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CHANGE HEALTHCARE INC (NASDAQ:CHNG)
Q1 2021 Earnings Call
Aug 6, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by, and welcome to the Earnings Conference Call of Chase Healthcare Inc. Q1 Fiscal Year 2021. [Operator Instructions] Thank you.

It is now my pleasure to turn the call over to your first speaker for today, Mr. Evan Smith, Senior Vice President, Investor Relations. Sir, you may begin.

Evan Smith -- Senior Vice President of Investor Relations

Thank you, operator. Good morning, and welcome to Change Healthcare's earnings call for the first quarter of fiscal 2021 which ended on June 30, 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 and outlook followed by closing remarks from Neil. After that, we'll open the call for 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 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 statement 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 financial measures are included in our earnings release and the appendix of the supplement slides accompanying this presentation. I want to remind everyone that copies of the earnings release and the supplemental slides accompanying this conference call are available in the Investor Relations section on our website at www.changehealthcare.com.

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

Neil Crescenzo -- President and Chief Executive Officer

Thank you, Evan. Good morning, everyone. While COVID-19 continues to impact both the U.S. healthcare system and economic activity, we at Change Healthcare moved decisively to strengthen our long-term position in the market through operational initiatives to improve our cost structure and productivity as well as through new sales initiatives and solution introductions to address current and future customer needs. We are seeing positive indicators with customers across all three segments. First quarter bookings were in line or slightly above our expectations across the board, with a continued increase in our average deal size and steady win rates. Our sales cycles and implementation time lines continue to be slightly extended. However, we are receiving strong lead generation above pre COVID levels as a result of our digital marketing and enterprise sales initiatives across both payers and providers.

Our conviction on the value and innovation we are bringing to payers, providers and consumers is further supported by the findings of the 2020 Change Healthcare Harris Poll Consumer Experience Index which explored the consumer healthcare journey. Our research established that finding, accessing and paying for healthcare in America requires so much work that half of consumers surveyed have avoided seeking care. More than 2/3 of consumers said every step of the healthcare process is a chore and most said that they don't know how much a treatment or site visit costs until months later. Consumers want accurate cost estimates from payers and providers as well as price transparency. Consumers, especially as the COVID pandemic continues, are overwhelmingly seeking a retail-like e-commerce experience when they interact with the healthcare system. 81% of consumers surveyed agreed that COVID-19 will fundamentally change healthcare delivery, with most believing the pandemic will speed digital adoption.

They expect health plans and providers to drive value for the all-digital or mostly digital consumer. Change Healthcare through our Connected Consumer Health suite offers the most comprehensive e-commerce platform to effectively help providers and health plans manage the patient journey from pre to post care. Our collaboration with Adobe and Microsoft on our Connected Consumer Health suite has yielded solution that offers patients a modernized and enhanced experience by providing physician details, patient reviews, access to price comparisons and other features related to their care, all on an integrated, scalable and secure platform. Applications enable patients to schedule appointments, prepay for the service, have a touchless check-in experience and benefit from price transparency and service bundling solutions. Now I'll briefly highlight our financial performance for the quarter. The initial trends we outlined on our last call continued to improve since early June, as indicated in the chart on slide five.

As a result, we were able to deliver stronger-than-expected results for the first quarter, reporting solutions revenue of $648 million, adjusted EBITDA of $197 million, adjusted earnings per share of $0.25 per diluted share and free cash flow of over $100 million. Given the strength of our performance and liquidity, we repaid the entire $250 million drawn on our credit facility. While overall utilization trends throughout the U.S. have improved and were above our expectation in Q1 and have continued around such levels with some volatility into July, our outlook for the year assumes the following: one, hotspots occur as we have already seen in Texas, Florida, Arizona and other states; two, we recognize the risk of additional impacts on the healthcare system during the flu season; and three, we maintain a moderate timeline to move through the backlog of deferred procedures. While Fredrik will discuss our quarterly results and outlook in more detail, we believe it remains prudent to maintain our outlook that utilization levels will not return to pre COVID levels until the end of our fiscal year for both internal resource planning and external guidance.

Our first quarter activities and results demonstrated our continued focus on innovation, expanding our core franchises and optimizing our cost structure to accelerate our growth and performance coming out of this crisis. In the first quarter, despite the challenges of COVID-19, we continue to sign new contracts across all our segments. In our Payment Accuracy business, we signed multimillion-dollar deals expanding our relationships with several of the largest managed care companies in the country. More and more payers are recognizing the value of our payment accuracy and coordination of benefit solutions that leverage our front-end position in the industry's workflow, our unique data assets and our AI capabilities. In one case, we went from the initial interest from a payer to an executed contract in only five weeks. In our imaging business, we signed multimillion-dollar deals with leading regional hospital systems including RWJBarnabas Health and Providence Health system. In addition, we launched new imaging modules, including our cloud-native Enterprise Imaging Network analytics, which are now in use at Bronson Healthcare System as well as other leading healthcare systems.

With us migrating more than three million studies in less than three months which would typically take an excess of one year for an on-premise tax system. This new module improves organizational workflows, productivity and efficiency while helping our customers plan for COVID-19 surges and related staffing needs. We are confident that the value realization now validated by our imaging customers, combined with our strong pipeline, indicate that a growing number of organizations believe that our cloud-native Enterprise Imaging solutions may be the last imaging system migration they ever experience. In our RCM Services business, we continue to have success selling into hospitals and aggregators, winning multimillion-dollar deals, and we are seeing strong demand from virtual care and telehealth providers. In addition, trends in average deal size win rates in our pipeline continue to be positive. During the quarter, demand increased across our services portfolio, including in digital engagement for eligibility and enrollment, which helps increase the number of applications completed for government programs for uninsured patients.

This was and will remain a critical need given the surge of uninsured patients in certain regions in the United States. In addition, we also saw increased market adoption for our proprietary AI solutions and for our RCM growth analytics solution which helps providers effectively determine where to develop or expand clinical programs and services, select optimal locations and demonstrate to payers how a particular provider is able to deliver the most cost-effective care. Underlying transformation here is building momentum and being recognized. Specifically, we earned Frost & Sullivan's Product Leadership Award for the total RCM market. They highlighted Change Healthcare as being at the forefront of RCM innovation, investing in progressive RCM technology such as AI that deliver ROI for customers and are aligned with industry trends toward patient centricity and value-based care delivery. Moving on to our fast-growing Data Solutions business in our Network Solutions segment.

