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R1 RCM Reports Third Quarter 2018 Results

11/07/18

CHICAGO, Nov. 07, 2018 (GLOBE NEWSWIRE) -- R1 RCM Inc. (NASDAQ: RCM), a leading provider of technology-enabled revenue cycle management services to healthcare providers, today announced results for the three months ended September 30, 2018.

Third Quarter 2018 Results:

  • GAAP net services revenue of $250.4 million, up $127.2 million compared to the same period last year
     
  • GAAP net loss of $13.4 million, compared to net loss of $3.6 million in the same period last year
     
  • Adjusted EBITDA of $20.4 million, up $17.3 million compared to the same period last year

“Our third quarter results were driven by continued underlying momentum in our business,” said Joe Flanagan, President and Chief Executive Officer of R1. “From a commercial and operational execution standpoint, our team has done an excellent job staying focused on performance at existing customers while signing and onboarding a substantial amount of new business this year, and at the same time integrating the Intermedix acquisition.”

“I’m pleased with our team’s ability to consistently deliver on our financial commitments, and we look forward to closing out the year in line with the financial goals we have provided,” added Chris Ricaurte, Chief Financial Officer and Treasurer of R1.

2018 Outlook

Subject to finalization of purchase accounting for the Intermedix acquisition, for 2018, R1 expects to generate:

  • Revenue of between $850 million and $900 million
  • GAAP operating loss of $30 million to $50 million
  • Adjusted EBITDA of $50 to $55 million

Conference Call and Webcast Details

R1’s management team will host a conference call today at 8:00 a.m. Eastern Time to discuss its financial results and business outlook. To participate, please dial 866-393-4306 (734-385-2616 outside the U.S. and Canada) using conference code number 6679899. A live webcast and replay of the call will be available at the Investor Relations section of the Company’s web site at ir.r1rcm.com.

Non-GAAP Financial Measures

In order to provide a more comprehensive understanding of the information used by R1’s management team in financial and operational decision making, the Company supplements its GAAP consolidated financial statements with certain non-GAAP financial performance measures, including adjusted EBITDA and net debt. Adjusted EBITDA is defined as GAAP net income before net interest expense, income tax provision, depreciation and amortization expense, share-based compensation expense, reorganization-related expenses, transaction-related expenses and certain other items. Net debt is defined as debt less cash and equivalents, inclusive of restricted cash, and provides investors with an important measure of the Company’s liquidity.

Our board of directors and management team use adjusted EBITDA as (i) one of the primary methods for planning and forecasting overall expectations and for evaluating actual results against such expectations and (ii) a performance evaluation metric in determining achievement of certain executive incentive compensation programs, as well as for incentive compensation programs for employees.

Table 4 presents a reconciliation of GAAP net income to non-GAAP adjusted EBITDA. Table 8 presents a reconciliation of GAAP operating income guidance to non-GAAP adjusted EBITDA guidance. Adjusted EBITDA should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP.

Forward Looking Statements

This press release includes information that may constitute “forward-looking statements,” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future, not past, events and often address our expected future growth, plans and performance or forecasts. These forward-looking statements are often identified by the use of words such as “anticipate,” “believe,” “designed,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “will,” or “would,” and similar expressions or variations, although not all forward-looking statements contain these identifying words. Such forward-looking statements are based on management’s current expectations about future events as of the date hereof and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Subsequent events and developments, including actual results or changes in our assumptions, may cause our views to change. We do not undertake to update our forward-looking statements except to the extent required by applicable law. Readers are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements included herein are expressly qualified in their entirety by these cautionary statements. Our actual results and outcomes could differ materially from those included in these forward-looking statements as a result of various factors, including, but not limited to, the expected timing of onboarding new business deployment, our ability to integrate the Intermedix business as planned and to realize the expected benefits from the acquisition, our ability to successfully deliver on our commitments to Intermountain and Ascension, fluctuations in our results of operations and cash flows, and the factors discussed under the heading “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2017 and any other periodic reports that the Company files with the Securities and Exchange Commission.

