Change Healthcare see potential growth as IT budgets increase during COVID-19

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The pandemic has underscored the need for greater efficiency, improved access, and enhanced consumer experience across the healthcare continuum, Change Healthcare's CEO said. (everythingpossible/GettyImages)

A rebound in healthcare utilization and new technology bookings helped Change Healthcare to achieve better-than-expected results in the third quarter of 2020.

The Nashville-based healthcare technology company reported revenue of $756 million in its second fiscal quarter ending September 30. Quarterly revenue was down 5% from revenue of $796 million during the same period last year.

The company reported a loss of $43 million and an earnings loss of 13 cents per share in its second fiscal quarter. In the same period a year ago, Change Healthcare had a net loss of $100,000 and zero cents per share.

Adjusted net income was $104 million, and earnings, adjusted for nonrecurring costs and stock option expense came to 32 cents per diluted share.

But revenue and earnings results topped both the company's forecast and Wall Street estimates. Analysts expected quarterly revenue of $739 million and adjusted earnings of 25 cents per share.

RELATED: Change Healthcare reports better-than-expected results despite the impact of COVID-19 pandemic

Adjusted EBITDA was $232 million for the most recent quarter. Change Healthcare was expecting adjusted EBITDA to be in the range of $180 million to $190 million and adjusted earnings per share to be in the range of 20 cents to 23 cents per share.

Net loss for the current period was negatively impacted by the COVID-19 pandemic, partially offset by new sales volumes, productivity improvements, and cost initiatives, company officials said.

“Our second-quarter results reflect continued improvement in both healthcare utilization in the U.S. and underlying momentum across our business,” said Neil de Crescenzo, president and chief executive officer said during the company’s second fiscal quarter earnings call Wednesday.

The pandemic has underscored the need for greater efficiency, improved access, and enhanced consumer experience across the healthcare continuum, de Crescenzo said.

“We believe the recovery to pre-COVID activity levels was a result of the trend toward more normal underlying demand and some catch-up of previously deferred visits and procedures,” executive vice president and chief financial officer Fredrik Eliasson said.

Patient volumes at physician offices have rebounded more quickly than hospitals but that is starting to catch up based on claims data, he said.

RELATED: Change Healthcare buys back pharmacy unit for $213M, sells analytics division to Kaufman Hall

“I think it's, frankly and unfortunately, starting to trend not dissimilar to what we saw back in the spring. But hopefully, with a lot less adverse events for the people being admitted because of the advances in treatment,” he said.

Change Healthcare provides revenue cycle management, data analytics, imaging solutions, artificial intelligence capabilities, and patient engagement solutions for providers and payers. The company facilitates more than $1.5 trillion in claims and 15 billion transactions annually.

Increasing focus on consumer experience, interoperability

Trends indicate that healthcare leaders are increasing IT budgets during the pandemic and beyond, supporting the long-term potential of Change Healthcare’s solutions and platform, de Crescenzo said.

“Health care leaders are accelerating digital and payment transformation with an emphasis on consumer experience, telehealth, and interoperability. These are all areas where we believe we are leading the innovation curve as evidenced by our recently launched Connected Consumer Health e-commerce suite, our interoperability APIs to address CMS' interoperability and patient access role, and our clinical data retrievable solution,” he said during the earnings call.

The company is seeing increased demand for its payment accuracy and coordination of benefit solutions technologies that utilize its AI capabilities. During the quarter, Change Healthcare replaced a major competitor at a $30 billion Blues plan and signed two significant state Medicaid deals.

In the revenue cycle management technology market, Change Healthcare signed a new multimillion-dollar contract with one of the largest telehealth providers in the country as well as adding significant new clients like Helix, a leading clinical lab, executives said.

RELATED: Change Healthcare rolls out software to let patients book healthcare like shopping for a hotel room

The company’s solutions revenue fell 4% or by $33 million during the quarter from $739 million in the third quarter of 2019 to $706 million in the most recent quarter. That reflects a deferred revenue adjustment of $39 million associated with McKesson's disposition of its ownership interest in Change Healthcare, Eliasson said.

Free cash flow for the quarter was $68 million compared to $77 million in the same period of the prior fiscal year.

The company made two deals during the quarter to expand its enterprise imaging and value-based healthcare software businesses. In August, Change Healthcare acquired Nucelus.io to advance its cloud-native enterprise imaging efforts and also bought Prometheus Analytics, which provides technology that helps healthcare payers optimize their provider networks under value-based care reimbursement models.

Change Healthcare also made two deals earlier in the year to expand its business in the pharmacy network, which positions the company well for future vaccine distribution across its pharmacy segment, de Crescenzo said.

For the third fiscal quarter, Change Healthcare expects solutions revenue to be $725 million to $745 million. Adjusted EBITDA is projected to be $215 million to $235 million and adjusted earnings per share to be 28 cents to 33 cents per share.