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, 2017 and 2016 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These interim consolidated financial statements are unaudited and, in the opinion of our management,
include all adjustments, consisting of normal recurring adjustments and accruals, necessary
to present fairly the consolidated financial statements for the periods presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The consolidated results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, 2017.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting, although the Company believes that the disclosures made are adequate to make that information not misleading. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2016 (our “Form 10-K”).
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates.
Significant Accounting Policies
There have been no changes to our significant accounting policies from those disclosed in our Form 10-K.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-07,
Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting
(“ASU 2016-07”). The guidance in ASU 2016-07 eliminates the requirement that, when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments also require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. ASU 2016-07 is effective for interim and annual periods beginning after December 15, 2016, and should be applied prospectively. Early application is permitted. We adopted this new guidance effective January 1, 2017 and the adoption did not have any impact on our consolidated financial statements.
7
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Compensati
on – Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting
(“ASU 2016-09”). The Company adopted ASU 2016-09 effective January 1, 2017, which requires that tax effects related to employee share-based payments be recorded prospective
ly as a component of the provision for income taxes, thus potentially increasing the volatility in our effective tax rate (see Note 9, “Income Taxes”). Additionally, we prospectively adopted the requirement to present recognized excess tax benefits related
to employee share-based payments as an operating activity in the accompanying Consolidated Statements of Cash Flows. ASU 2016-09 also eliminates prospectively the requirement to consider anticipated tax windfalls and shortfalls in the calculation of assum
ed proceeds under the treasury stock method used for computing the dilutive effect of share-based payment awards in the calculation of diluted earnings per share. Finally, ASU 2016-09 requires the recognition of excess tax benefits related to employee shar
e-based payments, regardless of whether the tax deduction reduces taxes payable. As part of the adoption of this requirement, we decreased the opening balance of accumulated deficit by $1.8 million to recognize excess tax benefits not previously recorded s
ince they did not reduce taxes payable. The adoption of the remaining requirements of ASU 2016-09 did not have a
material
impact on our financial position or results of operation.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”). The guidance in ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. We early adopted this new guidance effective January 1, 2017 and the adoption did not have any impact on our consolidated financial statements.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09,
Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU 2017-09”). The guidance in ASU 2017-09 clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 is effective prospectively for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. We early adopted this new guidance effective June 1, 2017 and the adoption did not have any impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers: Topic 606
(“ASU 2014-09”), to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. As issued, ASU 2014-09 was effective for us for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. On August 12, 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 by one year to annual reporting periods beginning after December 15, 2017, while also permitting companies to voluntarily adopt the new revenue standard as of the original effective date. In addition, during 2016, the FASB issued ASU 2016-08, ASU 2016-10, 2016-11, 2016-12 and 2016-20, all of which clarify certain implementation guidance within ASU 2014-09.
The new revenue recognition guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). We have decided to adopt the standard effective January 1, 2018 using the modified retrospective method.
8
We have completed our assessment of our systems, availab
le data and processes that will be affected by the implementation of this new guidance. We are continuing to work towards establishing policies, updating our processes and implementing necessary changes to be able to comply with the new requirements. Throu
gh evaluation of the standard’s requirements, the Company plans to utilize several practical expedients including (i) viewing shipping and handling as a fulfillment cost versus a distinct performance obligation, and (ii) the right to invoice expedient as i
t relates to transaction-related revenue activities. Based on the results of our assessment to date, we anticipate this standard will have an impact, which could be significant, on our consolidated financial statements. While we are continuing to assess al
l potential impacts of the standard, we currently believe the most significant impact relates to our accounting for software license revenue. We expect revenue related to hardware
sales
, software-as-a-service-based offerings, client services, electronic d
ata interchange services, and managed services to remain substantially unchanged. We expect to recognize a significant portion of license revenue upfront rather than be restricted to payment amounts due under extended payment term contracts as required und
er the current guidance. We also expect to recognize license revenue upfront rather than over the subscription period from certain multi-year software subscription contracts that include both software licenses and software support and maintenance. Due to
the complexity of certain of our license subscription contracts, the actual revenue license recognition treatment required under the new standard will be dependent on contract-specific terms, and may vary in some instances from upfront recognition.
Additionally, we currently only capitalize direct sales commissions that are specifically associated with new or renewal contracts. The new revenue recognition guidance requires the capitalization of all incremental costs of obtaining a contract with a customer that an entity expects to recover. As part of our implementation efforts, we have identified certain indirect commissions and other payments that would be eligible for capitalization under the new guidance because they are also incremental costs solely associated with new or renewal contracts that we expect to recover. As result, we expect to record a deferral for such costs, which could be significant, upon adoption of the new guidance on January 1, 2018.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU 2017-01”). ASU 2017-01 provides new accounting guidance to assist an entity in evaluating when a set of transferred assets and activities is a business. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted, including for interim or annual periods in which the financial statements have not been issued or made available for issuance. We are currently evaluating the impact of adopting this new guidance, including the timing of adoption.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04,
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
(“ASU 2017-04”), which provides new accounting guidance to simplify the accounting for goodwill impairment. ASU 2017-04 removes Step Two of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new guidance, a goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill assigned to the reporting unit. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. ASU 2017-04 is effective for annual and interim periods in fiscal years beginning after December 15, 2019 with early adoption permitted for any goodwill impairment tests performed after January 1, 2017. The new guidance is to be applied prospectively. We are currently evaluating the impact of this accounting guidance, including the timing of adoption.
In August 2017, the FASB issued Accounting Standards Update No. 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
(“ASU 2017-12”), which provides new accounting guidance to simplify and improve the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in this Update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after the issuance of this Update. We are currently evaluating the impact of this accounting guidance, including the timing of adoption.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, would have a material impact on our consolidated financial statements.
9
2. Business Combinations
2017 Business Combinations
Acquisition of DeVero
On July 17, 2017, Netsmart (as defined below) completed the acquisition of DeVero, Inc. (“DeVero”), a healthcare technology company that develops electronic medical record solutions for home healthcare and hospice, for an aggregate purchase price of $50.7 million in cash. The purchase price was funded through incremental borrowings under Netsmart’s debt facilities. The allocation of the aggregate consideration is as follows: $32.9 million of goodwill; $19.0 million of intangible assets related to customer relationships; $6.9 million of intangible assets related to technology; $2.0 million of cash; other assets of $1.5 million; accounts payable and accrued expenses of $2.3 million; deferred revenue of $0.9 million; and deferred income taxes of $8.4 million. This allocation is preliminary and subject to changes, which could be significant, as liabilities related to deferred taxes are finalized, and additional information becomes available. The acquired intangible assets related to technology and customer relationships will be amortized over their estimated useful lives of 7-20 years using a method that approximates the pattern of economic benefits to be gained by the intangible assets. The goodwill is not deductible for tax purposes. The results of operations of DeVero were not material to our consolidated results of operations for the three and nine months ended September 30, 2017
.
NantHealth Asset Purchase Agreement
On August 25, 2017, the Company completed the acquisition of substantially all of the assets relating to the provider/patient engagement solutions business of NantHealth, Inc. (“NantHealth”). The consideration for the transaction included the 15,000,000 shares of common stock of NantHealth that had been held by the Company as available for sale securities and which had a fair value of $42.8 million at the time of the transaction. The transaction also includes adjustments for working capital and deferred revenue obligations, as well as a modification of the commercial agreement between the parties. Total consideration for the transaction was as follows:
|
|
(In thousands)
|
|
Cash
|
|
$
|
1,742
|
|
NantHealth common stock
|
|
|
42,750
|
|
Less: Value assigned to modification of existing commercial agreement with NantHealth
|
|
|
(22,700
|
)
|
Total consideration for NantHealth provider/patient solutions business
|
|
$
|
21,792
|
|
The allocation of the fair value of the consideration transferred as of the acquisition date of August 25, 2017 is shown in the table below.
