Veradigm Inc. Price & Performance (MDRX)

Thank you very much. Good morning, and welcome to the Veradigm update conference call. Our speakers today are Tom Langan, Veradigm Interim Chief Executive Officer and Lee Westerfield, our Interim Chief Financial officer. We'll be making a number of forward looking statements during the presentation and the Q and A part of the call. These statements are based on current expectations and involve a number of risks and uncertainties that could cause our actual results to vary materially from those reflected in the looking statements. We undertake no obligation to revise these forward looking statements in light of new information or future events. Please refer to our releases and the SEC filings for more information regarding the risk factors that may affect our results. In addition, we will be referring to certain non GAAP financial measures Please refer to the information regarding these non GAAP financial measures and the reconciliations of these non GAAP financial measures to their most directly comparable GAAP measures. In our press releases that are available on our Investor Relations website. Today's meeting will start with an introduction from Tom, followed by a financial update from Lee, and then lastly, Tom will provide closing remarks. And with that, I'm gonna hand the call over to Tom.

Thank you, Jenny, and welcome to everyone joining the call today.

The focus of the call today is to review our audited financial results from 2022 and unaudited revenue adjusted EBITDA and cash positions from 2023 and 2024. Provide a current view of Veradigm's business summarize key business highlights and characterize our path forward to leverage our strong position. Including our outlook on revenue and cash for 2025. Update you on the progress of the audit, accounting remediation, and becoming current with our filing obligations. We remain confident in the Veradigm business model and our value proposition, The fundamentals of our core business are sound, We've completed our 2022 restatement and are on the path to becoming current in our filing obligations. We have a refreshed board to provide oversight as we our go forward strategy. Starting with board refreshments, since the beginning of this year, we added four new independent directors. Our new chairman of the board, Lou Silverman, is a seasoned health care with over thirty years of leadership experience in health care information technology. And technology enabled healthcare services including eight years as CEO of Quality Systems, now known as NextGen Healthcare. Our new Audit Committee Chair, Bruce Felt, has served as Chief Financial Officer at several public companies in the technology space.

Including most recently at a cloud software company. And he has served as audit committee chair at both Cambium Networks and Evolent Health. Our new dominating and governance committee chair, Vinit Asar, brings the board thirty years of diversified global health care experience in medical devices and non acute health care services. As well as experience as a public company CEO at a company that went through a restatement and relisting of its common stock. Additionally, Jonathan Sacks, a partner at Stonehill, Capital Management, which is Veradigm's largest shareholder, brings over twenty years of investment management experience. Across many industries, including health care, as well as experience with companies undergoing complex accounting challenges, delistings, and capital structure changes. Yesterday, we reached an important milestone by filing our form 10 k. Which includes restatements of certain twenty twenty, twenty twenty one, and 2022 financials, and details the findings of our audit committee's investigations and our other reviews. As well as our remediation plan to address identified control deficiencies enhance our overall internal control environment. This marks a crucial step in becoming current in our financial reporting. Last night, we released updated preliminary unaudited 2023 estimated revenue and adjusted EBITDA in ranges that are both at the higher end of the previously disclosed estimates from January of twenty twenty four and reaffirmed in March of twenty twenty four.

We also released updated preliminary unaudited 2024 estimated revenue and adjusted EBITDA ranges that are below prior guidance issued in March of twenty twenty four and reaffirmed in May of twenty twenty four. There are a number of market and the execution factors that impacted the 2024 estimated revenue and adjusted EBITDA results which we will detail later in this call. As you will see, we incurred significant external audit fees, accounting advisory fees, and legal fees in 2023 and 2024. These fees related to the preparation of the financial statements contained in the 2022 Form 10 k the audit committee investigation, well as the restatement and internal reviews described in the 2022 ten k. We also incurred additional expenses to supplement our internal accounting operations. There were many reasons that it took so much time and expense to prepare the 2022 ten k. For example, there were several material weaknesses described in the 2022 ten k. These internal control deficiencies resulted in more extensive audit procedures. This extended our timelines and significantly increased our external professional services spend, In addition, the materiality threshold for the 2022 audit was significantly lower than it had been prior to the sale of our HLPB HLPP business in May 2022.