About R1 RCM

R1 is a leading provider of technology-enabled revenue cycle management services which transform a health system’s revenue cycle performance across settings of care. R1’s proven and scalable operating model, the R1 Performance Stack℠, seamlessly complements a healthcare organization’s infrastructure, quickly driving sustainable improvements to net patient revenue and cash flows while reducing operating costs and enhancing the patient experience. To learn more visit: R1RCM.com

Contact:

R1 RCM Inc.

Investor Relations:

Atif Rahim
312-324-5476
investorrelations@r1rcm.com

Media Relations:

Brenda Stewart
312-255-7786
media@r1rcm.com

Table 1
R1 RCM Inc.
Consolidated Balance Sheets
(In millions)
         
    September 30,   December 31,
    2018   2017
    (Unaudited)    
Assets        
Current assets:        
Cash and cash equivalents   $ 52.4     $ 164.9  
Current portion of restricted cash equivalents   1.8      
Accounts receivable, net   40.2     8.2  
Accounts receivable, net - related party   29.2     15.4  
Prepaid expenses and other current assets   35.5     13.8  
Total current assets   159.1     202.3  
Property, equipment and software, net   94.1     48.3  
Intangible assets, net   182.9      
Goodwill   256.3      
Non-current deferred tax asset   53.4     70.5  
Non-current portion of restricted cash   0.5     1.5  
Other assets   21.3     13.4  
Total assets   $ 767.6     $ 336.0  
         
Liabilities and stockholders’ equity (deficit)        
Current liabilities:        
Accounts payable   $ 7.8     $ 7.2  
Current portion of customer liabilities   12.5     1.1  
Current portion of customer liabilities - related party   23.8     27.1  
Accrued compensation and benefits   60.2     37.8  
Current portion of long-term debt   3.4      
Interest payable   6.9      
Other accrued expenses   35.3     16.7  
Total current liabilities   149.9     89.9  
Non-current portion of customer liabilities - related party   18.0     11.5  
Long-term debt   255.3      
Long-term debt - related party   100.8      
Other non-current liabilities   30.1     11.9  
Total liabilities   554.1     113.3  
         
Preferred Stock   203.5     189.3  
Stockholders’ equity (deficit):        
Common stock   1.2     1.2  
Additional paid-in capital   360.6     337.9  
Accumulated deficit   (284.1 )   (244.5 )
Accumulated other comprehensive loss   (5.2 )   (1.6 )
Treasury stock   (62.5 )   (59.6 )
Total stockholders’ equity (deficit)   10.0     33.4  
Total liabilities and stockholders’ equity (deficit)   $ 767.6     $ 336.0  


Table 2
R1 RCM Inc.
Consolidated Statements of Operations (Unaudited)
(In millions, except share and per share data)
                 
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2018   2017   2018   2017
Net operating fees   $ 220.1     $ 104.6     $ 529.4     $ 255.4  
Incentive fees   8.9     7.5     26.8     20.2  
Other   21.4     11.1     49.4     33.9  
Net services revenue   250.4     123.2     605.6     309.5  
Operating expenses:                
Cost of services   219.3     111.8     547.9     289.1  
Selling, general and administrative   29.6     15.1     69.1     41.6  
Other   7.3     1.4     22.9     2.6  
Total operating expenses   256.2     128.3     639.9     333.3  
Income (loss) from operations   (5.8 )   (5.1 )   (34.3 )   (23.8 )
Net interest (expense) income   (10.0 )       (15.6 )   0.1  
Income (loss) before income tax provision (benefit)   (15.8 )   (5.1 )   (49.9 )   (23.7 )
Income tax provision (benefit)   (2.4 )   (1.5 )   (10.3 )   (5.1 )
Net income (loss)   $ (13.4 )   $ (3.6 )   $ (39.6 )   $ (18.6 )
                 
Net income (loss) per common share:                
Basic   $ (0.17 )   $ (0.08 )   $ (0.50 )   $ (0.31 )
Diluted   $ (0.17 )   $ (0.08 )   $ (0.50 )   $ (0.31 )
Weighted average shares used in calculating net income (loss) per common share:                
Basic   109,089,507     102,225,422     107,921,457     102,022,129  
Diluted   109,089,507     102,225,422     107,921,457     102,022,129  


