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Change Healthcare Inc (NASDAQ:CHNG)
Q4 2020 Earnings Call
Jun 4, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Change Healthcare Fourth Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Evan Smith, Senior Vice President of Investor Relations. Thank you. Please go ahead, sir.

Evan Smith -- Senior Vice President, Investor Relations

Thank you, operator. Good morning and welcome to Change Healthcare's earnings call for the fourth quarter and full year ended March 31st, 2020.

I'm joined today by Neil de Crescenzo, Change Healthcare's President and CEO, and Fredrik Eliasson, Change Healthcare's Executive Vice President and Chief Financial Officer.

First, Neil will provide a business update, and then Fredrik will review the financial results for the quarter, the year, and the outlook followed by closing remarks from Neil. After that, we'll open up the call for your questions.

Before we begin, I would like to remind you that the comments included in today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by my -- by the comments for several reasons which are discussed in more detail in the Company's SEC filings.

Except as required by law, Change Healthcare assumes no obligation to update any forward-looking statements or information. Please also note that where appropriate, we will refer to non-GAAP financial measures to evaluate our business. Reconciliations for non-GAAP financial measures to GAAP measures are included in our earnings release and the appendix of the supplemental slides accompanying this presentation.

I want to remind everyone that copies of our earnings release and the supplemental slides accompanying this conference call are available under Investor Relations section of our website at www.changehealthcare.com.

With that, I'll turn the call over to Neil. Neil?

Neil de Crescenzo -- President and Chief Executive Officer

Thank you, Evan. Good morning, everyone, and I hope everyone is safe and well. The impact of COVID-19 on Change Healthcare and the U.S. healthcare system is clearly at the forefront of everyone's mind, which is why we plan to spend a greater part of this call discussing its impact and the actions we have taken to support our customers and partners.

As you'll hear when we review our solid fourth quarter performance and our views on FY '21, the fundamental strengths of our market position, core franchises, and our innovation engine along with prudent financial management have served us well in this unprecedented shock. Alongside handling the immediate challenges from COVID-19, we have continued to innovate and expand our core franchises to accelerate our growth coming out of this crisis. As the crisis unfolded in February, we initiated our business continuity systems and established a clear set of priorities, which we communicated widely and consistently.

First, we focused on protecting the health and well-being of our team members. Second, we focused on our customers, by communicating proactively and frequently, introducing new products and services that address their now urgent needs while continuing to innovate in our core franchises, and providing guidance on how to sustain their business operations.

Third, we took the actions needed to support business continuity in our financial and operational -- objectives. And fourth, we maintained our focus on our transformation through new product development, automation and advancing our platform.

Given our intelligent healthcare network sits at the center of the U.S. healthcare system, we had early warning signals about the potential impact of COVID and that allowed us to take the actions I just described on a timely basis. In the middle of March, we started to see a material drop off in certain elective procedures, specifically in our eligibility and claims volume and in specialties like dental. Subsequently, we started to see a progression across other specialties as we move through the second half of March.

As you can see from the chart on Slide 5, we saw a continued negative trend in April, which started to level off and showed early signs of recovery in May. We would expect, as elective procedures start to open up across the country, we will see incremental improvement in these trends and our performance. While we have seen the financial distress these declines have caused our provider customers, overall, the government support and the effective financial management we help them with, seem to be staving off the more dire consequences for most providers.

Now I'll briefly highlight our financial performance for the year, then provide some color on our business activity in the current quarter as well as actions we have taken to advance innovation while executing on initiatives to improve our operating performance.

I'm pleased to report we closed out the fiscal year with another strong quarter for both solutions revenue and adjusted EBITDA even with a small impact from COVID-19 in March. During the fourth quarter, we continue to drive free cash flow, delivering over $300 million in free cash flow for the year, ahead of our previous expectations. This demonstrates our ability to execute on our strategic initiatives and deliver organic growth across our leading franchises, advance the transformation of our RCM Services and enterprise imaging businesses, and execute on operational excellence to further improve margins and free cash flow.

Additionally, new business trends in the fourth quarter continued to be positive, exceeding our internal bookings target for the year with positive trends in new bookings in our enterprise imaging and RCM Services businesses. Within RCM Services, positive trends continued in our average win rates and contract size.

Let me now provide some color on contract wins across the business in the fourth quarter. In our payment accuracy business, we continue to win multi-million dollar deals including with two leading Blue's plans. In our imaging business, we added two new logos, displacing two of our largest competitors.

Increasingly, provider organizations believe that with our cloud-native solutions' flexibility and easy upgrades, this may be the last imaging system migration they may ever need. And in our RCM Services business, we continue to have success selling it to hospitals and aggregators, winning multi-million dollar deals.

Now in the first quarter, despite the challenges of COVID-19, many customers continue to sign contracts, especially in our payer business, but including providers buying our imaging solutions, decision support software, RCM Technology, and RCM Services. Many of these customers were excited about the new offerings we announced during the quarter, some of which I'll briefly mention in a few minutes.

In addition, subsequent to the fourth quarter, we continue to execute on our strategy to fuel innovation and long-term growth and completed the acquisition of eRX Network and PDX. These two leaders in the delivery of electronic solutions to the pharmacy industry extend our reach to more than 59,000 pharmacies in the U.S. The combined portfolio of pharmacy network and Software & Analytics solutions will support faster, more integrated development and cross-selling opportunities.

I'll now move on to our response, actions, and outlook related to COVID-19. The spread of COVID-19 and the uncertainty around its trajectory in the United States has driven lower healthcare utilization, without a corresponding increase in spending or transactions from COVID-19 related interventions.

As we have always made clear, a portion of our business is tied to overall volumes of activity and spending in the healthcare industry and therefore we have been negatively impacted by this industry trend. While healthcare activity is resuming, this unprecedented downturn led us to several actions that we took to mitigate its impact on our business and help our customers during this crisis.

To ensure our business continuity and the safety and welfare of our team members, we quickly moved our employees to work from home, shifted to a virtual meeting environment, suspended all non-critical business travel, and expanded telehealth and COVID-related PTO coverage to all employees.

In conjunction with academic, government, and private research efforts, we immediately began to use our data to monitor, manage, and research COVID-19. For example, we are contributing to a registry that provides de-identified data, for what is expected to ultimately be nearly every COVID-19 patient, allowing researchers to study how the disease is spreading, which population groups are most vulnerable, and how effective proposed treatments are. This service is free for government and academic researchers.

Building upon the relationships we established with this work, we have also signed two significant commercial agreements for ongoing projects with several more being negotiated. With our customers, we maintain frequent detailed communications and move to virtual implementations even as COVID-19 has caused near-term dislocation in their staffing.

Although this will not offset the full impact in fiscal year 2021 from delayed implementations, it places us in a strong position to support our customers among the uncertainty and volatility that they all recognize will be with us for some time. We have seen virtually no canceled implementations to-date.

From an offerings perspective, we expanded or accelerated several initiatives and solutions across our platform that met our customers' new or newly urgent needs. Let me give you some examples of these offerings that are helping our clients deal with their unexpected challenges.

For the Department of Health in one of the largest states in the United States, Change Healthcare rolled out a COVID-19 ordering and testing service between clinics and 67 counties across the state and one of the major commercial lab companies, all within 24 hours. Both the state and the commercial lab company have praised our team for this unprecedented, rapid, and high-quality rollout.

