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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 001-35547

 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

36-4392754

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

222 Merchandise Mart, Suite 2024

Chicago, IL 60654

(Address of Principal Executive Offices, Zip Code)

(800) 334-8534

(Registrant's Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

Common Stock, par value $0.01 per share

MDRX

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

 

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.     Yes        No   

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).      Yes        No   

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.

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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        No   

As of May 1, 2020, there were 162,550,390 shares of the registrant's $0.01 par value common stock outstanding.

 


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

FORM 10-Q

For the Fiscal Quarter Ended March 31, 2020

TABLE OF CONTENTS

 

 

  

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

3

Item 1.

 

Financial Statements (unaudited)

 

3

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

26

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

Item 4.

 

Controls and Procedures

 

37

PART II. OTHER INFORMATION

 

38

Item 1.

 

Legal Proceedings

 

38

Item 1A.

 

Risk Factors

 

38

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

Item 6.

 

Exhibits

 

39

SIGNATURES

 

40

 

2


PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements 

ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

March 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

204,308

 

 

$

129,668

 

Restricted cash

 

 

7,824

 

 

 

7,871

 

Accounts receivable, net of allowance of $35,622 and $23,879 as of

   March 31, 2020 and December 31, 2019, respectively

 

 

471,213

 

 

 

459,751

 

Contract assets, net of allowance of $1,068 and $0 as of March 31, 2020 and December 31, 2019, respectively

 

 

98,171

 

 

 

95,982

 

Prepaid expenses and other current assets

 

 

125,677

 

 

 

147,990

 

Total current assets

 

 

907,193

 

 

 

841,262

 

Fixed assets, net

 

 

81,830

 

 

 

88,339

 

Software development costs, net

 

 

250,412

 

 

 

243,929

 

Intangible assets, net

 

 

358,309

 

 

 

374,142

 

Goodwill

 

 

1,361,115

 

 

 

1,362,017

 

Deferred taxes, net

 

 

5,429

 

 

 

5,704

 

Contract assets - long-term, net of allowance of $4,273 and $0 as of March 31, 2020 and December 31, 2019, respectively

 

 

54,501

 

 

 

67,559

 

Right-of-use assets - operating leases

 

 

110,469

 

 

 

98,020

 

Other assets

 

 

123,598

 

 

 

124,767

 

Total assets

 

$

3,252,856

 

 

$

3,205,739

 


3


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(Unaudited)

(In thousands, except per share amounts)

 

March 31, 2020

 

 

December 31, 2019

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

79,168

 

 

$

104,014

 

Accrued expenses

 

 

217,273

 

 

 

270,662

 

Accrued compensation and benefits

 

 

67,635

 

 

 

68,569

 

Deferred revenue

 

 

401,483

 

 

 

379,843

 

Current maturities of long-term debt

 

 

370,751

 

 

 

364,465

 

Current operating lease liabilities

 

 

21,910

 

 

 

23,137

 

Total current liabilities

 

 

1,158,220

 

 

 

1,210,690

 

Long-term debt

 

 

680,434

 

 

 

551,004

 

Deferred revenue

 

 

12,439

 

 

 

12,337

 

Deferred taxes, net

 

 

18,484

 

 

 

21,038

 

Long-term operating lease liabilities

 

 

108,068

 

 

 

95,162

 

Other liabilities

 

 

33,431

 

 

 

30,320

 

Total liabilities

 

 

2,011,076

 

 

 

1,920,551

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock: $0.01 par value, 1,000 shares authorized,

   no shares issued and outstanding as of March 31, 2020 and December 31, 2019

 

 

0

 

 

 

0

 

Common stock: $0.01 par value, 349,000 shares authorized as of March 31, 2020

   and December 31, 2019; 273,484 and 161,901 shares issued and outstanding

   as of March 31, 2020, respectively; 272,609 and 162,475 shares issued

   and outstanding as of December 31, 2019, respectively

 

 

2,733

 

 

 

2,725

 

