Sign in

You're signed outSign in or to get full access.

VI

Veradigm Inc. (MDRX)·Q4 2022 Earnings Summary

Executive Summary

  • Veradigm detected internal control failures in revenue recognition in Q4 2022, delaying the 10-K and earnings call; cumulative revenue misstatement increased from ~$20M to ~$40M, prompting restatements for 2021 and a Nasdaq non-compliance notice .
  • FY 2023 guidance was cut twice: revenue lowered from $640–$660M to $625–$645M, then to $615–$635M; non-GAAP EPS lowered from $0.90–$1.00 to $0.80–$0.90 and then affirmed .
  • Despite Q4 disruption, prior quarters showed strength: Q3 consolidated revenue was $151.9M with GAAP EPS $0.12, non-GAAP EPS $0.23, adjusted EBITDA $43.2M, and free cash flow $34.2M; Q2 posted revenue $150.9M and non-GAAP EPS $0.18 .
  • Near-term stock narrative hinges on audit completion, internal control remediation, and visibility on restated results; buyback acceleration highlighted previously may be reassessed until filing issues resolve .

What Went Well and What Went Wrong

What Went Well

  • Q3 operational momentum: “meaningful top line growth, 25-plus percent EBITDA margins and free cash flow conversion year-to-date of more than 20%,” with plans to “significantly increase… share repurchases in the fourth quarter” .
  • Commercial execution: wins with two large Blues plans covering ~5.2M total lives and payer submission platform migrations >$5M TCV; provider RCM deal activity up >200% YoY .
  • Margin trajectory: Veradigm non-GAAP gross margin of 55.6% and adjusted EBITDA margin of 30.1% in Q3, with consolidated adjusted EBITDA margin 28.4% .

What Went Wrong

  • Revenue recognition control failures (ASC 606 tool issues) drove duplicate transactions and errors; cumulative misstatement increased to ~$40M, triggering restatements and material weaknesses in ICFR .
  • Earnings call delayed; Q4 2022 results not finalized, and Nasdaq deficiency notice for late 10-K (timely filing non-compliance) .
  • Guidance cuts: FY 2023 revenue reduced twice and non-GAAP EPS lowered initially, reflecting audit expansion and uncertainty around final revenue recognition .

Financial Results

MetricQ2 2022Q3 2022Q4 2022
Revenue (Consolidated, $USD Millions)$150.9 $151.9 Not reported due to delayed audit
GAAP Diluted EPS ($)-$0.54 $0.12 Not reported due to delayed audit
Non-GAAP Diluted EPS ($)$0.18 $0.23 Not reported due to delayed audit
Adjusted EBITDA ($USD Millions)$38.6 $43.2 Not reported due to delayed audit
Adjusted EBITDA Margin % (Consolidated)25.6% 28.4% Not reported due to delayed audit
Non-GAAP Gross Margin % (Consolidated)53.4% 56.3% Not reported due to delayed audit
Free Cash Flow ($USD Millions)$32.2 $34.2 Not reported due to delayed audit

Segment breakdown

Segment Revenue ($USD Millions)Q2 2022Q3 2022Q4 2022
Provider$118.9 $122.8 Not reported due to delayed audit
Payer & Life Sciences$32.0 $29.1 Not reported due to delayed audit

KPIs

KPI ($USD Millions unless noted)Q2 2022Q3 2022Q4 2022
Bookings – Total Contract Value$106.8 $58.0 Not reported due to delayed audit
Bookings – First Year Contract Value$48.7 $32.0 Not reported due to delayed audit
Cash from Operations (Continuing Ops)$42.1 $42.4 Not reported due to delayed audit