Our technology-enabled services team is working closely with the New York City Department of Health and Mental Hygiene on clinical triage services. We are utilizing our credentialed nursing staff for the city's COVID-19 paid time off initiative, which helps New Yorkers gain access to unemployment benefits if they are unable to work, if they have been exposed to COVID-19, are ill, or caring for someone who is.

After gaining insights into the long-term needs for analytical datasets from our work with leading researchers, public health officials, and other experts, we launched our COVID-19 analytic datasets, a service which uses de-identified COVID-19 claims data to track disease progression and the efficacy of treatment in real-time and it's free for qualified researchers.

Current data on COVID-19 is mostly limited to static reports that capture the number of new cases, overall cases, deaths, and cases by geography, and while useful, offers limited insights into actual disease progression overtime or the effectiveness of interventions on a timely basis.

We expect the increase in Telehealth services to be a permanent change in healthcare delivery, but the speed and magnitude of the increase was a challenge for many providers and Telehealth platform providers. To help with these Telehealth services, we launched a set of Virtual Care Enablement solutions including engagement, financial management, and workflow products and services. We are now engaged with over 150 Telehealth platform providers. Our Telehealth medical eligibility and claims bundle can be found on our API and services connection and purchased via the AWS marketplace. Our Telehealth lab orders, results and ePrescribe bundle can be found on our API and services connection and will soon be added to the AWS marketplace.

The rapid expansion of virtual healthcare underscore the critical need for clinicians on the front lines to be able to quickly access a patient's health record regardless of where that patient previously received care. With our partners, including the CommonWell Health Alliance, we are enabling digital access to tens of millions of patient records during the COVID-19 crisis to help improve care coordination and health outcomes nationwide.

The DoD and VA have also indicated a future interoperability expansion including a connection to CommonWell this year, further expanding this important aspect of fighting COVID-19 and improving care coordination generally. The expansion of telehealth reimbursement and new state mandates caused by COVID-19 resulted in an overwhelming rush of new policies many with never before seen nuances that required rapid comprehension and implementation.

Our enterprise account teams and network implementation teams help health plans and providers manage the sometimes daily policy changes with rapid content updates and real-time analytics, including new payment codes. Our immediate implementation of COVID-19 codes enable timely and accurate payments for providers on the front lines of fighting COVID-19.

While healthcare payers have been less severely impacted by COVID-19 than many providers, our payer customers brainstormed with us to come up with new products that could enable them to reallocate their resources as they deal with the unexpected challenges from COVID-19.

Payers noted that they needed to begin developing solutions to comply with the recently issued CMS, patient access, and interoperability rule which comes into force on January 1st, 2021. They knew that Change Healthcare had worked closely with industry leaders across the healthcare ecosystem as well as the federal agencies to develop this new approach to making patient data available using industry standard APIs.

So together with our customers, we designed and have now launched our Connected Consumer Health Interoperability APIs to enable health plans to quickly and securely meet the deadline for the CMS patient access and interoperability rule.

Our innovative solutions significantly reduces the cost complexity and deployment barriers to empower payers to rapidly meet CMS' regulatory requirements, while further advancing the trust between health plans and their members with improved data security. To support our customers and the industry, to get them more access to patient data in the midst of the COVID-19 challenges, we are providing our APIs for free to our health plan customers.

Given healthcare providers' financial and operational challenges, we also launched a new service, the Change Healthcare National Payments Connector. This one-stop solution dramatically accelerates provider's path to a paperless business, with a single enrollment delivering connectivity to 100% of U.S. payers.

This new service includes the electronic transmission of claims attachment as well as the receipt of digital payments from any payer in the United States. In addition to eliminating costly manual paper-based processes, this solution allows provider's administrative staff to work from home while accelerating payments; two urgent priorities among providers that have emerged during the COVID-19 crisis.

Our insights into the software and service components of patient access as well as our deep and long-standing relationships with customers in those areas helped us design and deliver new innovative patient access solutions. Utilizing our Virtual Front Desk capabilities, we rolled out a new touchless waiting room for our customers.

This digital patient access service allows patients to remotely check-in for their appointments, complete forms, and register on their personal device. When the clinic is ready, they are appropriately directed inside the office or hospital to receive their exam or procedure to help ensure that social distancing practices are followed.

So, as you can see, based on the feedback we have heard from our customers around these new innovative offerings, we expect continued demand from both providers and payers for solutions that reduce their dependency on labor, improve efficiency, and create a more flexible and distributed infrastructure to ensure patient access to information and care and enhanced engagement, especially during a period of volatility and uncertainty.

Now, let me turn the call over to Fredrik who will review our financial performance and the initiatives we have taken to strengthen our liquidity and cost structure as well as provide our financial outlook. Fredrik?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Thank you, Neil. Good morning, everyone. I'm very pleased to report a strong fourth quarter and first fiscal year as a public company, achieving our goals to deliver underlying growth across all three segments, including the impact of the previously disclosed planned contract exits in our RCM Services business and the transformation of our imaging business.

In addition, we continue to work diligently on our strategic objectives, and subsequent to the year-end, we divested our interest in the majority of the Connect Analytics businesses and acquired both the eRX Network and PDX businesses supporting our long-term growth objectives.

So, starting on Slide 7. In the fourth quarter of fiscal 2020, under ASC 606, Solutions revenue was $787 million, which was slightly above our expectations, despite a $6 million negative impact from COVID-19. Consistent with our prior guidance, ASC 606 negatively impacted revenue in our Software & Analytics segment by $12 million offset by a $2 million positive impact in our Technology Enabled Services segment for the quarter.

Adjusted EBITDA was $264 million, which was negatively impacted by the previously mentioned revenue impact from ASC 606, but partially offset by a $6 million favorable impact on commissions, a new contract setup cost as a result of the new accounting standard. Adjusted net income was $133 million and adjusted net income per diluted unit was $0.42.

Now moving to our results under ASC 605 for comparative purposes on Slide 8. For the fourth quarter, under ASC 605, Solutions revenue was $797 million compared to $778 million in the prior year. Overall growth in revenue was 2.4%, which included the negative impact of $12 million from planned contract eliminations in our Technology-Enabled Services business, year-over-year impact related to optimization of our Connected Analytics business, and $6 million due to COVID-19. Excluding the impact of these items, Solutions revenue growth would have been 5.5% for the quarter.

Adjusted EBITDA for the quarter was $269 million compared to $257 million in the same period of the prior year. Adjusted EBITDA margin as a percentage of Solutions revenue for the quarter of fiscal 2020 was 33.8% compared to 33% last year. Improvement in adjusted EBITDA and related margin improvements reflect the incremental revenue growth and operational synergies offset by COVID-19 impact and continued growth investment to support our enterprise sales, enterprise imaging, new product development, and launch activities.

Net loss for the quarter was $108 million resulting in a net loss of $0.34 per diluted unit compared with net income of $38 million and net income of $0.15 per diluted unit respectively for the fourth fiscal quarter of 2019.

As part of the McKesson exit, additional NOLs are now available for Change Healthcare to utilize and the creation of the associated tax receivable agreement created a one-time impact on our P&L this quarter of $164 million.