Treasury stock: at cost, 111,583 and 110,134 shares as of March 31, 2020 and

   December 31, 2019, respectively

 

 

(580,871

)

 

 

(571,157

)

Additional paid-in capital

 

 

1,914,816

 

 

 

1,907,348

 

Accumulated deficit

 

 

(87,643

)

 

 

(49,336

)

Accumulated other comprehensive loss

 

 

(7,255

)

 

 

(4,392

)

Total stockholders’ equity

 

 

1,241,780

 

 

 

1,285,188

 

Total liabilities and stockholders’ equity

 

$

3,252,856

 

 

$

3,205,739

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three Months Ended

March 31,

 

(In thousands, except per share amounts)

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

$

263,612

 

 

$

275,512

 

Client services

 

 

153,101

 

 

 

156,537

 

Total revenue

 

 

416,713

 

 

 

432,049

 

Cost of revenue:

 

 

 

 

 

 

 

 

Software delivery, support and maintenance

 

 

76,325

 

 

 

81,033

 

Client services

 

 

152,786

 

 

 

148,699

 

Amortization of software development and

    acquisition-related assets

 

 

30,641

 

 

 

28,222

 

Total cost of revenue

 

 

259,752

 

 

 

257,954

 

    Gross profit

 

 

156,961

 

 

 

174,095

 

Selling, general and administrative expenses

 

 

97,288

 

 

 

100,245

 

Research and development

 

 

62,155

 

 

 

64,310

 

Asset impairment charges

 

 

0

 

 

 

98

 

Amortization of intangible and acquisition-related assets

 

 

6,718

 

 

 

6,797

 

(Loss) income from operations

 

 

(9,200

)

 

 

2,645

 

Interest expense

 

 

(12,223

)

 

 

(10,184

)

Other income, net

 

 

522

 

 

 

513

 

Recovery of long-term investments

 

 

0

 

 

 

1,045

 

Equity in net income (loss) of unconsolidated investments

 

 

200

 

 

 

(64

)

Loss from continuing operations before income taxes

 

 

(20,701

)

 

 

(6,045

)

Income tax benefit (provision)

 

 

347

 

 

 

(1,932

)

Net loss

 

 

(20,354

)

 

 

(7,977

)

Net loss attributable to non-controlling interests

 

 

0

 

 

 

424

 

Net loss attributable to Allscripts Healthcare

   Solutions, Inc. stockholders

 

$

(20,354

)

 

$

(7,553

)

Net loss attributable to Allscripts Healthcare

   Solutions, Inc. stockholders per share - Basic

 

$

(0.13

)

 

$

(0.04

)

Net loss attributable to Allscripts Healthcare

   Solutions, Inc. stockholders per share - Diluted

 

$

(0.13

)

 

$

(0.04

)

The accompanying notes are an integral part of these consolidated financial statements.

5


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

Three Months Ended

March 31,

 

 

(In thousands)

 

2020

 

 

2019

 

 

Net loss

 

$

(20,354

)

 

$

(7,977

)

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2,512

)

 

 

695

 

 

Change in fair value of derivatives qualifying as cash flow hedges

 

 

(473

)

 

 

132

 

 

Other comprehensive income (loss) before income

    tax (expense) benefit

 

 

(2,985

)

 

 

827

 

 

Income tax benefit (expense) related to items in

    other comprehensive (loss) income

 

 

122

 

 

 

(35

)

 

Total other comprehensive (loss) income

 

 

(2,863

)

 

 

792

 

 

Comprehensive loss

 

 

(23,217

)

 

 

(7,185

)

 

Comprehensive loss attributable to non-controlling interests

 

 

0

 

 

 

424

 

 

Comprehensive (loss) income, net

 

$

(23,217

)

 

$

(6,761

)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 


6


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

Three Months Ended

March 31,

 

(In thousands)

 

2020

 

 

2019

 

Number of common shares

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

272,609

 

 

 

270,955

 

Common stock issued under stock compensation plans,

    net of shares withheld for employee taxes

 

 

875

 

