Change healthcare inc. reports third quarter fiscal 2020 financial results
Nashville, tenn.--(business wire)--change healthcare inc. (nasdaq: chng), a leading independent healthcare technology company, today reported financial results for change healthcare llc (“change healthcare”) for the third quarter of fiscal year 2020 ended december 31, 2019. “the team delivered another quarter of strong financial and operational results, highlighting the momentum and success we are seeing in the market,” said neil de crescenzo, president and chief executive officer. “positive trends in the market for innovation and operational efficiency are continuing to drive demand for existing and new solutions, which are leveraging our investments in artificial intelligence, api’s and native cloud-based initiatives. we believe we are well-positioned to drive growth throughout the remainder of fiscal 2020 and beyond supported by a healthy pipeline, and we look forward to partnering with our customers to reduce cost, increase quality, and enhance their ability to drive consumer engagement." adoption of the new revenue recognition standard - asc 606 change healthcare adopted the new revenue recognition accounting standard accounting standards codification ("asc") 606 effective april 1, 2019 on a modified retrospective basis. financial results for reporting periods during fiscal year 2020 are presented in compliance with the new revenue recognition standard. historical financial results for reporting periods prior to fiscal year 2020 are presented in conformity with the prior revenue recognition standard, asc 605. this press release includes additional information to reconcile the impacts of the adoption of the new revenue recognition standard on change healthcare’s financial results for the quarter and nine months ended december 31, 2019. this includes the presentation of financial results during fiscal year 2020 under asc 605 for comparison to the prior-year period. fiscal 2020 third quarter highlights for change healthcare llc: financial summary - asc 606 (standard adopted effective april 1, 2019) total revenue of $808.2 million, including solutions revenue of $752.5 million net income of $31.2 million, resulting in net income of $0.10 per diluted unit(1) adjusted net income of $106.3 million, resulting in adjusted net income of $0.33 per diluted unit(1) adjusted ebitda of $232.6 million financial summary - asc 605 (standard before april 1, 2019) total revenue of $832.2 million, including solutions revenue of $776.5 million net income of $49.0 million, resulting in net income of $0.15 per diluted unit(1) adjusted net income of $124.1 million, resulting in adjusted net income of $0.39 per diluted unit(1) adjusted ebitda of $250.3 million (1) common units of change healthcare llc are equivalent to the number of outstanding common shares of change healthcare inc. and membership interests of change healthcare llc held by subsidiaries of mckesson. financial results - asc 606 (standard adopted effective april 1, 2019) solutions revenue was $752.5 million. third-quarter results were impacted by the adoption of the new accounting standard, asc 606, which resulted in the recognition of certain revenue in the first quarter of the fiscal year that would have been recognized in the subsequent periods under the prior accounting rules. the third-quarter results reflect an unfavorable revenue impact of $24.0 million as compared with asc 605. net income was $31.2 million, resulting in net income of $0.10 per diluted unit. net income under the new accounting standard was impacted favorably by an extended recognition period for commissions and certain implementation costs, decreasing expenses in the period by $6.3 million, partially offsetting the revenue impact of asc 606 noted above. adjusted net income was $106.3 million, resulting in adjusted net income of $0.33 per diluted unit. adjusted ebitda was $232.6 million. adjusted ebitda as a percent of solutions revenue for the third quarter of fiscal 2020 was 30.9%. financial results - asc 605 (standard before april 1, 2019) solutions revenue was $776.5 million, compared to $763.1 million for the third quarter of fiscal 2019. total revenue for the current period, which includes postage revenue, was $832.2 million, compared to $821.9 million in the same period of the prior fiscal year. growth in both the software & analytics and network solutions businesses was partially offset by the impact