Adjusted net income was $134 million resulting in adjusted net income of $0.42 per diluted unit compared with adjusted net income of $126 million or $0.50 per diluted unit respectively for the fourth fiscal quarter of 2019. Adjusted net income reflects the improvement in adjusted EBITDA, lower interest expense, and lower tax rate. This was partially offset by higher amortization expense related to strategic and integration capex. The per unit results also give effect to the IPO with 320 million diluted units outstanding in the fourth quarter of fiscal 2020 compared to 253 million fully diluted units in the same period of the prior fiscal year.

Now let's take a look in more detail at the performance of our segments on Slide 9. Once again, we are using the prior accounting standard ASC 605 to provide a more meaningful year-over-year comparison.

Starting with revenue, the Software & Analytics segment grew 2.8% year-over-year. Growth in our Software & Analytics segment was driven by strong performance in our leading franchises like Payment Accuracy, Decision Support, and Risk Adjustments. Results were partially impacted by previously disclosed strategic assessment and optimization of our Connect Analytics business and a transition in our imaging business to a cloud based enterprise imaging solution. In addition, in the quarter, we experienced a $3 million COVID-19 impact, mainly due to deal timing.

Our Network Solutions revenue increased by 8.6% year-over-year. Key drivers include a one-time customer settlement of $7 million as well as growth from implementation of new customers in data solutions, payments, and increased market penetration in medical network partially offset by lower dental and medical network volumes of $2 million resulting from COVID-19.

In our Technology Enabled Services segment, our overall revenue declined 1.3%. This includes $12 million of planned contract eliminations and a negative $2 million impact from COVID-19. Excluding the planned attrition, revenue growth was 4% for the quarter. For fiscal year 2020 planned attrition was $53 million, in line with our expectations delivering revenue growth for the full year excluding the planned attrition of 2.9%.

Turning to adjusted EBITDA, Software & Analytics grew 2% year-over-year. The results were driven by revenue growth along with operational synergies and cost initiatives related to the Connected Analytics business, partially offset by investments to support AI initiatives and enterprise imaging transformation as well as COVID-19 impact, as I mentioned earlier.

Network Solutions' adjusted EBITDA increased 6.4% in the quarter driven again by the growth in the data and B2B payment solutions and continued volume growth across the network. The growth in our medical network was partially offset by the COVID impact I mentioned as well as increased investment to support new product launches and market expansion opportunities and the integration of additional network capabilities.

In Technology Enabled Services, adjusted EBITDA increased approximately $1 million due to the efficiency gained from automation and productivity initiatives offset by increased costs associated with our repositioning initiatives as well as a $3 million COVID-19 impact.

Moving onto cash flow and our balance sheet on Slide 10. Free cash flow was $121 million for the three months ended March 31st, 2020, compared to a negative $18 million in the prior year. Adjusted free cash flow was $157 million compared to $42 million in the fourth fiscal quarter last year. For the full fiscal year, free cash flow was $335 million versus $41 million in the prior year. This includes $22 million of pass-thru funds in fiscal year '20 and $3 million of pass-thru funds in fiscal year '19.

Adjusted free cash flow was $482 million for fiscal year '20, an increase of $189 million year-over-year. Late in the quarter, we drew $250 million from our revolver during the height of the market turmoil. While we continue to have strong liquidity position and believe we will be cash flow positive for the year, we thought it was prudent to have access to additional liquidity in an uncertain macro environment.

Our liquidity remains strong ending the quarter with over $408 million of cash and cash equivalents and $530 million in undrawn revolver capacity. In addition, subsequent to the quarter, to support eRX Network and PDX transactions, we successfully issued $325 million of notes as an add-on to an already outstanding 5.75% unsecured notes due March 2025.

Total long-term debt including the short-term portion, net of cash at quarter-end was slightly over $4.6 billion with a credit agreement net leverage ratio of 4.6.

Now let me move on to provide some additional color related to the impact of the COVID-19 pandemic on Slide 11. As Neil shared with you earlier, we are already seeing early indications of recovery based on our claims volumes and expect this to continue over the coming months and quarters.

As such, we currently anticipate the most significance of the impact on our financial performance from lower health utilization levels would be in the first quarter of fiscal 2021 with the greatest impact on our Network Solutions and Technology Enabled Services segments. Thereafter, we would expect a smaller impact on a year-over-year basis for our quarterly revenue and adjusted EBITDA performance as we move through fiscal 2021.

Although the speed of the recovery is uncertain, in what we call our moderately severe scenario where we have assumed elective procedures volumes and utilization do not fully recover until the end of our fiscal 2021 year, we expect our fourth quarter revenue to be in line with the prior year including the impact of fair value adjustments, the eRX, PDX, and Connected Analytics transactions.

We have actively aligned our staffing levels primarily in Technology Enabled Services segments to address lower interim volumes. We reduced the number of contractors and primarily furloughed employees in total about 2,000 headcount reductions, providing us with greater flexibility to scale back up as volume recover. The benefit of these actions will start to impact us late in the first quarter and into the second quarter.

We also continue to move forward or accelerate our automation and productivity initiatives, which should provide further margin expansion as we move beyond this period. While we are encouraged by the signs that utilization is starting to improve, the speed of the recovery is still not clear, and as a result, we will only be providing financial guidance for the first fiscal quarter of 2021 along with certain assumptions and then provide you with supplemental information for the full fiscal year.

So to that point, turning to Slide 12. For the first quarter, we expect Solutions revenue to be $595 million to $620 million, which includes the impact of a fair value adjustment related to the McKesson exit, which reduced reported revenue due to a reduction in deferred revenue in the first quarter by $55 million. I will provide more detail in a moment.

Adjusted EBITDA to be $160 million to $175 million, which includes up to $10 million in additional bad debt expense and excludes the delayed impact of approximately $50 million of benefits from cost initiatives and adjusted earnings per share to be $0.14 to $0.18 per share.

Let me provide additional color by segment. In Software & Analytics, approximately 75% of revenue is subscription or maintenance, which will have minimal impact, while 25% is contingency or renewal based which we currently estimate to have a negative impact of about 35% to 40% in the first quarter.

The S&A impact is driven by the timing of implementations, procedure volume decreases, and relaxation by a limited number of payers and states on a reporting requirement. The segment will also reflect the sale of the Connected Analytics business as of May 1st, 2020, which generated approximately $67 million in revenue and $26 million in adjusted EBITDA for the prior 12-month period.

In Network Solutions, based on the current volume trends, we anticipate, in average, approximately 35% decline in network volumes for the quarter, about 20% to 25% decline in our business to business payments and -- which is about 10% of our network revenue and high-teens growth in the Data Solutions, which also represents about 10% of our network revenue. Network Solutions impact is driven by decreased elective visits and overall healthcare activity.

The quarter also included contribution from eRX Network as of May 1st, 2020, and PDX as of June 1st, 2020. As a reminder, eRX generated approximately $67 million in revenue and $31 million in adjusted EBITDA annually prior to the exercise of our option to acquisition, and PDX generated approximately $75 million in revenue and $17 million in adjusted EBITDA annually for the prior 12 months.

In our Technology Enabled Services, we are expecting, on average, about 40% decline in contingency-based RCM revenue for the first quarter. In communication and consumer payment services, we are expecting a decline of about 25%, and the remaining businesses are stable. The impact on test is driven by reduced elective procedures volumes impacting our RCM Services business and lower print volume impacted by reduced EOB and ERA volumes related to the reduced claims activity.

Although we've taken cost optimization actions, they will have minimal impact on adjusted EBITDA in the first quarter due to a lag between revenue decline and the cost reductions and incremental costs due to work from home transition that will help the following quarters.

