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R1 RCM Reports Fourth Quarter and Full Year 2016 Results

CHICAGO, March 01, 2017 (GLOBE NEWSWIRE) -- R1 RCM Inc. (“R1” or the “Company”) (OTC Pink:ACHI), a leading provider of revenue cycle management and physician advisory services to healthcare providers, today announced results for the three months and full year ended December 31, 2016.

Fourth Quarter 2016 Results:

  • GAAP net services revenue of $106.2 million, compared to $68.3 million for the fourth quarter of 2015
  • GAAP net income of $13.1 million, compared to $5.4 million for the fourth quarter of 2015
  • Non-GAAP gross cash generated from customer contracting activities of $69.8 million, compared to $72.7 million for the fourth quarter of 2015
  • Non-GAAP net cash generated from customer contracting activities of negative $0.4 million, compared to $27.0 million for the fourth quarter of 2015

Full Year 2016 Results:

  • GAAP net services revenue of $592.6 million, compared to $117.2 million for 2015
  • GAAP net income of $177.1 million, compared to a net loss of $84.3 million for 2015
  • Non-GAAP gross cash generated from customer contracting activities of $208.7 million, compared to $230.2 million for 2015
  • Non-GAAP net cash generated from customer contracting activities of negative $26.8 million, compared to $26.4 million for 2015

“R1’s fourth quarter results reflect the continued progress we are making in executing on our objectives and establishing a path towards sustained profitability,” said Joe Flanagan, President and Chief Executive Officer of R1. “2016 overall was a pivotal year for R1 – in addition to renewal and expansion of our agreement with Ascension, we renewed our agreement with Intermountain Healthcare, added significant expertise to our senior management team, streamlined our cost structure, and generated substantial improvement in our financial results during the second half of the year. The progress we have made gives us confidence in our outlook for 2017 and we firmly believe it also positions us well for new customer growth.”

“We remain focused on driving our performance to achieve our financial and strategic objectives. Our 2017 guidance marks significant anticipated improvement over 2016, and is reflective of the actions we took in 2016 to improve our execution,” added Chris Ricaurte, Chief Financial Officer and Treasurer of R1. “I am also pleased that we have remediated the previously disclosed material weaknesses in our internal controls and simplified our financial reporting as a result of adopting the new revenue recognition standard in 2017.”

2017 Outlook
For 2017, R1 currently expects to generate:

  • Revenue of between $400 million and $425 million
  • GAAP operating loss of $25 million to $30 million
  • Adjusted EBITDA $0 to positive $5 million

Conference Call and Webcast Details
R1’s management team will host a conference call today at 4:30 p.m. Eastern Time to discuss its financial results and business outlook. To participate, please dial 877-880-5884 (631-601-2894 outside the U.S. and Canada) using conference code number 73785618. A live webcast and replay of the call will be available at the Investor Relations section of the Company’s web site at 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 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 Annual Report on Form 10-K for the year ended December 31, 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. Table 9 presents a reconciliation of projected GAAP operating income, which will be the most comparable GAAP measure for future periods following the adoption of the new revenue recognition standard, to projected Adjusted EBITDA. 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, including statements about the Company’s forecast for 2017, 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, 2016, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2017. The words “strive,” “objective,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “designed,” “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 its periodic reports that it files with or furnishes to the SEC.

About R1 RCM
R1 serves as the one revenue cycle management partner for select hospitals and healthcare systems regardless of their payment models, patient engagement strategies, or settings of care. The Company uses a proven operating model based on the R1 Performance StackSM designed to fit seamlessly into any healthcare organization’s infrastructure and to enhance the patient experience, improve provider economics, and provide revenue predictability. To learn more, visit r1rcm.com.

Table 1
R1 RCM Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
December 31,
2016
December 31,
2015
Assets
Current assets:
Cash and cash equivalents$181,176 $103,497
Short-term investments 1,023
Accounts receivable, net3,985 10,194
Accounts receivable, net – related party1,831
Prepaid income taxes3,818 1,102
Prepaid expenses and other current assets13,804 10,924
Total current assets204,614 126,740
Property, equipment and software, net32,789 27,217
Non-current deferred tax assets169,916 300,825
Restricted cash equivalents1,500 1,500
Other current assets6,240 4,007
Total assets$415,059 $460,289
Liabilities
Current liabilities:
Accounts payable$7,947 $5,306
Current portion of customer liabilities69,713 202,516
Current portion of customer liabilities - related party14,175
Accrued compensation and benefits24,789 9,062
Other accrued expenses18,485 15,743
Total current liabilities135,109 232,627
Non-current portion of customer liabilities1,000 432,477
Non-current portion of customer liabilities - related party110,032
Other non-current liabilities9,659 8,498
Total liabilities255,800 673,602
8.00% Series A convertible preferred stock: par value $0.01 per share, 370,000 authorized, 210,160 shares issued and outstanding as of December 31, 2016; no shares authorized or issued as of December 31, 2015 (aggregate liquidation value of $214,363 as of December, 2016)171,593
Stockholders' equity (deficit):
Common stock, $0.01 par value, 500,000,000 shares authorized,116,425,524 shares issued and 106,659,542 shares outstanding at December 31, 2016; 113,259,408 shares issued and 107,715,436 shares outstanding at December 31, 20151,164 1,133
Additional paid-in capital349,198 322,492
Accumulated deficit(304,702) (481,773)
Accumulative other comprehensive loss(2,843) (2,488)
Treasury stock(55,151) (52,677)
Total stockholders’ equity (deficit)(12,334) (213,313)
Total liabilities and stockholders’ equity (deficit)$415,059 $460,289


