Revenue from Contracts with Customers

3 Months Ended

Mar. 31, 2022

Revenue From Contract With Customer [Abstract]

Revenue from Contracts with Customers

2. Revenue from Contracts with Customers

Our two primary revenue streams are (i) software delivery, support and maintenance and (ii) client services. Software delivery, support and maintenance revenue consists of all of our proprietary software sales (either under a perpetual or term license delivery model), subscription-based software sales, transaction-related revenue, the resale of hardware and third-party software and revenue from post-contract client support and maintenance services, which include telephone support services, maintaining and upgrading software and ongoing enhanced maintenance. Client services revenue consists of revenue from managed services solutions, such as private cloud hosting, outsourcing and revenue cycle management, as well as other client services and project-based revenue from implementation, training and consulting services. For some clients, we host the software applications licensed from us using our own or third-party servers. For other clients, we offer an outsourced service in which we assume partial to total responsibility for a healthcare organization’s IT operations using our employees.

At March 31, 2022 and December 31, 2021, we had capitalized costs to obtain or fulfill a contract of $8.3 million and $8.1 million, respectively, in Prepaid and other current assets and $10.9 million and $11.9 million, respectively, in Other assets. During the three months ended March 31, 2022 and 2021, we recognized $2.9 million and $3.3 million, respectively, of amortization expense related to such capitalized costs. The amortization of these capitalized costs to obtain a contract are included in Selling, general and administrative expense within our consolidated statements of operations.

The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable, contract assets and customer advances and deposits. Accounts receivable, net includes both billed and unbilled amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets include amounts where revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Deferred revenue includes advanced payments and billings in excess of revenue recognized. Our contract assets and deferred revenue are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term based on the timing of when we expect to complete the related performance obligations and bill the customer. Deferred revenue is classified as current or long-term based on the timing of when we expect to recognize revenue.

The breakdown of revenue recognized based on the origination of performance obligations and elected accounting expedients is presented in the tables below:

(In thousands)	Three Months Ended March 31, 2022
Revenue related to deferred revenue balance at beginning of period	$	36,151
Revenue related to new performance obligations satisfied during the period		45,306
Revenue recognized under "right-to-invoice" expedient		61,114
Reimbursed travel expenses, shipping and other revenue		101
Total revenue	$	142,672

(In thousands)	Three Months Ended March 31, 2021
Revenue related to deferred revenue balance at beginning of period	$	29,401
Revenue related to new performance obligations satisfied during the period		47,263
Revenue recognized under "right-to-invoice" expedient		56,811
Reimbursed travel expenses, shipping and other revenue		177
Total revenue	$	133,652

The aggregate amount of contract transaction price related to remaining unsatisfied performance obligations represents contracted revenue that has not yet been recognized and includes both deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total unsatisfied performance obligations equaled $1.0 billion as of March 31, 2022, of which we expect to recognize approximately 38% over the next 12 months, and the remaining 62% thereafter.

Revenue Recognition

We recognize revenue only when we satisfy an identified performance obligation (or bundle of obligations) by transferring control of a promised product or service to a customer. We consider a product or service to be transferred when a customer obtains control because a customer has sole possession of the right to use (or the right to direct the use of) the product or service for the remainder of its economic life or to consume the product or service in its own operations. We evaluate the transfer of control primarily from the customer’s perspective as this reduces the risk that revenue is recognized for activities that do not transfer control to the customer.

The majority of our revenue is recognized over time because a customer continuously and simultaneously receives and consumes the benefits of our performance. The exceptions to this pattern are our sales of perpetual and term software licenses, and hardware, where we determined that a customer obtains control of the asset upon granting of access, delivery or shipment.

We disaggregate our revenue from contracts with customers based on the type of revenue and nature of revenue stream, as we believe those categories best depict how the nature, amount and uncertainty of our revenue and cash flows are affected by economic factors. The tables below summarize revenue by type and nature of revenue stream as well as by our reportable segments. Refer to Note 16, “Business Segments”, for further information regarding the change to our reportable segments during the first quarter of 2022.

	Three Months Ended March 31, 2022
(In thousands)	Veradigm		Unallocated Amounts		Total
Provider	$	112,271	$	6,394	$	118,665
Payer & Life Sciences		24,007		0		24,007
Total revenue	$	136,278	$	6,394	$	142,672

	Three Months Ended March 31, 2021
(In thousands)	Veradigm		Unallocated Amounts		Total
Provider	$	103,888	$	7,282	$	111,170
Payer & Life Sciences		22,482		0		22,482
Total revenue	$	126,370	$	7,282	$	133,652

Contract Assets – Estimate of Credit Losses

We adopted Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) on January 1, 2020 using the cumulative-effect adjustment transition method. The guidance required the recognition of lifetime estimated credit losses expected to occur for contract assets and trade receivables. The guidance also required that we pool assets with similar risk characteristics and consider current economic conditions when estimating losses.

We segmented the contract asset population into pools based on their risk assessment. Risks related to contract assets are a customer’s inability to pay or bankruptcy. Each pool was defined by their internal credit assessment and business size. We also used each customer’s primary business unit in our pooling determination. This assessment provides information of the customer including size, segment and industry. The pools are aligned with management’s current review of financial performance. For the three months ended March 31, 2022, no adjustment to the pools was necessary.

We utilized a loss-rate method to measure expected credit loss for each pool. The loss rate is calculated using a 24-month lookback period of credit memos and adjustments divided by the average contract asset balance for each pool during that period. We considered current economic conditions, including how the COVID-19 pandemic is impacting the global economy, internal forecasts, cash collection and credit memos written during the current period when assessing loss rates. We reviewed these factors and concluded that no adjustments should be made to the historical loss rate data. The analysis for the three months ended March 31, 2022 resulted in no change to the estimate of credit losses.

Changes in the estimate of credit losses for contract assets are presented in the table below.

	Three Months Ended March 31,
(In thousands)	2022		2021
Beginning balance	$	2,110	$	2,110
Current period provision		0		0
Ending balance	$	2,110	$	2,110
Less: Contract assets, short-term		576		576
Total contract assets, long-term	$	1,534	$	1,534