After shedding its hospital business segment earlier this year, health IT company Allscripts is doubling down on its strategy to grow its payers and life sciences businesses.
Allscripts sold its hospital and large physician practices segment for up to $700 million to Constellation Software’s subsidiary, N. Harris Computer Corporation back in March. As part of the deal, Harris acquired a range of assets from the health IT company’s hospital and large physician practices segment, including Sunrise, Paragon, Touchworks, Opal, dbMotion, STAR and Healthquest solutions.
The total $700 million cash transaction includes $670 million paid at the close of the deal and up to $30 million depending on the business’s performance in the following two years.
Executives said the company plans to use proceeds from the deal to support strategic M&A for Veradigm as well as for continued share repurchases.
The company's Veradigm business has the largest linked electronic health records claims patient database available for research, sourced from and directly connected to clinical platforms.
"Our Veradigm business is uniquely positioned in today's healthcare IT landscape as one of the only companies generating meaningful top-line growth, 25-plus-percent EBITDA margins and mid-teens free cash flow yield," Allscripts CEO Rick Poulton said during the company's second-quarter earnings call. "We achieved these unique results because of our unique three-sided network serving providers, health plans and alliance companies. Each of the three legs of this stool are codependent and mutually reinforcing and each contributes materially to our overall performance."
Allscripts is looking for M&A deals that are "accretive to growth, expands the balance of the company" and gets more payer life science-focused to balance out "what is still kind of a provider-centricity" to Allscripts' business, said Poulton, who stepped into the CEO role in May after long-time CEO Paul Black resigned.
"That would be top of the list strategically for me," he said, adding, "We've worked hard to create the story we have about top line, about strong margins, strong free cash flow. I'm not looking to wreck that by taking a flyer on something. So we're going to be smart about anything we do."
The company will weigh the best options of whether to build new capabilities versus partner or buy, Poulton said.
"If we can find a nice proven technology solution in an area we really need to augment and we think we can integrate it nicely to what we already have, we'd probably go that route and buy something rather than start over from scratch," he said.
The current macro environment has created a valuation reset and refocused the market on the reality that "cash is king," Poulton said.
"I expect that some quality assets will become available at more attractive prices, and I expect that we could be a good home for some of those assets. Fortunately, with nearly $300 million of net cash on our balance sheet, an undrawn credit facility of $700 million and a business that is producing mid-teen free cash flow yield, it is not a case of either/or for us, and we do not have to choose between one of those two paths," he told investors and analysts on the earnings call. "Expect us to be patient, expect us to be opportunistic and expect us to deploy capital in a way that we believe is in the best long-term interest of our shareholders."
In the second quarter, Allscripts revenue grew 7% from $141 million a year ago to $151 million. Veradigm contributed $145 million in revenue, up 8% from a year ago.
"Allscripts saw continued success in the second quarter, once again reporting year-over-year growth in revenue, gross profit and adjusted EBITDA. Our results allowed us to continue investing in our platforms while also returning significant capital to our shareholders," Poulton said.
The Chicago-based company reported an operating loss of $5 million compared with $17 million in operating income a year ago.
Allscripts reported a $64 million net loss, compared with profit of $22 million in last year's second quarter.
Earnings, adjusted for nonrecurring costs and stock option expense, came to a loss of 54 cents per share in the quarter compared to a profit of 15 cents per share in the same period a year ago.
Stock repurchases totaled $94 million in the second quarter of 2022.
Allscripts also is strongly investing in its solutions, Poulton said.
"We're investing about 20 cents of every dollar back into our solution platform in the form of R&D. That's at the high end of the range for most healthcare IT companies. We are doing that because we see opportunities to improve in all three of the business segment areas," he noted.
The company's Veradigm payer business provides a comprehensive set of solutions, including data analytics and engagement solutions, said Tom Langan, Allscripts president and chief commercial officer.
"The process starts with our access to clinical and claims data that when coupled with our analytics provides the health plans the insights on what interventions to deploy. We then leverage our proprietary and partner provider networks at the point of care to ensure gaps in care are addressed. Finally, we use our submissions platform to package the data for CMS so the health plan is paid appropriately," Langan said. "The Veradigm payer portfolio addresses the foundational end-to-end aspects of value-based care by enabling payers and providers the ability to deliver improved patient outcomes at a lower cost."
The company's provider network includes approximately 80,000 physicians who use its clinical, financial and patient engagement tools. Allscripts' health plan network represents a total of nearly 35 million members and will expand significantly when its recently announced relationship with the Social Security Administration goes live later this year, Poulton said.
The company is expanding its products to providers and health plans to include risk analytics and reporting, gaps in care closure and other clinical data exchanges, claim submissions and other financial data exchange, executives said.
For its revenue outlook, Allscripts is forecasting Veradigm revenue growth year-over-year between 6% to 7% and Veradigm adjusted EBITDA growth between 10% to 15%. The company expects free cash flow from continuing operations between $110 million to $120 million for the year.