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2023$640–$660 $625–$645 Lowered
Revenue ($USD Millions)FY 2023$625–$645 $615–$635 Lowered
Non-GAAP EPS ($)FY 2023$0.90–$1.00 $0.80–$0.90 Lowered
Non-GAAP EPS ($)FY 2023$0.80–$0.90 $0.80–$0.90 Maintained
Veradigm Revenue Growth (%)FY 20226%–7% 6%–7% Maintained
Veradigm Adjusted EBITDA Growth (%)FY 202210%–15% 10%–15% Maintained
Free Cash Flow (Continuing Ops, $USD Millions)FY 2022$110–$120 $110–$120 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2022)Previous Mentions (Q3 2022)Current Period (Q4 2022)Trend
Internal controls & revenue recognitionNo issues noted No issues noted Control failures; misstatements (~$40M); restatement; material weaknesses Negative
AI/NLP initiativesNot highlighted “application of natural language processing” to unstructured notes for insights Not discussed; call delayed Positive earlier; paused
Provider RCM momentumRCM wins; opportunity to grow wallet share amid staffing shortages RCM deals up >200% YoY; new client wins Not discussed; call delayed Positive
Seasonality & guidance cadenceTough Q4 comp; expect uplift in Q4 Q4 typically highest margin; tough comp due to large prior license sale Guidance cut for FY 2023; Q4 results pending Mixed
Regulatory (CARES Act/FHIR)Not discussed Compliance underway; certification expected; competitive impact limited among large vendors Focus shifted to controls/material weaknesses Mixed
Capital allocation (buybacks/M&A)$94M repurchased; flexibility for tuck-ins Plan to “significantly increase… share repurchases” in Q4 Priorities likely contingent on audit completion Uncertain near-term

Management Commentary

  • Strategy and performance: “Our business continues to generate meaningful top line growth, 25-plus percent EBITDA margins and free cash flow conversion year-to-date of more than 20%” .
  • Capital deployment: “We expect to significantly increase our share repurchases in the fourth quarter compared to the levels we executed in Q3” .
  • Commercial momentum: Wins across payer (Blues plans), life sciences (major biopharma real-world data use), and provider RCM outsourcing as practices face staffing shortages .
  • Controls disclosure: ASC 606 tool issues caused duplicate transactions, necessitating expanded procedures and potential restatements; material weaknesses in ICFR anticipated .

Q&A Highlights

  • Share repurchases: Management sees valuation disconnect and planned to “ramp up significantly” buybacks in Q4, subject to market conditions and authorization capacity .
  • Margin sustainability: Q3 gross and EBITDA margins viewed as sustainable; Q4 seasonality typically supportive, noting tough comp from prior-year license sale .
  • Pricing/CPI and provider economics: Pricing adjustments contemplated amid cost inflation while protecting long-term client relationships; RCM competitiveness improving .
  • Regulatory compliance (CARES Act/FHIR): Certification progress underway; table stakes for EHR vendors; limited differentiation among major providers .
  • Bookings transparency: First-year contract value offers better insight into revenue conversion timing; multi-year contracts typically 3–5 years .

Estimates Context

  • Wall Street consensus for Q4 2022 and FY 2023 via S&P Global was unavailable due to a Capital IQ mapping issue for MDRX; accordingly, we cannot provide definitive consensus comparisons at this time. Values would normally be retrieved from S&P Global; unavailability noted [SpgiEstimatesError].
  • Given misstatement disclosures and guidance cuts, sell-side estimates are likely to adjust lower for FY 2023 revenue and potentially EPS until restated historicals and Q4 actuals are filed .

Key Takeaways for Investors

  • Audit completion and restatement timing are the immediate catalysts; resolution of Nasdaq filing deficiency and clarity on the final size/timing of revenue restatements will drive near-term stock direction .
  • Guidance resets imply a more conservative FY 2023 revenue trajectory ($615–$635M) with non-GAAP EPS $0.80–$0.90; models should incorporate lower top-line and potential margin effects from remediation costs .
  • Core franchise remains intact: prior-quarter execution showed solid revenue, margin expansion, and free cash flow; payer and life sciences wins and RCM outsourcing trends support medium-term growth once filings normalize .
  • Watch for internal control remediation plans and timeline; material weaknesses disclosed suggest enhanced review costs near term but no impact to cash flows from the revenue adjustment per company statements .
  • Capital deployment optionality (buybacks/tuck-in M&A) exists but is likely gated by audit progress; prior intent to accelerate buybacks underscores confidence in intrinsic value .
  • Estimate risk: With S&P consensus unavailable and guidance reduced, expect sell-side estimate volatility; traders should be prepared for headlines around restatement magnitude and 10-K filing date [SpgiEstimatesError].
  • Medium-term thesis: If Veradigm stabilizes reporting and maintains execution across its three-sided network, margin and FCF profile from Q2–Q3 suggest resilience; the narrative will shift back to growth in payer/life sciences analytics and provider RCM once accounting issues are resolved .