of planned contract eliminations in our technology-enabled services business, and the impact of our optimization initiatives in our connected analytics business. as part of our stated strategy, we are repositioning certain of our revenue cycle management (“rcm”) service solutions to better address end-market dynamics, enhance efficiency and to improve the long-term growth potential of these solutions. net income was $49.0 million, resulting in net income of $0.15 per diluted unit, compared with net income of $13.0 million or $0.05 per diluted unit, respectively, for the third quarter of fiscal 2019. during the third quarter of fiscal 2020, the favorable impact of productivity improvements and growth across our software & analytics and network solutions businesses was partially offset by planned contract eliminations in our technology-enabled service business. adjusted net income was $124.1 million, resulting in adjusted net income of $0.39 per diluted unit, compared with adjusted net income of $96.4 million or $0.38 per diluted unit, respectively, for the third quarter of fiscal 2019. net income per unit and adjusted net income per unit for the current period is based on 322 million units compared to 253 million units in the prior year increasing as a result of the initial public offering completed on july 1, 2019. adjusted ebitda was $250.3 million, compared with $234.1 million for the third quarter of fiscal 2019. adjusted ebitda as a percent of solutions revenue for the third quarter of fiscal 2020 was 32.2%, compared with 30.7% for the third quarter of fiscal 2019. the improved performance was the result of a favorable impact of mix, productivity improvements and growth across our segments. cash flow and balance sheet highlights for change healthcare llc: net cash provided by operating activities was $401.0 million for the nine months ended december 31, 2019, an increase of 61.1% from $248.8 million for the nine months ended december 31, 2018. free cash flow was $213.8 million for the nine months ended december 31, 2019, an increase of 265.0% from $58.6 million for the nine months ended december 31, 2018. adjusted free cash flow was $324.9 million, an increase of $74.7 million year over year. net cash provided by operating activities, free cash flow, and adjusted free cash flow each is affected by pass-thru funds we receive from certain pharmaceutical industry participants in advance of our obligation to remit these funds to participating retail pharmacies. such pass-thru funds were $1.8 million for the nine months ended december 31, 2019 and $37.1 million for the nine months ended december 31, 2018. the increase in cash flow from operations, free cash flow, and adjusted free cash flow in the current period primarily resulted from improved working capital driven by lower receivable balances and reduced integration capital expenditures. change healthcare llc ended the quarter with approximately $74.5 million of cash, cash equivalents, and restricted cash and approximately $4,828.0 million of total debt. during the quarter, change healthcare llc repaid $150.0 million in term loan facility obligations. as of december 31, 2019, no amounts had been drawn under the revolving credit facility. recent business highlights launched provider-payer data exchange solution, the industry’s first nationwide solution to enable providers to submit documents and data, such as claims attachments, electronically to all payers in both the medical and workers’ compensation market segments. unveiled api & services connection™, a marketplace for open, standards-based application programming interface (api) products powered by the aws marketplace. through this marketplace, any healthcare organization can leverage the same capabilities that power the company's industry-leading healthcare financial, clinical, and engagement solutions. announced four leading providers as development partners to build and implement our cloud-native enterprise imaging network on the google cloud platform. built from the ground up to exploit the flexible nature of cloud services and delivery, the network will enhance and optimize medical imaging data—enabling providers to improve clinical, financial, and operational outcomes. integrated change healthcare’s interqual connect™ medical review service and interqual autoreview™ into cerner corporation’s acute case management (acm) solution and electronic health record (ehr). through the enhanced workflow