 

 

1,058

 

Balance at end of period

 

 

273,484

 

 

 

272,013

 

Common stock

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,725

 

 

$

2,709

 

Common stock issued under stock compensation plans,

    net of shares withheld for employee taxes

 

 

8

 

 

 

10

 

Balance at end of period

 

$

2,733

 

 

$

2,719

 

Number of treasury stock shares

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

(110,134

)

 

 

(99,731

)

Purchase of treasury stock

 

 

(1,449

)

 

 

(6,148

)

Balance at end of period

 

 

(111,583

)

 

 

(105,879

)

Treasury stock

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(571,157

)

 

$

(460,543

)

Purchase of treasury stock

 

 

(9,714

)

 

 

(65,070

)

Balance at end of period

 

$

(580,871

)

 

$

(525,613

)

Additional paid-in capital

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

1,907,348

 

 

$

1,881,494

 

Stock-based compensation

 

 

9,954

 

 

 

11,394

 

Common stock issued under stock compensation plans,

    net of shares withheld for employee taxes

 

 

(3,168

)

 

 

(5,338

)

Warrants issued

 

 

682

 

 

 

682

 

Acquisition of non-controlling interest

 

 

0

 

 

 

(29,913

)

Balance at end of period

 

$

1,914,816

 

 

$

1,858,319

 

Retained earnings (accumulated deficit)

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(49,336

)

 

$

132,842

 

Net loss less net loss attributable to non-controlling interests

 

 

(20,354

)

 

 

(7,553

)

ASU 2016-13 implementation adjustments

 

 

(17,953

)

 

 

0

 

Balance at end of period

 

$

(87,643

)

 

$

125,289

 

Accumulated other comprehensive loss

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(4,392

)

 

$

(5,389

)

Foreign currency translation adjustments, net

 

 

(2,512

)

 

 

695

 

Unrecognized (loss) gain on derivatives qualifying as cash flow hedges,

    net of tax

 

 

(351

)

 

 

97

 

Balance at end of period

 

$

(7,255

)

 

$

(4,597

)

Non-controlling interest

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

0

 

 

$

29,314

 

Acquisition of non-controlling interest

 

 

0

 

 

 

(28,890

)

Net loss attributable to non-controlling interests

 

 

0

 

 

 

(424

)

Balance at end of period

 

$

0

 

 

$

0

 

Total Stockholders’ Equity at beginning of period

 

$

1,285,188

 

 

$

1,580,427

 

Total Stockholders’ Equity at end of period

 

$

1,241,780

 

 

$

1,456,117

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

(In thousands)

 

2020

 

 

2019

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(20,354

)

 

$

(7,977

)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

52,092

 

 

 

50,126

 

 

Operating right-of-use asset amortization

 

 

5,631

 

 

 

5,320

 

 

Stock-based compensation expense

 

 

9,954

 

 

 

11,658

 

 

Deferred taxes

 

 

(2,160

)

 

 

6

 

 

Asset impairment charges

 

 

0

 

 

 

98

 

 

Recovery of long-term investments

 

 

0

 

 

 

(1,045

)

 

Other loss (income), net

 

 

287

 

 

 

236

 

 

Changes in operating assets and liabilities (net of businesses acquired):

 

 

 

 

 

 

 

 

 

Accounts receivable and contract assets, net

 

 

5,660

 

 

 

32,307

 

 

Prepaid expenses and other assets

 

 

19,669

 

 

 

3,658

 

 

Accounts payable

 

 

(23,967

)

 

 

7,382

 

 

Accrued expenses

 

 

10,022

 

 

 

(4,847

)

 

Accrued compensation and benefits

 

 

(736

)

 

 

(39,525

)

 

Deferred revenue

 

 

724

 

 

 

(17,107

)

 

Other liabilities

 

 

2,933

 

 

 

1,380

 

 

Operating leases

 

 

(6,174

)

 

 

(5,854

)

 

Accrued DOJ settlement

 

 

(57,289

)

 

 

0

 

