8-K: Veradigm Inc. Announces Non-Reliance on Previously Issued Financial Statements and Ongoing Restatement Review

Veradigm Inc. reports that its financial statements for 2020 and prior interim periods can no longer be relied upon due to misstatements, and the company is working to restate its financials.

Summary

• Veradigm Inc. has determined that its consolidated financial statements for the year ended December 31, 2020, and prior interim periods should no longer be relied upon due to misstatements.
• This decision follows a previous determination in March 2023 regarding the non-reliance on financial statements for 2021 and interim periods of 2021 and 2022.
• The misstatements identified in 2020 relate to the company's consolidated balance sheet and income statement.
• The company anticipates adjustments to revenue from continuing operations will be less than an aggregate $10 million reduction for 2020 and 2021, and less than an aggregate $15 million reduction for the nine months ended September 30, 2022.
• The company expects to file restated financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
• The company expects to report certain material weaknesses as of December 31, 2022, and its related remediation efforts, in the 2022 Form 10-K.
• As a result, the company concluded that its disclosure controls and procedures were not effective as of December 31, 2022, and that its internal control over financial reporting was not effective as of December 31, 2022.

Sentiment

Score: 3

Explanation: The announcement of non-reliance on past financial statements and the identification of material weaknesses are negative indicators, suggesting potential underlying issues with the company's financial reporting and internal controls. This warrants a cautious outlook.

Positives

• The company anticipates that the adjustments to revenue will be less than an aggregate $10 million reduction for 2020 and 2021.
• The company anticipates that the adjustments to revenue will be less than an aggregate $15 million reduction for the nine months ended September 30, 2022.
• The company does not anticipate that the determination to restate the company's financial statements for 2020 will affect the timing of the filing of the 2022 Form 10-K.

Negatives

• The company's consolidated financial statements for the year ended December 31, 2020, and prior interim periods should no longer be relied upon.
• The company expects to report certain material weaknesses as of December 31, 2022.
• The company's disclosure controls and procedures were not effective as of December 31, 2022.
• The company's internal control over financial reporting was not effective as of December 31, 2022.

Risks

• A further material delay in the company's financial reporting or ability to hold an annual meeting of stockholders is a risk.
• An inability to timely prepare restated financial statements is a risk.
• Unanticipated factors or factors that the company currently believes will not cause delay could arise.
• Additional reviews may identify additional errors and material weaknesses or other deficiencies in the company's accounting practices.
• Control deficiencies identified or that may be identified in the future could result in additional material weaknesses in the company's internal control over financial reporting.
• The company faces risks relating to a putative securities class action lawsuit and a putative stockholder derivative action.
• Commercial litigation relating to the company's representations regarding its financial statements is a risk.
• Any other future litigation or investigation relating to the company's internal control failures, the Restatement Review, the Audit Committee Investigation or the company's Internal Review or related matters is a risk.

Future Outlook

The company is working to file restated financial statements and expects to report certain material weaknesses as of December 31, 2022, along with related remediation efforts, in the 2022 Form 10-K.

Management Comments

• The Board and management have discussed the matters disclosed in this Item 4.02 with the Company's independent registered public accounting firm, Grant Thornton LLP.

Industry Context

The restatement of financial statements and identification of material weaknesses in internal controls can negatively impact investor confidence and potentially lead to regulatory scrutiny. Other companies in the healthcare technology sector, such as Allscripts Healthcare Solutions and Cerner Corporation, have faced similar challenges related to revenue recognition and internal controls, highlighting the complexities of accounting in this industry.

Comparison to Industry Standards

• Companies like McKesson and Cardinal Health, which operate in related healthcare services industries, are often benchmarked against each other for financial reporting quality and internal control effectiveness.
• When compared to these industry leaders, Veradigm's announcement of non-reliance and restatement raises concerns about its financial reporting processes.
• Similar situations at companies like Valeant Pharmaceuticals (now Bausch Health) have demonstrated the potential for significant market repercussions when financial statements are called into question.

Legal Proceedings

• The company faces risks relating to a putative securities class action lawsuit filed against the company.
• The company faces risks relating to a putative stockholder derivative action filed against the company.
• The company faces risks relating to commercial litigation regarding its financial statements.

Stakeholder Impact

• Shareholders may experience a decline in stock value due to the restatement and concerns about financial reporting.
• Employees may face uncertainty due to potential changes in accounting practices and internal controls.
• Customers and suppliers may have concerns about the company's financial stability.
• Creditors may reassess the company's creditworthiness.

Next Steps

• The company expects to file restated financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
• The company expects to report certain material weaknesses as of December 31, 2022, and its related remediation efforts, in the 2022 Form 10-K.

Key Dates