Due to the reduced size of the company. This also resulted in a lower materiality threshold being applied to 2020. And 2021 during the restatement. It is worth noting that the external professional services fees we have already incurred have benefited our remediation efforts and should continue to do so as we move forward with our remediation plan. We've described that remediation plan in the twenty twenty two ten k, It should also help us with the preparation of our twenty twenty three twenty twenty four, and 2025 financial statement filings. Given the work already completed, we expect that external professional services fee relating to audit procedures will decline from 2024 levels for the remainder of 2025. Despite the shortfall in revenue and adjusted EBITDA for 2024, we remain confident in Veradigm's business model and market positioning. Veradigm is a leading healthcare data and intelligence organization uniquely positioned at the intersection of the three pillars of health care, payer, provider, and life sciences, with a broad based national footprint. Veradigm's data assets and company encompassing both proprietary and external sources serve each of our three pillars. We believe that the application of our in house generative AI capabilities will drive deeper insights and greater value for our customer our clients.

Key business highlights across our provider business center on signing new customers to our Veradigm suite of solutions. With a focus on high growth specialty EHR markets. Just in 2025, we signed the largest wound care organization in The United States to a Veradigm practice management and Veradigm revenue cycle analytics deal. We continued our growth in specialty markets. For example, signing another multimillion dollar five year contract with a large urology practice. One of the largest provider deals we have signed in recent years. We have seen recent successes in our payer business as well. Finding seven new clients over the past three months, within our our core our Care Gap Alerting solution. Veradigm Payer Insights continues to grow rapidly with near 400 new sites onboarded so far in 2025, The product currently provides gaps in care alerts to a 3,500 health care practices across The United States. We recently signed a number of contracts in our life sciences business, signing a multimillion dollar Veradigm digital health media deal in a top 10 biopharma company committing to a multiyear multimillion dollar enterprise data deal for both Veradigm Network EHR and Remit Data. Veradigm has a strong foundation for sustained growth anchored by high recurring revenue and the distinctive value we provide our customers.

At the same time, we recognize the need for operational improvements. The Veradigm leadership team with the review of an independent strategic advisory firm conducted a thorough operational assessment and a comprehensive go forward plan to rationalize our cost structure to ensure profitable growth. This plan supports our priorities, which include remediating our material weaknesses and other internal control deficiencies. Becoming current in financial reporting, executing against our growth strategy to deliver end to end solutions that empower our clients and relisting our common stock. Looking forward, Veradigm's growth strategy focuses on expanding our core provider base while enhancing the value of our offerings, including advancing AI enabled clinical and financial workflows. By integrating high value specialty practices into our EHR network and broadening our reach and revenue cycle management solutions, Veradigm is strengthening its foundation in the health care ecosystem which is the anchor for expanding our parent life sciences solutions. We believe the continued expansion of the Veradigm network through increased provider participation, enhanced data and improved connectivity, will drive growth across all of our market segments. Let me provide you with some details on these initiatives across our three pillars. In our provider business, we have implemented streamlined provider workflows utilizing AI, reduce administrative burden and improve data capture while enhancing the customer experience.

In the payer business, we are working to expand the Veradigm network through payer provider collaborations and deliver solutions that empower multiple health care stakeholders to work together more effectively. And in life sciences, we've scaled our data products and analytics that utilize natural language processing to unlock new market opportunities and new revenue streams. In parallel with our investments for growth and innovation, we are transforming our internal technology infrastructure and processes. This initiative will create a modern three sixty degree view of the customer by upgrading and consolidating our CRM and ERP systems. Before we get to the financial results, I wanna express my sincere gratitude to all of our employees. Our customers trust us to help them solve their challenges, and that trust is earned through the hard work and dedication of our incredible Veradigm team. Is their commitment to customers, and their resilience through 2024 that have been a true highlight for me and our leadership. Team. Let me turn it over to Lee who will walk you through the Form 10 k 2023 and 2024 unaudited revenue adjusted EBITDA and cash positions, and 2025 outlook. As well as our cash position and progress on remediation.

Then I'll come back to provide some final comments. Thank you, Tom. Today my comments will focus on three areas. First, our historical financials, second, our forward outlook Finally, I'll address our accounting remediation plans. Now turning to our historical financials. There are five years to review with you. First, I'll briefly touch on the restated audited periods 2020 to 2022, Then I will address more fully the recent unaudited years '23 to 2024. As Tom mentioned, the company filed its 2022 Form 10 k yesterday. For the years 2020, to 2022, I'll focus on the restated revenue and assets. Revenue from continuing operations, and total assets from both continuing operations plus divested businesses. Restated revenue from Veradigm's continuing operations changed minimally in the years 2020 and 2021, from prior filings. By less than 1% in each year. In 2022, for the first nine months of that year, restated revenue from continuing operations was reduced by approximately 4%. Restated assets in total combining both Veradigm's continued operations and divested businesses were reduced through impairments and write offs in the restated balance sheet. The impact of the internal control failures on the company's assets was a reduction of $63,000,000 for the year ended 2020 and a reduction of $119,000,000 for the year ended 2021.