from these capabilities, cerner clients can help their case managers more easily and efficiently prioritize patients' needs. full year fiscal 2020 outlook and 2021 guidance - asc 606 for full-year fiscal 2020, change healthcare continues to expect solutions revenue growth of 1% to 2% excluding the revenue from the sale of our extended care business in fiscal year 2019 and including the impact of planned contract exits; adjusted ebitda growth of 6% to 8% and adjusted net income growth of 9% to 11%. free cash flow is expected to be in the range of $250 million to $300 million. for fiscal year 2021, the company continues to expect solutions revenue growth of 4% to 6% and adjusted ebitda growth of 6% to 8%. fourth quarter fiscal 2020 guidance - asc 606 change healthcare expects fourth-quarter fiscal 2020 solutions revenue in the range of $775 million to $785 million, adjusted ebitda in the range of $260 million to $270 million, and adjusted net income in the range of $115 million to $125 million. per our prior guidance, full-year revenue was not previously expected to differ materially between the two accounting standards but based on the incremental asc 606 impact in the third quarter, we now anticipate the full-year impact to be an approximately $6 million decrease in revenue for the year. the impact from extended recognition periods for commission expense as a result of the adoption of asc 606 is expected to be favorable by about $4 million pre-tax for the fourth quarter of fiscal 2020. a reconciliation of the forward-looking fourth-quarter and full-year fiscal 2020 and 2021 adjusted ebitda outlook to net income cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted. for the same reasons, change healthcare llc is unable to assess the probable significance of the unavailable information, which could have a material impact on its future financial results in accordance with generally accepted accounting principles in the united states of america (“gaap”). conference call and webcast information change healthcare will host a conference call on february 13, 2020, at 8:00 a.m. et. investors and other interested parties are invited to listen to the conference call by dialing 1-(877) 279-0788 in the u.s.; 1-(270) 215-9894 from abroad, including the conference id number: 2298629; or via a live, audio webcast on the company's website at https://ir.changehealthcare.com/. a webcast replay will be available for on-demand listening shortly after the completion of the call until the third-quarter fiscal 2021 earnings call, at the aforementioned url. in addition, a digital audio playback will be available until 11:00 a.m. eastern time on thursday, february 20, 2020, by dialing 1-(855) 859-2056 or 1-(404) 537-3406 and referencing confirmation 2298629. about change healthcare change healthcare (nasdaq: chng) is a leading independent healthcare technology company that provides data and analytics-driven solutions to improve clinical, financial and patient engagement outcomes in the u.s. healthcare system. we are a key catalyst of a value-based healthcare system, accelerating the journey toward improved lives and healthier communities. learn more at changehealthcare.com. chng-ir forward-looking statements this press release contains “forward-looking statements” within the meaning of federal securities laws. any statements made in this press release that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements. forward-looking statements include information concerning possible or assumed future results of operations, including our guidance and descriptions of our business plans and strategies. these statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,” “predicts,” and the negatives of these words and other similar expressions. forward-looking statements involve known and unknown risks, uncertainties, including factors disclosed in the registration statement on form s-1 (no. 333-230345) in the section entitled “risk factors,” as such factors may be updated from time to time in our periodic filings with the sec, and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. given these uncertainties, you should not place undue reliance on any forward-looking statements in this release. all forward-looking statements are based on information currently available to change healthcare and are qualified in their entirety by this cautionary statement. the statements herein speak only as of the date such statements were