Veradigm Inc.

For Q3 2022, consolidated revenue grew 5% year over year and Veradigm revenue grew 6% year over year. Veradigm’s Payer and Life Sciences business grew 10% year over year, while the Provider business grew 5%. Non-GAAP gross profit rose 37% year over year, non-GAAP gross margin was 55.6% (up 630 basis points year over year), and adjusted EBITDA margin was 30.1% (up 500 basis points year over year). GAAP EPS was $0.12 and non-GAAP EPS was $0.23, up 10% year over year. The company generated $42 million of cash flow from continuing operations and $34 million of free cash flow in the quarter, bringing year-to-date free cash flow to $90 million. Net cash at quarter end was approximately $286 million to $290 million. For full-year 2022, Veradigm revenue is expected to grow 6% to 7% year over year, adjusted EBITDA is expected to grow 10% to 15% year over year, and consolidated free cash flow from continuing operations is expected to be between $110 million and $120 million. Management maintained full-year revenue guidance and said Q4 should be stronger in Payer and Life Sciences, while Provider will face a difficult comparison to a large Q4 2021 license sale.

Rick Poulton emphasized that the company is executing well, with meaningful top-line growth, EBITDA margins above 25%, and year-to-date free cash flow conversion above 20%. He also highlighted the balance sheet, saying the company has approximately $290 million of net cash and intends to keep buying back stock aggressively, particularly because he believes the shares trade at a valuation discount to peers. On strategy, he framed Veradigm as a business with attractive end markets across providers, payers, and life sciences, and said the team wants investors to better recognize that profile.

Leah Jones focused on the quality of the quarter’s financial performance: revenue up 5% consolidated, Veradigm revenue up 6%, gross margin at 55.6%, adjusted EBITDA margin at 30.1%, and non-GAAP EPS of $0.23. She said operating expenses were relatively flat versus the first and second quarters, which helped drive operating leverage, and noted $34 million of free cash flow in Q3 and $90 million year to date. She also said the company repurchased 34 million of common stock in the quarter and ended with a net cash position of $286 million. For guidance, she reaffirmed full-year Veradigm revenue growth of 6% to 7%, adjusted EBITDA growth of 10% to 15%, and free cash flow of $110 million to $120 million.

Analysts focused on the convert payoff, share repurchases, sustainability of margins, provider growth comparables, pricing, and whether payer/life sciences demand was changing. Poulton said the company is not planning to early retire the converts at this time, but it would do so if a fair opportunity arose, and reiterated that valuation metrics must account for the right cash, debt, and share count assumptions. On guidance, management said it has not seen any demand trends that worry it, Payer and Life Sciences should be stronger in Q4, and Provider growth will look softer year over year mainly because of a tough Q4 2021 license-sale comp rather than a business slowdown. They also said gross margins should remain sustainable and that Q4 has historically been the highest-margin quarter.