This allocation is preliminary and subject to changes, which could be significant, as appraisals of tangible and intangible assets are finalized, and additional information becomes available. The goodwill is expected to be deductible for tax purposes.
|
|
(In thousands)
|
|
Cash and cash equivalents
|
|
$
|
21
|
|
Accounts receivable, net
|
|
|
2,078
|
|
Prepaid expenses and other current assets
|
|
|
1,806
|
|
Fixed assets
|
|
|
7,099
|
|
Intangible assets
|
|
|
12,400
|
|
Goodwill
|
|
|
9,058
|
|
Other assets
|
|
|
205
|
|
Accounts payable and accrued expenses
|
|
|
(1,575
|
)
|
Deferred revenue
|
|
|
(9,300
|
)
|
Net assets acquired
|
|
$
|
21,792
|
|
The following table summarizes the estimated fair values of the identifiable intangible assets and their estimated useful lives:
|
|
Useful Life
|
|
Fair Value
|
|
Description
|
|
(In years)
|
|
(In thousands)
|
|
Customer Relationships
|
|
19
|
|
$
|
9,200
|
|
Technology
|
|
5
|
|
|
3,000
|
|
Tradenames
|
|
5
|
|
|
200
|
|
|
|
|
|
$
|
12,400
|
|
10
Asset Purchase Agreement with Third Party
On March 31, 2017, Netsmart entered into an Asset Purchase Agreement with a third party, for an aggregate cash consideration of $4.0 million, to acquire intellectual property, certain contractual relationships and certain associates. This transaction has been accounted for as a business combination. The Asset Purchase Agreement provides for contingent consideration to be paid to the third party based on the number of customers of the third party that migrate to Netsmart’s electronic health record product. The value of the contingent consideration has been estimated to be $0.7 million. Netsmart accrued $0.5 million at September 30, 2017 within other liabilities. This amount represents the discounted fair value of the contingent consideration. This transaction resulted in the recognition of goodwill of $4.4 million.
The goodwill is expected to be deductible for tax purposes. We have finalized the allocation of the fair value of the consideration transferred as of September 30, 2017
.
2016 Business Combinations Update
Formation of Joint Business Entity and Acquisition of Netsmart, Inc.
On March 20, 2016, we entered into a Contribution and Investment Agreement with GI Netsmart Holdings LLC, a Delaware limited liability company (“GI Partners”), to form a joint business entity to which we contributed our Homecare
TM
business and GI Partners made a cash contribution. On April 19, 2016, the joint business entity acquired Netsmart, Inc., a Delaware corporation. As a result of these transactions (the “Netsmart Transaction”), the joint business entity combined the Allscripts Homecare
TM
business with Netsmart, Inc. Throughout the rest of this Form 10-Q, the joint business entity is referred to as “Netsmart”.
As part of the Netsmart Transaction, we deposited $15 million in an escrow account to be used by Netsmart to facilitate the integration of our Homecare
TM
business within Netsmart over the next five years, at which time the restriction on any unused funds will lapse. As of September 30, 2017, there is $11.3 million remaining in the escrow account.
Our Form 10-K includes a detailed discussion about the Netsmart Transaction. We finalized the allocation of the fair value of the consideration transferred as of December 31, 2016.
Acquisition of HealthMEDX
On October 27, 2016, Netsmart completed the acquisition of HealthMEDX, LLC, a Delaware limited liability company (“HealthMEDX”), for an aggregate consideration of $39.2 million. HealthMEDX is a provider of electronic medical record solutions for long-term and post-acute care including continuing care retirement communities, assisted living, independent living, skilled nursing and home care providers.
During the three months ended March 31, 2017, we finalized the allocation of the fair value of the consideration transferred and recorded a measurement period adjustment of $0.1 million related to the fair value of liabilities with an offset to goodwill.
Other Acquisitions
During the second quarter of 2017 we recorded final measurement period adjustments against goodwill related to the Company’s acquisitions of third parties during the fourth quarter of 2016.
11
Supplemental Information
The supplemental pro forma results below for the three and nine months ended September 30, 2017 and 2016 were calculated after applying our accounting policies and adjusting the results of NantHealth’s provider /patient engagement solutions business to reflect (i) the additional amortization of acquired intangible assets and (ii) the additional amortization of the estimated adjustment to decrease the assumed deferred revenue obligations to fair value, that would have been recognized assuming the acquisition occurred on January 1, 2016, together with the consequential tax effects. The supplemental pro forma results were also adjusted to exclude acquisition-related and transaction costs incurred during the 2017 period.
The revenue and net loss of NantHealth’s provider/patient solutions business since August 25, 2017 are included in our consolidated statement of operations for the three and nine months ended September 30, 2017.
The supplemental pro forma results below for the three and nine months ended September 30, 2016 were calculated after applying our accounting policies and adjusting the results of Netsmart and HealthMEDX to reflect (i) the additional depreciation and amortization that would have resulted from the fair value adjustments to property, plant and equipment and intangible assets, (ii) the additional interest expense associated with Netsmart’s borrowings under new term loans and (iii) the additional amortization of the estimated adjustment to decrease the assumed deferred revenue obligations to fair value, that would have been recognized assuming both acquisitions occurred on January 1, 2015, together with the consequential tax effects. The supplemental pro forma results were also adjusted to exclude acquisition-related and transaction costs incurred during the 2016 period. The effects of transactions between Allscripts and Netsmart during the periods presented have been eliminated in the supplemental pro forma data.
The revenue and net loss of Netsmart since April 19, 2016 are included in our consolidated statement of operations for the three and nine months ended September 30, 2016.
The consolidated statements of operations for the three and nine months ended September 30, 2016 do not include any actual revenue and earnings from HealthMEDX since this acquisition was completed on October 27, 2016.
The below supplemental pro forma data for the combined entity is presented under the assumption that the Netsmart and HealthMEDX acquisitions occurred on January 1, 2015 and the NantHealth provider/patient solutions business acquisition occurred on January 1, 2016. The three and nine months ended September 30, 2017 only reflect pro forma adjustments related to the NantHealth provider/patient solutions business, as Netsmart and HealthMEDX are included for the full 2017 periods.
(In thousands, except per share amounts)
|
|
Three Months Ended
September 30, 2017
|
|
|
Nine Months Ended
September 30, 2017
|
|
|
Three Months Ended
September 30, 2016
|
|
|
Nine Months Ended
September 30, 2016
|
|
Actual from Netsmart since acquisition date of
April 19, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
$
|
52,621
|
|
|
$
|
96,855
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
$
|
(11,126
|
)
|
|
$
|
(18,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual from NantHealth since acquisition date of
August 25, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
648
|
|
|
$
|
0
|
|
|
$
|
648
|
|
|
$
|
0
|
|
Net loss
|
|
$
|
(628
|
)
|
|
$
|
0
|
|
|
$
|
(628
|
)
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental pro forma data for combined entity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
451,142
|
|
|
$
|
1,296,008
|
|
|
$
|
403,741
|
|
|
$
|
1,229,471
|
|
Net loss attributable to Allscripts Healthcare
Solutions, Inc. stockholders
|
|
$
|
(27,260
|
)
|
|
$
|
(223,449
|
)
|
|
$
|
(14,799
|
)
|
|
$
|
(66,220
|
)
|
Loss per share, basic and diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(1.24
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.35
|
)
|
3. Fair Value Measurements and Long-term Investments
Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market participant assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The fair values of assets and liabilities required to be measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their value in one of the following three categories:
Level 1: Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. Our Level 1 financial instruments included our investment in NantHealth common stock. Refer to Note 11,
“Other Comprehensive Income,”
for further information regarding our available for sale marketable securities.
12
Level 2: Inputs, other than quoted prices included in Level 1, are observable for the asset or liability, either directly or indirectly. Our Level 2 derivative financial instruments include foreign currency forward contract
s valued based upon observable values of spot and forward
foreign currency exchange rates.
Refer to Note 10, “Derivative Financial Instruments,” for further information regarding these derivative financial instruments.
Level 3: Unobservable inputs that are significant to the fair value of the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Our Level 3 financial instruments include derivative financial instruments comprising the 1.25% Call Option asset and the 1.25% embedded cash conversion option liability that are not actively traded. These derivative instruments were designed with the intent that changes in their fair values would substantially offset, with limited net impact to our earnings. Therefore, we believe the sensitivity of changes in the unobservable inputs to the option pricing model for these instruments is substantially mitigated. Refer to Note 10, “Derivative Financial Instruments,” for further information regarding these derivative financial instruments. The sensitivity of changes in the unobservable inputs to the valuation pricing model used to value these instruments is not material to our consolidated results of operations.