Table 3
R1 RCM Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
         
    Nine Months Ended September 30,
    2018   2017
Operating activities        
Net income (loss)   $ (39.6 )   $ (18.6 )
Adjustments to reconcile net income (loss) to net cash used in operations:        
Depreciation and amortization   27.6     11.5  
Amortization of debt issuance costs   0.9      
Share-based compensation   13.8     8.2  
Loss on disposal   0.8     0.2  
Provision for doubtful receivables   0.5     0.1  
Deferred income taxes   (12.7 )   (5.6 )
Changes in operating assets and liabilities:        
     Accounts receivable and related party accounts receivable   (10.8 )   (15.4 )
     Prepaid expenses and other assets   (18.0 )   (3.7 )
     Accounts payable   (6.0 )   0.3  
     Accrued compensation and benefits   15.2     4.3  
     Other liabilities   16.3     (0.3 )
     Customer liabilities and customer liabilities - related party   6.0     14.7  
Net cash used in operating activities   (6.0 )   (4.3 )
Investing activities        
Purchases of property, equipment, and software   (20.1 )   (30.1 )
Acquisition of Intermedix, net of cash acquired   (462.8 )    
Net cash used in investing activities   (482.9 )   (30.1 )
Financing activities        
Issuance of senior secured debt, net of discount and issuance costs   253.1      
Issuance of subordinated notes, net of discount and issuance costs   105.5      
Payment of debt issuance costs related to the Senior Revolver   (0.4 )    
Issuance of common stock and stock warrants, net of issuance costs   19.2      
Exercise of vested stock options   3.6      
Purchase of treasury stock       (2.0 )
Shares withheld for taxes   (2.9 )   (2.4 )
Net cash provided (used in) by financing activities   378.1     (4.4 )
Effect of exchange rate changes in cash, cash equivalents and restricted cash   (0.9 )   0.4  
Net decrease in cash, cash equivalents and restricted cash   (111.7 )   (38.4 )
Cash, cash equivalents and restricted cash, at beginning of period   166.4     182.7  
Cash, cash equivalents and restricted cash, at end of period   $ 54.7     $ 144.3  


Table 4
R1 RCM Inc.
Reconciliation of GAAP net income to Non-GAAP adjusted EBITDA (Unaudited)
(In millions)
                                 
    Three Months Ended September 30,   2018 vs. 2017
Change
  Nine Months Ended September 30,   2018 vs. 2017
Change
    2018   2017   Amount   %   2018   2017   Amount   %
Net income (loss)   $ (13.4 )   $ (3.6 )   $ (9.8 )   272  %   $ (39.6 )   $ (18.6 )   $ (21.0 )   113  %
Net interest expense (income)   10.0         10.0     100  %   15.6     (0.1 )   15.7     n.m.
Income tax provision (benefit)   (2.4 )   (1.5 )   (0.9 )   60  %   (10.3 )   (5.1 )   (5.2 )   102  %
Depreciation and amortization expense   14.2     4.5     9.7     216  %   27.6     11.5     16.1     140  %
Share-based compensation expense   4.7     2.4     2.3     96  %   13.7     8.2     5.5     67  %
Other   7.3     1.4     5.9     421  %   22.9     2.6     20.3     781  %
Adjusted EBITDA (non-GAAP)   $ 20.4     $ 3.1     $ 17.3     558  %   $ 29.9     $ (1.6 )   $ 31.5     n.m.
                                 