Last, as a result of the McKesson exit, we were required to account for the exit of the business combination, which results in making certain fair value adjustments. The adjustments will have an impact on our reported revenue for the first quarter and full year, but will not impact our adjusted EBITDA.

Let me give you some color on the quarter impact of such fair value adjustments. The impact on revenue results from a required reduction of deferred revenue that will reduce reported revenue in Q1 by $55 million. In addition, interest expense and depreciation will be impacted by the revaluation of the balance sheet as well. This will impact both net income and adjusted net income going forward.

We expect first quarter interest expense to be approximately $70 million including approximately $4 million in noncash pre-tax interest expense for fair value adjustment related to McKesson exit.

We also expect depreciation and amortization expense of approximately $140 million, including approximately $54 million from the impact of fair value adjustments related to McKesson exit. Included in this $54 million is $77 million increase in amortization of intangibles, an increase of $2 million for depreciation of fixed assets offset by approximately a $25 million reduction in amortization of capitalized software.

This reduction in amortization of capitalized software will favorably impact our adjusted net income and earnings per share. We're also estimating up to $10 million of increased bad debt expense provision in the first quarter, consistent with anticipated increase in our receivable balance due to the impact from COVID-19 on our provider customers.

Let me move now to Slide 13 for full fiscal year 2021 supplemental information and assumptions. As I stated, our current assumption is for a gradual improvement of healthcare utilization throughout the remainder of the fiscal year. If the recovery occurs faster, our results in turn will recover faster as well.

We expect full-year fiscal '21 free cash flow to be positive with the amount dependent upon the pace of the recovery. However, first quarter free cash flow is expected to be negative, but improving sequentially throughout the year as historically the first quarter is our lowest free cash flow quarter due to bonus payments and timing of working capital.

Capital expenditures are still expected to be approximately around 7% of Solutions revenue excluding the impact of fair value adjustments and excluding integration-related capex as we manage spending in line with the COVID impact. Integration related operating expenditure is estimated to be approximately $80 million and integration-related capital expenditures approximately $20 million.

The full impact on revenue resulting from the required reductions in deferred revenue will reduce revenue recognized in future periods by $137 million. As a result of building back our deferred revenue during the fiscal year '21, $129 million of the $137 million impact will be recognized in fiscal year '21 and the balance will impact fiscal year '22 reported revenue. Once again, we don't expect any impact on adjusted EBITDA.

We expect interest expense in the range of $280 million to $290 million for fiscal '21, which includes approximately $14 million in non-cash, pre-tax interest expense for the fair value adjustment related to the McKesson exit. We also expect additional depreciation and amortization of approximately $215 million for fiscal '21.

The additional amortization expense is comprised of an increase of approximately $308 million for intangible asset offset by approximately $100 million for the above mentioned reclass to acquired intangible asset amortization as well as an additional $7 million of depreciation for fixed assets.

In addition, adjusted effective tax rate of approximately 25% as corporate structure will now be simplified post McKesson exit. And last, basic outstanding shares will be about $320 million -- 320 million shares, which includes the minimum number of shares for the TEUs.

Finally, I want to reiterate that I believe that first quarter will experience the largest negative impact on a year-over-year basis with a relative negative impact declining and a positive impact from cost initiatives increase as we move throughout the year.

Now with that, let me turn it back over to Neil for his closing comments.

Neil de Crescenzo -- President and Chief Executive Officer

Thank you, Fredrik. Let me close our prepared remarks by summarizing some key aspects of what we have learned over the past few months, as well as our longer-term views. First, prior to the COVID-19 crisis, the multi-year financial trajectory we established upon our IPO last year remained on track. Naturally, lower healthcare utilization in the short-term will impact our results negatively this year. However, as the overall healthcare activity picks up, our results will automatically improve even prior to the benefits we will see from new sales.

Second, the solutions we provide our customers to streamline operations, enhance engagement, and increase revenue are even more important given the impact of COVID-19. Each of our solutions aims to provide a clear ROI for our customers that will improve their financial performance.

And third, we are accelerating our initiatives to further improve our operational excellence and our cost structure as we are dealing with COVID-19. These actions will enable us to emerge from this period as an even stronger company financially.

The COVID-19 crisis has created tremendous challenges for our society and the U.S. healthcare system, but it has also underscored the strength, resiliency, and commitment of our Change Healthcare team members, customers, partners, and the communities we live in and serve.

Thank you. And now, we'll take questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Michael Cherny with BofA Securities. Your line is open.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Thanks so much and thanks for a lot of the details you provided. Fredrik, I want to go back to a comment that you made regarding the pacing of recovery you're expecting over the course of the year. Are there any sub-sectors, as you've seen the steady improvements in certain areas so far that you think will come back faster?

And I guess how do we think, as we look at all the various different data points we see across healthcare in terms of the different specialties, the different types of utilization and the speed of those recovering versus when each one will have the greatest impact on your business?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yeah, I mean, I think we have an incredible and accurate barometer in the medical network volume that we see each and every day in terms of the volume because we see sub-segments there. So, I think generally as healthcare utilization overall increases, we are very much in that kind of two-thirds of our business, that is one-third is volume-based, one-third revenue-based, and then the one-third is kind of SaaS perpetual license businesses.

I think in that volume-based, I mean as you see that slide that Neil showed, as that increases, I think we will see a relatively consistent improvement across our business. There is some lag in certain areas such as our print business, for example, that is, it takes a little bit longer to recover just because of when those statements goes out. But generally, as healthcare utilization comes back, so does the different parts of our business as well.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Got it. I'll leave it there for now. I'll hop back in the queue.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Robert Jones with Goldman Sachs. Your line is open.

Robert Jones -- Goldman Sachs -- Analyst

Great. Just two questions. I guess one, just on the outlook for top line growth. If I look at the utilization comments on slide that you provided, it certainly looks like you're off the bottom, at least tracking claims, it looks like down 26% from the pre-COVID levels. I guess, assuming that this trend line continues in the direction it's in, is it feasible to think you can get back to that kind of mid-single-digit top line growth by the end of the year? Is that something -- I know you're not giving full-year guidance, but is that -- is that within the realm of possibilities from where you sit today?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Well, I said in my prepared remarks that if you look at all of M&A activities and the deferred revenue impact that we should be in line with the fourth quarter of last year. So essentially flat year-over-year when you get to the fourth quarter of this year.

Now, once again, I think it's important to point out that we've taken a relatively conservative view of the recovery here really in order to stress ourselves internally, not to hang on to assets and to drive productivity to the greatest extent that we can. So if you have recovery, if you just take the kind of the straight line that you've seen so far, that would indicate that you will get back earlier, but of course, we don't have a good predictor of second wave regional shutdowns and those sorts of things.

So if the recovery happens earlier, there is no doubt that we should be able to see earnings growth in the fourth quarter as well, and revenue growth, but based on what we have said in terms of -- kind of just to give you some sort of a gauge in terms of how we're thinking about the business, we're not planning for that right now, we're planning for the full healthcare utilization recover to pre-COVID levels by the end of the fourth quarter.

We'd like for that to be wrong, obviously and a lot quicker, but that's how we kind of give you a sense of how we're thinking about revenue year-over-year as well.