 

Net cash (used in) provided by operating activities - continuing operations

 

 

(3,708

)

 

 

35,816

 

 

Net cash (used in) provided by operating activities - discontinued operations

 

 

0

 

 

 

(30,000

)

 

    Net cash (used in) provided by operating activities

 

 

(3,708

)

 

 

5,816

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,845

)

 

 

(4,847

)

 

Capitalized software

 

 

(28,556

)

 

 

(28,600

)

 

(Purchases) sales of equity securities, other investments and related intangible assets, net

 

 

(3,028

)

 

 

32

 

 

Other proceeds from investing activities

 

 

0

 

 

 

5

 

 

    Net cash used in investing activities

 

 

(34,429

)

 

 

(33,410

)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(3,174

)

 

 

(5,327

)

 

Payments for issuance costs on 0.875% Convertible Senior Notes

 

 

(758

)

 

 

0

 

 

Credit facility payments

 

 

(80,000

)

 

 

(5,000

)

 

Credit facility borrowings, net of issuance costs

 

 

210,000

 

 

 

120,000

 

 

Repurchase of common stock

 

 

(9,714

)

 

 

(65,070

)

 

Payment of acquisition and other financing obligations

 

 

(2,911

)

 

 

(55

)

 

Purchases of subsidiary shares owned by non-controlling interest

 

 

0

 

 

 

(54,064

)

 

      Net cash provided (used in) by financing activities

 

 

113,443

 

 

 

(9,516

)

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(713

)

 

 

163

 

 

Net increase (decrease) in cash and cash equivalents

 

 

74,593

 

 

 

(36,947

)

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

137,539

 

 

 

184,795

 

 

Cash, cash equivalents and restricted cash, end of period

 

 

212,132

 

 

 

147,848

 

 

 

 

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.

9


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 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, 2020 and December 31, 2019, we had capitalized costs to obtain or fulfill a contract of $19.6 million and $20.8 million, respectively, in Prepaid and other current assets and $34.4 million and $32.9 million, respectively, in Other assets. During the three months ended March 31, 2020 and 2019, we recognized $7.5 million and $7.6 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 table below:

(In thousands)

 

Three Months

Ended

March 31, 2020

 

Revenue related to deferred revenue balance at beginning of period

 

$

140,132

 

Revenue related to new performance obligations satisfied during the period

 

 

216,990

 

Revenue recognized under "right-to-invoice" expedient

 

 

58,059

 

Reimbursed travel expenses, shipping and other revenue

 

 

1,532

 

Total revenue

 

$

416,713

 

 

10


(In thousands)

 

Three Months

Ended

March 31, 2019

 

Revenue related to deferred revenue balance at beginning of period

 

$

126,184

 

Revenue related to new performance obligations satisfied during the period

 

 

248,221

 

Revenue recognized under "right-to-invoice" expedient

 

 

55,923

 

Reimbursed travel expenses, shipping and other revenue

 

 

1,721

 

Total revenue

 

$

432,049

 

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 $4.5 billion as of March 31, 2020, of which we expect to recognize approximately 32% over the next 12 months, and the remaining 68% 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, timing and uncertainty of our revenue and cash flows are affected by economic factors. The below tables summarize revenue by type and nature of revenue stream as well as by our reportable segments:

 

 

Three Months Ended March 31,

 

(In thousands)

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

  Recurring revenue

 

$

341,219

 

 

$

348,636

 

  Non-recurring revenue

 

 

75,494

 

 

 

83,413

 

      Total revenue

 

$

416,713

 

 

$

432,049

 

 

 

 

Three Months Ended March 31, 2020

 

(In thousands)

 

Core Clinical and Financial Solutions

 

 

Data, Analytics and Care Coordination

 

 

Unallocated Amounts

 

 

Total

 

Software delivery, support and maintenance

 

$

176,800

 

 

$

76,412

 

 

$

10,400

 

 

$

263,612

 

Client services

 

 

144,739

 

 

 

5,650

 

 

 

2,712