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, 2017
|
|
|
December 31, 2016
|
|
(In thousands)
|
|
Classifications
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
NantHealth
Common Stock
|
|
Available for sale
marketable
securities
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
149,100
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
149,100
|
|
1.25% Call Option
|
|
Other assets
|
|
|
0
|
|
|
|
0
|
|
|
|
44,882
|
|
|
|
44,882
|
|
|
|
0
|
|
|
|
0
|
|
|
|
17,080
|
|
|
|
17,080
|
|
1.25% Embedded
cash conversion
option
|
|
Other liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
(45,973
|
)
|
|
|
(45,973
|
)
|
|
|
0
|
|
|
|
0
|
|
|
|
(17,659
|
)
|
|
|
(17,659
|
)
|
Foreign exchange
derivative assets
|
|
Prepaid expenses
and other
current assets
|
|
|
0
|
|
|
|
1,362
|
|
|
|
0
|
|
|
|
1,362
|
|
|
|
0
|
|
|
|
1,021
|
|
|
|
0
|
|
|
|
1,021
|
|
Total
|
|
|
|
$
|
0
|
|
|
$
|
1,362
|
|
|
$
|
(1,091
|
)
|
|
$
|
271
|
|
|
$
|
149,100
|
|
|
$
|
1,021
|
|
|
$
|
(579
|
)
|
|
$
|
149,542
|
|
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 # of investees)
|
|
at September 30, 2017
|
|
|
Investment
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Equity method investments
(1)
|
|
|
3
|
|
|
$
|
1,658
|
|
|
$
|
4,142
|
|
|
$
|
2,436
|
|
Cost method investments
|
|
|
7
|
|
|
|
32,784
|
|
|
|
26,572
|
|
|
|
26,041
|
|
Total equity investments
|
|
|
10
|
|
|
$
|
34,442
|
|
|
$
|
30,714
|
|
|
$
|
28,477
|
|
_________________________________
|
(1)
|
Allscripts share of the earnings of our equity method investees is reported based on a one quarter lag.
|
As of September 30, 2017, it is not practicable 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 and the issuer’s subsequent or planned raises of capital.
Impairment of Long- term Investments
Each quarter, management performs an assessment of each of our investments on an individual basis to determine if any declines in fair value are other than temporary.
Based on management's assessment
during the second quarter of 2017
, the Company determined that the decline in fair value of our available for sale marketable securities was other than temporary based on a number of factors, including, but not limited to, uncertainty regarding our intent to hold these investments for a period of time that would be sufficient to recover our cost basis in the event of a market recovery, the fact that the fair value of each investment had continued to decline below cost over the period held, and the Company's uncertainty around the near-term prospects for certain of the investments.
As a result, the Company recognized other-than-temporary impairment charges of $142.2 million on available for sale marketable securities during the second quarter of 2017.
The cost basis of these marketable securities prior to recognizing the impairment charges
13
was approximately $205.6 million. The Company determi
ned the fair value of these securities based on Level 1 inputs.
During the three months ended September 30, 2017, the Company recognized an additional $20.
7
million loss upon the final disposition of these securities in connection with
the
NantHealth
provi
der/patient solutions business acquisition
(refer to Note 2, “Business Combinations”).
In addition, the Company recognized other-than-temporary impairment charges of $2.1 million on a cost method equity investment during the
nine
months ended
September
30,
2017.
The aggregate carrying value of this equity investment prior to recognizing the impairment charge was $2.1 million.
These impairment charges
are included
in impairment of
and losses on
long-term investments
line
in our c
onsolidated statement
of oper
ations
for the nine months ended September 30, 2017
.
Long-term Financial Liabilities
Our long-term financial liabilities include amounts outstanding under our senior secured credit facility and Netsmart’s Credit Agreements (as defined in Note 8, “Debt”), with carrying values that approximate fair value since the interest rates approximate current market rates. In addition, the carrying amount of our 1.25% Cash Convertible Senior Notes (the “1.25% Notes”) approximates fair value as September 30, 2017, since the effective interest rate on the 1.25% Notes approximates current market rates. See Note 8, “Debt,” for further information regarding our long-term financial liabilities.
4. Stockholders' Equity
Stock-based Compensation Expense
Stock-based compensation expense recognized during the three and nine months ended September 30, 2017 and 2016 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. In addition, the three and nine months periods ended September 30, 2017 and 2016 include stock-based compensation expense related to Netsmart’s time-based liability classified option awards. No stock-based compensation costs were capitalized during the three and nine months ended September 30, 2017 and 2016.
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
378
|
|
|
$
|
979
|
|
|
$
|
2,491
|
|
|
$
|
3,209
|
|
Client services
|
|
|
899
|
|
|
|
884
|
|
|
|
3,464
|
|
|
|
3,512
|
|
Total cost of revenue
|
|
|
1,277
|
|
|
|
1,863
|
|
|
|
5,955
|
|
|
|
6,721
|
|
Selling, general and administrative expenses
|
|
|
7,193
|
|
|
|
6,464
|
|
|
|
17,793
|
|
|
|
17,972
|
|
Research and development
|
|
|
1,934
|
|
|
|
1,446
|
|
|
|
6,643
|
|
|
|
6,141
|
|
Total stock-based compensation expense
|
|
$
|
10,404
|
|
|
$
|
9,773
|
|
|
$
|
30,391
|
|
|
$
|
30,834
|
|
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, 2017 and 2016.
14
We granted stock-based awards as follows:
|
|
Three Months Ended
September 30, 2017
|
|
|
Nine Months Ended
September 30, 2017
|
|
|
|
|
|
|
|
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
|
|
|
11
|
|
|
$
|
13.73
|
|
|
|
1,908
|
|
|
$
|
12.38
|
|
Performance-based restricted stock units with a service
condition
|
|
|
38
|
|
|
$
|
13.25
|
|
|
|
610
|
|
|
$
|
12.01
|
|
Market-based restricted stock units with a service
condition
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
613
|
|
|
$
|
13.34
|
|
|
|
|
49
|
|
|
$
|
13.36
|
|
|
|
3,131
|
|
|
$
|
12.50
|
|
During the nine months ended September 30, 2017 and the year ended December 31, 2016, 1.2 million and 1.5 million shares of common stock, respectively, were issued in connection with the exercise of options and 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, 2017 and year ended December 31, 2016 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, 2017 and 2016 were 569 thousand and 572 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 17, 2016, we announced that our Board approved a stock purchase program under which we may
repurchase up to $200 million of our common stock through December 31, 2019. During the three and nine months ended September 30, 2017, we repurchased 0.0 million and 1.0 million shares, respectively, of our common stock under the program for a total of $12.1 million.
The approximate dollar value of shares that may yet be purchased under the program as of September 30, 2017 was $163.9 million.
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.
Netsmart Stock-based Compensation Expense
Stock-based compensation expense (benefit) related to Netsmart’s time-based liability classified option awards was included in the following categories in our consolidated statements of operations:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software delivery, support and maintenance
|
|
$
|
42
|
|
|
$
|
31
|
|
|
$
|
17
|
|
|
$
|
56
|
|
Client services
|
|
|
56
|
|
|
|
33
|
|
|
|
(12
|
)
|
|
|
70
|
|
Total cost of revenue
|
|
|
98
|
|
|
|
64
|
|
|
|
5
|
|
|
|
126
|
|
Selling, general and administrative expenses
|
|
|
2,302
|
|
|
|
1,617
|
|
|
|
(557
|
)
|
|
|
2,945
|
|
Research and development
|
|
|
63
|
|
|
|
43
|
|
|
|
(13
|
)
|
|
|
79
|
|
Total stock-based compensation expense (benefit)
|
|
$
|
2,463
|
|
|
$
|
1,724
|
|
|
$
|
(565
|
)
|
|
$
|
3,150
|
|
15
At
September
30, 2017, the liability for outstanding awards was $
5.2
million. As of
September
30, 2017 the weighted average fair value per
option
unit
using the
Black
‑Scholes
‑Merton option pricing model was estimated at $0.
