Change healthcare inc. reports second 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 second quarter of fiscal year 2020 ended september 30, 2019. “i am pleased to report another quarter of strong financial and operational performance, supported by continued strength in our underlying business and the execution on our strategic initiatives in our enterprise imaging and rcm services businesses,” said neil de crescenzo, president and chief executive officer. “we continue to invest in innovation internally and with leading technology partners to bring to market new solutions that deliver increased value to our more than 30,000 customers by helping them reduce cost, increase quality, and enhance their ability to drive consumer engagement. our focus on operational excellence and innovation across our platform places change healthcare in a strong position to deliver accelerated growth and shareholder value over the coming years.” 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 six months ended september 30, 2019. this includes the presentation of financial results during fiscal year 2020 under asc 605 for comparison to the prior year period. fiscal 2020 second quarter highlights for change healthcare llc: financial summary - asc 606 (standard adopted effective april 1, 2019) total revenue of $795.8 million, including solutions revenue of $738.7 million net income of $(0.1) million, resulting in net income of $(0.00) per diluted unit(1) adjusted net income of $86.6 million, resulting in adjusted net income of $0.27 per diluted unit(1) adjusted ebitda of $217.7 million financial summary - asc 605 (standard before april 1, 2019) total revenue of $805.8 million, including solutions revenue of $748.6 million net income of $4.3 million, resulting in net income of $0.01 per diluted unit(1) adjusted net income of $91.0 million, resulting in adjusted net income of $0.28 per diluted unit(1) adjusted ebitda of $222.0 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 $738.7 million. second 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 second quarter or subsequent periods under the prior accounting rules. as a result, the second quarter results reflect an unfavorable revenue impact of $9.9 million as compared with asc 605. net income was $(0.1) million, resulting in net income of $(0.00) 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 by $5.6 million, partially offsetting the revenue impact of asc 606 noted above. adjusted net income was $86.6 million, resulting in adjusted net income of $0.27 per diluted unit. adjusted ebitda was $217.7 million. adjusted ebitda as a percent of solutions revenue for the second quarter of fiscal 2020 was 29.5% financial results - asc 605 (standard before april 1, 2019) solutions revenue was $748.6 million, compared to $737.8 million for the second quarter of fiscal 2019. total revenue for the current period, which includes postage revenue, was $805.8 million compared to $800.2 million in the same period of the prior 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 $4.3 million, resulting in net income of $0.01 per diluted unit, compared with net income of $113.4 million or $0.45 per diluted unit, respectively, for the second quarter of fiscal 2019. net income in the prior year period included the gain on sale of the extended care business of $111.4 million before the provision of income tax. the sale resulted in an after-tax gain of approximately $111.1 million and an impact of approximately $0.44 per diluted unit. during the second 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 $91.0 million, resulting in adjusted net income of $0.28 per diluted unit, compared with adjusted net income of $89.9 million or $0.35 per diluted unit, respectively, for the second quarter of fiscal 2019. adjusted net income reflects the items noted above. adjusted ebitda was $222.0 million, compared with $216.0 million for the second quarter of fiscal 2019. adjusted ebitda as a percent of solutions revenue for the second quarter of fiscal 2020 was 29.7%, compared with 29.3% for the second 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 $223.9 million for the six months ended september 30, 2019, a decrease of 1.8% from $227.9 