Table 2
R1 RCM Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share data)
Three Months Ended December 31, Year Ended December 31,
2016 2015 2016 2015
Net services revenue$106,157 $68,341 $592,557 $117,239
Operating expenses:
Cost of services 62,079 38,693 199,697 168,977
Selling, general and administrative 15,740 15,237 74,137 74,963
Other 829 3,493 20,822 9,343
Total operating expenses 78,648 57,423 294,656 253,283
Income (loss) from operations 27,509 10,918 297,901 (136,044)
Net interest income 110 84 297 231
Income (loss) before income tax provision 27,619 11,002 298,198 (135,813)
Income tax provision (benefit) 14,493 5,555 121,127 (51,557)
Net income (loss)$13,126 $ 5,447 $177,071 ($84,256)
Net income (loss) per common share:
Basic$0.05 $0.06 $0.65 ($0.87)
Diluted$0.05 $0.06 $0.65 ($0.87)
Weighted average shares used in calculating net income (loss) per common share:
Basic 101,022,185 98,137,885 100,160,206 96,806,885
Diluted 101,022,185 98,751,254 100,160,206 96,806,885
Consolidated statements of comprehensive income (loss)
Net income (loss) 13,126 5,447 177,071 (84,256)
Other comprehensive loss: - - - -
Foreign currency translation adjustments (303) (23) (355) (725)
Comprehensive income (loss)$ 12,823 $5,424 $176,716 ($84,981)


Table 3
R1 RCM Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended
December 31,
2016 2015
Operating activities:
Net income (loss) $ 177,071 $ (84,256)
Adjustments to reconcile net income (loss) to net cash used in operations:
Depreciation and amortization 10,198 8,462
Share-based compensation 29,834 29,236
Loss on disposal 207
Provision (recovery) for doubtful receivables 5 (46)
Deferred income taxes 121,834 (52,690)
Excess tax benefits from share-based awards
Reimbursed tenant improvements 1,419
Changes in operating assets and liabilities:
Accounts receivable and related party accounts receivable 4,373 (5,709)
Restricted cash equivalents (1,500)
Prepaid income taxes (2,770) 5,058
Prepaid expenses and other assets (6,920) (7,465)
Accounts payable 1,197 (7,162)
Accrued compensation and benefits 15,747 (5,918)
Other liabilities 1,018 248
Customer liabilities and customer liabilities - related party (440,073) 97,930
Net cash used in operating activities$ (86,860) $ (23,812)
Investing activities:
Purchase of short-term investments (1,023)
Purchases of property, equipment and software (12,635) (21,275)
Proceeds from maturation of short-term investments 1,023
Net cash used in investing activities$ (11,612) $(22,298)
Financing activities:
Series A convertible preferred stock and warrant issuance, net of issuance costs 178,669
Exercise of vested stock options 165 1,547
Purchase of treasury stock (2,439) (1,607)
Restricted cash released from letter of credit 5,000
Net cash provided by financing activities$176,395 $4,940
Effect of exchange rate changes on cash (244) (500)
Net increase (decrease) in cash and cash equivalents 77,679 (41,670)
Cash and cash equivalents at beginning of period 103,497 145,167
Cash and cash equivalents at end of period $181,176 $103,497
Supplemental disclosure of non-cash financing activities
Accrued dividend payable to Preferred Stockholders $ 4,203 $ 0
Accrued liabilities related to purchases of property, equipment and software 2,447 411
Accounts payable related to purchases of property, equipment and software 2,027 565
Income taxes paid (1,111) (1,088)
Income taxes refunded 666 1,441