23
, as compared to $
0.54
at December 31, 2016.
A significant portion of the decrease in fair value occurred during the first quarter of 2017 and resulted in the reversal of previously recognized
stock-based compensation expense during the three months ended March 31, 2017, as required under the liability method of accounting.
During the three and nine months ended September 30, 2017, 3.3 million option unit awards were granted by Netsmart . Of the 3.3 million unit awards granted, 2.1 million were time-based and 1.2 million were performance-based. These options were issued at an exercise price of $1.00.
5. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average shares of common stock outstanding. For purposes of calculating diluted earnings (loss) per share, the denominator includes both the weighted average shares of common stock outstanding and dilutive common stock equivalents. Dilutive common stock equivalents consist of stock options, restricted stock unit awards and warrants calculated under the treasury stock method.
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)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic Loss per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(17,462
|
)
|
|
$
|
157
|
|
|
$
|
(169,038
|
)
|
|
$
|
148
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(163
|
)
|
|
|
(151
|
)
|
|
|
(352
|
)
|
|
|
(142
|
)
|
Less: Accretion of redemption preference on redeemable
convertible non-controlling interest - Netsmart
|
|
|
(10,962
|
)
|
|
|
(10,191
|
)
|
|
|
(32,887
|
)
|
|
|
(18,344
|
)
|
Net loss attributable to Allscripts Healthcare Solutions, Inc.
stockholders
|
|
$
|
(28,587
|
)
|
|
$
|
(10,185
|
)
|
|
$
|
(202,277
|
)
|
|
$
|
(18,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
180,634
|
|
|
|
186,226
|
|
|
|
180,864
|
|
|
|
187,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Loss per Common Share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Loss per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(17,462
|
)
|
|
$
|
157
|
|
|
$
|
(169,038
|
)
|
|
$
|
148
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(163
|
)
|
|
|
(151
|
)
|
|
|
(352
|
)
|
|
|
(142
|
)
|
Less: Accretion of redemption preference on redeemable
convertible non-controlling interest - Netsmart
|
|
|
(10,962
|
)
|
|
|
(10,191
|
)
|
|
|
(32,887
|
)
|
|
|
(18,344
|
)
|
Net loss attributable to Allscripts Healthcare Solutions, Inc.
stockholders
|
|
$
|
(28,587
|
)
|
|
$
|
(10,185
|
)
|
|
$
|
(202,277
|
)
|
|
$
|
(18,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
180,634
|
|
|
|
186,226
|
|
|
|
180,864
|
|
|
|
187,190
|
|
Plus: Dilutive effect of stock options, restricted stock unit
awards and warrants
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Weighted-average common shares outstanding assuming
dilution
|
|
|
180,634
|
|
|
|
186,226
|
|
|
|
180,864
|
|
|
|
187,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Loss per Common Share
|
|
$
|
(0.16
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
(0.10
|
)
|
As a result of the net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders for the three and nine months ended September 30, 2017 and 2016, we used basic weighted-average common shares outstanding in the calculation of diluted loss per share for that period, since the inclusion of any stock equivalents would be anti-dilutive.
16
The following stock options, restricted stock unit awards and warrants are not included in the comp
utation of diluted earnings (loss) per share as the effect of including such stock options, restricted stock unit awards and warrants in the computation would be anti-dilutive:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Shares subject to anti-dilutive stock options, restricted stock
unit awards and warrants excluded from calculation
|
|
|
26,085
|
|
|
|
27,580
|
|
|
|
26,636
|
|
|
|
26,219
|
|
6. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Assets, Net
|
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
$
|
638,118
|
|
|
$
|
(388,913
|
)
|
|
$
|
249,205
|
|
|
$
|
627,819
|
|
|
$
|
(347,477
|
)
|
|
$
|
280,342
|
|
Customer contracts and relationships
|
|
|
843,458
|
|
|
|
(454,430
|
)
|
|
|
389,028
|
|
|
|
813,021
|
|
|
|
(430,960
|
)
|
|
|
382,061
|
|
Total
|
|
$
|
1,481,576
|
|
|
$
|
(843,343
|
)
|
|
$
|
638,233
|
|
|
$
|
1,440,840
|
|
|
$
|
(778,437
|
)
|
|
$
|
662,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered trademarks
|
|
|
|
|
|
|
|
|
|
$
|
79,000
|
|
|
|
|
|
|
|
|
|
|
$
|
79,000
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
1,971,950
|
|
|
|
|
|
|
|
|
|
|
|
1,924,052
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
2,050,950
|
|
|
|
|
|
|
|
|
|
|
$
|
2,003,052
|
|
Changes in the carrying amounts of goodwill by reportable segment for the nine months ended September 30, 2017 were as follows:
|
|
Clinical and
|
|
|
Population
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Financial Solutions
|
|
|
Health
|
|
|
Netsmart
|
|
|
Total
|
|
Balance as of December 31, 2016
|
|
$
|
843,837
|
|
|
$
|
404,875
|
|
|
$
|
675,340
|
|
|
$
|
1,924,052
|
|
DeVero acquisition
|
|
|
0
|
|
|
|
0
|
|
|
|
32,943
|
|
|
|
32,943
|
|
Nanthealth provider/patient solutions business
|
|
|
0
|
|
|
|
9,058
|
|
|
|
0
|
|
|
|
9,058
|
|
Other additions
|
|
|
405
|
|
|
|
47
|
|
|
|
4,503
|
|
|
|
4,955
|
|
Foreign exchange translation
|
|
|
942
|
|
|
|
0
|
|
|
|
0
|
|
|
|
942
|
|
Balance as of September 30, 2017
|
|
$
|
845,184
|
|
|
$
|
413,980
|
|
|
$
|
712,786
|
|
|
$
|
1,971,950
|
|
There were no accumulated impairment losses associated with our goodwill as of September 30, 2017 or December 31, 2016.
Additions during the third quarter of 2017 include goodwill of $9.1 million arising from Allscripts’ purchase of NantHealth’s provider/patient engagement solutions business and $32.9 million arising from Netsmart’s acquisition of DeVero. Other additions during the nine months ended September 30, 2017 include additions arising from Netsmart’s Asset Purchase Agreement with a third party and measurement period adjustments against goodwill related to the Company’s acquisitions of third parties in late 2016. Refer to Note 2, “Business Combinations,” for additional information regarding these transactions.
7. Asset and Long-term Investment Impairment Charges
We incurred the following asset and long-term investment impairment charges:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Asset impairment charges
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,650
|
|
Impairment of and losses on long-term investments
|
|
$
|
20,700
|
|
|
$
|
0
|
|
|
$
|
165,290
|
|
|
$
|
0
|
|
17
During the first quarter of 2016, we incurred non-cash asset impairment charges which included $2.2 million for the impairment of capitalized software as a result of our decision to discontinue several software devel
opment projects, $2.1 million for the impairment of one of our cost method equity investments, and other charges of $0.4 million to write down a long-term asset to its estimated net realizable value.
During the nine months ended September 30, 2017, we recognized non-cash charges of $165.3 million including other than temporary impairment charges of $144.6 million during the second quarter of 2017 associated with two of the Company’s long-term investments based on management’s assessment of the likelihood of near-term recovery of the investments’ value. The majority of the impairment charges relate to our investment in NantHealth common stock. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 11, “Other Comprehensive Income,” for further information regarding these impairments. During the three months ended September 30, 2017, we realized an additional $20.7 million loss upon the final disposition of the NantHealth common stock. Refer to Note 2, “Business Combinations,” for information regarding the divestiture of our investment in NantHealth common stock in connection with our acquisition of certain assets related to NantHealth’s provider/patient engagement solutions business.