million for the six months ended september 30, 2018. free cash flow was $94.0 million for the six months ended september 30, 2019, a decrease of 8.9% from $103.2 million for the six months ended september 30, 2018. adjusted free cash flow was $173.9 million, a decrease of $59.2 million year over year. net cash provided by operating activities, free cash flow, and adjusted free cash flow each are affected by pass-thru funds we receive from certain pharmaceutical industry participants in advance of our obligation to remit these funds to participating retail pharmacies. the decrease in cash flow from operations, free cash flow and adjusted free cash flow primarily resulted from the inclusion of $12.9 million of such pass-thru funds in the six months ended september 30, 2019 as compared to $156.1 million for the six months ended september 30, 2018. change healthcare llc ended the quarter with approximately $73.0 million of cash, cash equivalents and restricted cash and approximately $4,971.0 million of total debt. in addition to the previously disclosed repayment of $805.0 million in term loan facility obligations in july 2019, the company repaid an additional $85.0 million in term loan facility obligations in the second quarter of fiscal 2020. as of september 30, 2019, no amounts had been drawn under the revolving credit facility. on july 3, 2019, the company amended its revolving credit facility to increase the current commitment amount from $500.0 million to $785.0 million and to extend the maturity to july 3, 2024. recent business highlights introduced new artificial intelligence (ai) technology capabilities to our careselect™ imaging decision support solution. these ai capabilities help healthcare providers enhance workflow efficiency, improve patient safety, provide higher-value care, and meet pending regulatory requirements, leveraging our integration into electronic health record (ehr) systems. awarded a contract through 2026 by ireland’s health service executive to extend their partnership with change healthcare to upgrade ireland’s national integrated medical imaging system (“nimis”). leveraging the innovation in our imaging unit, nimis is transforming how diagnostic imaging is delivered to the citizens of ireland to ensure that images and reports are available to clinicians at the right time and location regardless of where the image was acquired. introduced charge capture advisor, a new cloud-based addition to the company’s portfolio of revenue integrity solutions. the solution uses ai to identify potentially missing charges for services that providers actually performed before claims are submitted targeting a more complete capture of services rendered without additional time and effort by hospital revenue integrity teams. full year fiscal 2020 outlook and 2021 guidance - asc 606 change healthcare continues to expect full-year fiscal 2020 solutions revenue growth of 1% to 2% including the impact of the sale of our extended care business during fiscal year 2019 and planned contract exits in our technology-enabled services business; adjusted ebitda growth of 6% to 8% and adjusted net income growth of 9% to11%. for fiscal year 2021, the company continues to expect solutions revenue growth of 4% to 6% and adjusted ebitda growth of 6% to 8%. third quarter fiscal 2020 guidance - asc 606 change healthcare expects third quarter fiscal 2020 solutions revenue in the range of $745 million to $760 million, adjusted ebitda in the range of $225 million to $235 million, and adjusted net income in the range of $98 million to $103 million. while second quarter revenue decreased as a result of asc 606 implementation, full year revenue is not expected to differ materially between the two accounting standards. hence, the acceleration of revenue to the first quarter of the fiscal year will reduce the quarterly reported revenue in subsequent fiscal 2020 reported results versus the prior revenue recognition standard. the impact from extended recognition periods for commission expense as a result of the adoption of asc 606 is expected to be favorable by about $3 million pre-tax per quarter for the remainder of fiscal 2020. a reconciliation of the forward-looking third-quarter and