For the nine months ended September 2022, restated assets were reduced by $57,000,000. Deferred revenue and contract assets goodwill, and accounts receivable were the primary accounts affected on the restatement balance sheet. You will find a description of identified material weaknesses in the 2022 form 10 k filing in Item nine a. Which also summarizes the company's remediation plans.

Regarding twenty twenty to twenty twenty two historicals, I'll now comment on growth and profitability. Revenue increased modest from 2020 to 2022, up by 4% in 2021 lifted by both transaction related revenue and recurring revenue. Then up by 2% in 2022 our emerging payer and life sciences operations gained market traction. And regarding adjusted EBITDA, in those historical periods, Veradigm's EBITDA margin for 2020 was 22%, For 2021, it was 29%. And for 2022, was 24%. That's what that was EBITDA margins. Now let me address more recent years. In 2023 and 2024, both years are unaudited periods. I will share preliminary estimated financials in ranges based on information currently available. In 2023, our updated preliminary estimated revenue and adjusted EBITDA ranges show that we performed at the higher end of prior guidance ranges that we issued last year in January and reaffirmed in March. The 2024 preliminary estimated revenue and adjusted EBITDA ranges show that we fell short of the prior guidance ranges that we issued last year in March in reaffirmed in May. I'll speak first about 2023. GAAP revenue is estimated to be in a range between 626 hundred and $25,000,000. That range includes favorable customer settlements of approximately 19,000,000.

Revenue excluding customer settlements grew modestly by approximately 3% at the midpoint year over year from 2022. Recurring revenue in 2023 was approximately 80% of total revenue consistent with prior years. In 2023, business unit performance showed top line increases in both businesses. Up 1% in provider and up 7% in payer in life sciences. Each at midpoint. Our adjusted EBITDA in 2023 is estimated to be between 1 and 39,000,000 and $144,000,000 higher than our previously estimated range.

About cash and debt, net cash was $239,000,000 at year end 2023. Cash and equivalents were $447,000,000 and debt which year end 2023 consisted of convertible notes and an undrawn credit facility, was $208,000,000 of funded debt Change in cash in 2023 was approximately net zero. In other words, cash remained flat year on year during 2023. I'll walk you through the major sources and uses of cash in 2023.

First, outflows for transaction and other expenses totaled approximately $46,000,000 the bulk of which went towards audit, accounting, and legal professional fees for the restatement of 2022 as well as legal fees for certain other matters.

Two, net outflows for equity investing activity was $59,000,000, mainly towards the strategic investment in Holmusk. Three, there were no acquisitions or divestitures in 2023.

Four, CapEx outflows totaled approximately $30,000,000 mainly for software development and also for hardware.

Five, and finally, approximately negative $5,000,000 impact on cash from the sum of net interest income, working capital changes in tax Now turning to 2024 unaudited results. Revenue fell short of the prior range first issued in March of twenty twenty four and reaffirmed in May of twenty twenty four. Unexpected revenue shortfalls took shape late in the third quarter and more significantly in the fourth quarter of twenty twenty four. Revenue shortfalls occurred across all business units, especially in payer and life science. Full year 2024 GAAP revenue is estimated to have been between $5.83 and $588,000,000. That range includes favorable customer settlements, of approximately 1,000,000. Recurring revenue in 2024 was approximately 80% of total revenue, again, consistent with prior years. As compared to our prior guidance ranges, today's updated estimated revenue fell short by approximately $42,000,000 at the midpoint. I'll break down the components of the revenue shortfall. Drilling into each business unit. Provider revenue dipped 1% year over year from the midpoint of the range in 2023. We had anticipated roughly 2% growth in our prior guidance. Payer and life science revenue declined by 10% from the midpoint of the range in 2023 we had anticipated growth of roughly 10% in our prior guidance.

Of the total shortfall, in revenue, provider accounted for roughly one third while payer and life science accounted for roughly two thirds of the $42,000,000 estimated shortfall. Several factors contributed to the top line shortfall. In provider, the shortfall stemmed from higher than expected customer net attrition across multiple solutions especially affecting revenue cycle management. While in payer and life sciences, top line declined rather than grew. At the root of it, multiple internal and external factors affected that performance. We experienced implementation delays in clinical data exchange and rollout delays in GAP care closure services. And in life science, biopharma sector wide softness led to lower real world data, sales closings, and media bookings versus 2023. Full year adjusted EBITDA for 2024 is estimated to have been between 85 and $90,000,000. This estimated range is below the previously disclosed guidance range. The adjusted EBITDA decline year on year was primarily driven by the shortfall in revenue.