We continue to expand both COVID-19 and non-COVID-19 related applications, with particular strength in financial services and life sciences during the quarter. We now have over 50 research institutions engaged with our COVID market insights offerings, including Duke University, where we recently presented at Duke's Combating COVID-19 and Disparities with Data seminar. Our data is highly valued by our collaborators working to fight COVID-19 given that we see nearly 50% of all COVID-related claims data. We provide our partners a comprehensive view of the patient by including critical details on a de-identified basis such as other diagnoses, past care and social determinants of health data. Change Healthcare has been and will continue to be instrumental in research related to the prevalence and spread of disease, efficacy of treatments, patient tracing and other applications which underscores the value of our data and the significant growth potential ahead of us. I would also note that we have had a positive reception and initial adoption from payers and providers for our recently introduced solutions.

Let me review briefly, a half dozen of them from the past few months. Our connected health suite Connected Consumer Health suite's touchless waiting room solution has generated significant interest in sales among our provider customers. Our Connected Consumer Health interoperability APIs are being adopted by health plans as they gear up to meet the January 2021 deadline for the CMS patient access interoperability rule. Our National Payments Connector solution, or NPX, is seeing solid initial market acceptance and positive enrollment trends. NPX eliminates costly manual paper-based processes and allows providers' administrative staff to work from home while accelerating payments. These are two urgent priorities for providers as a result of the pandemic. During the quarter, we added 17 new products to our API & Services Connection marketplace, spanning payments, pharmacy, clinical and medical network. Just introduced in January, our marketplace now offers over 30 API products, providing solutions to power revenue cycle management

Payments and medical eligibility workflows with over 80 unique customers and already processing over 25 million API transactions per quarter. Furthermore, to address an immediate market need, we recently provided free access to the Change Healthcare clinical network, one of the nation's largest lab networks, which enables providers to quickly order labs and in-home tests for COVID-19 to help speed diagnostic results for patients nationwide. The service portal helps providers and patients identify lab options to improve access to testing. Only 55% of providers have electronic health record or other digital connections to labs, and if they do, it is typically fee-based. The burden can fall on the patient to find a testing facility, place the lab order using their prescription and collect their results. Our network includes the leading commercial labs, home-testing companies, regional and hospital labs and improves access to testing by helping providers identify and order from new labs or new tests like for COVID-19 being ordered from existing labs on the network.

Finally, last month, we launched the Change Healthcare clinical data retrieval service, a new cloud-based interoperability solution that makes it easy for payers and a broader range of organizations to instantly retrieve patient records from virtually any EHR. For the first time, payers can get the patient care data they need in an integrated electronic fashion to verify claim accuracy, pay claims, manage risk profiles, satisfy quality reporting requirements such as EDAs and optimize interventions. As you could see, our broad scale and automated access contrasts with the traditional manual chart retrieval process which is not only inefficient and costly, but also limits the number of records that could be gathered and is subject to human error due to the sheer volume of data. Based on the customer feedback around these new innovative offerings, we expect continued demand for our solutions as we help reduce dependency on labor, improve efficiency and enhance engagement to improve patient access to information and care.

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, and good morning, everyone. I'm happy to report a strong first quarter even in the face of these challenging times, proving the resilience and importance of our three segments and products across the healthcare industry. As Neil discussed, utilization rebounded faster than expected, which, combined with new business wins and implementations in the quarter, enabled us to surpass our guidance and support our increased outlook for the second quarter and the full year. Starting with slide seven, for the first quarter, solutions revenue was $648 million compared to $797 million in the same period of the prior fiscal year. Overall decline in solutions revenue was 18.7%, which reflects the negative impact of COVID-19 and a deferred revenue adjustment of $55 million as part of the fair value adjustments associated with McKesson exit.

This is partially offset by the net impact of M&A activity of $6 million and new sales and organic revenue growth in the quarter. Net of the impact of deferred revenue and M&A activity, revenue declined 12.5%. Adjusted EBITDA for the quarter was $197 million compared to $281 million in the same period of the prior fiscal year. The decrease in adjusted EBITDA reflects the impact of reduced volumes related to COVID-19 and continued growth in investments to support our enterprise sales, enterprise imaging and new product development launch activities. This was partially offset by incremental synergy realization of approximately $9 million in the quarter and other business optimization initiatives. Net loss for the quarter was $59 million, resulting in a net loss of $0.18 per diluted share compared with net income of $72 million or $0.28 per diluted unit for the first fiscal quarter of 2020. Adjusted net income was $81 million, resulting in adjusted net income of $0.25 per diluted share compared with adjusted net income of $141 million or $0.56 per diluted unit for the first fiscal quarter of 2020.

Adjusted net income reflects the decline in adjusted EBITDA. As noted earlier, higher amortization expense related to strategic and integration capex as well as higher tax rate is a result of the McKesson exit which we previously outlined. This was partially offset by lower interest expense as a result of the year-over-year reduction in our outstanding debt. The per-share results also give effect to the IPO with 320 million fully diluted shares outstanding in the first quarter of fiscal 2021 compared to 253 million fully diluted units in the same period of the prior fiscal year. For all intents and purposes, the share of Change Healthcare Inc. is equal to a unit of Change Healthcare LLC. Now let's take a look in more detail at the performance of our segments on slide eight. Before I discuss the performance, I want to highlight the key change. During the first quarter of FY 2021, we implemented a new and effective allocation methodology that, among other things, allocates all administrative and certain other corporate expenses to their respective reportable segments.

This allocation methodology differs from the methodology utilized in the prior fiscal years. Therefore, the adjusted EBITDA of the joint venture's reportable segment has been recast for those payers to be consistent with the company's new allocation methodology. The recast prior fiscal year's results can be found in the 10-Q and our earnings presentation. Starting with revenue, the Software & Analytics segment declined 9.7% year-over-year. The decline in our Software & Analytics segment was driven by an approximate 25% decrease in a non subscription contingency-based businesses primarily in our RCM and legacy imaging solutions and, to a lesser extent, in our risk adjustment and member engagement business due to COVID-19, as well as the impact of the Connected Analytics divestiture of $11 million. We also saw stability and underlying strength in payment accuracy, decision support and capacity management as well as new wins in the cloud-based Enterprise Imaging solution which bodes well for the coming quarters.

