UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, Zip Code)
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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(Nasdaq Global Select Market) |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 1, 2020, there were
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
FORM 10-Q
For the Fiscal Quarter Ended March 31, 2020
TABLE OF CONTENTS
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3 |
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Item 1. |
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3 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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26 |
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Item 3. |
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37 |
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Item 4. |
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37 |
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38 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 2. |
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38 |
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Item 6. |
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39 |
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40 |
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2
PART I. FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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(In thousands, except per share amounts) |
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March 31, 2020 |
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December 31, 2019 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable, net of allowance of $ March 31, 2020 and December 31, 2019, respectively |
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Contract assets, net of allowance of $ |
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Prepaid expenses and other current assets |
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Total current assets |
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Fixed assets, net |
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Software development costs, net |
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Intangible assets, net |
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Goodwill |
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Deferred taxes, net |
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Contract assets - long-term, net of allowance of $ |
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Right-of-use assets - operating leases |
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Other assets |
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Total assets |
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$ |
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$ |
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3
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
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(In thousands, except per share amounts) |
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March 31, 2020 |
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December 31, 2019 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Accrued compensation and benefits |
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Deferred revenue |
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Current maturities of long-term debt |
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Current operating lease liabilities |
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Total current liabilities |
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Long-term debt |
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Deferred revenue |
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Deferred taxes, net |
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Long-term operating lease liabilities |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock: $ |
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Common stock: $ and December 31, 2019; as of March 31, 2020, respectively; and outstanding as of December 31, 2019, respectively |
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Treasury stock: at cost, December 31, 2019, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended March 31, |
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(In thousands, except per share amounts) |
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2020 |
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2019 |
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Revenue: |
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Software delivery, support and maintenance |
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$ |
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$ |
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Client services |
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Total revenue |
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Cost of revenue: |
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Software delivery, support and maintenance |
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Client services |
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Amortization of software development and acquisition-related assets |
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Total cost of revenue |
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Gross profit |
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Selling, general and administrative expenses |
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Research and development |
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Asset impairment charges |
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Amortization of intangible and acquisition-related assets |
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(Loss) income from operations |
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Interest expense |
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Other income, net |
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Recovery of long-term investments |
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Equity in net income (loss) of unconsolidated investments |
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Loss from continuing operations before income taxes |
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Income tax benefit (provision) |
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Net loss |
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Net loss attributable to non-controlling interests |
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Net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders |
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$ |
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$ |
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Net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders per share - Basic |
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$ |
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$ |
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Net loss attributable to Allscripts Healthcare Solutions, Inc. stockholders per share - Diluted |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
5
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended March 31, |
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(In thousands) |
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2020 |
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2019 |
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Net loss |
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$ |
( |
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$ |
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Other comprehensive (loss) income: |
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Foreign currency translation adjustments |
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Change in fair value of derivatives qualifying as cash flow hedges |
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Other comprehensive income (loss) before income tax (expense) benefit |
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Income tax benefit (expense) related to items in other comprehensive (loss) income |
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Total other comprehensive (loss) income |
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Comprehensive loss |
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Comprehensive loss attributable to non-controlling interests |
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Comprehensive (loss) income, net |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
6
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
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Three Months Ended March 31, |
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(In thousands) |
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2020 |
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2019 |
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Number of common shares |
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Balance at beginning of period |
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Common stock issued under stock compensation plans, net of shares withheld for employee taxes |
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Balance at end of period |
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Common stock |
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Balance at beginning of period |
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$ |
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$ |
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Common stock issued under stock compensation plans, net of shares withheld for employee taxes |
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Balance at end of period |
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$ |
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$ |
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Number of treasury stock shares |
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Balance at beginning of period |
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Purchase of treasury stock |
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Balance at end of period |
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Treasury stock |
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Balance at beginning of period |