full-year fiscal 2020 adjusted ebitda outlook to net income cannot be provided without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted. for the same reasons, change healthcare llc is unable to assess the probable significance of the unavailable information, which could have a material impact on its future 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 november 14, 2019 at 8:00 a.m. et. investors and other interested parties are invited to listen to the conference call by dialing 1-(877) 279-0788 in the u.s.; 1-(270) 215-9894 from abroad, including the conference id number: 1669249; 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 second-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, november 21, 2019, by dialing 1-(855) 859-2056 or 1-(404) 537-3406 and referencing confirmation 1669249. about change healthcare change healthcare is a leading independent healthcare technology company that provides data and analytics-driven solutions to improve clinical, financial and patient engagement outcomes in the u.s. healthcare system. we are a key catalyst of a value-based healthcare system, accelerating the journey toward improved lives and healthier communities. learn more at changehealthcare.com. chng-ir forward-looking statements this press release contains “forward-looking statements” within the meaning of federal securities laws. any statements made in this 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 descriptions of our business plans and strategies. these statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “estimate,” “target,” “project,” “should,” “could,” “would,” “may,” “will,” “forecast,” “outlook,” “potential,” “continues,” “seeks,” “predicts,” and the negatives of these words and other similar expressions. forward-looking statements involve known and unknown risks, uncertainties, including factors disclosed in the registration statement on form s-1 (no. 333-230345) in the section entitled “risk factors,” and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. given these uncertainties, you should not place undue reliance on any forward-looking statements in this release. all forward-looking statements are based on information currently available to change healthcare and are qualified in their entirety by this cautionary statement. the statements herein speak only as of the date such statements were first made. except to the extent required by law, change healthcare assumes no obligation to update any such forward-looking statements or other statements included in this release. non-gaap financial measures in the company’s earnings releases, prepared remarks, conference calls, slide presentations and webcasts, there may be use or discussion of non-gaap financial measures. we believe such measures provide supplemental information to investors with regard to our operating performance and assist investors’ ability to compare our financial results to those of other companies in the same industry. the gaap financial measure most directly comparable to each non-gaap financial measure used or discussed, and a reconciliation of the differences 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 six months ended september 30, september 30, 2019 2018 2019 2018 revenue $ — $ — $ — $ — operating expenses general and administrative 1,138 31 1,389 62 accretion expense 48,363 — 48,363 — total operating expenses 49,501 31 49,752 62 operating income (loss) (49,501) (31) (49,752) (62) non-operating (income) expense loss from equity method investment in the joint venture 56,179 25,571 95,732 48,337 (gain) loss on sale of interests in the joint venture — (197) — (661) management fee income (772) (31) (876) (62) interest expense 644 — 644 — interest income (644) — (644) — amortization of debt discount and issuance costs 212 — 212 — unrealized gain (loss) on forward purchase contract 2,435 — 2,435 — total non-operating (income) expense 58,054 25,343 97,503 47,614 income (loss) before income tax provision (benefit) (107,555) (25,374) (147,255) (47,676) income tax provision (benefit) (13,620) (6,783) (15,804) (11,584) net income (loss) $ (93,935) $ (18,591) $ (131,451) $ (36,092) net income (loss) per share: basic $ (0.66) $ (0.25) $ (1.20) $ (0.48) diluted $ (0.66) $ (0.25) $ (1.20) $ (0.48) weighted average shares: basic 142,223,836 75,506,552 109,111,853 75,555,700 diluted 142,223,836 75,506,552 109,111,853 75,555,700 change healthcare inc. balance sheets (unaudited and amounts in thousands, except share and per share amounts) september 30, march 31, 2019 2019 assets current assets: cash $ 3,409 $ 3,409 prepaid expenses 2,315 — due from the joint venture 1,345 373 investment in joint venture tangible equity units, current 15,154 — income taxes receivable 1,602 1,781 total current assets 23,825 5,563 dividend receivable 34,547 81,264 investment in the joint venture 1,826,887 1,211,996 investment in joint venture tangible equity units 259,237 — total assets $ 2,144,496 $ 1,298,823 liabilities and stockholders' equity current liabilities: accounts payable and accrued expenses $ 453 $ 176 due to the joint venture 9,513 6,167 current portion of long-term debt 15,154 — total current liabilities 25,120 6,343 long-term debt 27,384 — due to mckesson 48,363 — deferred income tax liabilities 156,770 159,993 other liabilities 752 — commitments and contingencies (see note 4) stockholders' equity: common stock (par value, $.001), 9,000,000,000 and 252,800,000 shares authorized and 124,935,806 and 75,474,654 shares issued and outstanding at september 30, 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 september 30, 2019 and march 31, 2019, respectively — — preferred stock (par value, $.001), 900,000,000 and 0 shares authorized and no shares issued and outstanding at september 30, 2019 and march 31, 2019, respectively — — additional paid-in capital 2,006,494 1,153,509 accumulated other comprehensive income (loss) (6,593) (3,256) retained earnings (deficit) (113,918) (17,841) total stockholders' equity 1,886,107 1,132,487 total liabilities and stockholders' equity $ 2,144,496 $ 1,298,823 six months ended september 30, 2019 2018 cash flows from operating activities: net income (loss) $ (131,451) $ (36,092) adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: loss from equity method investment in the joint venture 95,732 48,337 deferred income tax expense (benefit) (15,806) (11,584) (gain) loss on sale of interests in the joint venture — (661) (gain) loss on available for sale debt securities 2,435 — amortization of debt discount and issuance costs 212 — changes in operating assets and liabilities: prepaid expenses (2,315) — due from the joint venture (972) (62) income taxes receivable 179 13,292 accounts payable and accrued expenses 277 64 due to mckesson 48,363 — due to the joint venture 3,346 (9,663) net cash provided by (used in) operating activities — 3,631 cash flows from investing activities: proceeds from sale of interests in joint venture — 4,782 investment in debt and equity securities of the joint venture (278,875) — proceeds from investment in debt and equity securities of the joint venture 3,621 — investment in the joint venture (609,818) — net cash provided by (used in) investing activities (885,072) 4,782 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 (3,621) — proceeds from exercise of equity awards 1,139 — payments to acquire common stock — (4,782) net cash provided by (used in) financing activities 885,072 (4,782) 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 six months ended september 30, september 30, 2019 2018 2019 2018 revenue: solutions revenue $ 738,701 $ 737,786 $ 1,535,773 $ 1,495,491 postage revenue 57,110 62,404 115,594 127,962 total revenue 795,811 800,190 1,651,367 1,623,453 operating expenses: cost of operations (exclusive of depreciation and amortization below) 331,234 327,563 658,181 664,993 research and development 51,783 51,243 101,122 106,567 sales, marketing, general and administrative 190,039 207,105 383,312 414,019 customer postage 57,110 62,404 115,594 127,962 depreciation and amortization 77,448 69,258 148,764 137,785 accretion and changes in estimate with related parties, net 3,214 5,932 7,094 9,756 gain on sale of the extended care business — (111,392) — (111,392) total operating expenses 710,828 612,113 1,414,067 1,349,690 operating income (loss) 84,983 188,077 237,300 273,763 non-operating (income) and expense interest expense, net 69,901 80,677 153,307 