first made. except to the extent required by law, change healthcare assumes no obligation to update any such forward-looking statements or other statements included in this release. non-gaap financial measures in the company’s earnings releases, prepared remarks, conference calls, slide presentations and webcasts, there may be use or discussion of non-gaap financial measures. we believe such measures provide supplemental information to investors with regard to our operating performance and assist investors’ ability to compare our financial results to those of other companies in the same industry. the gaap financial measure most directly comparable to each non-gaap financial measure used or discussed, and a reconciliation of the differences between the comparable gaap financial measure and each non-gaap financial measure are included in this press release after the consolidated financial statements. these non-gaap financial measures are calculated and presented on the basis of methodologies other than in accordance with gaap. these non-gaap financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with gaap and may be defined and calculated differently by others in the same industry. change healthcare inc. statements of operations (unaudited and amounts in thousands, except share and per share amounts) three months ended nine months ended december 31, december 31, 2019 2018 2019 2018 revenue $ — $ — $ — $ — operating expenses general and administrative 1,115 126 2,504 188 accretion expense (1,191 ) — 47,172 — total operating expenses (76 ) 126 49,676 188 operating income (loss) 76 (126 ) (49,676 ) (188 ) non-operating (income) expense loss from equity method investment in the joint venture 8,764 17,468 104,497 65,805 (gain) loss on sale of interests in the joint venture — — — (661 ) management fee income (771 ) (126 ) (1,648 ) (188 ) interest expense 602 — 1,246 — interest income (601 ) — (1,245 ) — amortization of debt discount and issuance costs 191 — 403 — unrealized (gain) loss on forward purchase contract (74,084 ) — (71,649 ) — total non-operating (income) expense (65,899 ) 17,342 31,604 64,956 income (loss) before income tax provision (benefit) 65,975 (17,468 ) (81,280 ) (65,144 ) income tax provision (benefit) 15,240 (5,080 ) (564 ) (16,664 ) net income (loss) $ 50,735 $ (12,388 ) $ (80,716 ) $ (48,480 ) net income (loss) per share: basic $ 0.35 $ (0.16 ) $ (0.67 ) $ (0.64 ) diluted $ 0.35 $ (0.16 ) $ (0.67 ) $ (0.64 ) weighted average shares basic 143,392,295 75,465,310 120,657,859 75,525,645 diluted 146,201,860 75,465,310 120,657,859 75,525,645 change healthcare inc. balance sheets (unaudited and amounts in thousands, except share and per share amounts) december 31, march 31, 2019 2019 assets current assets: cash $ 3,409 $ 3,409 prepaid expenses 1,544 — due from the joint venture 3,429 373 due from mckesson 213 — investment in joint venture tangible equity units, current 15,362 — income taxes receivable 1,359 1,781 total current assets 25,316 5,563 dividend receivable 68,344 81,264 investment in the joint venture 1,796,512 1,211,996 investment in joint venture tangible equity units 329,581 — total assets $ 2,219,753 $ 1,298,823 liabilities and stockholders' equity current liabilities: accounts payable and accrued expenses $ 259 $ 176 due to the joint venture 9,806 6,167 current portion of long-term debt 15,362 — total current liabilities 25,427 6,343 long-term debt 23,656 — due to mckesson 47,172 — deferred income tax liabilities 172,055 159,993 other liabilities 1,312 — commitments and contingencies stockholders' equity: common stock (par value, $.001), 9,000,000,000 and 252,800,000 shares authorized and 125,027,648 and 75,474,654 shares issued and outstanding at december 31, 2019 and march 31, 2019, respectively 124 75 class x common stock (par value, $.001), 1 and 1 share authorized and no shares issued and outstanding at december 31, 2019 and march 31, 2019, respectively — — preferred stock (par value, $.001), 900,000,000 and 0 shares authorized and no shares issued and outstanding at december 31, 2019 and march 31, 2019, respectively — — additional paid-in capital 2,016,608 1,153,509 accumulated other comprehensive income (loss) (3,418 ) (3,256 ) retained earnings (deficit) (63,183 ) (17,841 ) total stockholders' equity 1,950,131 1,132,487 total liabilities and stockholders' equity $ 2,219,753 $ 1,298,823 change healthcare inc. statements of cash flows (unaudited and amounts in thousands) nine