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$ |
( |
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$ |
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Purchase of treasury stock |
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( |
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Balance at end of period |
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$ |
( |
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$ |
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Additional paid-in capital |
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Balance at beginning of period |
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$ |
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$ |
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Stock-based compensation |
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Common stock issued under stock compensation plans, net of shares withheld for employee taxes |
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Warrants issued |
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Acquisition of non-controlling interest |
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Balance at end of period |
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$ |
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$ |
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Retained earnings (accumulated deficit) |
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Balance at beginning of period |
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$ |
( |
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$ |
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Net loss less net loss attributable to non-controlling interests |
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( |
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( |
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ASU 2016-13 implementation adjustments |
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( |
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Balance at end of period |
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$ |
( |
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$ |
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Accumulated other comprehensive loss |
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Balance at beginning of period |
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$ |
( |
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$ |
( |
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Foreign currency translation adjustments, net |
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( |
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Unrecognized (loss) gain on derivatives qualifying as cash flow hedges, net of tax |
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Balance at end of period |
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$ |
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$ |
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Non-controlling interest |
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Balance at beginning of period |
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$ |
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$ |
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Acquisition of non-controlling interest |
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Net loss attributable to non-controlling interests |
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Balance at end of period |
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$ |
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$ |
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Total Stockholders’ Equity at beginning of period |
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$ |
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$ |
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Total Stockholders’ Equity at end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
7
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended March 31, |
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(In thousands) |
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2020 |
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2019 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Depreciation and amortization |
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Operating right-of-use asset amortization |
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Stock-based compensation expense |
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Deferred taxes |
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Asset impairment charges |
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Recovery of long-term investments |
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Other loss (income), net |
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Changes in operating assets and liabilities (net of businesses acquired): |
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Accounts receivable and contract assets, net |
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Prepaid expenses and other assets |
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Accounts payable |
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( |
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Accrued expenses |
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( |
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Accrued compensation and benefits |
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( |
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( |
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Deferred revenue |
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( |
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Other liabilities |
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Operating leases |
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( |
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( |
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Accrued DOJ settlement |
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( |
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Net cash (used in) provided by operating activities - continuing operations |
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( |
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Net cash (used in) provided by operating activities - discontinued operations |
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( |
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Net cash (used in) provided by operating activities |
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( |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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Capitalized software |
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( |
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( |
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(Purchases) sales of equity securities, other investments and related intangible assets, net |
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( |
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Other proceeds from investing activities |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities: |
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Taxes paid related to net share settlement of equity awards |
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( |
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Payments for issuance costs on 0.875% Convertible Senior Notes |
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( |
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Credit facility payments |
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Credit facility borrowings, net of issuance costs |
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Repurchase of common stock |
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( |
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Payment of acquisition and other financing obligations |
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( |
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Purchases of subsidiary shares owned by non-controlling interest |
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( |
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Net cash provided (used in) by financing activities |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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The accompanying notes are an integral part of these consolidated financial statements.
8
ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
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 months ended March 31, 2020 and 2019 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 months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020.
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the SEC's rules and regulations for interim reporting. The Company believes that the disclosures made are adequate to make these unaudited interim consolidated financial statements not misleading. They should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “Form 10-K”).
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and the accompanying notes. Our estimates and assumptions consider the economic implications of COVID-19 on our critical and significant accounting estimates. Actual results could differ materially from these estimates.
Change in Presentation
During the first quarter of 2020, we changed our reportable segments from Provider, Veradigm and Unallocated to Core Clinical and Financial Solutions, Data, Analytics and Care Coordination, and Unallocated. The business units reported within the historical segments have been reallocated into the new segments. Refer to Note 15 “Business Segments” for further discussion on the impact of the change.
Certain reclassifications were made to prior period amounts in order to conform to the current period presentation. These reclassifications had no impact on the reported prior period financial results.
Significant Accounting Policies
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 in ASU 2016-13 replaces the incurred loss impairment methodology under current GAAP. The new impairment model requires immediate recognition of estimated credit losses expected to occur for most financial assets and certain other instruments. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Refer to Note 2 “Revenue from Contracts with Customers” and Note 3 “Accounts Receivable” for further discussion on the impact of adoption.