Robert Jones -- Goldman Sachs -- Analyst

That's helpful. And then, I guess, Fredrik on the cost side, you mentioned $15 million of savings, is that mostly all in 2Q, based on the comments you made? And I guess, anything by segment would be helpful. And then just on the cost savings, if the scenarios don't play out as optimistically, are there other levers you can pull on the cost side as we progress further in the year?

Neil de Crescenzo -- President and Chief Executive Officer

Sure. So the predominance of that cost saving is in Technology Enabled Services and what we have identified is the lag impact between the volume decline and the ability to get those resources out, which is probably six weeks to seven weeks. The actual cost take-out is probably a little bit greater than that, but reality is we expect to call a lot of the furloughed employees back hopefully sooner rather than later, as well as some of the contractors that are no longer with us. So we were just indicating that that's the lag in the first quarter that we're expecting.

If you then -- to your second part of your question in terms of where do you see the cost take out opportunities. In our Technology Enabled Services business, it is clear that's where the most is. And our network business, it's a very fixed business, it is great when things are growing. But in a decline like this, it is obviously painful because there aren't that many levers we can pull, because at the same time we do have so many opportunities to grow that business. We continue to invest there as well.

And in the Software business, there is some in that 25% that isn't SaaS perpetual per member per month and we've pulled some of those triggers as well. So -- but the biggest is clearly within the Technology Enabled Services business.

There are -- I think the last part of your question, there are additional levers we're looking at such as real estate and we're working through that, because obviously we have proven that we are able to work from home in a way that we perhaps wasn't able to do before. So in this environment longer-term, what does it make sense -- what makes sense for us to do with our real estate portfolio, that's something that we're still working through internally right now and that could provide additional lever going forward.

Robert Jones -- Goldman Sachs -- Analyst

Very helpful, thank you.

Operator

Thank you. Our next question comes from Manav Patnaik with Barclays. Your line is open.

Manav Patnaik -- Barclays -- Analyst

Thank you. Good morning, guys. My first question is just, Neil at the beginning, you talked a lot about new wins in your pipeline and so forth. Obviously, nobody wants a disruption, but do you think there is opportunities here given your scale to take incremental share beyond maybe what your original pipeline look like?

Neil de Crescenzo -- President and Chief Executive Officer

Well, I think we've seen that especially with the innovation and the new offerings that we launched in conjunction with the need, we saw with our customers. So if you think about the ones that I covered even in my prepared remarks, Manav. These are things that are really hitting the needs that our customers see in the market.

Part of it really builds upon the data and the timeliness of our data, and I mentioned how we're working both like many people in almost a public assistance mechanism with a lot of the work we're doing with many entities around tracking COVID, but learning how, that's allowing our data assets to be utilized in ways we frankly haven't seen as much previously, given the needs are new and they urgent.

I also mentioned work we're doing whether it's with the Department of Health in different states to take advantage of our Networks, our Software, and our Technology Enabled Services business and of course, those are new offerings because those are new needs again. And then as you know, we've been investing a lot in looking at how to create a better Digital Patient Experience and you've seen the launch of our Connected Consumer Health suite in conjunction with Microsoft and Adobe, our touchless waiting room for providers, the National Payments Connector.

These are all things that we've been working on for quite some time. But given the massive changes, including the advent of telehealth jumping upwards so tremendously, five times or 10 times volumes from what people previously saw and the need for people to think about the long-term operational implications of COVID-19. These are sort of tailwinds for us as we go through the year and as we build up a continued robust solution portfolio going into FY '22.

Manav Patnaik -- Barclays -- Analyst

Got it. And then just kind of similarly, I mean you guys have done two deals now, sold your Connected Analytics business. I mean in terms of that buy versus build type decision, like is -- does the M&A pipeline get more active or how should we think about that for you guys?

Neil de Crescenzo -- President and Chief Executive Officer

Well, we've always had a very active M&A pipeline. I think as we've discussed previously, we look at well over 100 potential opportunities each year, but it's very intentional in terms of building upon the core strengths and things like our network connectivity and eRX Network is obviously is a great example of that. And also the synergies we get with Software & Analytics businesses that are deeply embedded in important parts of the healthcare system.

And so the PDX acquisition obviously fits very well into expanding both our market reach and the breadth of our solution portfolio as clearly the use of therapeutics and frankly the position of pharmacies in what we're seeing around testing and the provision of treatments and medicines to people will continue to be prominent as we deal with COVID-19 and long-term investment in testing, contact tracing, and other mechanisms to deal with any future pandemics.

So we maintain the strategic approach that we've discussed since the IPO being intentional, looking at things that add to the strength of our core capabilities and doing it in a way that's financially prudent, given that we want to also maintain our focus on maintaining liquidity.

Manav Patnaik -- Barclays -- Analyst

Got it. Thank you, guys.

Operator

Thank you. Our next question comes from Lisa Gill with JPMorgan. Your line is open.

Lisa Gill -- JPMorgan -- Analyst

Thanks very much and good morning. Neil, one of the things we've heard in the marketplace is some entities giving discounts, especially on the provider side, just given how difficult this environment is for them. Are you hearing that at all? Are your customers asking you for a discount, whether it's temporary or in some way. So, is that impacting your revenue at all would be my first question?

And then secondly, I just really want to understand the bad debt, I understand that it was conservative to take the $10 million, but were specifically are you seeing pockets of customers that are having issues around potential payments and how do we think about that as we move throughout COVID.

Neil de Crescenzo -- President and Chief Executive Officer

Sure, Lisa. Why don't I take the first question and then I'll ask Fredrik to apply more to your financial distress kind of question.

So I think, first of all, we've maintained really a focus on innovating with our customers. There are obviously some customers that have talked about discounts. I think the financial support provided particularly to the provider industry by the federal government and other mechanisms and the fact that people are now opening up to elective procedures that are more the beginning of normalcy in the healthcare environment really have not made that may be as prevalent a phenomenon as you might have thought.

And given the innovation, we've been providing customers and the feedback we've gotten of them and their appreciation on the continued support both financially and operationally as they've had to deal with so many challenges particularly the providers on the front lines, I wouldn't say that's really been any impact on our business. There is an impact on DSOs and financial challenges and as to your -- second part of your question, so I'm going to let Fredrik give you an answer there.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Sure. So obviously, we had -- we've anticipated an increase in DSO from our provider customers. We are in dialog with a lot of them that are asking for different things and we certainly don't want to be perceived as a bank in any way, shape or form. But we are working where that strategically makes sense both for them and for us to do certain things. We do work with them on a case-by-case basis. But generally, we don't want to be extending additional credit. We have seen an increase in DSO in the first month in April and we will continue to monitor that.

We took our -- we took the $10 million or we anticipate taking up to $10 million is what we said here in the quarter, but obviously, we will take a look at that where we end up in June to see where DSO and see what the payment patterns are. As Neil indicated, there is a lot of support for the providers as well. So it might not be as bad as we think, but right now, that is our best estimate, but we will continue to monitor very closely.

Lisa Gill -- JPMorgan -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Jailendra Singh with Credit Suisse. Your line is open.