                                 
                                 
    Three Months Ended June 30,   2018 vs. 2017
Change
  Six Months Ended June 30,   2018 vs. 2017
Change
    2018   2017   Amount   %   2018   2017   Amount   %
Net income (loss)   $ (2.9 )   $ (6.7 )   $ 3.8     (57 )%   $ (26.2 )   $ (15.0 )   $ (11.2 )   75  %
Net interest expense (income)   5.8         5.8     100  %   5.6     (0.1 )   5.7     n.m.
Income tax provision (benefit)   (20.6 )   (3.5 )   (17.1 )   489  %   (7.9 )   (3.6 )   (4.3 )   119  %
Depreciation and amortization expense   8.5     3.8     4.7     124  %   13.4     7.0     6.4     91  %
Share-based compensation expense   5.1     2.2     2.9     132  %   9.0     5.8     3.2     55  %
Other   13.2     1.0     12.2     n.m.   15.6     1.2     14.4     n.m.
Adjusted EBITDA (non-GAAP)   $ 9.2     $ (3.3 )   $ 12.5     (379 )%   $ 9.5     $ (4.7 )   $ 14.2     (302 )%

n.m. - not meaningful

Due to rounding, numbers presented in this table may not add up precisely to the totals provided.

Table 5
R1 RCM Inc.
Reconciliation of GAAP Cost of Services to Non-GAAP Cost of Services (Unaudited)
(In millions)
                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2018   2017   2018   2017
Cost of services   $ 219.3     $ 111.8     $ 547.9     $ 289.1  
Less:                
Share-based compensation expense   1.6     1.2     4.4     3.3  
Depreciation and amortization expense   11.2     4.0     23.1     10.4  
Non-GAAP cost of services   $ 206.5     $ 106.6     $ 520.4     $ 275.4  


Table 6
R1 RCM Inc.
Reconciliation of GAAP Selling, General and Administrative to Non-GAAP Selling, General and Administrative (Unaudited)
(In millions)
                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2018   2017   2018   2017
Selling, general and administrative   $ 29.6     $ 15.1     $ 69.1     $ 41.6  
Less:                
Share-based compensation expense   3.2     1.2     9.3     4.8  
Depreciation and amortization expense   3.0     0.5     4.5     1.1  
Non-GAAP selling, general and administrative   $ 23.4     $ 13.4     $ 55.3     $ 35.7  


Table 7
R1 RCM Inc.
Consolidated Non-GAAP Financial Information
(In millions)
                 
    Three Months Ended September 30,   Nine Months Ended September 30,
    2018   2017   2018   2017
    (Unaudited)   (Unaudited)
RCM services: net operating fees   $ 220.1     $ 104.6     $ 529.4     $ 255.4  
RCM services: incentive fees   8.9     7.5     26.8     20.2  
RCM services: other   21.4     11.1     49.4     33.9  
Net services revenue   250.4     123.2     605.6     309.5  
                 
Operating expenses:                
  Cost of services (non-GAAP)   206.5     106.6     520.4     275.4  
  Selling, general and administrative (non-GAAP)   23.4     13.4     55.3     35.7  
Sub-total   229.9     120.0     575.7     311.1  
                 
Adjusted EBITDA   $ 20.4     $ 3.1     $ 29.9     $ (1.6 )

Due to rounding, numbers presented in this table may not add up precisely to the totals provided.

Table 8
R1 RCM Inc.
Reconciliation of GAAP Operating Income Guidance to non-GAAP Adjusted EBITDA Guidance
(In millions)
       
  2018   2020
GAAP Operating Income Guidance ($30)-($50)   $130-$170
Plus:      
Depreciation and amortization expense $25-$30   $35-$45
Share-based compensation expense $15-$20   $20-$25
Amortization of intangibles $10-$15   $15-$20
Transaction expenses, severance and other costs $25-$30   $5-$10
Adjusted EBITDA Guidance $50-$55   $225-$250


Table 9
R1 RCM Inc.
Reconciliation of Net Debt (Unaudited)
(In millions)
         
    June 30,   September 30,
    2018   2018
Senior Term Loan   $ 270.0     $ 270.0  
Notes (primarily with related parties)   110.0     110.0  
    380.0     380.0  
         
Less:        
Cash and cash equivalents   38.8     52.4  
Current portion of restricted cash   2.0     1.8  
Non-current portion of restricted cash equivalents   1.5     0.5  
Net Debt   $ 337.7     $ 325.3  

 

R1.jpg

Source: R1 RCM Inc.

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