Our Network solutions revenue increased 0.9% year-over-year, which includes the impact from eRx and PDX of $17 million. Key drivers include growth from implementation of new customers in data solution and increased market penetration in medical network and B2B payments business. The growth in this business were primarily offset by lower network volume and B2B payments of approximately 20% and 5%, respectively, due to COVID-19. In the Technology-Enabled Services segment, overall revenue declined 24.2%. TES was the hardest hit business due to COVID-19 due to its high correlation to healthcare spend. We saw the RCM services business negatively impacted by approximately 30% and the communication and print business impacted by approximately 20% due to COVID-19. On the positive front, our RCM turnaround effort remains on track, and we continue to see positive trends in RCM win rates and deal size. In addition, we continue to see an uptick in vendor consolidation and outsourcing trends which we believe should further support new business potential as we continue to transform our RCM Services business.

Turning to adjusted EBITDA. Software and other declined 18.5% year-over-year. The results were driven by investments to support our AI initiatives and enterprise imaging transformation as well as the COVID-19 impact I mentioned earlier, offset by underlying revenue growth in key franchises. Network Solutions adjusted EBITDA declined 11% in the quarter driven again by lower network volume due to COVID-19 impact I mentioned as well as increased investment to support the significant number of new product launches and market expansion opportunities. In Technology-Enabled Services, adjusted EBITDA was negative $18 million compared with $25 million in the same period of the prior fiscal year driven primarily by lower volumes related to COVID-19 in our RCM services and consumer and print businesses. As we discussed in our guidance last quarter, results excluded the delayed impact of approximately to $15 million of benefits from cost initiatives taken during the quarter.

Moving on to cash and our balance sheet on slide nine. Free cash flow was $102 million this past quarter compared to $17 million in the same period of the prior fiscal year. The biggest driver of our strong free cash flow in the quarter was better-than-expected customer payment timing, giving us even greater confidence in our full year cash flow outlook and the resilience and diversity of our customer base. We also benefited by $22 million from a shift in our term loan interest payments from the first quarter and $40 million from deferred payroll taxes. Adjusted free cash flow was $127 million despite the impact of the pandemic compared to $61 million in the first fiscal quarter last year. Although uncertainty obviously remains in regards to healthcare utilization in the next six to nine months due to COVID-19, as a result of our strong cash collection in Q1 and our confidence in our cash flow for the remainder of the fiscal year, we repaid the $250 million revolver draw in the quarter.

Our liquidity remains strong, ending the quarter with over $178 million of cash and cash equivalents and $780 million in undrawn revolver capacity. Total long-term debt, including short-term portion, net of cash at quarter end was slightly under $4.9 billion, with a credit agreement net leverage ratio of 5.2. Let's move to slide 10 for financial guidance for the second quarter, along with certain assumptions and supplemental information for the full fiscal year. For the second quarter, we expect solutions revenue to be $670 million to $690 million which includes the impact of a fair value adjustment related to McKesson exit, which will reduce reported revenue due to reduction in deferred revenue in the second quarter by $39 million; adjusted EBITDA to be $180 million to $190 million; and adjusted earnings per share to be $0.20 to $0.23 per share. Let me provide additional color by segment. In the software analytics, approximately 75% of revenue subscription or maintenance is expected to grow in the low single digits while 25% is contingency or renewal-based which we currently estimate to have a negative impact of about 10% in the second quarter.

The S&A impact is driven by timing of the implementations, procedure volume decreases and relaxation by a limited number of payers and states on reporting requirements. In Network Solutions, based on current volume trends, we anticipate an approximate 10% decline in network volumes for the quarter, about mid-single-digit increase in B2B payments, which is about 8% of our network revenue and high-teens growth in data solutions, which also represents about 8% of our network revenue. The network solutions impact is driven by decreased elective visits and healthcare activity due to COVID-19. In Technology-Enabled Services, we are expecting on average about a 15% decline in contingency-based RCM revenue for the second quarter. In communication and consumer payment services, we are expecting a decline of about 20%, and the remaining businesses are stable. The impact on TES is also driven by reduced elective procedures, volumes impacting our RCM services business and lower print volume impacted by reduced EOB and ERA volumes related to reduction and timing of claims and billing activity in each case due to COVID-19.

Last, let me provide you with some supplemental information and assumptions for full fiscal year 2021. As I stated, our current assumption is for continued gradual improvement of health utilization throughout the remainder of the fiscal year. We expect full year fiscal 2021 free cash flow between $150 million to $200 million. Capital expenditures are still expected to be approximately 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-19 impact. Integration-related operating expenditure is estimated to be approximately $80 million. Integration-related capital expenditures, approximately $20 million. No change from the prior quarter. We expect interest expense in the range of $250 million to $260 million for the fiscal year. Adjusted effective tax rate of approximately 25% and basic and fully diluted shares outstanding will be about $320 million which includes the minimum number of shares for the TEUs.

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

Neil 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, as we have already seen, as overall healthcare activity picks up, our results will naturally improve even prior to the benefits we will see from new sales. Second, the solutions we provide to streamline operations, enhance engagement and increase revenue are even more important given the impact of COVID-19.

And third, we continue our initiatives to improve our operational excellence and our cost structure as we navigate the impacts of COVID-19. These actions will enable us to emerge from this period even stronger. While there remains challenges for the U.S. healthcare system in our economy, the strength, resiliency and commitment of our Change Healthcare team members will continue to drive value for our customers, partners and the communities we live in and serve.

Thank you, and we will now take questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of Manav Patnaik from Barclays. Your line is open.

Manav Patnaik -- Barclays -- Analyst

Hi, good morning guys. I just had a question around the margins by segment. So you obviously reallocated the cost, etc. I was just hoping you could maybe give us some color on how we should think about what the targets or the long-term targets for each of those margin segments now should be what we are thinking about.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. So obviously, it changed a little bit now as we have allocated out all of the full all of the corporate costs. I think if you look at last year by the segments, I think and you have that in the in our 10-Q and earnings presentation. I think that's a good starting point, because, obviously, last year is the first year with the 606 and so forth and first year as a public company. And we've said publicly from there, we expect to improve those margins by 50% to 75% across for the whole company. Obviously, it's going to vary a little bit by each of the segments. But we feel pretty good about opportunities to drive margin expansion in all three. Each year, we SSI will be a little bit different. So I don't think anything has fundamentally changed, except that the baseline has changed, which we've given you now for FY 2020. That has been restated.

Manav Patnaik -- Barclays -- Analyst

Got it. And then just one broader question. COVID has obviously tested what defenses and recurring means for a lot of people. I was just curious if you're looking at the portfolio and is there any areas that were volume-related that you want to think about converting more into subscriptions.