8. Debt
Debt outstanding, excluding capital leases, consists of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
(In thousands)
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
|
Principal Balance
|
|
|
Unamortized Discount and Debt Issuance Costs
|
|
|
Net Carrying Amount
|
|
1.25% Cash Convertible
Senior Notes
|
|
$
|
345,000
|
|
|
$
|
39,319
|
|
|
$
|
305,681
|
|
|
$
|
345,000
|
|
|
$
|
49,186
|
|
|
$
|
295,814
|
|
Senior Secured Credit Facility
|
|
|
470,000
|
|
|
|
3,690
|
|
|
|
466,310
|
|
|
|
441,875
|
|
|
|
4,691
|
|
|
|
437,184
|
|
Netsmart Non-Recourse Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Term Loan
|
|
|
480,533
|
|
|
|
11,482
|
|
|
|
469,051
|
|
|
|
432,925
|
|
|
|
11,655
|
|
|
|
421,270
|
|
Second Lien Term Loan
|
|
|
167,000
|
|
|
|
7,789
|
|
|
|
159,211
|
|
|
|
167,000
|
|
|
|
8,901
|
|
|
|
158,099
|
|
Other debt
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13
|
|
|
|
0
|
|
|
|
13
|
|
Total debt
|
|
$
|
1,462,533
|
|
|
$
|
62,280
|
|
|
$
|
1,400,253
|
|
|
$
|
1,386,813
|
|
|
$
|
74,433
|
|
|
$
|
1,312,380
|
|
Less: Debt payable within
one year - excluding Netsmart
|
|
|
25,000
|
|
|
|
450
|
|
|
|
24,550
|
|
|
|
15,638
|
|
|
|
480
|
|
|
|
15,158
|
|
Less: Debt payable within
one year - Netsmart
|
|
|
4,866
|
|
|
|
2,117
|
|
|
|
2,749
|
|
|
|
4,351
|
|
|
|
1,900
|
|
|
|
2,451
|
|
Total long-term debt, less
current maturities
|
|
$
|
1,432,667
|
|
|
$
|
59,713
|
|
|
$
|
1,372,954
|
|
|
$
|
1,366,824
|
|
|
$
|
72,053
|
|
|
$
|
1,294,771
|
|
Interest expense consists of the following:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Interest expense
|
|
$
|
5,577
|
|
|
$
|
3,896
|
|
|
$
|
15,079
|
|
|
$
|
11,029
|
|
Amortization of discounts and debt issuance costs
|
|
|
3,674
|
|
|
|
3,522
|
|
|
|
10,867
|
|
|
|
10,401
|
|
Netsmart:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
(1)
|
|
|
12,107
|
|
|
|
11,019
|
|
|
|
34,188
|
|
|
|
19,549
|
|
Amortization of discounts and debt issuance costs
|
|
|
894
|
|
|
|
930
|
|
|
|
2,588
|
|
|
|
1,778
|
|
Total interest expense
|
|
$
|
22,252
|
|
|
$
|
19,367
|
|
|
$
|
62,722
|
|
|
$
|
42,757
|
|
|
(1)
|
Includes interest expense related to capital leases.
|
Interest expense related to the 1.25% Notes, included in the table above, consists of the following:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Coupon interest at 1.25%
|
|
$
|
1,078
|
|
|
$
|
1,078
|
|
|
$
|
3,234
|
|
|
$
|
3,234
|
|
Amortization of discounts and debt issuance costs
|
|
|
3,342
|
|
|
|
3,185
|
|
|
|
9,866
|
|
|
|
9,401
|
|
Total interest expense related to the 1.25% Notes
|
|
$
|
4,420
|
|
|
$
|
4,263
|
|
|
$
|
13,100
|
|
|
$
|
12,635
|
|
18
Allscripts Senior Secured Credit Facility
As of September 30, 2017, $225.0 million under a term loan, $245.0 million under our revolving credit facility, and $0.8 million in letters of credit were outstanding under our senior secured credit facility.
As of September 30, 2017, the interest rate on the borrowings under our senior secured credit facility was LIBOR plus 2.25%, which totaled 3.49%. We were in compliance with all covenants under the senior secured credit facility agreement as of September 30, 2017.
As of September 30, 2017, we had $304.2 million available, net of outstanding letters of credit, under our revolving credit facility. There can be no assurance that we will be able to draw on the full available balance of our revolving credit facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings. Refer to Note 15, “Subsequent Events,” for information regarding an additional borrowing of $185.0 million under our revolving credit facility to fund a business acquisition that occurred subsequent to September 30, 2017.
As of September 30, 2017, the if-converted value of the 1.25% Notes did not exceed the 1.25% Notes’ principal amount.
Netsmart Non-Recourse Debt
As of September 30, 2017, $480.5 million under the Netsmart First Lien Term Loan, $167.0 million under the Netsmart Second Lien Term Loan and no amounts under the Netsmart Revolving Facility (collectively, the “Credit Agreements”) were outstanding.
As of September 30, 2017, the interest rate on the borrowings under the Netsmart First Lien Term Loan was Adjusted LIBO plus 4.50%, which totaled 5.83%, the interest rate on the borrowings under the Netsmart Second Lien Term Loan was Adjusted LIBO plus 9.50%, which totaled 10.82%, and the interest rate on the borrowings under the Netsmart Revolving Facility was Adjusted LIBO plus 4.75%, which totaled 6.08%. Netsmart was in compliance with all covenants under its Credit Agreements as of September 30, 2017.
As of September 30, 2017, Netsmart had $50.0 million available, with no outstanding letters of credit commitments, under the Netsmart Revolving Facility. There can be no assurance that Netsmart will be able to draw on the full available balance of the Netsmart Revolving Facility if the financial institutions that have extended such credit commitments become unwilling or unable to fund such borrowings.
The following table summarizes future debt payment obligations as of September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Total
|
|
|
Remainder of 2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
1.25% Cash Convertible Senior Notes
(1)
|
|
$
|
345,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
345,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Term Loan
|
|
|
225,000
|
|
|
|
6,250
|
|
|
|
28,125
|
|
|
|
40,625
|
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0
|
|
Revolving Facility
(2)
|
|
|
245,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
245,000
|
|
|
|
0
|
|
|
|
0
|
|
Netsmart Non-Recourse Debt
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Term Loan
|
|
|
480,533
|
|
|
|
1,217
|
|
|
|
4,866
|
|
|
|
4,866
|
|
|
|
4,866
|
|
|
|
4,866
|
|
|
|
459,852
|
|
Second Lien Term Loan
|
|
|
167,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
167,000
|
|
Total debt
|
|
$
|
1,462,533
|
|
|
$
|
7,467
|
|
|
$
|
32,991
|
|
|
$
|
45,491
|
|
|
$
|
744,866
|
|
|
$
|
4,866
|
|
|
$
|
626,852
|
|
(1)
Assumes no cash conversions of the 1.25% Notes prior to their maturity on July 1, 2020.
(2)
Assumes no additional borrowings after September 30, 2017, payment of any required periodic installments of principal and that all drawn amounts are repaid upon maturity.
19
9
. Income Taxes
We account for income taxes under FASB Accounting Standards Codification 740,
Income Taxes
(“ASC 740”). We calculate the quarterly tax provision consistent with the guidance provided by ASC 740-270, whereby we forecast the estimated annual effective tax rate and then apply that rate to the year-to-date pre-tax book (loss) income. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective rate, including factors such as the valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, or changes in or the interpretation of tax laws in jurisdictions where the Company conducts business. There is no tax benefit recognized on certain of the net operating losses incurred due to insufficient evidence supporting the Company’s ability to use these losses in the future. The effective tax rates were as follows:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
(Loss) income before income taxes
|
|
$
|
(17,700
|
)
|
|
$
|
(2,499
|
)
|
|
$
|
(170,111
|
)
|
|
$
|
(2,448
|
)
|
Income tax benefit (provision)
|
|
$
|
238
|
|
|
$
|
2,656
|
|
|
$
|
1,073
|
|
|
$
|
2,596
|
|
Effective tax rate
|
|
|
1.3
|
%
|
|
|
106.3
|
%
|
|
|
0.6
|
%
|
|
|
106.0
|
%
|
Our provision for income taxes differs from the tax computed at the U.S. federal statutory income tax rate due primarily to valuation allowance, permanent differences, income attributable to foreign jurisdictions taxed at lower rates, state taxes, tax credits and certain discrete items. Our effective tax rate for the three and nine months ended September 30, 2017, compared with the prior year comparable periods, differs primarily due to $64.2 million of valuation allowance in the nine months ended September 30, 2017 for deferred taxes on a capital loss carryforward, which can only can be deductible to the extent of offsetting capital gains.