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 will be effective for all entities for interim and annual periods beginning after December 15, 2019, with early adoption permitted. We adopted ASU 2018-13 on January 1, 2020, and the adoption had no impact on our consolidated financial statements.
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In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 will be effective for all entities as of March 12, 2020 through December 31, 2022. We adopted ASU 2020-04 on March 12, 2020, and the adoption had no impact on our consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740)” (“ASU 2019-12”), which is part of the FASB’s overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 simplifies accounting guidance for intraperiod allocations, deferred tax liabilities, year-to-date losses in interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements and interim recognition of tax laws or rate changes. ASU 2019-12 is effective for public business entities for annual reporting periods beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this accounting guidance.
We do not believe that any other recently issued, but not yet effective accounting standards, if adopted, will have a material impact on our consolidated financial statements.
2. Revenue from Contracts with Customers
Our
At March 31, 2020 and December 31, 2019, we had capitalized costs to obtain or fulfill a contract of $
The timing of revenue recognition, billings and cash collections results in billed and unbilled accounts receivable, contract assets and customer advances and deposits. Accounts receivable, net includes both billed and unbilled amounts where the right to receive payment is unconditional and only subject to the passage of time. Contract assets include amounts where revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Deferred revenue includes advanced payments and billings in excess of revenue recognized. Our contract assets and deferred revenue are reported in a net position on an individual contract basis at the end of each reporting period. Contract assets are classified as current or long-term based on the timing of when we expect to complete the related performance obligations and bill the customer. Deferred revenue is classified as current or long-term based on the timing of when we expect to recognize revenue.
The breakdown of revenue recognized based on the origination of performance obligations and elected accounting expedients is presented in the table below:
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(In thousands) |
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Three Months Ended March 31, 2020 |
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Revenue related to deferred revenue balance at beginning of period |
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$ |
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Revenue related to new performance obligations satisfied during the period |
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Revenue recognized under "right-to-invoice" expedient |
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Reimbursed travel expenses, shipping and other revenue |
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Total revenue |
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$ |
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|
10
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(In thousands) |
|
Three Months Ended March 31, 2019 |
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|
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Revenue related to deferred revenue balance at beginning of period |
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$ |
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|
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Revenue related to new performance obligations satisfied during the period |
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|
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Revenue recognized under "right-to-invoice" expedient |
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Reimbursed travel expenses, shipping and other revenue |
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|
|
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Total revenue |
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$ |
|
|
The aggregate amount of contract transaction price related to remaining unsatisfied performance obligations (commonly referred to as “backlog”) represents contracted revenue that has not yet been recognized and includes both deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog equaled $
Revenue Recognition
We recognize revenue only when we satisfy an identified performance obligation (or bundle of obligations) by transferring control of a promised product or service to a customer. We consider a product or service to be transferred when a customer obtains control because a customer has sole possession of the right to use (or the right to direct the use of) the product or service for the remainder of its economic life or to consume the product or service in its own operations. We evaluate the transfer of control primarily from the customer’s perspective as this reduces the risk that revenue is recognized for activities that do not transfer control to the customer.
The majority of our revenue is recognized over time because a customer continuously and simultaneously receives and consumes the benefits of our performance. The exceptions to this pattern are our sales of perpetual and term software licenses, and hardware, where we determined that a customer obtains control of the asset upon granting of access, delivery or shipment.
We disaggregate our revenue from contracts with customers based on the type of revenue and nature of revenue stream, as we believe those categories best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
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Three Months Ended March 31, |
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(In thousands) |
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2020 |
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2019 |
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Revenue: |
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Recurring revenue |
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$ |
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$ |
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Non-recurring revenue |
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Total revenue |
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$ |
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$ |
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Three Months Ended March 31, 2020 |
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(In thousands) |
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Core Clinical and Financial Solutions |
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Data, Analytics and Care Coordination |
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Unallocated Amounts |
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Total |
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Software delivery, support and maintenance |
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$ |
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|
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$ |
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$ |
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$ |
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Client services |
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Total revenue |
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$ |
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$ |
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$ |
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$ |
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