Neil Crescenzo -- President and Chief Executive Officer

Yes. I mean, I think that's a good question. We do look at that. I think it really comes down to what allows us to best accelerate our growth and market share. In some cases, we've had transaction-based pricing arrangements where the customer felt, because the value we have provided, they decided that it might be more valuable to them, and just from a general contracting perspective and their cost consistency and forecast ability to go to a PMPM or P something per M PM type approach. So we're pretty flexible on that, and it really is one of the things that we bring to customers. It's what's the best way to link our gain to your gains. So it does happen, but I wouldn't say there's been any wholesale change at this point.

Manav Patnaik -- Barclays -- Analyst

Got it. Thank you.

Operator

Our next question comes from the line of Michael Cherny from Bank of America. Your line is open.

Allen -- Bank of America -- Analyst

Hi, this is Allen [Phonetic] in for Mike. Looking at the free cash flow guidance, is there any way to frame what utilization assumptions are embedded at the top and bottom end of the range?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

This is Fredrik. So the $150 million to $200 million is based on our assumption that we will have a gradual recovery from where we stand here today, where the average so far this quarter is a little bit more than 10% down. The last point that we shared in the presentation was about 8% down. And our assumption at this point is that it's going to be a slow and gradual recovery from there. The actual range is not so much driven by the utilization changes. It's more around collection patterns and other things around working capital more than the utilization itself.

Allen -- Bank of America -- Analyst

Great. And then following up on the utilization point, is there anything you can say about June and July about the geographical dispersion between some of the COVID hotspots you mentioned and then some of the places where cases have gone down?

Neil Crescenzo -- President and Chief Executive Officer

Well, I think we are seeing the variability as you're sort of implying because of the different issues around caseloads and inpatient admissions, etc. But given our network and all the services we provide are so broad, it doesn't really have a material impact on the overall trend line that we've shared, for example, in slide five. So there really wouldn't be anything that we would provide that isn't already known from just what you see in the news about caseloads and whatnot. I think the way we look at it is and fortunately, our customers are very confident of this.

We keep the services and capabilities coming and have helped them in many cases where they've run into these crunch periods or challenges from an operational perspective. But overall for us, given the breadth of our network, and at least currently, the way the hotspots and the growth are then decrease in caseloads, it hasn't really had a material impact on our overall forecast or the way we see the business progressing.

Allen -- Bank of America -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Jailendra Singh from Credit Suisse. Your line is open.

Jailendra Singh -- Credit Suisse -- Analyst

Yeah. This is Jailendra Singh. So on your comments around transaction volumes now at 8% below pre COVID, is it true for dollar volumes as well or dollar volumes are trending better than pre COVID? And also like on that part, on the same line that with new products and solutions you guys have launched over the past three months, is it fair to say that the company's positioning at pre COVID volume level is much better than what it was five, six months back? Just trying to understand we are comparing apples-to-apples here.

Neil Crescenzo -- President and Chief Executive Officer

Yes. Let me get to the first question first, Jailendra. I think so we haven't seen a dramatic change in kind of the average claim amount, which is what you're asking, right? And obviously, across the country, it differs, but it hasn't been like there's been overall a big change in that. I think, as you know, there's been a lot of support provided to the provider community as well from the federal government and other means. And so I don't think we've yet seen any particular changes relative to pre COVID times in the sort of claims expense, if you will, that we see coming through the network. Could you come to your second question again? I'm not sure I quite caught it.

Jailendra Singh -- Credit Suisse -- Analyst

Yes. I want to understand that. Now you have launched several products and solutions over the past three, four, five months, I'm just trying to understand that a company like Change Healthcare operating at a volume level right now you're seeing versus pre COVID. Do you think that your positioning is much better in terms of taking advantage of the current volume level or you really need that volume to come back at pre COVID will level to operate at a similar growth profile? Just trying to understand company today versus five, six months back.

Neil Crescenzo -- President and Chief Executive Officer

Got it now. Good question. Yes. I know I think we as we described, even after the IPO, we really saw our growth trajectory, both the ability for us to sell more into our customer base as well as the general growth in healthcare, which obviously had quite some changes this year versus what any of us had foreseen, but then the third pillar was really innovation. So all these a lot of the innovation you saw, including the announcements that you mentioned over the last quarter or so, these have been in the works for quite some time, as you can imagine, given the breadth of some of these solution areas.

So I think we will benefit from both the return back to a more typical healthcare system and the underlying trends in healthcare utilization. But in addition, we do expect these new innovative solutions to be the third element that I mentioned in terms of continuing to power our growth particularly as we get out of the dramatic changes that occurred under COVID.

Jailendra Singh -- Credit Suisse -- Analyst

And just one quick follow-up for Fredrik. So fiscal first quarter results, I think when you gave guidance, included $25 million of this extra cost, $10 million bad debt expense and $15 million of additional cost overhead, which was not expected to repeat in fiscal second quarter. Is that still true and is that reflected in your fiscal second quarter outlook?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. So two things there. So when it comes to the $15 million of delayed cost takeout, obviously, as we see volume returning, we're going to need to add those resources back, and we already are starting to do that. So it's going to come in terms of incremental revenue and the margin associated, because obviously, we want the volume back and we'd be glad to add back some of the resources. What we're trying to do is to make sure we don't add back one-for-one on the resource side. And the team is doing a very good job of managing that to drive some of the incremental productivity.

On the bad debt side, as you heard in our prepared remarks, we did not see the impact that we had anticipated in terms of delayed collections. As a result, we did not have to go to the high end of that range. We were more in that kind of mid- to upper single digits in terms of the impact on our bad debt. We thought it was still prudent. We don't think that all health systems are completely out of the woods yet, so we had to take some impact there. But it wasn't as severe as we would have thought originally.

Jailendra Singh -- Credit Suisse -- Analyst

Okay. Thanks a lot guys.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Stephanie Davis from SVB. Your line is open.

Stephanie Davis -- SVB -- Analyst

Hey guys, congrats on the quarter. You mentioned a lot about efficiencies for clients on your prepared remarks. I want to check and get an update on efficiencies within Change. Are there any takeaways from the pandemic around productivity just given your stronger results and a lighter workforce? And looking forward, are you thinking of making any of these changes more long-term in nature?

Neil Crescenzo -- President and Chief Executive Officer

Yes. It's a good question, Stephanie. I think one of the things, Fredrik and I also talked about even in the last earnings call is, let's make sure as we understand the dynamism that really all of us somewhat got forced into injecting into our business, how that can help us in the long run. So I think the work that we've done in working from home and the focus we have on productivity and quality metrics that allowed us even through the crisis, and obviously, now to continue to provide the level of service.

