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Accretive Health Reports Third Quarter 2016 Results

CHICAGO, Nov. 02, 2016 (GLOBE NEWSWIRE) -- Accretive Health, Inc. (the “Company”) (OTC Pink:ACHI), a leading provider of revenue cycle services and physician advisory services to healthcare providers, today announced results for the quarter ended September 30, 2016.

Third Quarter 2016 Results:

  • GAAP net services revenue of $125.5 million, compared to $15.8 million for the third quarter of 2015
  • GAAP net income of $37.3 million, compared to a net loss of $33.0 million for the third quarter of 2015
  • Non-GAAP gross cash generated from customer contracting activities of $59.7 million, compared to $55.4 million for the third quarter of 2015
  • Non-GAAP net cash generated from customer contracting activities of $3.6 million, compared to $3.7 million for the third quarter of 2015

“Accretive Health’s third quarter results reflect the progress we are making in executing against our near-term objectives,” said Joe Flanagan, President and Chief Executive Officer of Accretive Health. “We successfully initiated the transition of the first tranche of new Ascension ministries onto our platform, renewed our relationship with our second-largest customer for a multi-year term, and continued to make investments in personnel, technology and infrastructure to enable the company to succeed over the long term.”

“We have a number of initiatives underway designed to improve our financial results and position the company to effectively grow at scale. Our third quarter results reflect the results of the actions we have taken, including the realignment of our cost structure conducted at the end of the second quarter. We are focused on driving our performance to achieve our financial and strategic objectives,” added Chris Ricaurte, Chief Financial Officer and Treasurer.

Conference Call and Webcast Details
Accretive Health’s management team will host a conference call today at 4:30 p.m. Eastern Time to discuss the results and business outlook. To participate, please dial 877-880-5884 (631-601-2894 outside the U.S. and Canada) using conference code number 1300961. A live webcast and replay of the call will be available at the Investor Relations section of the Company’s web site at www.accretivehealth.com.

Non-GAAP Financial Measures
In order to provide a more comprehensive understanding of the information used by Accretive Health’s management team in financial and operational decision making, the Company supplements its GAAP consolidated financial statements with certain non-GAAP financial measures, which are included in this press release. These include gross and net cash generated from customer contracting activities and adjusted EBITDA. Our Board and management team use these non-GAAP measures 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.

Gross cash generated from customer contracting activities is defined as GAAP net services revenue, plus the change in deferred customer billings. Accordingly, gross cash generated from customer contracting activities is the sum of (i) invoiced or accrued net operating fees, (ii) cash collections on incentive fees and (iii) other services fees. Net cash generated from customer contracting activities reflects non-GAAP adjusted EBITDA and the change in deferred customer billings.

Adjusted EBITDA is defined as net income before net interest income (expense), income tax provision, depreciation and amortization expense, share-based compensation expense, reorganization-related expense and certain other items. The use of adjusted EBITDA to measure operating and financial performance is limited by our revenue recognition criteria, pursuant to which GAAP net services revenue is recognized at the end of a contract or other contractual agreement event. Adjusted EBITDA does not adequately match corresponding cash flows from customer contracting activities. As a result, the Company uses gross cash and net cash generated from customer contracting activities to better compare cash flows to operating performance.

Deferred customer billings include the portion of both (i) invoiced or accrued net operating fees and (ii) cash collections of incentive fees, in each case, that have not met our revenue recognition criteria. Deferred customer billings are included in the detail of our customer liabilities, and customer liabilities – related party balance in the condensed consolidated balance sheets available in the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2016.

Table 4 presents a reconciliation of GAAP revenue to gross cash generated from customer contracting activities, and Table 5 presents a reconciliation of GAAP net income (loss), the most comparable GAAP measure, to adjusted EBITDA and net cash generated from customer contracting activities, in each case, for each of the periods indicated. These adjusted measures are non-GAAP and should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP.