About cash in 2024.

Our net cash was $87,000,000 at year end 2024. Consisting of cash and equivalents of $295,000,000 less funded debt of 208,000,000. During 2024, cash declined by $152,000,000 versus 2023. I will walk through the major sources and uses of cash in 2024. First, approximately 103,000,000 of outflows for transaction and other expenses, the bulk of which went towards audit and accounting professional fees for the restatement of 2022, and the remainder for the strategic review process and for legal fees for certain other matters.

Two, net inflow of $13,000,000 from our equity investing activities, including inflows from distributions, less outflows for contractually committed equity investments.

Three, approximately $110,000,000 of for the acquisitions of Science IO and Kowa Health.

Four, approximately $35,000,000 of outflow for CapEx. Mainly for software development and hardware and also for the implementation of our new ERP system. Five, and finally, approximately 5,000,000 net negative impact on cash from net interest income working capital changes, and taxes.

Now turning to our outlook for 2025. The framework for our financial outlook is revenue is expected to be approximately flat. Versus the 2024 range. We're expecting top line growth from new customers and contracts and price increases. Offset by customer attrition if consistent with historical levels. Regarding our cash outlook, we are currently net cash positive and anticipating remaining net cash positive throughout 2025. And we are pursuing additional debt financing.

Now the next steps towards remediation.

To regain current SEC filing status, the necessary steps are to complete the annual audits for 2023 and 2024 and thereafter the audit of 2025 and all quarterly filings up to the current period. We do not anticipate becoming in our financial reporting until sometime in 2026.

For remediation, we have several seven. Material weaknesses. Cited in the 2022 form 10 k. The majority of our remediation plans are expected to be completed during 2026 in conjunction with the implementation of our new ERP designed to enhance controls. The ERP system implementations and accounting remediations will affect the timing of our audits and filings.

To wrap up, what can you expect going forward?

Tom and I plan to provide periodic business updates until we're current with our financial reporting obligations. I will now pass the call back to Tom. Thanks, Lee. Now I will make a few closing remarks. Looking forward, we believe Veradigm is well positioned to capitalize on today's and tomorrow's health care market trends. I remain confident in our business model and value proposition. Our revitalization plan is straightforward. We will focus on remediating our material weaknesses and other internal control deficiencies. Becoming current in financial reporting, executing against our growth strategy to end to end solutions that empower our clients, and relisting our common stock. I am proud of our Veradigm employees who work each and every day to earn our customers' business and I'm grateful for their dedication. Thank you for your patience over the past twenty four months. We still have much work to do, but we are resilient, determined, and motivated. We believe Veradigm is on a path that positions us for success. Operator, we will take questions now.

Thank you. We'll now be conducting a question and answer session. You may press 2 if you like to move your question from the queue. One moment please while we poll for questions. Our first question is coming from Charles Ryu from TD Cowen. Your line is now live.

Yes. Thanks for taking the question. I guess, Lee, just to clarify, did I hear you correctly that the remediation efforts need to be completed first before he can become current on the filings?

No. That's not quite right, Charles. In fact, we can regain currency on filings while continuing to work on the remediations.

Okay. So so then I I I guess the question is your statement about '26, that's related to remediation. But in terms of getting current, what was the timeline to expect for getting current on filings? Is that also still in '20 And if so, why why is that expected to be so long, I guess?

Each is expected to occur during 2026. The remediations and the current filings based upon what we currently foresee in our pathways, along, both of those tracks. Why so long or so short? The elements are to perform a 2023 and a 2024 annual audit with 10 k filing Then, of course, 2025 ensues and the quarterlies that would also need to be filed ensuing the '25. Annual filing.

Okay. I guess just a follow-up there. I was under impression. I you know, I think once we spoke a while back, maybe last year, it sounded or or maybe it was with Jenny. It it sounded that it seemed like that I I was under impression that the process for the 2022 restatement was kinda running separately from the 2023 and 2024 and the impression being that that process was ongoing separately. But it sounds like now that was there any work done on '23 or '24 up up till now? Or has that will will that just get started now, I guess?

Preparation work for 2023 and for 2024 for for some testing work. Has been performed. Logically, to really commence on 2023 and 2024 from trial balances. The completion of 2022 to be able to roll forward into those ensuing years. '23 and '24, And when we do arrive at this point, 2025 annual audit, current sequence. So the bulk of the work for each of the annual audits that remain on our plate, 2324, and '25. Will occur in in the sequence.