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). We recorded $67.8 million of valuation allowance during the nine months ended September 30, 2017 related to deferred tax assets associated with net operating loss carryforwards, credit carryforwards and other deferred tax assets not expected to be realized.
Effective January 1, 2017, we adopted ASU 2016-09. The guidance in ASU 2016-09, among other things, will require all income tax effects of share-based awards to be recognized in the statement of operations when the awards vest or are settled as a discrete item in the period in which they occur. In the nine months ended September 30, 2017, we recorded $1.5 million of tax expense for awards in which the compensation cost recorded was higher than the tax deductions for the awards. We recorded an offsetting release of valuation allowance in the quarter of $1.5 million, the effect of which has already been included in the valuation allowance amount recorded in the nine months ended September 30, 2017 noted above. ASU 2016-09 requires entities to recognize excess tax benefits, regardless of whether the tax deduction reduces taxes payable. As part of adopting the new standard, we recorded a gross cumulative effect adjustment of $5.6 million to the opening balance of accumulated deficit to create a deferred tax asset to recognize excess tax benefits not previously recorded. The net decrease to accumulated deficit was $1.8 million due to the recognition of a corresponding valuation allowance of $3.8 million.
Our unrecognized income tax benefits were $12.0 million and $11.4 million as of September 30, 2017 and December 31, 2016, respectively. If any portion of our unrecognized tax benefits is recognized, it could impact our effective tax rate. The tax reserves are reviewed periodically and adjusted in light of changing facts and circumstances, such as progress of tax audits, lapse of applicable statutes of limitations, and changes in tax law.
10. 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, 2017
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
1,362
|
|
|
Accrued expenses
|
|
$
|
0
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
44,882
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
45,973
|
|
Total derivatives
|
|
|
|
$
|
46,244
|
|
|
|
|
$
|
45,973
|
|
20
|
|
December 31, 2016
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
(In thousands)
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
1,021
|
|
|
Accrued expenses
|
|
$
|
0
|
|
Derivatives not subject to hedge accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
1.25% Call Option
|
|
Other assets
|
|
|
17,080
|
|
|
N/A
|
|
|
|
|
1.25% Embedded cash conversion option
|
|
N/A
|
|
|
|
|
|
Other liabilities
|
|
|
17,659
|
|
Total derivatives
|
|
|
|
$
|
18,101
|
|
|
|
|
$
|
17,659
|
|
N/A – We define “N/A” as disclosure not being applicable
Foreign Exchange Contracts
We have entered into non-deliverable forward foreign currency exchange contracts with reputable banking counterparties in order to hedge a portion of our forecasted future Indian Rupee-denominated (“INR”) expenses against foreign currency fluctuations between the United States dollar and the INR. These forward contracts cover a decreasing percentage of forecasted monthly INR expenses over time. As of September 30, 2017, there were 9 forward contracts outstanding that were staggered to mature monthly starting in October 2017 and ending in June 2018. In the future, we may enter into additional forward contracts to increase the amount of hedged monthly INR expenses or initiate hedges for monthly periods beyond June 2018. As of September 30, 2017, the notional amount of each outstanding forward contract was 120 million INR, or the equivalent of $1.8 million, based on the exchange rate between the United States dollar and the INR in effect as of September 30, 2017. These amounts also approximate the forecasted future INR expenses we target to hedge in any one month in the future.
The critical terms of the forward contracts and the related hedged forecasted future expenses matched and allowed us to designate the forward contracts as highly effective cash flow hedges. The effective portion of the change in fair value is initially recorded in accumulated other comprehensive loss (“AOCI”) and subsequently reclassified to income in the period in which the cash flows from the associated hedged transactions affect income. Any ineffective portion of the change in fair value of the cash flow hedges is recognized in current period income. During the three and nine months ended September 30, 2017, no amount was excluded from the effectiveness assessment and no gains or losses were reclassified from AOCI into income as a result of forecasted transactions that failed to occur. As of September 30, 2017, we estimate that $1.4 million of net unrealized derivative gains included in AOCI will be reclassified into income within the next twelve months.
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 (Effective Portion)
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
|
(In thousands)
|
|
Three Months
Ended
September 30, 2017
|
|
|
Nine Months
Ended
September 30, 2017
|
|
|
Location of Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
Three Months
Ended
September 30, 2017
|
|
|
Nine Months
Ended
September 30, 2017
|
|
Foreign exchange
contracts
|
|
$
|
16
|
|
|
$
|
2,323
|
|
|
Cost of Revenue
|
|
$
|
241
|
|
|
$
|
674
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
184
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
283
|
|
|
$
|
793
|
|
|
|
Amount of Gain (Loss) Recognized
in OCI (Effective Portion)
|
|
|
|
|
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
|
(In thousands)
|
|
Three Months
Ended
September 30, 2016
|
|
|
Nine Months
Ended
September 30, 2016
|
|
|
Location of Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
Three Months
Ended
September 30, 2016
|
|
|
Nine Months
Ended
September 30, 2016
|
|
Foreign exchange
contracts
|
|
$
|
971
|
|
|
$
|
1,172
|
|
|
Cost of Revenue
|
|
$
|
88
|
|
|
$
|
84
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
71
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
126
|
|
|
$
|
120
|
|
21
1.25% Call Option
In June 2013, concurrent with the issuance of the 1.25% Notes, we entered into privately negotiated hedge transactions with certain of the initial purchasers of the 1.25% Notes (collectively, the “1.25% Call Option”). Assuming full performance by the counterparties, the 1.25% Call Option is intended to offset cash payments in excess of the principal amount due upon any conversion of the 1.25% Notes.
The 1.25% Call Option, which is indexed to our common stock, is a derivative asset that requires mark-to-market accounting treatment (due to the cash settlement features) until the 1.25% Call Option settles or expires. The 1.25% Call Option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the 1.25% Call Option, refer to Note 3, “Fair Value Measurements and Long-term Investments.”
The 1.25% Call Option does not qualify for hedge accounting treatment. Therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of operations in Other income, net. Because the terms of the 1.25% Call Option are substantially similar to those of the 1.25% Notes embedded cash conversion option, discussed below, we expect the net effect of those two derivative instruments on our earnings to be minimal.
1.25% Notes Embedded Cash Conversion Option
The embedded cash conversion option within the 1.25% Notes is required to be separated from the 1.25% Notes and accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of operations in Other income, net until the cash conversion option settles or expires. The initial fair value liability of the embedded cash conversion option was $82.8 million, which simultaneously reduced the carrying value of the 1.25% Notes (effectively an original issuance discount). The embedded cash conversion option is measured and reported at fair value on a recurring basis, within Level 3 of the fair value hierarchy. For further discussion of the inputs used to determine the fair value of the embedded cash conversion option, refer to Note 3, “Fair Value Measurements and Long-term Investments.”
The following table shows the net impact of the changes in fair values of the 1.25% Call Option and the 1.25% Notes’ embedded cash conversion option in the consolidated statements of operations:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
1.25% Call Option
|
|
$
|
12,837
|
|
|
$
|
2,306
|
|
|
$
|
27,802
|
|
|
$
|
(39,404
|
)
|
1.25% Embedded cash conversion option
|
|
|
(13,043
|
)
|
|
|
(2,362
|
)
|
|
|
(28,314
|
)
|
|
|
39,609
|
|
Net (loss) gain included in other income, net
|
|
$
|
(206
|
)
|
|
$
|
(56
|
)
|
|
$
|
(512
|
)
|
|
$
|
205
|
|
11. Other Comprehensive Income
Accumulated Other Comprehensive Loss
Changes in the balances of each component included in AOCI are presented in the tables below. All amounts are net of tax and exclude non-controlling interest.