Safe Harbor
This press release contains forward-looking statements, and in particular, any statements about future growth, plans and performance are forward-looking statements. All forward-looking statements contained in this press release involve risks and uncertainties. The Company’s actual results and outcomes could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the factors set forth under the heading “Risk Factors” in its Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 10, 2016. The words “strive,” “objective,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “vision,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The Company has based these forward-looking statements on its current expectations and projections about future events. Although the Company believes that the expectations underlying any of its forward-looking statements are reasonable, these expectations may prove to be incorrect and all of these statements are subject to risks and uncertainties. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections, or expectations prove incorrect, actual results, performance, financial condition, or events may vary materially and adversely from those anticipated, estimated, or expected.

All forward-looking statements included in this press release are expressly qualified in their entirety by these cautionary statements. The Company cautions readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the uncertainties and factors described above, as well as others that the Company may consider immaterial or does not anticipate at this time. Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, the Company does not know whether its expectations may prove correct. The Company’s expectations reflected in its forward-looking statements can be affected by inaccurate assumptions it might make or by known or unknown uncertainties and factors, including those described above. The risks and uncertainties described above are not exclusive, and further information concerning the Company and its business, including factors that potentially could materially affect its financial results or condition or relationships with customers and potential customers, may emerge from time to time. The Company assumes no, and it specifically disclaims any, obligation to update, amend, or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. The Company advises investors, however, to consult any further disclosures it makes on related subjects in our periodic reports that it files with or furnishes to the SEC.

About Accretive Health
Accretive Health is a leading provider of revenue cycle services and physician advisory services to healthcare providers. Accretive Health’s mission is to help healthcare providers strengthen their financial stability so they can deliver better care at a more affordable cost to the communities they serve, increasing healthcare access for all. Accretive Health’s distinctive operating model includes people, processes, and sophisticated integrated technology and analytics that help customers realize sustainable improvements in their operating margins and improve the satisfaction of their patients, physicians, and staff. Accretive Health’s customers typically are multi-hospital systems, including faith-based or community healthcare systems, academic medical centers and independent ambulatory clinics, and their affiliated physician practice groups.

Table 1
Accretive Health, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)

September 30,
2016
December 31,
2015
(Unaudited)
Assets
Current assets:
Cash and cash equivalents$201,947 $103,497
Short-term investments 1,023
Accounts receivable, net8,904 10,194
Prepaid income taxes856 1,102
Other current assets16,024 10,924
Total current assets227,731 126,740
Property, equipment and software, net30,082 27,217
Non-current deferred tax assets184,270 300,825
Restricted cash equivalents1,500 1,500
Other assets6,692 4,007
Total assets$450,275 $460,289
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable$3,888 $5,306
Current portion of customer liabilities71,582 202,516
Current portion of customer liabilities - related party124,072
Accrued compensation and benefits17,397 9,062
Other accrued expenses17,123 15,743
Total current liabilities234,062 232,627
Non-current portion of customer liabilities750 432,477
Non-current portion of customer liabilities - related party62,835
Other non-current liabilities10,152 8,498
Total liabilities307,799 673,602
8.00% Series A convertible preferred stock: par value $0.01 per share, 204,040 shares issued and outstanding as of September 30, 2016; no shares authorized or issued as of December 31, 2015 (aggregate liquidation value of $210,160 as of September 30, 2016)167,389
Stockholders' equity (deficit):
Common stock, $0.01 par value, 500,000,000 shares authorized,116,386,064 shares issued and 106,816,919 shares outstanding at September 30, 2016; 113,259,408 shares issued and 107,715,436 shares outstanding at December 31, 20151,164 1,133
Additional paid-in capital348,980 322,492
Accumulated deficit(317,828) (481,773)
Accumulative other comprehensive loss(2,540) (2,488)
Treasury stock(54,689) (52,677)
Total stockholders' equity (deficit)(24,913) (213,313)
Total liabilities and stockholders’ equity (deficit)$450,275 $460,289