159,226 loss on extinguishment of debt 16,900 — 16,900 — contingent consideration 1,700 (72) 909 200 other, net (4,386) (3,849) (8,164) (9,381) total non-operating (income) and expense 84,115 76,756 162,952 150,045 income (loss) before income tax provision (benefit) 868 111,321 74,348 123,718 income tax provision (benefit) 998 (2,119) 2,563 (2,228) - net income (loss) $ (130) $ 113,440 $ 71,785 $ 125,946 net income (loss) per common unit: basic $ - $ 0.45 $ 0.25 $ 0.50 diluted $ - $ 0.45 $ 0.25 $ 0.50 weighted average common units outstanding: basic 318,219,028 251,501,744 285,107,046 251,550,892 diluted 323,970,033 253,333,940 288,809,850 253,390,770 (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) september 30, march 31, 2019 2019 assets current assets: cash and cash equivalents $ 72,992 $ 47,718 restricted cash — 1,176 accounts receivable, net of allowance for doubtful accounts 675,306 759,502 contract assets 139,111 — prepaid expenses and other current assets 155,019 172,067 assets held for sale (see note 14) 29,562 — total current assets 1,071,990 980,463 property and equipment, net 160,305 197,263 goodwill 3,295,381 3,284,266 intangible assets, net 1,261,290 1,320,161 other noncurrent assets, net 500,627 421,985 total assets $ 6,289,593 $ 6,204,138 liabilities and members' equity current liabilities: drafts and accounts payable $ 64,010 $ 98,550 accrued expenses 315,419 316,179 deferred revenues 337,371 437,636 due to related parties, net 23,230 34,629 current portion of long-term debt 26,644 2,789 total current liabilities 766,674 889,783 long-term debt, excluding current portion 4,944,395 5,787,150 deferred income tax liabilities 110,016 106,099 tax receivable agreement obligations to related parties 199,876 212,698 other long-term liabilities 112,812 113,194 commitments and contingencies (see note 6) members' equity (deficit) 155,820 (904,786) total liabilities and members' equity $ 6,289,593 $ 6,204,138 change healthcare llc consolidated statements of cash flows (unaudited and amounts in thousands) six months ended september 30, 2019 2018 cash flows from operating activities: net income (loss) $ 71,785 $ 125,946 adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: depreciation and amortization 148,764 137,785 amortization of capitalized software developed for sale 6,698 7,378 accretion and changes in estimate, net 7,094 9,756 equity compensation 15,207 8,269 deferred income tax expense (benefit) 1,473 (3,013) amortization of debt discount and issuance costs 9,941 10,964 contingent consideration 909 200 gain on sale of the extended care business — (111,392) loss on extinguishment of debt 16,900 — other (111) 538 changes in operating assets and liabilities: accounts receivable 54,240 6,730 contract assets 12,688 — prepaid expenses and other (8,583) (16,373) accounts payable (15,209) (32,035) accrued expenses and other liabilities (16,311) 142,707 deferred revenue (69,471) (75,074) due to related party, net (12,150) 15,482 net cash provided by (used in) operating activities 223,864 227,868 cash flows from investing activities: capitalized expenditures (129,847) (124,631) proceeds from sale of the extended care business — 160,244 investments in businesses (18,946) — net cash provided by (used in) investing activities (148,793) 35,613 cash flows from financing activities: payments of third party ipo and loan costs (8,554) — payments under tax receivable agreements with related parties (27,227) (25,096) payments on term loan facility (902,750) (76,500) receipts (payments) on derivative instruments 3,109 2,090 payments of deferred financing obligations — (3,432) capital contribution from members from exercise of equity awards 1,139 205 repurchase of equity awards — (5,305) 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 change healthcare inc. (2,590) 2,636 payment of debt issued to change healthcare inc. (3,621) — other 247 598 net cash provided by (used in) financing activities (51,272) (104,804) effect of exchange rate changes on cash and cash equivalents 299 (672) net increase (decrease) in cash, cash equivalents and restricted cash 24,098 158,005 cash, cash equivalents and restricted cash at beginning of period 48,894 50,011 cash, cash