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
|
Unrealized Net (Losses) Gains on Available for Sale Securities
|
|
|
Unrealized Net Gains on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2016
(1)
|
|
$
|
(6,028
|
)
|
|
$
|
(56,420
|
)
|
|
$
|
619
|
|
|
$
|
(61,829
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
3,040
|
|
|
|
(106,355
|
)
|
|
|
1,421
|
|
|
|
(101,894
|
)
|
Net losses (gains) reclassified from accumulated
other comprehensive loss
(2)
|
|
|
0
|
|
|
|
162,865
|
|
|
|
(1,209
|
)
|
|
|
161,656
|
|
Net other comprehensive income
|
|
|
3,040
|
|
|
|
56,510
|
|
|
|
212
|
|
|
|
59,762
|
|
Balance as of September 30, 2017
(3)
|
|
$
|
(2,988
|
)
|
|
$
|
90
|
|
|
$
|
831
|
|
|
$
|
(2,067
|
)
|
______________________________________________________
|
(1)
|
Net of taxes of $402 thousand for unrealized net gains on foreign exchange contract derivatives and $61 thousand for unrealized net gains on available for sale securities.
|
|
(2)
|
Reclassification adjustment related to other-than-temporary impairment and loss on disposition of our investment in NantHealth. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 7, “Asset and Long-term
|
22
|
|
Investment Impairment Charges,” for further information regarding this impairment. Refer to Note
2
, “
Business Combinations
,” for information regarding our
disposition of the
NantHealth common stock.
|
|
(3)
|
Net of taxes of $531 thousand for unrealized net gains on foreign exchange contract derivatives and $58 thousand for unrealized net gains on available for sale securities.
|
(In thousands)
|
|
Foreign Currency Translation Adjustments
|
|
|
Unrealized Net Losses on Available for Sale Securities
|
|
|
Unrealized Net Gains on Foreign Exchange Contracts
|
|
|
Total
|
|
Balance as of December 31, 2015
(1)
|
|
$
|
(4,500
|
)
|
|
$
|
0
|
|
|
$
|
258
|
|
|
$
|
(4,242
|
)
|
Other comprehensive (loss) income before reclassifications
|
|
|
(49
|
)
|
|
|
(8,365
|
)
|
|
|
710
|
|
|
|
(7,704
|
)
|
Net losses reclassified from accumulated
other comprehensive loss
|
|
|
0
|
|
|
|
0
|
|
|
|
(165
|
)
|
|
|
(165
|
)
|
Net other comprehensive (loss) income
|
|
|
(49
|
)
|
|
|
(8,365
|
)
|
|
|
545
|
|
|
|
(7,869
|
)
|
Balance as of September 30, 2016
(2)
|
|
$
|
(4,549
|
)
|
|
$
|
(8,365
|
)
|
|
$
|
803
|
|
|
$
|
(12,111
|
)
|
____________________________________________________________________________
(1)
Net of taxes of $166 thousand for unrealized net gains on foreign exchange contract derivatives.
(2)
Net of taxes of $
521 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,
|
|
|
|
2017
|
|
|
2016
|
|
(In thousands)
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation adjustments
|
|
$
|
693
|
|
|
$
|
0
|
|
|
$
|
693
|
|
|
$
|
150
|
|
|
$
|
0
|
|
|
$
|
150
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss arising during the period
|
|
|
(20,704
|
)
|
|
|
1
|
|
|
|
(20,703
|
)
|
|
|
9,750
|
|
|
|
0
|
|
|
|
9,750
|
|
Net loss reclassified into income
(1)
|
|
|
20,700
|
|
|
|
0
|
|
|
|
20,700
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net change in unrealized gains (losses) on available for sale securities
|
|
|
(4
|
)
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
9,750
|
|
|
|
0
|
|
|
|
9,750
|
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) arising during the period
|
|
|
16
|
|
|
|
(6
|
)
|
|
|
10
|
|
|
|
971
|
|
|
|
(382
|
)
|
|
|
589
|
|
Net (gains) losses reclassified into income
|
|
|
(708
|
)
|
|
|
276
|
|
|
|
(432
|
)
|
|
|
(285
|
)
|
|
|
112
|
|
|
|
(173
|
)
|
Net change in unrealized (losses) gains on foreign exchange contracts
|
|
|
(692
|
)
|
|
|
270
|
|
|
|
(422
|
)
|
|
|
686
|
|
|
|
(270
|
)
|
|
|
416
|
|
Net (loss) gain on cash flow hedges
|
|
|
(692
|
)
|
|
|
270
|
|
|
|
(422
|
)
|
|
|
686
|
|
|
|
(270
|
)
|
|
|
416
|
|
Other comprehensive income (loss)
|
|
$
|
(3
|
)
|
|
$
|
271
|
|
|
$
|
268
|
|
|
$
|
10,586
|
|
|
$
|
(270
|
)
|
|
$
|
10,316
|
|
____________________________________________
|
(1)
|
Reclassification adjustment related to other-than-temporary impairment of our investment in NantHealth. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 7, “Asset and Long-term Investment Impairment Charges,” for further information regarding this impairment. Refer to Note 2, “Business Combinations,” for information regarding our divestiture of the NantHealth common stock.
|
23
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
(In thousands)
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
|
Before-Tax Amount
|
|
|
Tax Effect
|
|
|
Net Amount
|
|
Foreign currency translation adjustments
|
|
$
|
3,040
|
|
|
$
|
0
|
|
|
$
|
3,040
|
|
|
$
|
(49
|
)
|
|
$
|
0
|
|
|
$
|
(49
|
)
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss arising during the period
|
|
|
(106,358
|
)
|
|
|
3
|
|
|
|
(106,355
|
)
|
|
|
(8,365
|
)
|
|
|
0
|
|
|
|
(8,365
|
)
|
Net loss reclassified into income
(1)
|
|
|
162,865
|
|
|
|
0
|
|
|
|
162,865
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Net change in unrealized gains (losses) on available for sale securities
|
|
|
56,507
|
|
|
|
3
|
|
|
|
56,510
|
|
|
|
(8,365
|
)
|
|
|
0
|
|
|
|
(8,365
|
)
|
Derivatives qualifying as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) arising during the period
|
|
|
2,323
|
|
|
|
(902
|
)
|
|
|
1,421
|
|
|
|
1,172
|
|
|
|
(462
|
)
|
|
|
710
|
|
Net (gains) losses reclassified into income
|
|
|
(1,982
|
)
|
|
|
773
|
|
|
|
(1,209
|
)
|
|
|
(272
|
)
|
|
|
107
|
|
|
|
(165
|
)
|
Net change in unrealized gains (losses) on foreign exchange contracts
|
|
|
341
|
|
|
|
(129
|
)
|
|
|
212
|
|
|
|
900
|
|
|
|
(355
|
)
|
|
|
545
|
|
Net gain (loss) on cash flow hedges
|
|
|
341
|
|
|
|
(129
|
)
|
|
|
212
|
|
|
|
900
|
|
|
|
(355
|
)
|
|
|
545
|
|
Other comprehensive income (loss)
|
|
$
|
59,888
|
|
|
$
|
(126
|
)
|
|
$
|
59,762
|
|
|
$
|
(7,514
|
)
|
|
$
|
(355
|
)
|
|
$
|
(7,869
|
)
|
____________________________________________
|
(1)
|
Reclassification adjustment related to other-than-temporary impairment of our investment in NantHealth. Refer to Note 3, “Fair Value Measurements and Long-term Investments” and Note 7, “Asset and Long-term Investment Impairment Charges,” for further information regarding this impairment. Refer to Note 2, “Business Combinations,” for information regarding our divestiture of the NantHealth common stock.
|
12. 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 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 us in a reporting period for amounts in excess of our management’s expectations, our consolidated financial statements for that reporting period could be materially adversely affected. Additionally, the resolution of a legal proceeding against us could prevent us from offering our products and services to current or prospective clients or cause us to incur increased compliance costs, either of which could further adversely affect our operating results.
On May 1, 2012, Physicians Healthsource, Inc. filed a class action complaint in the U.S. District Court for the Northern District of Illinois against us alleging violations of the Telephone Consumer Protection Act (the “TCPA”). On June 2, 2017, the court denied Allscripts’ motion for summary judgment, and also denied Plaintiff’s motion for class certification. Plaintiff did not seek appellate review of the Court’s denial of class certification, so the only claim remaining in the case is Plaintiff’s individual TCPA claim. On August 11, 2017, Plaintiff filed a motion for summary judgment against Allscripts. On September 25, the court stayed this matter pending the outcome of the appeal in
Brodsky v. Humana Dental Ins. Co.