Table 2
Accretive Health, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(unaudited) (unaudited)
Net services revenue$125,535 $15,842 $486,400 $48,898
Operating expenses:
Cost of services 47,376 45,326 137,618 130,284
Selling, general and administrative 16,201 21,395 58,397 59,726
Restatement and other 536 3,964 19,993 5,850
Total operating expenses 64,113 70,685 216,008 195,860
Income (loss) from operations 61,422 (54,843) 270,392 (146,962)
Net interest income 57 73 187 147
Income (loss) before income tax provision 61,479 (54,770) 270,579 (146,815)
Income tax provision (benefit) 24,146 (21,800) 106,634 (57,112)
Net income (loss)$37,333 ($32,970) $163,945 ($89,703)
Net income (loss) per common share:
Basic$0.18 ($0.34) $0.62 ($0.93)
Diluted$0.18 ($0.34) $0.62 ($0.93)
Weighted average shares used in calculating net income (loss) per common share:
Basic 100,934,561 97,230,069 99,870,685 96,358,342
Diluted 102,176,280 97,230,069 101,018,450 96,358,342
Consolidated statements of comprehensive income (loss)
Net income (loss) 37,333 (32,970) 163,945 (89,703)
Other comprehensive loss:
Foreign currency translation adjustments 192 (429) (52) (702)
Comprehensive income (loss)$37,525 ($33,399) $163,893 ($90,405)

Table 3
Accretive Health, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)

Nine Months Ended
September 30,
2016 2015
(Unaudited)
Operating activities:
Net income (loss)$163,945 $(89,703)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization7,305 6,556
Share-based compensation25,173 22,974
Provision/(Recoveries) for doubtful receivables87 (79)
Deferred income taxes106,548 (58,567)
Excess tax benefits from share-based awards
Changes in operating assets and liabilities:
Accounts receivable1,203 (621)
Prepaid income taxes216 632
Other assets(7,939) (334)
Accounts payable(1,416) (6,108)
Accrued compensation and benefits8,336 311
Other liabilities3,054 (3,648)
Customer liabilities and customer liabilities - related party(375,754) 135,058
Net cash provided by (used in) operating activities(69,242) 6,471
Investing activities:
Purchases of property, equipment and software(10,395) (18,304)
Proceeds from maturation of short-term investments1,023
Net cash used in investing activities(9,372) (18,304)
Financing activities:
Series A convertible preferred stock and warrant issuance, net of issuance costs178,669
Exercise of vested options88 1,331
Restricted cash released from letter of credit 5,000
Excess tax benefit from share-based awards
Purchase of treasury stock(2,012) (1,382)
Net cash provided by financing activities176,745 4,949
Effect of exchange rate changes on cash319 (567)
Net increase (decrease) in cash and cash equivalents98,450 (7,451)
Cash and cash equivalents at beginning of period103,497 145,167
Cash and cash equivalents at end of period$201,947 $137,716

Table 4
Accretive Health, Inc.
Reconciliation of GAAP Revenue to Non-GAAP Gross Cash Generated from Customer Contracting Activities
(In thousands)

Three Months Ended September 30, 2016 vs. 2015 Change Nine Months Ended September 30, 2016 vs. 2015 Change
2016 2015 Amount% 2016 2015 Amount%
Consolidated Statement of Operations Data:
RCM services: net operating fees$48,950 $6,232 $42,718 fav. $300,259 $19,402 $280,857 fav.
RCM services: incentive fees 68,538 1,017 67,521 fav. 166,537 9,022 157,515 fav.
RCM services: other 3,830 5,359 (1,529) -28.5% 8,292 9,591 (1,299) -13.5%
Other services fees 4,217 3,234 983 30.4% 11,312 10,883 429 3.9%
Total net services revenue 125,535 15,842 109,693 fav. 486,400 48,898 437,502 fav.
Change in deferred customer billings (65,805) 39,541 (105,346)n.m. (347,542) 108,601 (456,143)n.m.
Gross cash generated from customer contracting activities$59,730 $55,383 $4,347 7.8% $138,858 $157,499 ($18,641) -11.8%
Components of Gross Cash Generated from Customer Contracting Activities:
RCM services: net operating fee$46,124 $31,522 $14,602 46.3% $94,814 $88,761 $6,053 6.8%
RCM services: incentive fee 7,568 14,859 (7,291) -49.1% 23,803 47,501 (23,698) -49.9%
RCM services: other 1,821 5,749 (3,928) -68.3% 8,929 10,196 (1,267) -12.4%
Total RCM services fees 55,513 52,130 3,383 6.5% 127,546 146,458 (18,912) -12.9%
Other services fees 4,217 3,253 964 29.6% 11,312 11,041 271 2.5%
Gross cash generated from customer contracting activities$59,730 $55,383 $4,347 7.8% $138,858 $157,499 ($18,641) -11.8%