Jailendra Singh -- Credit Suisse -- Analyst

Thanks, good morning, everyone. So, Fredrik, I just want to better understand your comment around fiscal fourth quarter '21 expectations where you expect results to be flat year-over-year, even after including these recent transactions, I mean EBITDA should benefit from recent deals, but it seems that your underlying assumptions are that trends will also normalize in fiscal fourth quarter. Just trying to understand like why you don't expect to return to some growth in fiscal fourth quarter. Are you saying that trends will normalize at a lower run rate than previously? Just give us any color locally around that.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

No, it's just really math and then you are saying by the end of the quarter. We -- you have to have some sort of scenario that you are planning resourcing around your capital expenditures, etc. So we aligned around a scenario where at the end of the quarter, which means that at the beginning of the quarter, it is still down in terms of overall utilization, so the average for the quarter will be net down versus prior year.

And once again, it is, we hope that we're wrong on this and we will know real-time in terms of how accurate we are. But it is driven by our desire to test productivity levels as volume returns and to not sit on resources more than we really need to see what sort of additional productivity we can have.

We firmly believe that we have the opportunity with some of the things that we're doing here to actually come out of this crisis as a stronger Company because of some of the prudent financial decisions we're making, and this is one of them that underlies that comment.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. And then my follow-up, thanks for all the comments around telehealth and virtual care you guys are doing. Clearly, COVID-19 is having implications on how care might get delivered once things return to a more normal environment. There is a high likelihood that the mix between virtual care and in-person would look very different in post-COVID. I was curious about Change Healthcare positioning in that new environment. And does that have any implication on your long-term revenue and EBITDA growth targets, if mix changes?

Neil de Crescenzo -- President and Chief Executive Officer

Well, Jailendra, it really doesn't. I think one of the benefits from the diverse revenue base we have and the way we're integrated into all of the care processes is that the site of care continues to provide volume through our networks, utilizing our software, our analytics, both on the payer and provider side.

I think one of the things that have been clear, while we had already been servicing the telehealth platform providers prior to the advent of COVID. I think the fact that we had built our technology so that it can be up-taken not only by obviously large providers who are doing their own telehealth type of activities or the very large telehealth platform providers, but really all the way down to very specialized or smaller providers really put us in good stead.

And as I mentioned in my prepared remarks, we were careful to put together a series of easily consumable bundles that are available at a very economic price for even the smaller providers. So I think one of the benefits of having as we've always talked about, over 30,000 customers as well as over 700 channel partners is that we've been able to cover the waterfront. So having to sort of reinvent things for the telehealth phenomenon is something fortunately we had always done because we hadn't thought that as being anything any different than just another site of care.

But then what we did do is kind of ramp up the access ramp, if you will, including for smaller providers who are really challenged because of the jump in volumes that they've seen over the last three months.

Jailendra Singh -- Credit Suisse -- Analyst

Okay, thanks a lot.

Operator

Thank you. Our next question comes from Stephanie Davis Demko with SVB Leerink. Your line is open.

Stephanie Davis Demko -- SVB Leerink -- Analyst

Hey, guys. Thank you for taking my questions. So, with the idea that there is not much you can do about volume, it actually does give you a unique opportunity to accelerate these different initiatives that you maybe would not have had the opportunity to work on behind the scenes. So with that in mind, what are you working on now that's ahead of schedule in your initial turnaround plan or what's on your near-term list of things you can work on for this year?

Neil de Crescenzo -- President and Chief Executive Officer

Well, Stephanie, we've really tried to continue to accelerate our innovation and I think you've seen that among other proof points and just the pace with which we've introduced new and pretty innovative solutions into the market. I'd say more than with a decrease in volumes sort of allowing us to move much, much faster, I think we've generally moved pretty fast.

What I've really seen the difference being is the customer receptivity to these sorts of innovations, I mean clearly, every provider to one degree or another, had a telehealth strategy, even if it was not to focus on telehealth historically, but these sorts of areas that we focus on using data to provide better decision support as part of the workflow, the ability to do things digitally including our Digital Patient Experience, using open APIs to allow data to flow better.

These are all things that were priorities for our customers and we had had these solutions under way, including the ones that we announced, even in Q1. But I think what's really changed more than necessary, an increase in pace of our innovation because I think it was pretty decently paced beforehand is the receptivity of customers who now are saying, OK, the ideas around digital, the ideas around interoperability, the ideas around inline real-time analytics, we need to adopt them now because we've got many other challenges to focus on and we need to be a little bit less perhaps reticent to look at these innovations and including them in how we operate.

Stephanie Davis Demko -- SVB Leerink -- Analyst

Continuing that train of thought, you guys did have a lot of data solutions even two years ago, and last year that we saw. Have you seen a market uptick in any of these as now folks are thinking, oh gosh, we really should have had a lot more analytics and we just -- it's been under-invested for the past few years?

Neil de Crescenzo -- President and Chief Executive Officer

Yeah, I think -- one, I think that's a good summary, Stephanie, I'd say, also the use of it in a broader sense and I mean of course the COVID-19 tracking is a clear indication as well as the coordination that's needed now on a county or city or regional or state or even national basis. So there is a natural focus on data, I'm sure not too many people in America knew the phrase flattening the curve prior to three months ago, right, which is essentially a statistical determination in and of itself.

So we're seeing people looking at analytics as a way to manage the kind of volatility that we see that you know to be frank, wasn't quite the case previously in healthcare. So I think that's really increased people's understanding and appetite for data. And then the fact that we can take the data we have, which is quite unique in terms of its timeliness, its breadth, and its granularity and use it in a variety of circumstances and then once we get the understanding from working with customers and partners on how that is needed and sort of packaging it into new offerings, as you've seen with our COVID-19 analytical datasets and some of the work we're doing with public health entities and others. That's meant that the growth of that business, which is in the high-teens in terms of continued revenue growth has not only continued that growth but also broaden our set of offerings.

Stephanie Davis Demko -- SVB Leerink -- Analyst

Awesome. Thank you, guys. Looking forward to see how you turn it around.

Neil de Crescenzo -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Eric Percher with Nephron Research. Your line is open.

Eric Percher -- Nephron Research -- Analyst

Thanks for all the commentary on the volume-dependent businesses. I'd like to ask your views on some of the businesses that are more tied to provider spending. We know that budgets are being adjusted in real-time and it sounds like there was some real momentum in enterprise imaging. I'd expect that some of those products probably appeal to a more decentralized hospital environment. So maybe a little bit on how you're thinking about the hospital budgets and how that may play through in your products.

Neil de Crescenzo -- President and Chief Executive Officer

Yeah. I think, Eric, that's a good question. And I think we did allude to some of it. But to be more specific, per your question, yeah, we did see people take a pause as they are in the midst of dealing with COVID. It wasn't that they didn't understand the value proposition. They still didn't appreciate it. But as you can imagine, especially when the uncertainty was at its height, it just wasn't the time that purchasing processes remained in the same -- the same trajectory that they did back in our Q4.

We're now seeing that come back and we're very optimistic relative to the otherwise still evolving environment in terms of our new sales and the momentum we're starting to see and maintaining in Q1. So I think what we've seen is that there was a delay, I almost call it hitting the pause button on some of the spending and the sort of trajectory or pace of processes that were under way, but they are now beginning again, because, again, our solutions being so oriented to either helping people improve their revenues, reduce their costs or improve their efficiency. That's something I think every CFO, particularly in the provider segment has got at the top of his or her agenda.

Eric Percher -- Nephron Research -- Analyst

And on that front, on the test side, do you see more demand for outsourcing. I know you've got both physicians and the hospitals are moving toward the hospitals. But do you think that demand increases as organizations are financially challenged?