And as you said, the savings and revenue enhancements, etc, to our customers has really helped us think about how we can continue to accelerate our productivity and the dynamism of how we apply resources going forward. So I think we, like everybody else, is still learning a lot from this process. But I think we're pretty confident that, in the long run, it will help us continue to enhance the productivity of the services we provide. And obviously, that helped with our continued margin enhancement that we talked about previously.

Stephanie Davis -- SVB -- Analyst

Understood. Helpful. And a quick question on guidance. Last quarter, you emphasized that your estimates skewed conservative. How should we think about this for the 2Q guidance versus what you've seen across client volumes? And one for Fredrik. Why not issue a full year guidance just given how things are starting off?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. Clearly, we were on the conservative side in terms of the first quarter guidance. And now clearly, and we're delighted at the fact that things came back quicker than we had expected. Obviously, it's helping our results for the full year, and clearly, our free cash flow as well. As you now are getting back to a much smaller decline versus pre COVID levels, there isn't that much of a variation left. And I still think that it's reasonable, and frankly prudent, to assume that it's not I mean, it's hard to see us getting back to all the way back to pre COVID levels until there's a vaccine in place just because we see that not just across healthcare, we see that across a lot of different activities. And so that's why we maintained this kind of very gradual recovery throughout the rest of our fiscal year. In terms of the second part of your question about the full year guidance, I guess to some degree, we have the second quarter, obviously, guidance in front of us right now.

We've given you an end point in the fourth quarter in terms of what we think is essentially flat year-over-year, with average decline in volumes somewhat being offset by the incremental products and so forth and productivity gains that we're expecting and synergies. And so really in between, there is the third quarter. So I mean, I think to some degree, we've kind of given you the path for the rest of the year. There could come a point where it makes sense to the full year. But from our perspective, the key thing we're focusing on as a management team now is really setting ourselves up for FY '22 and to drive that sort of accelerated growth that we know that our portfolio of businesses are capable of.

Stephanie Davis -- SVB -- Analyst

Okay, that's helpful. Thank you, guys.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Our next question comes from the line of Robert Jones from Goldman Sachs. Your line is open.

Jack Rogoff -- Goldman Sachs -- Analyst

Great, thanks for taking my questions. This is Jack Rogoff on for Bob. So if I recall correctly, you previously expected Payment Accuracy to be challenged in first quarter because of lower healthcare utilizations, but it looks like you called it out as a strength. I'm curious what happened in this line of business. Was it just better-than-expected utilization or was it something else?

Neil Crescenzo -- President and Chief Executive Officer

Well, Jack, just to parse that a little bit. I think what we particularly called out as a strength is the market share gains we had through new multimillion-dollar contracts with payers in Q1. So just to be clear on that. I think you did as you're obviously well-aware, there were some changes in the Payment Accuracy market because of some of the restrictions from states and some of the practices of payers that occurred then. We're now seeing that get back to normal.

So it's still a rebound, if you will, from the circumstances that were occurring when there was a lot of almost emergency actions put in place in our Q1 and in different states. So we see it coming back. But so that business remains very strong. But just to be clear, what I particularly mentioned in our prepared remarks were some of the new deals that we had put in place in Q1, if that makes sense.

Jack Rogoff -- Goldman Sachs -- Analyst

Yes. Very helpful. And then you've talked a lot about the API marketplace in recent quarters. And I think the utility there is pretty intuitive. Is there a number as far as contributions to sales in the quarter from this channel or is it too nascent to move the needle?

Neil Crescenzo -- President and Chief Executive Officer

No. I think it just continues to help accelerate the growth. As Fredrik mentioned, we were on a good trajectory prior to the COVID pandemic. And I think we have been planning this, and we've architected our solutions to be provided through SaaS-based solutions, services in some cases where people want the services to wrap around it and then through APIs where that's going to be the easiest way for customers to uptake our intellectual property and capabilities and inject them into their processes or processes with our channel partners. So it's just going to be another contributory element to the growth rate acceleration that we expect to see particularly as we come out of the COVID pandemic.

Jack Rogoff -- Goldman Sachs -- Analyst

Got it, thanks.

Neil Crescenzo -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Lisa Gill from JPMorgan. Your line is open.

Anne -- JPMorgan -- Chairman and Chief Executive Officer

Hi, It's Anne [Phonetic] on for Lisa. Thanks for taking the question. Can you speak to the financial health of your clients and how the demand environment looks currently just given utilization has bounced back and stimulus has come through?

Neil Crescenzo -- President and Chief Executive Officer

Yes, Annie. I mean, as Fredrik mentioned, we tried to be prudent thinking about this. I'm sure you'll remember the huge amount of uncertainty only three or four months ago around that. I think what we've seen is that the financing that's been provided by the federal government and others has clearly had an impact. Obviously, there's still some uncertainty about how that's going to continue given the negotiations that are going on in Washington. But I think as much as obviously a number of places are thinking about what this means for them, certainly in the next 12 months prior to a vaccine and maybe a return to somewhat normalcy, I think the support that's been given to them is one of the reasons why we haven't seen some of the more dire predictions regarding the issues our customers have had.

We also serve over 30,000 customers at all elements of the size spectrum. Health care has always, of course, been a pretty dynamic market. And clearly, a number of people, ourselves included, are concerned about areas, for example, in rural health or some of the smaller practices perhaps, that don't have as much financial wherewithal to get through some of the volatility that's inherent in this situation. But by and large, there's been a some, I think, surprising strength in the ability of providers to get through this. But I think a lot of it has had to do with the support provided by various federal agencies and others. And of course, we'll have to see how that progresses in the next months ahead.

Anne -- JPMorgan -- Chairman and Chief Executive Officer

That's great to hear. And have you seen any changes to the competitive environment or consolidation opportunities just given the disruption in the marketplace?

Neil Crescenzo -- President and Chief Executive Officer

Yes. Annie, I mean we as you know, we made some acquisitions in the quarter, particularly expanding our business in the pharmacy network. I think we're going to continue to see as the industry consolidates the need for more broader-scaled partners for these entities. I think one of the things that we're excited about is the fact that we can provide value working with smaller companies.

And most of the M&A we've done over the years is on the back of a long commercial relationship sometimes with these smaller companies. So I think we're going to continue to see the consolidation in the market as healthcare itself continues to be more of a system and a little bit less broken out into the silos it's been in historically, then you hopefully will continue to benefit from that.

Anne -- JPMorgan -- Chairman and Chief Executive Officer

That's great, very helpful. Thank you.