* fav. - Favorable

unfav. – Unfavorable

n.m. – Not Meaningful

Table 5
Accretive Health, Inc.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Cash Generated from Customer Contracting Activities
(In thousands)

Three Months Ended September 30, 2016 vs. 2015 Change Nine Months Ended September 30, 2016 vs. 2015 Change
2016 2015 Amount% 2016 2015 Amount%
Net income (loss)$37,333 ($32,970) $70,303 fav. $163,945 ($89,703) $253,648 fav.
Net interest income (57) (73) 16 -21.9% (187) (147) (40) 27.2%
Income tax provision (benefit) 24,146 (21,800) 45,946 unfav. 106,634 (57,112) 163,746 unfav.
Depreciation and amortization expense 2,673 2,738 (65) -2.4% 7,305 6,556 749 11.4%
Share-based compensation expense 4,760 12,315 (7,555) -61.3% 23,443 25,318 (1,875) -7.4%
Other 536 3,964 (3,428) fav. 19,993 5,850 14,143 unfav.
Adjusted EBITDA 69,391 (35,826) 105,217 fav. 321,133 (109,238) 430,371 fav.
Change in deferred customer billings (65,805) 39,541 (105,346) n.m. (347,542) 108,601 (456,143) n.m.
Net cash generated from customer contracting activities$3,586 $3,715 ($129) unfav. ($26,409) ($637) ($25,772) unfav.

* fav. - Favorable

unfav. - Unfavorable

n.m. – Not Meaningful

Table 6
Accretive Health, Inc.
Share-Based Compensation Expense Allocation Details
(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(unaudited) (unaudited)
Cost of services$1,281 $3,152 $4,804 $5,756
Selling, general and administrative 3,479 9,163 18,639 19,562
Other 1,828
Total share-based compensation expense$4,760 $12,315 $25,271 $25,318

Table 7
Accretive Health, Inc.
Depreciation and Amortization Expense Allocation Details
(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
(unaudited) (unaudited)
Cost of services$2,545 $2,491 $6,872 $5,799
Selling, general and administrative 128 247 433 757
Total depreciation and amortization$2,673 $2,738 $7,305 $6,556

Table 8
Accretive Health, Inc.
Condensed Consolidated Non-GAAP Financial Information
(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
GAAP net services revenue$125,535 $15,842 $486,400 $48,898
Increase/(decrease) in deferred customer billings (65,805) 39,541 (347,542) 108,601
Gross cash generated from customer contracting activities 59,730 55,383 138,858 157,499
Operating Expenses1:
Cost of services 43,550 39,683 125,942 118,729
Selling, general and administrative 12,594 11,985 39,325 39,407
Sub-total 56,144 51,668 165,267 158,136
Net cash generated from customer contracting activities$3,586 $3,715 ($26,409) ($637)
Net cash generated margin 6.0% 6.7% -19.0% -0.4%

1Excludes share-based compensation, depreciation and amortization, and other costs

Contact: Accretive Health, Inc. Investor and Media Relations: Atif Rahim 312.324.5476 investorrelations@accretivehealth.com

Source:Accretive Health, Inc