, (Case 17-8019) 7th Cir., which may have implications on the outcome of Plaintiff’s motion in this case.
The EIS Business acquired from McKesson on October 2, 2017 (as discussed below under Note 15, “Subsequent Events”) is subject to a May 2017 civil investigative demand (CID) from the U.S. Attorney’s Office for the Eastern District of New York. The CID requests 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 CID, 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.
24
13. 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.
As of September 30, 2017, we had eight operating segments, which are aggregated into three reportable segments. The Clinical and Financial Solutions reportable segment includes the Ambulatory, Hospitals and Health Systems, previously named “Acute”, and the Payer and Life Sciences strategic business units, each of which represents a separate operating segment. This reportable segment derives its revenue from the sale of integrated clinical software applications and financial and information solutions, which primarily include electronic health record-related software, financial and practice management software, related installation, support and maintenance, outsourcing, private cloud hosting, revenue cycle management, training and electronic claims administration services. The Population Health reportable segment is comprised of four separate operating segments: Population Health, FollowMyHealth
®
, EPSi
TM
and NantHealth. This reportable segment derives its revenue from the sale of health management and coordinated care solutions, which are mainly targeted at hospitals, health systems, other care facilities and Accountable Care Organizations (“ACOs”). These solutions enable clients to connect, transition, analyze and coordinate care across the entire care community. The NantHealth operating segment was created from our acquisition of certain assets related to NantHealth’s provider/patient engagement solutions business on August 25, 2017. The operating results associated with this business have been included in the population health reportable segment results since the date of the acquisition. Refer to Note 2, “Business Combinations,” for additional information related to this acquisition. The Netsmart reportable segment is comprised of the Netsmart strategic business unit, which represents a separate operating segment. The Netsmart segment also includes the results of HealthMEDX and DeVero, which were acquired subsequent to the Netsmart Transaction. Refer to Note 2, “Business Combinations” for further details regarding the acquisition of these businesses. Netsmart operates in the home care and behavioral healthcare information technology field throughout the United States and provides software and technology solutions to the health and human services industry, which comprises behavioral health, addiction treatment, intellectual and developmental disability services, child and family services, and public health segment, as well as to post-acute home care organizations.
Our Chief Operating Decision Maker (“CODM”) uses segment revenues, gross profit and income from operations as measures of performance and to make decisions on allocation of resources. With the exception of the Netsmart segment, in determining these performance measures, we do not include in revenue the amortization of acquisition-related deferred revenue adjustments, which reflect the fair value adjustments to deferred revenues acquired in a business acquisition. With the exception of the Netsmart segment, we also exclude the amortization of intangible assets, stock-based compensation expense, non-recurring expenses and transaction-related costs, and non-cash asset impairment charges from the operating segment data provided to our CODM. Non-recurring expenses relate to certain severance, product consolidation, legal, consulting and other charges incurred in connection with activities that are considered one-time. Accordingly, these amounts are not included in our reportable segment results and are included in an “Unallocated Amounts” category within our segment disclosure. The “Unallocated Amounts” category also includes corporate general and administrative expenses (including marketing expenses), which are centrally managed, as well as revenue and the associated cost from the resale of certain ancillary products, primarily hardware, other than the respective amounts associated with the Netsmart segment. The historical results of our Homecare
TM
business prior to the Netsmart Transaction, which were previously reported as part of Population Health, are also included in the “Unallocated Amounts” category. The Netsmart segment, as presented, includes all revenue and expenses incurred by Netsmart since it operates as a stand-alone business entity and its resources allocation and performance are reviewed and measured at such all-inclusive level. The eliminations of intercompany transactions between Allscripts and Netsmart are included in the “Unallocated Amounts” category. We do not track our assets by segment.
25
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical and Financial Solutions
|
|
$
|
303,323
|
|
|
$
|
276,503
|
|
|
$
|
870,452
|
|
|
$
|
830,200
|
|
Population Health
|
|
|
60,515
|
|
|
|
61,722
|
|
|
|
179,313
|
|
|
|
170,803
|
|
Netsmart
|
|
|
83,618
|
|
|
|
52,621
|
|
|
|
235,046
|
|
|
|
96,854
|
|
Unallocated Amounts
|
|
|
1,986
|
|
|
|
1,538
|
|
|
|
4,197
|
|
|
|
26,606
|
|
Total revenue
|
|
$
|
449,442
|
|
|
$
|
392,384
|
|
|
$
|
1,289,008
|
|
|
$
|
1,124,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical and Financial Solutions
|
|
$
|
130,224
|
|
|
$
|
113,677
|
|
|
$
|
363,228
|
|
|
$
|
349,017
|
|
Population Health
|
|
|
41,947
|
|
|
|
46,337
|
|
|
|
125,535
|
|
|
|
125,152
|
|
Netsmart
|
|
|
39,644
|
|
|
|
17,378
|
|
|
|
111,489
|
|
|
|
32,327
|
|
Unallocated Amounts
|
|
|
(9,896
|
)
|
|
|
(11,233
|
)
|
|
|
(32,190
|
)
|
|
|
(21,755
|
)
|
Total gross profit
|
|
$
|
201,919
|
|
|
$
|
166,159
|
|
|
$
|
568,062
|
|
|
$
|
484,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical and Financial Solutions
|
|
$
|
68,837
|
|
|
$
|
59,921
|
|
|
$
|
186,846
|
|
|
$
|
188,145
|
|
Population Health
|
|
|
29,298
|
|
|
|
32,977
|
|
|
|
86,282
|
|
|
|
81,895
|
|
Netsmart
|
|
|
7,153
|
|
|
|
(6,426
|
)
|
|
|
23,910
|
|
|
|
(8,825
|
)
|
Unallocated Amounts
|
|
|
(79,915
|
)
|
|
|
(69,598
|
)
|
|
|
(239,298
|
)
|
|
|
(213,871
|
)
|
Total income from operations
|
|
$
|
25,373
|
|
|
$
|
16,874
|
|
|
$
|
57,740
|
|
|
$
|
47,344
|
|
14. Supplemental Disclosures
Restricted Cash
The majority of the restricted cash balance as of September 30, 2017 represents Netsmart’s cash deposits to maintain two letters of credit with a financial institution related to customer agreements.
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
104,301
|
|
|
$
|
76,636
|
|
Restricted cash
|
|
|
5,123
|
|
|
|
615
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
109,424
|
|
|
$
|
77,251
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash information:
|
|
|
|
|
|
|
|
|
Exchange of Netsmart, Inc. common stock for redeemable convertible
preferred stock - Netsmart by Netsmart, Inc. management
|
|
$
|
0
|
|
|
$
|
25,543
|
|
Exchange of NantHealth, Inc. common stock for net assets acquired
of provider/patient solutions business
|
|
$
|
42,750
|
|
|
$
|
0
|
|
Accretion of redemption preference on redeemable convertible non-controlling
interest - Netsmart
|
|
$
|
32,887
|
|
|
$
|
18,344
|
|
Obligations incurred to purchase capitalized software or enter into capital leases
|
|
$
|
11,515
|
|
|
$
|
0
|
|
Issuance of treasury stock to commercial partner
|
|
$
|
334
|
|
|
$
|
0
|
|
15. Subsequent Events
On October 2, 2017, Allscripts Healthcare, LLC, a wholly-owned subsidiary of the Company (“Healthcare LLC”), completed the transactions contemplated by a purchase agreement (the “Purchase Agreement”) with McKesson Corporation (“McKesson”), pursuant to which Healthcare LLC purchased McKesson’s Enterprise Information Solutions Business division (the “EIS Business”), which provides certain software solutions and services to hospitals and health systems, by acquiring all of the outstanding equity interests of two indirect, wholly-owned subsidiaries of McKesson for a purchase price of $185 million, subject to adjustments for net working capital and net debt.
The purchase price was funded through incremental borrowings under our debt facilities. The financial results of the EIS Business will be consolidated with our financial results starting on the date of the transaction. As of the date of this Form 10-Q, the preliminary allocation of the fair value of the consideration transferred has not yet been completed
.
26