Neil Crescenzo -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Sean Wieland from Piper Sandler. Your line is open.

Sean Wieland -- Piper Sandler -- Analyst

Good morning. So on the CMS interoperability rule, you mentioned it briefly for patient data and provider directory data. I'd just like to learn a little bit more about your go-to-market strategy there and how meaningful an opportunity that is for you in the coming quarters.

Neil Crescenzo -- President and Chief Executive Officer

Yes. Sean, I mean, first of all, we had worked extensively with NCE, CMS, all the different folks that were involved. And those rules, as you know, had a rather lengthy period prior to them being issued. And so we had built up during that time a series of offerings. And we announced free access to our interoperability APIs for payers who are able to take them up directly. We're also working with ones where their system requires a bit more implementation than just being able to take advantage of the APIs. But I think it's significant in terms of continuing to add value to our customers. And I don't given the breadth of our company, it's not going to be a huge accelerant to the overall company growth rate. But what it's really done is continue to embed us in our customers.

And it's something that we really developed with a number of them because they were grappling, as you can imagine, particularly three or four months ago, with all the uncertainty around COVID. And then I think some people were hopeful that the deadline would be postponed beyond January. Some of the enforcement has been said to be postponed six months. But in general, people realized only four or five months ago when these final rules came out, that they needed to do something over the next subsequent nine months. So fortunately, we're there to help them. And we've seen very strong demand from our payer customers and including new and smaller customers for this kind of offering.

Sean Wieland -- Piper Sandler -- Analyst

Great. And related to interoperability, the HHS Connect program to collect data on COVID-19, it sounds like you could have a meaningful contribution in the collection of COVID-19 related data. Are you involved in that program at all or doing anything with the government there?

Neil Crescenzo -- President and Chief Executive Officer

Yes. We're working with Jose Arietta, the CIO, Under Secretary Azar as part of many CMS programs around this. So and it's really been a good relationship and trying to help the federal agencies because I think they're they've been cognizant of the fact that some of the things they want to do, they may already be rails or data that's available to them, that will allow a system to be put in place faster than otherwise would be the case versus sort of manual data collection or initiating new data collection aspects.

The other thing that I think has been important for everyone to understand, and we've really appreciated working with them and others, is that, as you know, our data is collected for, among other reasons, often for billing or submission of billing. And so there's a natural quality element to it. It's sort of not being just collected on an emergency basis for a special purpose. It's basically part of the operating mechanisms of providers and others. So I think that's something they've also appreciated as well.

Sean Wieland -- Piper Sandler -- Analyst

Thanks very much.

Neil Crescenzo -- President and Chief Executive Officer

Thanks, Sean.

Operator

Your next question comes from the line of Charles Rhyee from Cowen. Your line is open.

James -- Cowen -- Analyst

It's actually James [Phonetic] on for Charles. You're assuming a 15% decline in the contingency-based RCM revenue for second quarter. Can you tell us if that assumes the potential impact of for the declines from COVID hotspots like Texas and Florida? Also like how much exposure do your customers have to these areas?

Neil Crescenzo -- President and Chief Executive Officer

Well, I think we have a very broad business. So as we've looked at this and done our forecasting and looked at a state level, and actually, in some cases, down to a ZIP code level, we haven't seen that there would be a material impact even with some of the hotspot flair-ups. And it really comes down to the fact that the breadth of our business and the fact that we do operate in all 50 states.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. And the other thing, just in terms of just to clarify also the 15% versus kind of the 10% for the network claims. It's more around the fact that there's a lag between our RCM services revenue and activity in the healthcare system. So that's kind of driving the kind of 5% difference between the two, if you were asking for clarification there.

James -- Cowen -- Analyst

Okay. Great. And also can you speak to the integration of eRx and PDX? How is that progressing? And have you identified cost and revenue synergy opportunities? If so, could you share that with us?

Neil Crescenzo -- President and Chief Executive Officer

Sure, James. Well, first of all, it's progressing well. Again, these are two organizations. The network part was obviously part of the company before it got spun out. We brought it back in. And then the PDX company is one we've also worked with literally for decades. So the integration has been proceeding very smoothly as we expected it to. And we certainly are going to get advantages through synergies. And maybe I'll let Fredrik talk about some of the financial aspects.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. No, we expect about $10 million of synergies over the next two to three years that we can realize there. And then we think there's ultimately additional revenue synergies, but we haven't really quantified that yet.

James -- Cowen -- Analyst

Okay, great. Thank you.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Our next question comes from the line of Matthew Gillmor from Baird. Your line is open. Mr Matthew Gillmor Your line is open.

Matthew Gillmor -- Baird -- Analyst

Sorry about that. I muted myself. On the bookings front, Neil had talked about the sales cycle extending slightly. I was hoping you could provide some details on that dynamic. And have you seen any improvement from a sales cycle perspective with the recovery and utilization over the past month?

Neil Crescenzo -- President and Chief Executive Officer

Yes. We have I think there's still a bit of an extended sales cycle. Clearly, our customers and even our own people in the industry are just trying to understand how our sales activity is going to work especially given the challenges around air travel and other things that you'd be well aware of. We are now meeting with customers. Again, it is more selective than it was before the pandemic. We are seeing sales cycles tighten up relative to what they were three or four months ago.

I wouldn't say they're completely back to normal. They are in some instances, more on the payer side and the provider side for, again, reasons you probably find pretty self-evident. So I'd say we're on our track back to normalcy, but I think that there's also a lot of work going on not only with us, but with our customers to understand how they want to have these interactions in an era where there's still a lot of challenges on mobility and people having physical proximity.

Matthew Gillmor -- Baird -- Analyst

Great. That's all I had. I'll hop back in queue.

Neil Crescenzo -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of George Hill from Deutsche Bank. Your line is open.

Charlotte -- Deutsche Bank -- Analyst

Hi, this is Charlotte [Phonetic] on for George. On the new clinical data retrieval service, can you discuss how the revenue model will work and whether it will be subscription or transaction-based and then how we should be thinking about the market opportunity there?

Neil Crescenzo -- President and Chief Executive Officer

Yes. Well, I think it's early days, but we're seeing a lot of promise in that because of the obviously, the importance of clinical data has never probably been better appreciated than now during the pandemic. Over the last three weeks or so, I think we've moved around about 19 million medical records each week. And we've now, I think, moved about records for almost 95 million people, which is up about $5 million just from June. So it is a substantial growth opportunity for us. The use of the data is very specific to the use cases under which it is used by payers or others who need that data.