months ended december 31, 2019 2018 cash flows from operating activities: net income (loss) $ (80,716 ) $ (48,480 ) adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: loss from equity method investment in the joint venture 104,497 65,805 deferred income tax expense (benefit) (564 ) (16,664 ) (gain) loss on sale of interests in the joint venture — (661 ) (gain) loss on forward purchase contracts (71,649 ) — amortization of debt discount and issuance costs 403 — other 1,526 — changes in operating assets and liabilities: prepaid expenses (1,544 ) — due from the joint venture (3,056 ) (188 ) due from mckesson (213 ) — income taxes receivable 422 13,292 accounts payable and accrued expenses 83 189 due to mckesson 47,172 — due to the joint venture 3,639 (9,662 ) net cash provided by (used in) operating activities — 3,631 cash flows from investing activities: proceeds from sale of interests in joint venture — 6,502 investment in debt and equity securities of the joint venture (278,875 ) — proceeds from investments in debt securities of the joint venture 7,332 — investment in the joint venture (610,784 ) — net cash provided by (used in) investing activities (882,327 ) 6,502 cash flows from financing activities: proceeds from initial public offering, net of issuance costs 608,679 — proceeds from issuance of equity component of tangible equity units, net of issuance costs 232,929 — proceeds from issuance of debt component of tangible equity units 47,367 — payment of loan costs (1,421 ) — repayment of senior amortizing notes (7,332 ) — proceeds from exercise of equity awards 2,105 — payments to acquire common stock — (6,502 ) net cash provided by (used in) financing activities 882,327 (6,502 ) net increase (decrease) in cash, cash equivalents and restricted cash — 3,631 cash, cash equivalents and restricted cash at beginning of period 3,409 — cash, cash equivalents and restricted cash at end of period $ 3,409 $ 3,631 change healthcare llc consolidated statements of operations (unaudited and amounts in thousands, except unit and per unit amounts) three months ended nine months ended december 31, december 31, 2019 2018 2019 2018 revenue: solutions revenue $ 752,533 $ 763,149 $ 2,288,305 $ 2,264,684 postage revenue 55,693 58,788 171,288 180,706 total revenue 808,226 821,937 2,459,593 2,445,390 operating expenses: cost of operations (exclusive of depreciation and amortization below) 339,413 339,485 998,943 1,007,328 research and development 50,618 49,882 151,778 159,604 sales, marketing, general and administrative 185,661 206,558 567,586 620,612 customer postage 55,693 58,788 171,288 180,706 depreciation and amortization 77,330 70,318 226,094 208,103 accretion and changes in estimate with related parties, net 3,245 3,534 10,339 13,290 gain on sale of business — (43 ) — (111,435 ) total operating expenses 711,960 728,522 2,126,028 2,078,208 operating income (loss) 96,266 93,415 333,565 367,182 non-operating (income) and expense interest expense, net 66,353 82,614 219,661 241,840 loss on extinguishment of debt 2,514 — 19,414 — contingent consideration 900 (1,100 ) 1,809 (900 ) other, net (2,718 ) (4,385 ) (10,881 ) (13,762 ) total non-operating (income) and expense 67,049 77,129 230,003 227,178 income (loss) before income tax provision (benefit) 29,217 16,286 103,562 140,004 income tax provision (benefit) (1,974 ) 3,277 589 1,049 net income (loss) $ 31,191 $ 13,009 $ 102,973 $ 138,955 net income (loss) per common unit: basic $ 0.10 $ 0.05 0.35 $ 0.55 diluted $ 0.10 $ 0.05 0.34 $ 0.55 weighted average common units outstanding: basic 319,387,487 251,460,502 296,653,051 251,520,837 diluted 322,197,051 253,318,833 300,058,108 253,366,866 (1) common units of change healthcare llc are equivalent to the number of outstanding common shares of change healthcare inc. and membership interests of change healthcare llc held by subsidiaries of mckesson. change healthcare llc consolidated balance sheets (unaudited and amounts in thousands) december 31, march 31, 2019 2019 assets current assets: cash and cash equivalents $ 74,183 $ 47,718 restricted cash 314 1,176 accounts receivable, net of allowance for doubtful accounts 724,908 759,502 contract assets 130,824 — prepaid expenses and other current assets 155,276 172,067 total current assets 1,085,505 980,463 property and equipment, net 153,036 197,263 goodwill 3,298,151 3,284,266 intangible assets, net 1,225,424 1,320,161 other noncurrent assets, net 528,545 421,985 