equivalents and restricted cash at end of period $ 72,992 $ 208,016 change healthcare llc reconciliation of net income (loss) to adjusted ebitda three months ended september 30, six months ended september 30, 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) $ (130) $ 4,386 $ 4,256 $ 113,440 $ 71,785 $ (40,871) $ 30,914 $ 125,946 net interest expense 69,901 — 69,901 80,677 153,307 — 153,307 159,226 income tax provision (benefit) 998 (32) 966 (2,119) 2,563 (2,283) 280 (2,228) depreciation and amortization 77,448 — 77,448 69,258 148,764 — 148,764 137,785 amortization of capitalized software developed for sale 3,249 — 3,249 3,618 6,698 — 6,698 7,378 ebitda 151,466 4,354 155,820 264,874 383,117 (43,154) 339,963 428,107 adjustments to ebitda: equity compensation 9,345 — 9,345 2,959 15,207 — 15,207 8,259 acquisition accounting adjustments 553 — 553 555 927 — 927 2,540 acquisition and divestiture-related costs 414 — 414 3,319 1,073 — 1,073 7,507 integration and related costs 19,781 — 19,781 26,291 45,507 — 45,507 47,242 strategic initiatives, duplicative and transition costs 6,120 — 6,120 8,348 9,688 — 9,688 19,122 severance costs 2,929 — 2,929 2,339 10,099 — 10,099 10,015 costs related to recently issued accounting standards — — — 1,772 — — — 5,513 accretion and changes in estimate with related parties, net 3,214 — 3,214 5,932 7,094 — 7,094 9,756 management fees and related costs 2,413 — 2,413 2,607 5,060 — 5,060 5,284 impairment of long-lived assets and other — — — 2,343 (840) — (840) 3,360 gain on sale of extended care business — — — (111,392) — — — (111,392) contingent consideration 1,700 — 1,700 — 909 — 909 272 loss on extinguishment of debt 16,900 — 16,900 — 16,900 — 16,900 — other non-routine, net 2,858 — 2,858 6,004 4,008 — 4,008 8,156 ebitda adjustments 66,227 — 66,227 (48,923) 115,632 — 115,632 15,634 adjusted ebitda $ 217,693 $ 4,354 $ 222,047 $ 215,951 $ 498,749 $ (43,154) $ 455,595 $ 443,741 change healthcare llc reconciliation of net income (loss) to adjusted net income (loss) three months ended september 30, six months ended september 30, 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) $ (130) $ 4,386 $ 4,256 $ 113,440 71,785 $ (40,871) $ 30,914 $ 125,946 amortization expense resulting from acquisition method adjustments 35,054 — 35,054 36,765 69,702 — 69,702 74,708 ebitda adjustments 66,227 — 66,227 (48,923) 115,632 — 115,566 — tax effect of ebitda adjustments and amortization expense (14,527) — (14,527) (11,359) (28,991) — (28,991) (28,760) adjusted net income $ 86,624 $ 4,386 $ 91,010 $ 89,923 228,128 $ (40,871) $ 187,191 $ 171,894 adjusted net income (loss) per diluted unit (1) $ 0.27 $ 0.01 $ 0.28 $ 0.35 0.79 $ (0.14) $ 0.65 $ 0.68 (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 september 30, six months ended september 30, 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 $ 376,128 $ 13,151 $ 389,279 $ 383,510 $ 813,472 $ (28,476) $ 784,996 $ 779,912 network solutions 144,276 — 144,276 136,322 285,888 — 285,888 272,925 technology-enabled services 244,124 (3,206) 240,918 243,343 488,114 (3,110) 485,004 493,338 corporate and eliminations (1) 31,283 — 31,283 37,015 63,893 — 63,893 77,278 net revenue $ 795,811 $ 9,945 $ 805,756 $ 800,190 $ 1,651,367 $ (31,586) $ 1,619,781 $ 1,623,453 segment adjusted ebitda software and analytics $ 140,078 $ 8,847 $ 148,925 $ 139,419 $ 342,393 $ (37,137) $ 305,256 $ 282,056 network solutions 86,500 (414) 86,086 83,612 171,472 (932) 170,540 165,849 technology-enabled services 44,841 (3,757) 41,084 39,181 89,992 (4,515) 85,477 89,154 corporate and eliminations (53,726) (322) (54,048) (46,261) (105,108) (570) (105,744) (93,318) total adjusted ebitda $ 217,693 $ 4,354 $ 222,047 $ 215,951 $ 498,749 $ (43,154) $ 455,529 $ 443,741 (1) – revenue for the corporate and eliminations segment includes postage revenue of $57,110 and $62,404 for the three months ended september 30, 2019 and 2018, respectively, and $115,594 and $127,962 for the six months ended september 30, 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 six months ended unaudited and amounts in thousands september 30, 2019 2018 cash provided by (used in) operating activities (1) $ 223,864 $ 227,868 capital expenditures (129,847) (124,631) free