So generally speaking, it will be a bit of a, I think, a transaction-oriented business that's sort of typical in the way the demand comes. But in some cases, given the complexity of the use case or the specific circumstances of the value of the data to the person who need to the pricing will probably be very different. But I'd say, overall, we expect it to be a significant business over time. It really relates to a paradigm that we helped to create really in the country. As I mentioned, it's pretty unique now to finally see this starting to come into reality at scale. But the pricing mechanism will be primarily more transaction-oriented. It will be different substantially relative to the specific use cases for the people who need the data.

Charlotte -- Deutsche Bank -- Analyst

Great, thank you.

Neil Crescenzo -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Ryan Daniels from William Blair. Your line is open.

Jared Haase -- William Blair -- Analyst

Yeah, good morning. This is Jared Haase in for Ryan. Maybe just one on the Q2 revenue guidance. Just as we think about kind of the potential swing factors that you get you from the low end of the range to the high end of the range, should we think about that as being mostly kind of related to potential variance with volume utilization activity or are there any kind of larger deals that are expected to come through? Any sort of sales cycle issues or things like that, we should be thinking of? Just trying to get a sense of sort of the potential variance or swing factors from the sort of low end to the high end of the range.

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. I think you're right. It is clearly utilization-driven. I would say it's the number one driver there and especially in our CM services in a network and then in the 25% of the business in S&A that is volume-dependent. It is much less dependent on deal timing at this point when you have two months left in the quarter. You have pretty good visibility into our overall revenue performance when it comes to deal cycles. There's always something that could slip and so forth. But the bigger driver here is utilization.

So we've seen a market comeback between our last earnings release, and this obviously led to the over performance there. But as I said earlier, now we're looking at kind of the 10% decline. Could it go a little bit better than that? Clearly it could, but the magnitude of the variance is much smaller than it was just a few months ago because we were so far down at that point, that we saw such a rapid snapback in terms of utilization.

Jared Haase -- William Blair -- Analyst

Got it. That's helpful. And then maybe just a quick follow-up. Maybe just an update on cross-selling efforts. That's obviously been kind of one of the recurring themes with sort of the broader transition to more of an enterprise selling effort and things of that nature. So Neil, I think in the past, you mentioned maybe a $2.5 billion potential opportunity for cross-selling. So just any updates on how that's sort of progressing, how that maybe impacted Q1 and how that sort of builds into expectations for the rest of the year?

Neil Crescenzo -- President and Chief Executive Officer

Yes. No, I think that's a great question. Some of the multimillion-dollar deals that I mentioned, whether in Payment Accuracy, our Imaging business, our RCM services business, really has benefited from the enterprise sales approach that we've taken. I think as customers, particularly on the provider side, were so stressed, obviously, over the course of our Q1. They looked at people that they already had very strong relationships with to continue to expand services in new areas as well as the existing services we had.

As you can imagine, in some cases, we might be working with a service at 40% of the institutions hospitals, then we can expand the 60%, 80%, 100%, etc. So I think that continues to be a driver of our business and why even, obviously, in a period of extreme uncertainty, which was our Q1, we still had a pretty successful sales quarter.

Jared Haase -- William Blair -- Analyst

Got it. Yeah, thanks for that color and congrats on the quarter.

Neil Crescenzo -- President and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Daniel Grosslight from Citi. Your line is open.

Daniel Grosslight -- Citi -- Analyst

Hi guys, thanks for taking my question and congrats on the quarter here. I just want to go back to the quarterly cadence for the rest of the year. I think you've previously mentioned to think about the quarterly cadence of kind of cutting in half the negative impact from COVID each quarter until you kind of get to that steady state later in your fiscal year. So does that assumption still hold? Should we kind of think of the negative impact being cut in half as we move throughout the rest of the year each quarter?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. I think, obviously, the slope of the line has changed versus my guidance in the first in the fourth quarter when we gave the guidance for the first quarter versus where we are today. And as we now think about the kind of the utilization, and we use the claims data as a proxy for that, we say think about 10% down here in the quarter. I think from there, you should basically draw a straight line to the end of the year is the way to think about it. So the concept and the end point is the same, but the slope of the line is different than it was just a few months ago because of a very rapid comeback of utilization.

Daniel Grosslight -- Citi -- Analyst

Got it. But so it assumes we should assume a linear progression to that normalization?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. That is correct.

Daniel Grosslight -- Citi -- Analyst

Got it. And then just a follow-up on the imaging side, some good wins at RWJ and Providence. Were these new imaging clients or are you kind of just adding on your some cloud modules to them? And if they are new, have you are you going to be able to kind of implement the full suite this year or do you kind of have to wait until things settle down with COVID?

Neil Crescenzo -- President and Chief Executive Officer

Well, I mean so first of all, in some cases, these were existing customers. In other cases, they actually were competitive wins through RFP processes against the other major industry vendors. So it's a bit of a mix. Sometimes it's the former, sometimes the latter. In terms of implementation, as I mentioned, one of the things in particular with our cloud-based solution is the rapid ability we have to migrate from on-premise systems to a cloud-based solution. And that's really based upon some of the inherent technical capabilities if you have a cloud-based approach. So when you think about the implementation, especially for these new systems, they're going much more rapidly. And we gave some data on that than what's been the case historically.

And frankly, given the still challenges that many provider organizations have, the actual break, if you will, on the speed of implementation is going to be far more the institution's ability to deal with the inevitable change management that they have with any new system being implemented than it really having to do with how fast we could do it sort of in a theoretical world, if you will. But I think the core of your point, our implementations happen more rapidly. They absolutely are with these new cloud-based solutions. And I gave a little bit of fact on that. So we do expect over time the average implementation time will go down. But as we sit here today, there's still a bit of disruption not surprisingly in some of these providers. And that's really the break on things probably going as fast as they hopefully will in a more systemic basis once we get out of the pandemic.

Daniel Grosslight -- Citi -- Analyst

Got it. Thank you.

Neil Crescenzo -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Sandy Draper from Truist Securities. Your line is open.

Stan -- Truist Securities -- Analyst

Hi, this is Stan [Phonetic] on for Sandy. Thanks for taking my questions. I guess most of my questions have been asked, so maybe I'll be that guy and ask the obligatory telehealth question. I know you've said in the past, you've gained traction selling telehealth-related bundles toward your smaller providers. Just curious what kind of uptake you've seen this past quarter

Neil Crescenzo -- President and Chief Executive Officer

Yes. Good uptake, and I think I talked about some of the API uptake as well during our prepared remarks, and that does come from including telehealth vendors. So I think what's been good really tied us back to the question on wallet share and cross-selling opportunity, is that often with some of the smaller companies that may begin to have a relationship with some of these capabilities on an API basis, but then they start discovering other things we could do for them. In fact, given the growth some of these companies are having, operating their back office through our RCM services business, starting to apply more of the AI models, that as they increasingly are billing commercial insurers for aspects of care that they might not have historically.