Neil de Crescenzo -- President and Chief Executive Officer

You know, I think we're just seeing the beginning of that, Eric. I think that would be a supposition that we would have and having lived through like you and many others, many business cycles. I think that's almost inevitable when you go through a business cycle like this, particularly with the challenges we're seeing in the economy and we'd all of course don't know how fast that's going to come back.

But I think people honestly have been so focused on dealing with the disruption due to COVID. I mean obviously, you've heard about some of the contracts we've signed that were engendered by the need, whether it's around testing, networks, triage services, call center services, which frankly wouldn't have even existed without the need that existed pertaining to COVID.

But per your question on sort of a broader longer-term trend, I think you're probably right, but -- I think people are just now starting to think, OK, if I'm out of the -- if I'm beyond the fire of dealing with that, what am I thinking about for the future. So we're cautiously optimistic, but I think we'll have to see.

Eric Percher -- Nephron Research -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Steve Halper with Cantor Fitzgerald. Your line is open.

Steven Halper -- Cantor Fitzgerald -- Analyst

Yeah, hi, good morning. On the comment of $50 million of delayed cost actions, are we to think of that as an annualized benefit recognizing that you are going to be bringing back people, but just sort of clarify that $50 million of delayed cost action?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Sure, Steve. So, you should think of that as -- that's the impact in the quarter from having this six-week, seven-week lag between the volume declining and us being able to adjust the resource base. I would say the actual number of reductions, which I said in my prepared remark about a 2,000, it's actually slightly higher than that.

But as volume returns, and as I said, we're actually are in the process of starting to return some of the furloughed employees, that will hopefully be instead substituted by revenue growth with a higher margin than that. But if for some reason things don't return if we have significant disruption during the second half, that is certainly helpful and you should think of that as continuing for the rest of the -- for rest of the fiscal year going forward, but that's how to think about it. It is really the lag impact in the quarter itself, and hopefully it will be substituted by revenue growth as things recover.

Steven Halper -- Cantor Fitzgerald -- Analyst

Great, thank you.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Welcome.

Operator

Thank you. Our next question comes from Glen Santangelo with Guggenheim. Your line is open.

Glen Santangelo -- Guggenheim Partners -- Analyst

Yeah, thanks for taking my question. Neil, I just want to -- and Fredrik, I just want to follow-up on some of the cash flow and balance sheet issues. It seems like you have a fair amount of leverage on the balance sheet, but you're in a good spot from a liquidity perspective, and in this quarter, you've now spent over $420 million on these two acquisitions.

And Neil, I was hoping you could maybe comment on what you think some of the cross-selling and synergy opportunities are that you referenced in your prepared remarks and how we can maybe start to think about how that could impact the growth algorithm on a more normalized basis.

And then, maybe my second question to that is, as you compare the potential ROI on these investments, were you at all tempted to buy your own stock intra-quarter given the big dip and how do you think about that from a comparison perspective? Thanks.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yeah, this is Fredrik. So I'll take the first or the second part and I'll let Neil, I think, comment on the cross-selling opportunities. So we are in a good place from a liquidity perspective. As I said, we did $250 million early on, at the height of the turmoil and we raised the $325 million at a really attractive rate compared to where the market I think was at that point.

So we don't have a liquidity issue. We don't think about it that way. We are, we're at $4.6 billion. We were much higher pre-IPO. So we work our way down. Intent was to get down to $4.0 billion very quickly. Obviously, that's going to be slowed down a little bit, from where we are right now.

The acquisitions that we've done hasn't really materially changed the leverage because of the fact that we got it at attractive multiples and so that's just another testament to the strategy that we have in terms of how we think about our M&A strategy. But I'll let Neil talk about the kind of the cross-selling opportunities there.

Neil de Crescenzo -- President and Chief Executive Officer

Yeah. So I think when you think about the eRX and the PDX deal. First of all, strategically these are really in our sweet spot. I know you know we have over 30,000 customers. But the penetration, the understanding, and these businesses have been in the pharmacy market for over 30 years that we get with these acquisitions really allows us to leverage a number of our solutions into those markets.

Also, eRX and PDX have also worked together again literally for decades. So when you think about the revenue opportunity, it's very much in line with keeping within our overall approach to getting our revenue growth into the mid-single digits and with the synergies, which were frankly pretty easy to identify because of the scale we have and the relationships we already had for many years, of course, with both of these companies. We're very optimistic about the EBITDA growth of course being in excess of that.

The other thing that maybe not quite so obvious because they're clearly leaders here in the pharmacy market, are the relationships with life sciences companies. When you think about the pharmacy market it is obviously a close relationship with the people providing generic or branded therapeutics, we've certainly been doing a lot more work with those companies through our Data Solutions business.

But now, the way that we can inject analytics to help with everything for medication adherence to identifying opportunities to intervention at the pharmacy and frankly the continued importance of the pharmacy as a healthcare provider, really gives us enormous leverage with both the solutions we already had at Change Healthcare as well as to take the understanding of pharmacy transactions from eRX to deep and multi-decade understanding of pharmacy workflows and PDX and the great data assets and connectivity to the rest of the healthcare system we have and we think really accelerate the innovation and cross-sell across all those constituencies.

Glen Santangelo -- Guggenheim Partners -- Analyst

Okay, thank you.

Operator

Thank you. [Technical Issues] your line is open. Sandy, your line is open, please check your mute button.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Oh, sorry, you broke, I didn't hear you call me. Thanks so much. Most of my questions have been asked. So maybe just one clarification. Fredrik, obviously Connected Analytics; that business goes out of the Software & Analytics. But just want to make sure, when I think about the PDX and eRX, which are the through -- which segments are those going to be going into, will they be discrete or will it be sort of mixed across the different segments? Thanks.

Neil de Crescenzo -- President and Chief Executive Officer

Yes. So both PDX and eRX will be added into the Network Solutions business. And you're right, Connected Analytics was in the Software business, and it will no longer be there obviously.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Okay, great. And then just as a follow-up clarification, and some people asked this. So it sounds like Fredrik, as you're taking cost out of the business and you're bringing revenue back on, there is some of the cost that comes back on, but do you think longer-term, because of this change in structure, the long-term margins of the business may end up essentially being better than you thought, or is it just you can get back to those same targets or is there something structural that long-term there is actually a higher long-term margin potential, I'm not trying to quantify a date, but just that long-term potential? I just wanted to make sure I was clear on your answer there. Thanks.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yeah. No, I do think that's the case. I think as volume returns, there is no incremental sales or anything. So we're very comfortable that we have -- every solution that we have is as strong or even stronger coming out of this. When we look at the cost structure, we have done a couple of things, I have alluded to this before. Look at our real estate portfolio, we have 85 different sites across the countries that we're looking at, what can we do there to drive efficiency that we probably wouldn't have done in the same time span as we're now able to do it?

Second, as we now transition a lot of things to work from home, it looks -- it requires you to look at productivity per team member in a different way, especially on our services part of the business and we think there's opportunity here to manage it differently going forward. It require some technology overlays and so forth that we're working through.

But net-net, the core of your question is, yes, I do think there are opportunities to actually improve margins coming out of this, a good crisis should always be utilized and that's what we're looking at here and that's a tough way of looking at it, but that's the way you have to look at it, to make sure that when you have this location like this that you try to take advantage of it.

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Great, thanks so much.