total assets $ 6,290,661 $ 6,204,138 liabilities and members' equity current liabilities: drafts and accounts payable $ 49,478 $ 98,550 accrued expenses 354,034 316,179 deferred revenues 402,854 437,636 due to related parties, net 22,817 34,629 current portion of long-term debt 28,812 2,789 total current liabilities 857,995 889,783 long-term debt, excluding current portion 4,799,178 5,787,150 deferred income tax liabilities 106,008 106,099 tax receivable agreement obligations to related parties 203,121 212,698 other long-term liabilities 112,019 113,194 commitments and contingencies members' equity (deficit) 212,340 (904,786 ) total liabilities and members' equity $ 6,290,661 $ 6,204,138 change healthcare llc consolidated statements of cash flows (unaudited and amounts in thousands) nine months ended december 31, 2019 2018 cash flows from operating activities: net income (loss) $ 102,973 $ 138,955 adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: depreciation and amortization 226,094 208,103 amortization of capitalized software developed for sale 10,456 10,880 accretion and changes in estimate, net 10,339 13,290 equity compensation 24,914 16,378 deferred income tax expense (benefit) (189 ) (17 ) amortization of debt discount and issuance costs 14,406 15,786 contingent consideration 1,809 (900 ) gain on sale of the extended care business — (111,435 ) loss on extinguishment of debt 19,414 — other 3,374 1,943 changes in operating assets and liabilities: accounts receivable 14,719 (97,259 ) contract assets 19,525 — prepaid expenses and other (23,224 ) (10,302 ) accounts payable (32,031 ) 5,190 accrued expenses and other liabilities 13,994 78,344 deferred revenue (1,213 ) (25,493 ) due to related party, net (4,404 ) 5,367 net cash provided by (used in) operating activities 400,956 248,830 cash flows from investing activities: capitalized expenditures (187,177 ) (190,264 ) proceeds from sale of the extended care business — 159,871 proceeds from sale of real estate 29,813 — investments in businesses (19,010 ) (2,985 ) net cash provided by (used in) investing activities (176,374 ) (33,378 ) cash flows from financing activities: payments of third party initial public offering and loan costs (8,555 ) — payments under tax receivable agreements with related parties (27,227 ) (25,096 ) payments on term loan facility (1,052,750 ) (140,250 ) receipts (payments) on derivative instruments 2,403 3,321 payments of deferred financing obligations (2,441 ) (3,432 ) capital contribution from members from exercise of equity awards 2,338 205 repurchase of equity awards — (7,425 ) proceeds from change healthcare inc. initial public offering 608,679 — proceeds from debt issued to change healthcare inc. 47,367 — proceeds from forward purchase contract with change healthcare inc. 232,929 — advances to and refunds from members 5,084 2,636 payment of debt issued to change healthcare inc. (7,332 ) — other — (2,548 ) net cash provided by (used in) financing activities (199,505 ) (172,589 ) effect of exchange rate changes on cash and cash equivalents 526 (1,368 ) net increase (decrease) in cash, cash equivalents and restricted cash 25,603 41,495 cash, cash equivalents and restricted cash at beginning of period 48,894 50,011 cash, cash equivalents and restricted cash at end of period $ 74,497 $ 91,506 change healthcare llc reconciliation of net income (loss) to adjusted ebitda three months ended december 31, nine months ended december 31, unaudited and amounts in thousands 2019 2018 2019 2018 as reported impacts from adoption without adoption (asc 605) as reported (asc 605) as reported impacts from adoption without adoption (asc 605) as reported (asc 605) net income (loss) $ 31,191 $ 17,769 $ 48,960 $ 13,009 $ 102,973 $ (23,101 ) $ 79,872 $ 138,955 net interest expense 66,353 — 66,353 82,614 219,661 — 219,661 241,840 income tax provision (benefit) (1,974 ) (70 ) (2,044 ) 3,277 589 (2,353 ) (1,764 ) 1,049 depreciation and amortization 77,330 — 77,330 70,318 226,094 — 226,094 208,103 amortization of capitalized software developed for sale 3,755 — 3,755 3,760 10,456 — 10,456 10,880 ebitda 176,655 17,699 194,354 172,978 559,773 (25,454 ) 534,319 600,827 adjustments to ebitda: equity compensation 9,707 — 9,707 8,109 24,914 — 24,914 16,378 acquisition accounting adjustments 440 — 440 651 1,367 — 1,367 3,191 acquisition and divestiture-related costs 1,481 — 1,481 4,010 2,554 — 2,554 11,517 integration and related costs 21,470 — 21,470 