with respect to the CIDs, to indemnify Allscripts for amounts paid or payable to the government (or any private relator) involving any products or services marketed, sold or licensed by the EIS Business as of or prior to the closing of the acquisition. In October 2021, Allscripts received a CID seeking information about its acquisition of the EIS Business from McKesson and the Horizon Clinicals software. McKesson has agreed to assume defense of this CID.
25
Practice Fusion, acquired by Allscripts on February 13, 2018, received in March 2017 a request for documents and information from the U.S. Attorney’s Office for the District of Vermont pursuant to a CID. Between April 2018 and June 2019, Practice Fusion received from the U.S. Department of Justice (the “DOJ”) seven additional requests for documents and information through four additional CIDs and three Health Insurance Portability and Accountability Act (“HIPAA”) subpoenas. The document and information requests received by Practice Fusion related to both the certification Practice Fusion obtained in connection with the U.S. Department of Health and Human Services’ Electronic Health Record Incentive Program and Practice Fusion’s compliance with the Anti-Kickback Statute (“AKS”) and HIPAA as it relates to certain business practices engaged in by Practice Fusion. In March 2019, Practice Fusion received a grand jury subpoena in connection with a criminal investigation related to Practice Fusion’s compliance with the AKS. On August 6, 2019, Practice Fusion reached an agreement in principle with the DOJ to resolve all of the DOJ’s outstanding civil and criminal investigations, including the investigation by the U.S. Attorney’s Office for the District of Vermont, and we announced that on January 27, 2020, Practice Fusion entered into a deferred prosecution agreement (the “Deferred Prosecution Agreement”) and various civil settlement agreements, including with the Medicaid programs for each U.S. state, the District of Columbia and Puerto Rico (collectively, the “Settlement Agreements”) resolving the investigations conducted by the DOJ and the U.S. Attorney’s Office. The Settlement Agreements required Practice Fusion to, among other matters, pay a criminal fine of $25.3 million, a forfeiture payment of $959,700 and a civil settlement of $118.6 million, which includes $5.2 million designated for the state Medicaid program expenditures, all of which, as of December 31, 2020, have been paid in full. The Deferred Prosecution Agreement required Practice Fusion to retain an Oversight Organization to oversee the Practice Fusion’s implementation of certain compliance measures and ongoing compliance efforts. On August 17, 2021, Practice Fusion’s initial Oversight Organization resigned, and on August 25, 2021, Practice Fusion received a notice from the U.S. Attorney’s Office for the District of Vermont stating Practice Fusion was in breach of the Deferred Prosecution Agreement due to such resignation. On September 17, 2021, Practice Fusion engaged a new Oversight Organization, and it continues to engage in discussions with the U.S. Attorney’s Office concerning the claim that a breach of the Deferred Prosecution Agreement occurred.
15. Discontinued Operations
During 2020, we implemented a strategic initiative to sell two of our businesses, EPSi and CarePort. Since both businesses were part of the same strategic initiative and were sold within the same period, the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results. As of December 31, 2020, these businesses were reported together as discontinued operations.
On October 15, 2020, we completed the sale of our EPSi business. Prior to the sale, EPSi was part of the “Unallocated Amounts” category as it did not meet the requirements to be a reportable segment nor the criteria to be aggregated into our two reportable segments. On its own, the divestiture of the EPSi business did not represent a strategic shift that had a major effect on our operations and financial results. However, the combined sale of EPSi and CarePort represented a strategic shift that had a major effect on our operations and financial results. Therefore, EPSi was treated as a discontinued operation.
On December 31, 2020, we completed the sale of our CarePort business. Prior to the sale, CarePort was part of the former Data, Analytics and Care Coordination reportable segment. On its own, the divestiture of the CarePort business represented a strategic shift that had a major effect on our operations and financial results.
