Dive Brief:

• The CEO and CFO of digital health record technology provider Veradigm were asked to step down from their respective roles effective immediately by the company’s board as a result of an ongoing investigation into its financial reporting practices by its audit committee, the company said in a recent filing with the Securities and Exchange Commission.
• On Dec. 6, Richard J. Poulton and Leah S. Jones resigned from their positions as CEO and CFO, respectively, according to the filing. The Chicago, Illinois company appointed its current director, Shih-Yin Ho as interim CEO, and healthcare analytics veteran Leland Westerfield as interim CFO, with both appointments effective Dec. 7. Veradigm also tapped its current chairman Greg Garrison as executive chairman for the board, and has begun a search for both a permanent CEO and CFO, it said in a Friday press release.
• Poulton, a 10-year veteran of the company who also served stints as its CFO and president when it was operating as Allscripts, will receive a severance payment of $1.6 million to be paid in installments over a 24-month period. Jones, who has served as CFO since May 2022, will receive a continuation of her base salary for six months totaling $200,000. Jones will also provide “business development related services” to Veradigm for an initial six-month term and will receive “a weekly consulting fee of $10,000 and a $100,000 success fee payable upon completion of the initial term,” according to the filing.

Dive Insight:

A 25-year veteran of the healthcare and analytics space, Westerfield is taking on Veradigm’s financial leadership as it struggles to course correct amid an ongoing independent audit, works to get back in compliance with Nasdaq listing rules, and faces an investor complaint alleging it artificially inflated its revenue by recording duplicate transactions among other violations of federal securities law.

Westerfield, 54, currently serves as CFO of healthcare software-as-a-service provider Clearsense and has also held CFO roles at numerous companies including advertising technology firm Dstillery and healthcare technology company Aetion, according to his LinkedIn profile.

Westerfield will receive $787,500 in association for a six-month term as interim CFO beginning Jan. 1, 2024, and will serve as the company’s interim CFO and principal financial and accounting officers effective Dec. 7 until the start date, according to the filing. He is also eligible to receive a success fee of $200,000 “based on the achievement of certain milestones,” according to the filing.

Ho, meanwhile, will receive compensation of $1.5 million in association with a six-month term as interim CEO, and will also be eligible for a cash bonus of $200,000, according to the filing.

Interim leadership can provide key benefits for companies in transition, with firms often tapping such leaders to solve specific challenges or meet particular goals, CFO Dive previously reported. One of the first moves of the newly constructed interim leadership team will be to review the fiscal 2023 full-year guidance issued by Veradigm in September, where it announced expected revenue of between $615 million and $635 million for the full year.

In the same September press release, however, the company also stated more time was needed to complete its ongoing audit probe, noting its “work effort to conclude on its previously disclosed accounting and internal control errors has taken longer than previously expected.” The audit concerns internal control failures Veradigm highlighted in February, approximately one month after it began operating under its current brand name, having formerly operated as Allscripts Healthcare Solutions until January.

In conjunction with its year-end audit practices, Veradigm noted in February that it had identified “certain internal control failures related to revenue recognition” over the past six quarters, resulting in a “misstatement to reported revenues during those periods.”

Veradigm attributed the internal control failures to a software tool it implemented in the third quarter of its fiscal 2021 to assist it with compliance with rules required by the Financial Standards Board. The company estimates a revenue reduction of approximately $20 million for those periods, it stated.

The internal control failures have contributed to tension among investors; related to the audit, the healthcare service provider also stated in September that it would not be filing its full-year financial results for the year ending Dec. 22, 2022 or quarterly reports for the periods ending March 23 and June 30, 2023, respectively, and once again expected a delisting notice from Nasdaq due to non-compliance, having received several prior to its September update.

The company received its latest delisting notice from Nasdaq in November, coming a few days after shareholders filed a complaint with the Northern District Court of Illinois alleging that Veradigm and key executives, including its ex-CEO and ex-CFO, had conspired to artificially inflated its revenue.  

The complaint names both Poulton and Jones as well as another previous CEO, Paul Black, and alleges the company made misleading statements to investors on earnings calls regarding its financial health and overstated its historic revenue by as much as $20 million. The company artificially inflated its revenue over a two-year period through recording duplicate transactions, failed to maintain effective controls over its financial reporting, and failed to comply with Generally Accepted Accounting Principles regarding revenue recognition practices, the complaint alleges.

“As of the filing of this complaint, Veradigm has still not remediated the material weakness in its financial controls, rectified its misstatement of its prior financial results, regained compliance with Nasdaq listing requirements, or filed its overdue periodic filings with the SEC,” the complaint reads.

Veradigm declined to comment beyond the details included in its Friday press release.