30,266 66,976 — 66,976 79,805 strategic initiatives, duplicative & transition costs 4,645 — 4,645 2,789 14,334 — 14,334 19,014 severance costs 4,191 — 4,191 3,952 14,290 — 14,290 14,327 costs related to recently issued accounting standards — — — 1,730 — — — 7,243 accretion and changes in estimate with related parties, net 3,245 — 3,245 3,534 10,339 — 10,339 13,290 management fees and related costs 2,648 — 2,648 2,599 7,708 — 7,708 7,883 impairment of long-lived assets and other (435 ) — (435 ) 382 (1,275 ) — (1,275 ) 3,742 gain on sale of business — — — (43 ) — — — (111,435 ) contingent consideration 900 — 900 (1,100 ) 1,809 — 1,809 (900 ) loss on extinguishment of debt 2,514 — 2,514 — 19,414 — 19,414 — other non-routine, net 5,166 — 5,166 4,219 9,174 — 9,174 12,936 ebitda adjustments 55,972 — 55,972 61,098 171,604 — 171,604 76,991 adjusted ebitda $ 232,627 $ 17,699 $ 250,326 $ 234,076 $ 731,377 $ (25,454 ) $ 705,923 $ 677,818 change healthcare llc reconciliation of net income (loss) to adjusted net income (loss) three months ended december 31, nine months ended december 31, unaudited and amounts in thousands 2019 2018 2019 2018 as reported impacts from adoption without adoption (asc 605) as reported (asc 605) as reported impacts from adoption without adoption (asc 605) as reported (asc 605) net income (loss) $ 31,191 $ 17,769 $ 48,960 $ 13,009 $ 102,973 $ (23,101 ) $ 79,872 $ 138,955 amortization expense resulting from acquisition method adjustments 34,922 — 34,922 35,568 104,624 — 104,624 110,276 ebitda adjustments 55,972 — 55,972 61,098 171,604 — 171,604 76,991 tax effect of ebitda adjustments and amortization expense (15,760 ) — (15,760 ) (13,315 ) (44,751 ) — (44,751 ) (42,075 ) adjusted net income $ 106,325 $ 17,769 $ 124,094 $ 96,360 $ 334,450 $ (23,101 ) $ 311,349 $ 284,147 adjusted net income (loss) per diluted unit $ 0.33 $ 0.39 $ 0.38 $ 1.11 $ 1.04 $ 1.12 (1) common units of change healthcare llc are equivalent to the number of outstanding common shares of change healthcare inc. and membership interests of change healthcare llc held by subsidiaries of mckesson. change healthcare llc segment results three months ended december 31, nine months ended december 31, unaudited and amounts in thousands 2019 2018 2019 2018 as reported impacts from adoption without adoption (asc 605) as reported (asc 605) as reported impacts from adoption without adoption (asc 605) as reported (asc 605) segment revenue software and analytics $ 387,331 $ 18,535 $ 405,866 $ 385,434 $ 1,194,142 $ (9,941 ) $ 1,184,201 $ 1,159,898 network solutions 150,697 — 150,697 143,507 436,585 — 436,585 416,432 technology-enabled services 241,465 5,467 246,932 256,552 736,240 2,357 738,597 761,382 corporate and eliminations 28,733 — 28,733 36,444 92,626 — 92,626 107,678 net revenue $ 808,226 $ 24,002 $ 832,228 $ 821,937 $ 2,459,593 $ (7,584 ) $ 2,452,009 $ 2,445,390 segment adjusted ebitda software and analytics $ 149,199 $ 14,127 $ 163,326 $ 150,426 $ 490,300 $ (22,862 ) $ 467,438 $ 432,859 network solutions 92,694 (474 ) 92,220 88,072 264,165 (1,405 ) 262,760 253,921 technology-enabled services 36,691 4,435 41,126 44,482 127,976 (229 ) 127,747 133,258 corporate and eliminations (45,957 ) (389 ) (46,346 ) (48,904 ) (151,064 ) (958 ) (152,024 ) (142,220 ) total adjusted ebitda $ 232,627 $ 17,699 $ 250,326 $ 234,076 $ 731,377 $ (25,454 ) $ 705,921 $ 677,818 (1) – revenue for the corporate and eliminations segment includes postage revenue of $55,693 and $58,788 for the three months ended december 31, 2019 and 2018, respectively, and $171,288 and $180,706 for the nine months ended december 31, 2019 and 2018, respectively. change healthcare llc reconciliation of cash provided by (used in) operating activities to free cash flow and adjusted free cash flow nine months ended unaudited and amounts in thousands december 31, 2019 2018 cash provided by (used in) operating activities (1) $ 400,956 $ 248,830 capital expenditures (187,177 ) (190,264 ) free cash flow 213,779 58,566 adjustments to free cash flow (2): integration and related costs 66,976 79,805 strategic initiatives, duplicative and transition costs 14,334 19,014 severance costs 14,290 14,327 costs related to recently issued accounting standards — 7,243 integration capital expenditures 15,532 71,260 adjusted free cash flow $ 324,911 $ 250,215 (1) includes cash provided by pass-thru funds of $1.8 million and $37.1 million for the nine months ended december 31, 2019 and 2018, respectively. (2) all