Operator

Thank you. Our next question comes from Charles Rhyee with Cowen. Your line is open.

Charles Rhyee -- Cowen and Company -- Analyst

Yeah. Hey, thanks for squeezing me in here, just obviously a lot has been already asked and gone over. Just wanted to clarify a couple of things, you talked about some of the opportunities with the eRX and PDX, but if I recall, you had at the start of fiscal '20, you talked about $150 million in sort of synergies related from organizational optimization, partnering, productivity improvement, etc. by the end of fiscal '21. If you could just remind us where do we end up at the end of fiscal '20 and does any of the remainder get impacted because of what's going on with COVID-19 or some of what we're talking about is like the $15 million, is that sort of additive to that number. Thanks.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yeah. So we had about $150 million originally from the merger that we identified. We did about $37 million in this past year. So we have about $49 million left to be gained from what we identified, nothing has really changed in terms of the ability to get to that. We have detailed plans along to get that. I would say probably some of it has pushed back a little bit just because of the fact that you can't move as quickly when you're transitioning people to working from home, some of the offshore initiatives that we had is probably delayed a quarter or two, but of that $49 million that's left to be done.

So we've got about $100 million in total so far. I would say that we have -- we will get the vast majority of that here in FY '21 with some spill over into the first and second quarter of FY '22 because of the fact that we had to focus on a few other things for a period of time here.

Charles Rhyee -- Cowen and Company -- Analyst

Great. And then just, if I missed it, I apologize. Did you provide any sort of cost synergy targets for eRX and PDX?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

We have not. We think that they are significant in opportunity, especially on the cost side, we think the significant portion can probably be achieved over the next year, but there is more to be had after that, and then I think the revenue synergies are quite substantial as well and that's probably going to be over two-year-period to three-year period to start achieving those, but that's the foundation for the transactions, which is not only to get them at the appropriate price, which we obviously have both of them, but also to even further enhance them by driving significant amount of synergies. So absolutely.

Charles Rhyee -- Cowen and Company -- Analyst

That's great. I'm sorry, one just last clarification, you talked earlier about the sort of seeing sort of steady improvements across your businesses. Within the Network Solutions business, are you able to tell us or see into it and see like what percent of your clients may have begun to start elective procedures, is that something you're able to detect?

Neil de Crescenzo -- President and Chief Executive Officer

Yeah no, we do. And I'd say the answer is all. I think someone asked the question earlier about whether there are significant discrepancies and it's really just a matter of the pace at which people are opening up and everybody is opening up. I think we'll see, and as Fredrik mentioned, we've tried to be prudent in presuming both how fast people will open up and then whether we'll see a resurgence that might cause some shutdowns or decreases in the fall or from some of the regional issues that may result from some of the circumstances that have been reported in the press, but we've seen basically everybody starting to open up. I think all the states have allowed elective procedures over the course of the last month, but the pace will differ obviously depending upon a number of factors.

Charles Rhyee -- Cowen and Company -- Analyst

Great, thank you very much, guys.

Neil de Crescenzo -- President and Chief Executive Officer

Thank you, Charles.

Operator

Thank you. [Operator Instructions] Our next question comes from Sean Dodge with RBC Capital Markets. Your line is open.

Sean Dodge -- RBC Capital Markets -- Analyst

Good morning. Thanks. Maybe on the Payment Accuracy business, can you give us little insight into how your payer clients are balancing or thinking about those types of activities over the next few quarters? I guess providers have taken a big hit, so I'd imagine there is some sensitivity or increased sensitivity around wanting to minimize things like abrasion. And then at least for the time being payers seem to be enjoying some lower medical cost. So it seems like there's a little bit of a less incentive for those types of activity to snap back quickly. Do you have any thoughts around that?

Neil de Crescenzo -- President and Chief Executive Officer

Yeah, no, I think, first of all, I think you're absolutely right on your insights. I think obviously providers, particularly over the last few months have had a very challenging situation and so payers have been particularly focused on avoiding, which they are always trying to, but particularly focused provider abrasion. I think we mentioned that there was some negative impact just because some of the activity was really not the main focus of payers over the last few months.

But the efforts around utilization management and electronic prior auth and payment -- or payment accuracy or payment integrity are going to continue because it's appropriate to make sure that we have prudent spending in the healthcare industry. And so we see things now normalizing even relative to some state changes that were imposed, if you will, on a couple of states on the payers, those are now sort of going back to normal. So we see it again a little bit like I described earlier, a bit of a pause in what would normally be the pace of utilizing those solutions. But it's now coming back and I think one of the things that a number of our customers told us they really appreciate it.

As I think you may know, we've really focused on solutions in that space that minimize provider abrasion because we put the logic in helping them code correctly and submit claims correctly on the front-end rather than on the back-end where it's been a lot more invasive into their processes when you're trying to correct any issues, and I think it's really increased the appreciation among our payer customers about the way we're approaching this to try to find the balance in the industry, but I think you're right on how it was a bit of a different circumstance over the past three months.

Sean Dodge -- RBC Capital Markets -- Analyst

Okay, that's great. And then just a real quick one on the revenue cycle services business. How much of a lag is there from when claims or reimbursement slow down and when it shows up in revenue? I guess, at what point does this revenue recognition occur there, is it the actual cash collection or is that is at some point after that?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yeah, it used to be under 605, but it was more the cash collection. But the way 606 changed that was that you move it much closer toward the actual activity that we're doing. So I would say it's about 30 days to 45 days of a lag between the actual activity to us recognizing the revenue. It used to be 60 days to 75 days to 90 days before.

Sean Dodge -- RBC Capital Markets -- Analyst

Okay, very good. Thank you, gentlemen.

Operator

Thank you. And this concludes the question-and-answer session. I would now like to turn the call back over to Neil de Crescenzo for closing remarks.

Neil de Crescenzo -- President and Chief Executive Officer

Thank you very much, operator. Well, we really want to express our appreciation from all the dialog we have with everybody on the call. We're just very pleased with the work we've been able to do with our customers, our partners and really we hope in our way helping the country deal with these unprecedented shocks that we've seen and the ongoing challenges around COVID-19.

Fortunately, as we've long told you, we focus on the kind of solutions that improve the efficiency of healthcare and the effectiveness and do it in a way that makes it as easy as possible for both our provider customers and our payer customers to help the system evolve to something that's more efficient, more effective and has better outcome. So we are really very pleased by the support our customers have shown us as we've been in this crisis and we're going to continue to innovate with them to help the U.S. healthcare system.

So thanks everybody, for calling in today.

Operator

[Operator Closing Remarks]

Duration: 79 minutes

Call participants:

Evan Smith -- Senior Vice President, Investor Relations

Neil de Crescenzo -- President and Chief Executive Officer

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Robert Jones -- Goldman Sachs -- Analyst

Manav Patnaik -- Barclays -- Analyst

Lisa Gill -- JPMorgan -- Analyst

Jailendra Singh -- Credit Suisse -- Analyst

Stephanie Davis Demko -- SVB Leerink -- Analyst

Eric Percher -- Nephron Research -- Analyst

Steven Halper -- Cantor Fitzgerald -- Analyst

Glen Santangelo -- Guggenheim Partners -- Analyst

Sandy Draper -- SunTrust Robinson Humphrey -- Analyst

Charles Rhyee -- Cowen and Company -- Analyst

Sean Dodge -- RBC Capital Markets -- Analyst

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