As I'm sure you're aware, these telehealth vendors are expanding even beyond some of the original areas versus pure primary care, incremental health, follow-up visits for some of the specialties, etc, so it's really been a great opportunity for us. And fortunately, we had developed these relationships over a period of years. So for the bigger players, they've been around a while. It was more of an expansion, more of this cross-selling opportunity, but some of the very dynamic and well-funded through VCs and others newer companies, they sort of get on board by letting us do some of the things they can do technically very easy with us, and then as we develop the relationship, we get more opportunities to expand.

Stan -- Truist Securities -- Analyst

All right, thank you.

Neil Crescenzo -- President and Chief Executive Officer

Thank you.

Operator

Next question comes from the line of David Larsen from Verity. Your line is open.

David Larsen -- Verity -- Analyst

Hey congratulations on a good quarter. Just longer term, as we move past pandemic in terms of like top line growth, is 4% to 6% still reasonable? And 6% to 8% adjusted EBITDA growth, is that still sort of the goal?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Well, I think we've been consistent that the 4% to 6% and 6% to 8% is more of an interim target because we think the underlying growth capacity or capability of our solution set should warrant a higher number than that. But we were cognizant in the IPO that we were getting from a kind of a 0% to 1% to 4% to 6%. And from there, we're going to tell you the next step. But that obviously includes additional work around the portfolio and also additional product introduction that we have part of our strategic plan.

So as you think specific about FY '22, clearly, because the base is so low, that growth rate is going to be significantly higher than that. But as we going forward, an underlying where we are right now is that 4% to 6%, but it's obviously been masked by the pandemic. But as we move forward, we certainly expect something greater than that over the long term.

David Larsen -- Verity -- Analyst

Okay. So fiscal 2022 has an easier comp. We'll see some good top line growth. And then just with TES, I know there had been some planned attrition. Are we going to be fully pass that as we enter into fiscal 2022?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Yes. The planned attrition were actually passed already. The additional attrition that we announced, I think, on our third quarter earnings release was that we have one large customer that is going to leave us that really is impacting the second half of the year and only leaving us in one part of this. We still have a lot of other relationship with the customer. But it's impacting the services business here starting in the second half predominantly. And so we will have that drag on the TES business itself. But obviously, we hope that new growth and other things that we're doing there will at least partially offset that impact going forward.

David Larsen -- Verity -- Analyst

Thanks very much.

Operator

Our last question comes from the line of Stephen Percoco from Lark Research. Your line is open.

Stephen Percoco -- Lark Research -- Analyst

Thanks for the question. I just have a couple of quick questions here. One, could you give us the revenue benefit in the quarter from acquisitions, eRx and PDX?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Sure. The benefit from those two was $17 million in the quarter. And obviously, in S&A, we had a negative impact because of the Connected Analytics sale of about $11 million. So overall, the impact on revenue was about $6 million favorable.

Stephen Percoco -- Lark Research -- Analyst

Okay. And secondly, could you help me understand the $55 million purchase accounting adjustment on the McKesson exit? It reduced revenues. The offset, I presume, was an increase to deferred revenues. How does that work and how will that impact your results going forward?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Well, so just to step back, the purchase accounting was really something that was necessitated by the McKesson exit where we now merged Change Healthcare Inc. with Change Healthcare LLC. And as part of that, you go through the purchase accounting. And in that process, we had to writedown our deferred revenue and so the impact this year is $129 million. We've outlined that it was $55 million in the first quarter, $39 million in the second quarter, going down to $24 million in the third and $11 million in the fourth quarter.

It's really scheduled out. And then there's about $9 million to $10 million in the first half of next year. It is really as a result of the fact that the transaction was never effectuated from a purchase accounting perspective until they exited because it was set up in a tax-free nature when the original merger happened three years ago. And so we're going through that here at this point. So it really doesn't impact adjusted EBITDA, and it really doesn't impact the kind of the cash flow generation of the company in any way, shape or form.

Stephen Percoco -- Lark Research -- Analyst

Okay. But if $55 million was a reduction of revenues, what was the offset?

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

The offset in deferred revenue? It was set up as part of the goodwill and the way that the purchase accounting was set up overall on the balance sheet. And you can see that in our cash flow statement as well if you look at it year-over-year, the difference.

Stephen Percoco -- Lark Research -- Analyst

Okay, thank you very much.

Operator

There are no further questions at this time. Please continue.

Neil Crescenzo -- President and Chief Executive Officer

All right. Well, thanks all of you for calling in. Again, we're very pleased with the services and quality of our service and continuity of our service. We've been able to provide our customers through this very trying time for the U.S. healthcare system. Also the way our team members were able to continue to innovate during this very difficult period for everybody in the United States and around the world. So we're going to continue to provide innovation and value to our customers.

We're fortunate to have the financial stability and performance that you've seen in Q1 and we've now described for Q2 as well. So we'll continue to work hard on behalf of our customers in the industry, and we look forward to keeping in touch with many of you during the quarter and then seeing you on our Q2 earnings call. So thank you very much.

Operator

[Operator Closing Remarks].

Duration: 71 minutes

Call participants:

Evan Smith -- Senior Vice President of Investor Relations

Neil Crescenzo -- President and Chief Executive Officer

Fredrik Eliasson -- Executive Vice President and Chief Financial Officer

Manav Patnaik -- Barclays -- Analyst

Allen -- Bank of America -- Analyst

Jailendra Singh -- Credit Suisse -- Analyst

Stephanie Davis -- SVB -- Analyst

Jack Rogoff -- Goldman Sachs -- Analyst

Anne -- JPMorgan -- Chairman and Chief Executive Officer

Sean Wieland -- Piper Sandler -- Analyst

James -- Cowen -- Analyst

Matthew Gillmor -- Baird -- Analyst

Charlotte -- Deutsche Bank -- Analyst

Jared Haase -- William Blair -- Analyst

Daniel Grosslight -- Citi -- Analyst

Stan -- Truist Securities -- Analyst

David Larsen -- Verity -- Analyst

Stephen Percoco -- Lark Research -- Analyst

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