The following table summarizes the major classes of assets and liabilities of EPSi and CarePort, as reported on the consolidated balance sheets as of September 30, 2021 and December 31, 2020:
(In thousands)
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Carrying amounts of major classes of liabilities associated with EPSi and CarePort included as part of discontinued operations:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
1,708
|
|
|
$
|
6,669
|
|
Income tax payable
|
|
|
0
|
|
|
|
316,142
|
|
Total current liabilities attributable to discontinued operations
|
|
$
|
1,708
|
|
|
$
|
322,811
|
|
26
The following table summarizes the major income and expense line items of EPSi and CarePort as reported in the consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020. The activity during the three and nine months ended September 30, 2021 relates to certain adjustments made in connection with the sale of EPSi and CarePort, primarily of which relates to net working capital adjustments that impacted the gain on the sale of the discontinued operations.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Major income and expense line items related to EPSi and CarePort:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
6
|
|
|
$
|
32,894
|
|
|
$
|
6
|
|
|
$
|
96,807
|
|
Client services
|
|
|
0
|
|
|
|
3,517
|
|
|
|
0
|
|
|
|
11,883
|
|
Total revenue
|
|
|
6
|
|
|
|
36,411
|
|
|
|
6
|
|
|
|
108,690
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
|
15
|
|
|
|
2,900
|
|
|
|
(178
|
)
|
|
|
9,254
|
|
Client services
|
|
|
4
|
|
|
|
4,553
|
|
|
|
149
|
|
|
|
13,431
|
|
Amortization of software development and acquisition-related assets
|
|
|
0
|
|
|
|
2,499
|
|
|
|
0
|
|
|
|
7,623
|
|
Total cost of revenue
|
|
|
19
|
|
|
|
9,952
|
|
|
|
(29
|
)
|
|
|
30,308
|
|
Gross (loss) profit
|
|
|
(13
|
)
|
|
|
26,459
|
|
|
|
35
|
|
|
|
78,382
|
|
Selling, general and administrative expenses
|
|
|
2
|
|
|
|
3,788
|
|
|
|
76
|
|
|
|
12,974
|
|
Research and development
|
|
|
0
|
|
|
|
2,118
|
|
|
|
(32
|
)
|
|
|
7,133
|
|
Amortization of intangible assets
|
|
|
0
|
|
|
|
7
|
|
|
|
0
|
|
|
|
22
|
|
(Loss) income from discontinued operations for EPSi and CarePort
|
|
|
(15
|
)
|
|
|
20,546
|
|
|
|
(9
|
)
|
|
|
58,253
|
|
Interest expense
|
|
|
0
|
|
|
|
(995
|
)
|
|
|
0
|
|
|
|
(3,634
|
)
|
Other income, net
|
|
|
1
|
|
|
|
0
|
|
|
|
2
|
|
|
|
0
|
|
Gain on sale of discontinued operations
|
|
|
0
|
|
|
|
0
|
|
|
|
647
|
|
|
|
0
|
|
(Loss) income from discontinued operations for EPSi and CarePort before income taxes (1)
|
|
|
(14
|
)
|
|
|
19,551
|
|
|
|
640
|
|
|
|
54,619
|
|
Income tax provision
|
|
|
0
|
|
|
|
(5,047
|
)
|
|
|
(169
|
)
|
|
|
(14,098
|
)
|
(Loss) income from discontinued operations, net of tax for EPSi and CarePort (2)
|
|
$
|
(14
|
)
|
|
$
|
14,504
|
|
|
$
|
471
|
|
|
$
|
40,521
|
|
(1) (Loss) income from discontinued operations for EPSi and CarePort does not agree to the consolidated statements of operations for the three and nine months ended September 30, 2020, due to residual amounts related to Netsmart (as defined below). Refer to Note 17, “Supplemental Disclosures” for additional information.
(2) (Loss) income from discontinued operations, net of tax for EPSi and CarePort does not agree to the consolidated statements of operations for the three and nine months ended September 30, 2020 due to residual amounts related to Netsmart (as defined below). Refer to Note 17, Supplemental Disclosures” for additional information.
16. Business Segments
We primarily derive our revenues from sales of our proprietary software (either as a direct license sale or under a subscription delivery model), which also serves as the basis for our recurring service contracts for software support and maintenance and certain transaction-related services. In addition, we provide various other client services, including installation, and managed services, such as outsourcing, private cloud hosting and revenue cycle management.