Okay. And may maybe one last question for me. The the net attrition that you you talked about, particularly in provider, which you're also assuming in 2025 as well. Can you give us a little bit more color Maybe, Tom, you know, what's occurring here? And, you know, what what's kinda driving that attrition? Is it through consolidation or or share loss to competitors? You can give us a sense on what the competitive environment is currently looking like and and and where you know, how how are you looking to remediate that yourself?

Hey, Charles. Thanks for question. I appreciate it.

Yeah. We're not seeing it's not market consolidation driven. So we're seeing obviously, as we stated, net higher net attrition within within our core provider business, both our EHR primarily revenue cycle. We had higher attrition in our in our revenue cycle business. We're still seeing market opportunities in the small to mid segment of the market. But we have lower net new sales in in 2024. In addition to the higher net attrition impacting the business.

Any kind of details on what might be driving that? Is that a a of functionality in the products that you need to enhance? Or just maybe decisions to move you know, why why are people moving away, guess, is the is the main question.

We're seeing higher attrition in the large physician practice segment.

Where there tends to be a little bit more consolidation know, affiliations with hospitals. But more stability in the kind of mid to small market segment.

Okay. Great. Thank you.

Thank you. Next question is coming from Jeff Varo from Stephens. Your line is now live.

Yeah. Good morning. Thanks for taking the question. May maybe follow-up on some of Charles' questions the timing of the path forward.

And, you know, I first, I guess, you talked about the the different years and and moving through sequence. So want to ask if if you could know, kind of break that timeline into more discrete pieces so we can think about when to expect updates. And and we'd appreciate if you if you could you know, kind of affirm the commitment to updating us on on where the the '25 outlook is is trending as you progress through all the audit work.

The audits and the remediation is our top priority. For Tom and Brian for our company. With regard to timing and the amount of work ahead, I can lay out this the sequence and an end state. Which is we're gaining current filing status. I'd not want to, lay out a specific date for expectations for the specifics of '23 or '24 or twenty fives. Filings except to say [indiscernible] several quarters and rolling into 2026. With regard to the amount of work involved in those significant preparation because of the amount of work that got done before 2022. Is already laid before us for the work for the other outstanding years. With regard to sorry. What was the other of question? The the other question you asked. Was Jeff was around the timing of frequent or periodic updates on the business and the status of the business. So you have our commitment to provide periodic updates as needed. Obviously, there hasn't been a lot of communication recently, but we're gonna continue as we go forward. To be as transparent and open, with periodic updates.

Great. I appreciate that. And and then maybe turn to the the fundamentals. You know, over the the the last few years, you know, even before the the accounting restatement was needed, There was lots of work being done.

Creating this this network business, building up the the data assets, building up data partnerships.

So we'd we'd love it if you could give us an an update on the the size and scale of of the network in terms of relevant data points like number of providers, number of patients being by the network, and and that any way you can frame up the the size and scale of of claims and related data flowing through the network. Sure. Let me comment on that, Jeff. So you're absolutely right. We spent the last couple of years building out the Veradigm network, which is our proprietary data assets that we have as well as access to other data sources. So as we stated in the the the 10 k, we have over 400,000 providers both from our proprietary sources as well as other sources that we're monetizing different use cases across both our payer and life sciences business. In addition, we have over 200,000,000 patients that we're gaining access to that we're using for various use cases across both payer and life sciences. Building out the network and continuing to find additional data sources through partnerships and growth in our business is a key priority for us. And as I stated, the specialty markets are a key area of focus for us.

I'm excited with the new wins we had recently in urology and other other specialty markets. That continues to add to the data platform that we have. In addition to our structured data, there's there's significant unstructured data in the platform. And we're accessing using NLP and our AI capabilities to build up premium datasets across different specialties to then monetize. With our life sciences clients, We continue to build out on the payer side of our business our clinical data exchange platform, and in addition to the data that we have, we're also we've launched our gap clear gap closure solution that's gaining traction in the market as I stated in my opening opening comments.

Great. I appreciate that update. And I wanna turn to the the outlook for 2025. And you know, so, you know, appreciate the the update on the top line and the the expectations around the the cash balance. But but notice there's no profitability outlook for 2025. So I was hoping maybe you could could frame up where where you see the the exit margin rate leaving the the fourth quarter of twenty four. And and, you know, there might be some seasonality impact we should consider there and and then also comment on expenses that that occurred in in '24 and and fall off as you you get more current on the financials or, you know, just kind of work through that, the the the back of works. You know, notice the the hundred and 3,000,000 in transaction and other expenses called out in in '24 Presumably, those are excluded from adjusted EBITDA, but how does that trend in '25? And what's the the spend that's not going to to fall off that related to some of this accounting work. Jeff, I'm really glad you've asked these because I'll clarify for all of the audience and yourself as well what what is coming up in 2025.