cash flow 94,017 103,237 adjustments to free cash flow (2): integration and related costs 45,507 47,242 strategic initiatives, duplicative and transition costs 9,688 19,122 severance costs 10,099 10,015 costs related to recently issued accounting standards — 5,513 integration capital expenditures 14,546 47,983 adjusted free cash flow $ 173,858 $ 233,112 (1) includes cash provided by pass-thru funds of $12.9 million and $156.1 million for the six months ended september 30, 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 september 30, six months ended september 30, 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 $ 738,701 $ 9,945 $ 748,646 $ 737,786 $ 1,535,773 $ (31,586) $ 1,504,187 $ 1,495,491 postage revenue 57,110 — 57,110 62,404 115,594 — 115,594 127,962 total revenue 795,811 9,945 805,756 800,190 1,651,367 (31,586) 1,619,781 1,623,453 operating expenses: cost of operations (exclusive of depreciation and amortization below) 331,234 996 332,230 327,563 658,181 1,804 659,985 664,993 research and development 51,783 — 51,783 51,243 101,122 — 101,122 106,567 sales, marketing, general and administrative 190,039 4,595 194,634 207,105 383,312 9,764 393,076 414,019 customer postage 57,110 — 57,110 62,404 115,594 — 115,594 127,962 depreciation and amortization 77,448 — 77,448 69,258 148,764 — 148,764 137,785 accretion and changes in estimate with related parties, net 3,214 — 3,214 5,932 7,094 — 7,094 9,756 gain on sale of the extended care business — — — (111,392) — — — (111,392) impairment of long-lived assets and related costs — — — — — — — — total operating expenses 710,828 5,591 716,419 612,113 1,414,067 11,568 1,425,635 1,349,690 operating income (loss) 84,983 4,354 89,337 188,077 237,300 (43,154) 194,146 273,763 non-operating (income) and expense interest expense, net 69,901 — 69,901 80,677 153,307 — 153,307 159,226 loss on extinguishment of debt 16,900 — 16,900 — 16,900 — 16,900 — contingent consideration 1,700 — 1,700 (72) 909 — 909 200 other, net (4,386) — (4,386) (3,849) (8,164) — (8,164) (9,381) total non-operating (income) and expense 84,115 — 84,115 76,756 162,952 — 162,952 150,045 income (loss) before income tax provision (benefit) 868 4,354 5,222 111,321 74,348 (43,154) 31,194 123,718 income tax provision (benefit) 998 (32) 966 (2,119) 2,563 (2,283) 280 (2,228) net income (loss) $ (130) $ 4,386 $ 4,256 $ 113,440 $ 71,785 $ (40,871) $ 30,914 $ 125,946 net income (loss) per common unit(1): basic $ - $ 0.01 $ 0.01 $ 0.45 $ 0.25 $ (0.14) $ 0.11 $ 0.50 diluted $ - $ 0.01 $ 0.01 $ 0.45 $ 0.25 $ (0.14) $ 0.11 $ 0.50 (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 september 30, 2019 march 31, 2019 as reported impacts from adoption without adoption (asc 605) as reported (asc 605) assets current assets: cash and cash equivalents $ 72,992 $ — $ 72,992 $ 47,718 restricted cash — — — 1,176 accounts receivable, net of allowance for doubtful accounts 675,306 15,814 691,120 759,502 contract assets 139,111 (139,111) — — prepaid expenses and other current assets 155,019 20,914 175,933 172,067 assets held for sale 29,562 — 29,562 — total current assets 1,071,990 (102,383) 969,607 980,463 property and equipment, net 160,305 — 160,305 197,263 goodwill 3,295,381 — 3,295,381 3,284,266 intangible assets, net 1,261,290 — 1,261,290 1,320,161 other noncurrent assets, net 500,627 (40,520) 460,107 421,985 total assets $ 6,289,593 $ (142,903) $ 6,146,690 $ 6,204,138 liabilities and members' equity current liabilities: drafts and accounts payable $ 64,010 $ — $ 64,010 $ 98,550 accrued expenses 315,419 — 315,419 316,179 deferred revenues 337,371 57,881 395,252 437,636 due to related parties, net 23,230 — 23,230 34,629 current portion of long-term debt 26,644 — 26,644 2,789 total current liabilities 766,674 57,881 824,555 889,783 long-term debt, excluding current portion 4,944,395 — 4,944,395 5,787,150 deferred income tax liabilities 110,016 — 110,016 106,099 tax receivable agreement obligations to related parties 199,876 — 199,876 212,698 other long-term liabilities 112,812 — 112,812 113,194 commitments and contingencies members' equity (deficit) 155,820 (200,784) (44,964) (904,786) total liabilities and members' equity $ 6,289,593 $ (142,903) $ 6,146,690 $ 6,204,138