During the third quarter of 2021, we realigned our reporting structure as a result of certain organizational changes. As a result, we changed the presentation of our reportable segments to Hospital and Large Physician Practices and Veradigm. As of September 30, 2021, we had two operating segments. The operating segments are equivalent to the reportable segments. The Hospital and Large Physician Practices segment derives its revenue from the sale of integrated clinical and financial management solutions, which primarily include EHR-related software, related installation, support and maintenance, outsourcing and private cloud hosting. The Veradigm segment derives its revenue from payer and life sciences solutions, which are mainly targeted at payers, life sciences companies and other key healthcare stakeholders; the sale of EHR software to single-specialty and small and mid-sized physician practices, including related clinical, financial, administrative and operational solutions; and software applications for patient engagement. These solutions enable clients to transition, analyze, coordinate care and improve the quality, efficiency and value of healthcare delivery across the entire care community. The “Unallocated Amounts” category consists of the 2bPrecise business, certain products that were shifted from the previous Core Clinical and Financial Solutions reportable segment due to the organizational changes (“Certain Products”), transfer pricing revenues and as of January 1, 2021 also includes certain corporate-related expenses. The amounts included in the “Unallocated Amounts” category for 2bPrecise and Certain Products do not meet the requirements to be reportable segments nor the criteria to be aggregated into the two reportable segments. The segment disclosures below have been revised to conform to the current year presentation.
27
Our chief operating decision maker uses segment revenues, gross profit and income (loss) from operations as measures of performance and to make decisions about the allocation of resources. We do not track our assets by segment.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital and Large Physician Practices
|
|
$
|
225,685
|
|
|
$
|
233,630
|
|
|
$
|
695,427
|
|
|
$
|
712,538
|
|
Veradigm
|
|
|
137,168
|
|
|
|
125,073
|
|
|
|
396,987
|
|
|
|
385,525
|
|
Unallocated Amounts
|
|
|
6,419
|
|
|
|
6,915
|
|
|
|
18,924
|
|
|
|
18,223
|
|
Total revenue
|
|
$
|
369,272
|
|
|
$
|
365,618
|
|
|
$
|
1,111,338
|
|
|
$
|
1,116,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital and Large Physician Practices
|
|
$
|
79,135
|
|
|
$
|
73,359
|
|
|
$
|
249,594
|
|
|
$
|
210,582
|
|
Veradigm
|
|
|
65,698
|
|
|
|
56,685
|
|
|
|
187,963
|
|
|
|
180,981
|
|
Unallocated Amounts
|
|
|
3,941
|
|
|
|
5,094
|
|
|
|
13,015
|
|
|
|
13,109
|
|
Total gross profit
|
|
$
|
148,774
|
|
|
$
|
135,138
|
|
|
$
|
450,572
|
|
|
$
|
404,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital and Large Physician Practices
|
|
$
|
(6,160
|
)
|
|
$
|
(16,913
|
)
|
|
$
|
(6,995
|
)
|
|
$
|
(75,982
|
)
|
Veradigm
|
|
|
16,877
|
|
|
|
8,820
|
|
|
|
46,386
|
|
|
|
24,518
|
|
Unallocated Amounts
|
|
|
1,387
|
|
|
|
(3,068
|
)
|
|
|
(3,572
|
)
|
|
|
(11,338
|
)
|
Total income (loss) from operations
|
|
$
|
12,104
|
|
|
$
|
(11,161
|
)
|
|
$
|
35,819
|
|
|
$
|
(62,802
|
)
|
17. Supplemental Disclosures
Supplemental Consolidated Statements of Cash Flows Information
The majority of the restricted cash balance as of September 30, 2021 represents lease deposits. The majority of the restricted cash balance as of September 30, 2020 represents lease deposits and an escrow account established as part of the acquisition of Netsmart LLC (“Netsmart”) in 2016, to be used by Netsmart to facilitate the integration of Allscripts’ former HomecareTM business.
|
|
September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
214,179
|
|
|
$
|
218,701
|
|
Restricted cash
|
|
|
2,141
|
|
|
|
6,209
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
216,320
|
|
|
$
|
224,910
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2021
|
|
|
2020
|
|
Supplemental non-cash information:
|
|
|
|
|
|
|
|
|
Sale of 2bPrecise business in exchange for a non-controlling interest in the combined entity
|
|
$
|
11,768
|
|
|
$
|
0
|
|
Issuance of treasury stock to commercial partner
|
|
$
|
534
|
|
|
$
|
752
|
|
28