There's a lot there. So if I miss any of the items, please tell me at the end of this. First, our our our outlook for '20 framing our outlook for 2025. We have said you're an outlook on revenue for approximately flat with the midpoint of the range of twenty twenty four's estimations. And at the cash bottom line, we would remain we are and will remain.

Anticipate remaining net cash positive during 2025. In between those numbers, there's a lot, and that's what you're really asking. With regard to our EBITDA margin and with regard to other elements below EBITDA for cash expense, I'm I'm gonna give a a a qualitative framework here for you. But but not a specific kind of guidance. To be sure.

We we we are in the midst of a cost realignment and have executed as you heard Tom mention in his remarks. And that is underway. With with with an impact that will be occurring in favorable impact on our margins during 2025 and a more significant impact on EBITDA margins But when we get a full year of benefit from cost actions in 2026, with regard to below EBITDA. The intensely high level of auditor accounting related legal expenses and also the strategic review process in 2024. That was a significant use of cash, as you point out. We do anticipate there being continued but at a significantly diminished level. That cash expense below the EBITDA line while we continue to pursue the finality of our or the completion towards completion of our twenty twenty three four and five audits and and and so that below EBITDA expense line. Should be not zero, but significantly lower. In 2025.

Got it. That that helps. And last one for me before I hop back in the queue. I wanna ask about revenue visibility for for 'twenty five, the expectation that it's flat, but certainly, there's some moving pieces there. And you mentioned kind of attrition offsetting growth would would love for you to unpack that more and and particularly in light of the the the shortfall in revenue that manifested in the the second half of twenty twenty four. Presumably, with with that occurring, you'd you'd kind of need some rebound from the the exit rate from '24 and and you know, on on the shortfall kind of which is reoccurring, which was what was nonrecurring revenue that might be a a little easier to to bounce back from or would have appreciate some more comments on forward visibility of revenue. I'm gonna try to translate the question to be sure we're saying the same thing in hand to Tom. I think you're asking we had shortfall in in revenue clearly in 2024. What portions were recurring, what portions were transactional, and therefore, what the bounce back rate might be.

Yes? Correct.

Yes, Jeff, I'd comment. As we stated, we have high recurring revenue, about 80% There is a percentage of our business that's obviously nonrecurring. As we stated, obviously, our parent life science business had a pretty significant shortfall in 2024, anticipated shortfall As I stated on my comments of some of the the new business coming in across the business, I feel good with our our first quarter activity and where we are from an overall pipeline conversion. With both net new business coming across both payer, provider, and life sciences. So so far, the the the start of the year so far in '25 is looking promising. But we still have some work to do, particularly on the nonrecurring type type revenue that comes within our payer and life science. Business.

Great. I'll hop back in the queue. Thanks, Jeff.

Thank you. Next question is coming from George Hill from Deutsche Bank. Your line is now live.

Yes. Good morning, guys, and thanks for taking the And I think I'm just gonna wind up hitting a couple of the themes that Charles and Jeff Veradigm had. So if we think about the revenue fall off in q three and q four of twenty four, it seemed to happen across all the company segments. I guess, is there anything you could talk about? Like, what happened with the timing? Like, what like, the what was special about q three and q four? What was special about the back half of 2024 that kinda drove the revenue decline across all the segments?

Yes, sure. Thanks, George. I'll address that. So let focus on each of the segments, payer and life science first. The timing of implementation go live, as as Lee had referenced, particularly in our clinical data exchange as well as our gap closure rollout and go live definitely had an impact in q four. So these are when I say implementation go live, it's clearly contracts that are signed with contracts in in hand. But the actual timing of them did not happen in the fourth quarter. And we had anticipated them happening in the fourth quarter, so that had a pretty dramatic impact.

That's in the payer segment.

In the life science segment, you know, we've seen softness in 24 across the pharma services data segment. Across the industry. That also had an impact on the life sciences business. Know, and particularly a shortfall in the media revenue and the real world data business. We did see good good momentum within our real world evidence business, but that also had an impact.

The fourth quarter as well.

And then in the provider And maybe Cool. I'm sorry.

Yeah. Go ahead. Go ahead.

No. You you keep going. I I couldn't tell if you had finished that part of the answer or complete your problem. Sorry. I mean an interruption. You.

No. It's okay. In the provider business, you know, it's highly recurring.