operating costs and integration capital expenditures in the table are presented on an as-incurred basis. change healthcare llc consolidated statements of operations (unaudited and amounts in thousands, except unit and per unit amounts) reconciliation of the impacts from the adoption of the new revenue recognition standard three months ended december 31, nine months ended december 31, 2019 2018 2019 2018 as reported impacts from adoption without adoption (asc 605) as reported (asc 605) as reported impacts from adoption without adoption (asc 605) as reported (asc 605) revenue: solutions revenue $ 752,533 $ 24,002 $ 776,535 $ 763,149 $ 2,288,305 $ (7,583 ) $ 2,280,722 $ 2,264,684 postage revenue 55,693 — 55,693 58,788 171,288 — 171,288 180,706 total revenue 808,226 24,002 832,228 821,937 2,459,593 (7,583 ) 2,452,010 2,445,390 operating expenses: cost of operations (exclusive of depreciation and amortization below) 339,413 1,239 340,652 339,485 998,943 3,042 1,001,985 1,007,328 research and development 50,618 — 50,618 49,882 151,778 — 151,778 159,604 sales, marketing, general and administrative 185,661 5,064 190,725 206,558 567,586 14,829 582,415 620,612 customer postage 55,693 — 55,693 58,788 171,288 — 171,288 180,706 depreciation and amortization 77,330 — 77,330 70,318 226,094 — 226,094 208,103 accretion and changes in estimate with related parties, net 3,245 — 3,245 3,534 10,339 — 10,339 13,290 gain on sale of business — — — (43 ) — — — (111,435 ) total operating expenses 711,960 6,303 718,263 728,522 2,126,028 17,871 2,143,899 2,078,208 operating income (loss) 96,266 17,699 113,965 93,415 333,565 (25,454 ) 308,111 367,182 non-operating (income) and expense interest expense, net 66,353 — 66,353 82,614 219,661 — 219,661 241,840 loss on extinguishment of debt 2,514 — 2,514 — 19,414 — 19,414 — contingent consideration 900 — 900 (1,100 ) 1,809 — 1,809 (900 ) other, net (2,718 ) — (2,718 ) (4,385 ) (10,881 ) — (10,881 ) (13,762 ) total non-operating (income) and expense 67,049 — 67,049 77,129 230,003 — 230,003 227,178 income (loss) before income tax provision (benefit) 29,217 17,699 46,916 16,286 103,562 (25,454 ) 78,108 140,004 income tax provision (benefit) (1,974 ) (70 ) (2,044 ) 3,277 589 (2,353 ) (1,764 ) 1,049 net income (loss) $ 31,191 $ 17,769 $ 48,960 $ 13,009 $ 102,973 $ (23,101 ) $ 79,872 $ 138,955 net income (loss) per common unit: basic $ 0.10 $ 0.05 $ 0.15 $ 0.05 $ 0.35 $ (0.08 ) $ 0.27 $ 0.55 diluted $ 0.10 $ 0.05 $ 0.15 $ 0.05 $ 0.34 $ (0.08 ) $ 0.27 $ 0.55 (1) common units of change healthcare llc are equivalent to the number of outstanding common shares of change healthcare inc. and membership interests of change healthcare llc held by subsidiaries of mckesson. change healthcare llc consolidated balance sheets (unaudited and amounts in thousands) reconciliation of the impacts from the adoption of the new revenue recognition standard december 31, 2019 march 31, 2019 as reported impacts from adoption without adoption (asc 605) as reported (asc 605) assets current assets: cash and cash equivalents $ 74,183 $ — $ 74,183 $ 47,718 restricted cash 314 — 314 1,176 accounts receivable, net of allowance for doubtful accounts 724,908 22,589 747,497 759,502 contract assets 130,824 (130,824 ) — — prepaid expenses and other current assets 155,276 20,318 175,594 172,067 total current assets 1,085,505 (87,917 ) 997,588 980,463 property and equipment, net 153,036 — 153,036 197,263 goodwill 3,298,151 — 3,298,151 3,284,266 intangible assets, net 1,225,424 — 1,225,424 1,320,161 other noncurrent assets, net 528,545 (47,370 ) 481,175 421,985 total assets $ 6,290,661 $ (135,287 ) $ 6,155,374 $ 6,204,138 liabilities and members' deficit current liabilities: drafts and accounts payable $ 49,478 $ — $ 49,478 $ 98,550 accrued expenses 354,034 — 354,034 316,179 deferred revenues 402,854 47,649 450,503 437,636 due to related parties, net 22,817 — 22,817 34,629 current portion of long-term debt 28,812 — 28,812 2,789 total current liabilities 857,995 47,649 905,644 889,783 long-term debt, excluding current portion 4,799,178 — 4,799,178 5,787,150 deferred income tax liabilities 106,008 — 106,008 106,099 tax receivable agreement obligations to related parties 203,121 — 203,121 212,698 other long-term liabilities 112,019 199 112,218 113,194 commitments and contingencies members' deficit 212,340 (183,135 ) 29,205 (904,786 ) total liabilities and members' deficit $ 6,290,661 $ (135,287 ) $ 6,155,374 $ 6,204,138