But when you have a softness in your net new business, that has an impact on the second half of the year. So performance earlier in the year or in the prior year can have an impact on revenue that's recognized in the third or fourth quarter. So the lower net new sales and our kind of net new business is having an had an impact in the second half of the year. We're seeing good momentum. Mike? That, as I stated, we're signing much larger deals. [indiscernible] both [indiscernible] As well as our clearinghouse solutions. So that's encouraging as well as we as we close out Q1.

Okay. That's helpful. And then just given that you guys haven't been a regular reporter in a while, I thought would you take an opportunity, Tom, to update us kinda on the way of the land from the provider business, kinda what's the RCM exposure, what's the EHR exposure? Can you talk about exposure by practice size? We just kinda would would love kind of a corporate overview of where you guys are these days. It relates to the position of the business.

Yeah. I mean, sure. From a market segment size perspective, we have a really strong presence in, I would call it, the small market and the mid market. Clearly, our Practice Fusion platform, which is in the smaller independent physician practices, We have now a full suite of solutions there. Both our our core clinical EHR our, billing solution rev cycle, as well as, you know, our our PM solutions to be able to go to the So we're seeing good opportunities within that segment of the market. The the segment that is kind of, I would say, you know, the the mid market which is our Veradigm Suite and Veradigm EHR, We're seeing a lot of market opportunities where clients are asking for support around rev cycle.

In the end to end financial management of their of their practices. So that's where we're seeing from a market opportunity The the suite of solutions that we have that includes our clearinghouse, our revenue cycle capabilities, as well as our PM solution, is where a lot of the net new business is coming from. And particularly in specialties. Orthopedics, urology, and other multispecialties. Is where we're seeing a lot of the opportunity.

Okay. And, I guess two quick ones for Lee. I guess, Lee, I know we're expecting to be fully current on the filings in 2026. Can you comment on whether the expectation is front half or back half of '26? Just trying to get like, you know, a a slightly narrower sense of timing.

I'd be premature at this point. We offer that kind of precision.

Okay. And then you talked about the debt refinance. And I guess, is that I I apologize. I'm on the road today. Are the convertible coming due that you guys need to refinance?

Is there any reason you guys like, is there an operating reason that it looks like you need to tap the debt money considering you're stay in a positive net cash position.

Sure.

First, let me offer on the debt financing that I commented on. What our situation is and and and what we're dealing what we're doing. Situation is is simple enough. It is that our convertible note investors hold the hold a put right, and their next put opportunity is 07/01/2025. We have ample cash should they choose to exercise the put. To repay the principal and accreted amount. And then have I would call it, a significant amount of cash. Remaining That said, we a year ago, approximately nine months ago, I I I let go of our credit facility with our commercial banks. So our cash and liquidity are equal, meaning as a public company, it's our judgment to be prudent to make sure that we have additional liquidity And for that reason, we're looking for alternative lending. [indiscernible] To assure that we are sufficiently cash supported and liquidity supported. In the months and couple of years ahead.

Got it. I didn't have to put date in front of you, but I appreciate that call. Thank you.

Thank you. Next question is gonna be a follow-up from Charles Rhyee from TD Cowen. Your line is now live.

Yeah. Thanks for taking the here.

You know, Tom, you you you know, you mentioned earlier know, some weakness in in rep cycle management in particular. If I recall, you you guys acquired Koha Health in early twenty four. Can you give us any kind of sense on you know, the size of that business, kinda what that brought in for you guys in terms of customer base or, you know, revenue contribution and and, you know, with some of the you know, losses there, was that attrition from maybe the Coha customer base? Just trying to understand you know, if you if you kind of enhance sort of that you know, product capabilities you know, what what's going on? Thanks.

Sure. I'll I'll comment. Thanks, Charles. Yeah. So the co acquisition was, obviously, additional capabilities within our rev cycle capability. So that we did see more attrition in the co business. After the acquisition. It did also bring us capabilities that we didn't have within the business credentialing and others. It gave us a presence in the orthopedic market. Which has really helped our pipeline and our new business opportunities. So we're excited about the addition of the COVID business. But some of the attrition in a few of their clients did have a negative impact on 2024.

Got it. And then, you know, to to George's question earlier, you you mentioned that in the the pharma segment, there there was sort of weakness in real world evidence. And sorry. Forgot the other part. But can you kinda comment on the trends that you're seeing? Because when you look at some of the you know, the peers in the space, particularly serving the commercial commercial end of the pharma spend, you know, it it does seem like there's been a rebound sort of in the back half of last year. The outlooks appear to be a little bit better going into this year. Any any comments on trends you're seeing in '25? And and then my last question would be, the favorable customer settlements that you mentioned for '23, know, what what person came in provider versus maybe payer life science?

Sure. I'll talk about the life science business first. We didn't have softness in the real world evidence business. That that that segment of life science business was strong in the fourth quarter. We did have softness in our media business and our in our data business. However, we are seeing good momentum as I as I commented on some of the larger deals that are life science, commercial team is focused on. So we are starting to see in q one more more spend flowing into the market. Particularly around the data assets. And some of the differentiation that we're that we're, you know, we're we're selling in the market. We are starting to see some acceleration in the programmatic buying in our core meat digital health media business in the first quarter. But we did see softness in in the fourth quarter of last year.

So your comment about the trends and, you know, you're hearing across the industry, we're starting to hear that a little bit. In q one. That there's a there's a pickup in spend and and more more dollars coming into the market.

Got it. And the breakout in the customer settlements?

Yeah. I'll let you comment on that, the breakout in customer settlements. In 2024. Oh, the customer settlements in 2023 and in 2024 are in the provider business, if that's the question.

Okay. So it was all in provider then?

All provider. Correct. All provider, not payer life sciences.

Great. Thank you.

Thank you. Next question is a follow-up from Jeff Caro from Stephens. Your line is now live.

Yes. Thanks for taking another question.

Similar to Charles, want to ask on one of the acquisitions that we haven't had much of a a chance to discuss. So wanna hit on Science.io and have a a a few questions there. Would would like if if you could explain the the impact on the financials and, you know, more pointedly, is there any revenue coming directly from that business? And and what's the magnitude of the the likely drag on profitability? And and then more broadly, what's the strategic vision for for that technology, and to what extent has has that changed since the CEO change?

Thanks.

Sure. Thanks, Jeff. It's Tom. I'll address the question. So there's there's no revenue, in '24. For Science.io. However, let let me comment on just in general on our AI strategy and our GenAI strategy. We see significant opportunities across all segments of our business. The Science IO team, which is our center of excellence around AI, is working collaboratively across our payer provider and life sciences business. As I commented in my opening statements, we're seeing really, really strong opportunities around clinical workflows within the provider segment. Where AI is improving the administrative burden for physicians and we're seeing significant operational improvement there. Also in the provider segment, we're seeing opportunities to AI to make us more operationally efficient particularly in our rep cycle business. In the payer segment of our business, getting access to discrete data by leveraging our AI capability is gonna continue to help us differentiate in the payer market. And then finally, in the life sciences business, which historically we've talked a lot about the use of AI, around our data assets. We still have a very strong, investment thesis as well as strategic view that generative AI and that technology will help us unlock value around the data assets that we have.

And create unique datasets for our life sciences companies. Not just data, but also the insights that we can provide to the life sciences organizations. So overall, we're still very, very, very positive about the acquisition as well as the opportunities that we're seeing in the market. The market is moving fast. We'll continue to look for ways to both improve our revenue, increase our revenue, as well as our operational efficiency. And AI is is a clear key strategic priority for us across the entire organization.

Great. I appreciate that. May maybe the the one thing that that you didn't touch on is the the the drag on on profitability, cash burn, related to that business. So I think it's a helpful piece knowing that wasn't there in in '23 that you know, now we have a little more clarity on on '23 versus seeing where the the margins are likely to land for '24.

Sure. I'll let Lee bridge it and what the what the costs are for the Science IO acquisition.

Sure. Science IO and Coat impacted EBITDA margins in 2024 because each brought new costs. That were not in twenty twenty threes.

Operating expense base. Measurably, I guess I would say, but [indiscernible] We are in the mid teens in overall expenses, COGS, and OpEx hitting EBITDA in 2024. For those two combined?

In regard to future outlays, published previously that there are two two future installment payments to complete the acquisition purchase price.

For Science.io.

One in January 2026, one in January 2027, each approximately $15,000,000.

That would be acquisition cash.

And the the mid teens expense, that's accrual basis, and that's millions of dollars? Not not percentage of of revenue?

Oh, Yeah.

Sorry. Thank you. That's mid mid teens millions.

In 2024.

Got it. Thanks for taking the follow-up.

Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

I'd like to thank everyone for the call today.

Appreciate your patience over the last twenty four months. We're excited about the opportunities going into 2025. Just to also make the the final comment that the the management team is done a thorough business review and operational review. We stated that we've worked with a third party to look at both our product rationalization our costs, and our go to market, and how we're gonna, you know, look for ways to be more efficient as well as to drive top line revenue growth. So we're we're very focused on kind of the go forward for the business as we move into 2025. And we look forward to having follow-up calls, periodic calls to inform you of our progress through the rest of the year.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. Thank you for your participation today.