Table 4
R1 RCM Inc.
Reconciliation of GAAP Net Services Revenue to Non-GAAP Gross Cash Generated from Customer Contracting Activities
(In thousands)
Three Months Ended December 31, 2016 vs. 2015 Change Year Ended December 31, 2016 vs. 2015 Change
2016 2015 Amount% 2016 2015 Amount%
Consolidated Statement of Operations Data:
RCM services: net operating fees $68,589 $46,832 $21,757 46.5% $368,848 $66,234 $302,614 456.9%
RCM services: incentive fees 24,780 11,289 13,491 119.5% 191,317 20,311 171,006 841.9%
RCM services: other 8,030 6,790 1,240 18.3% 16,322 16,381 (59)-0.4%
Other services fees 4,758 3,430 1,328 38.7% 16,070 14,313 1,757 12.3%
Total net services revenue 106,157 68,341 37,816 55.3% 592,557 117,239 475,318 405.4%
Change in deferred customer billings (318,059) 4,337 (322,396)unfav. (383,864) 112,938 (496,802)unfav.
Gross cash generated from customer contracting activities $69,835 $72,678 ($284,580)-391.6% $208,693 $230,177 ($21,484)-9.3%
Components of Gross Cash Generated from Customer Contracting Activities:
RCM services: net operating fee $55,713 $34,424 $21,289 61.8% $150,527 $123,185 $27,342 22.2%
RCM services: incentive fee 5,309 20,155 (14,846)-73.7% 29,112 67,656 (38,544)-57.0%
RCM services: other 4,056 14,669 (10,613)-72.3% 12,985 25,023 (12,038)-48.1%
Total RCM services fees 65,078 69,248 (4,170)-6.0% 192,624 215,864 (23,240)-10.8%
Other services fees 4,757 3,430 1,327 38.7% 16,069 14,313 1,756 12.3%
Gross cash generated from customer contracting activities $69,835 $72,678 ($2,843)-3.9% $208,693 $230,177 ($21,484)-9.3%
fav. - Favorable
unfav. - Unfavorable


Table 5
R1 RCM Inc.
Reconciliation of GAAP Net Income/(Loss) to Non-GAAP Net Cash Generated from Customer Contracting Activities
(In thousands)
Three Months Ended December 31, 2016 vs. 2015 Change Year Ended
December 31,
2016 vs. 2015 Change
2016 2015 Amount% 2016 2015 Amount%
Net income (loss)$13,126 $5,447 $7,679 141.0% $177,071 ($84,256) $261,327 -310.2%
Net interest income (110) (84) (26)31.0% (297) (231) (66)28.6%
Income tax provision (benefit) 14,493 5,555 8,938 160.9% 121,127 (51,557) 172,684 -334.9%
Depreciation and amortization expense 2,893 1,906 987 51.8% 10,198 8,462 1,736 20.5%
Share-based compensation expense 4,659 6,353 (1,694)-26.7% 28,102 31,671 (3,569)-11.3%
Other 829 3,493 (2,664)-76.3% 20,822 9,343 11,479 122.9%
Adjusted EBITDA 35,890 22,670 13,220 58.3% 357,023 (86,568) 443,591 -512.4%
Change in deferred customer billings (36,322) 4,337 (40,659)unfav. (383,864) 112,938 (496,802)unfav.
Net cash generated from customer contracting activities($432 ) $27,007 ($27,439)unfav. ($26,841 ) $26,370 ($53,211)unfav.
fav. - Favorable
unfav. - Unfavorable


Table 6
R1 RCM Inc.
Share-Based Compensation Expense
(In thousands)
Three Months Ended December 31, Year Ended
December 31,
2016 2015 2016 2015
Cost of services$1,333 $1,452 $6,137 $7,208
Selling, general and administrative$3,326 4,901 21,965 24,463
Other$0 1,828
Total share-based compensation expense$4,659 $6,353 $29,930 $31,671


Table 7
R1 RCM Inc.
Depreciation and Amortization Expense
(In thousands)
Three Months Ended December 31, Year Ended December 31,
2016 2015 2016 2015
Cost of services$2,620 $1,737 $9,492 $7,536
Selling, general and administrative$273 169 706 926
Total depreciation and amortization$2,893 $1,906 $10,198 $8,462


Table 8
R1 RCM Inc.
Condensed Consolidated Non-GAAP Financial Information
(In thousands)
Three Months Ended December 31, Year Ended December 31,
2016 2015 2016 2015
GAAP net services revenue $106,157 $68,341 $592,557 $117,239
Increase/(decrease) in deferred customer billings (36,322) 4,337 (383,864) 112,938
Gross cash generated from customer contracting activities 69,835 72,678 208,693 230,177
Operating Expenses1:
Cost of services 58,126 35,504 184,068 154,233
Selling, general and administrative 12,141 10,167 51,466 49,574
Sub-total 70,267 45,671 235,534 203,807
Net cash generated from customer contracting activities ($432) $27,007 ($26,841) $26,370
Net cash generated margin -0.6% 37.2% -12.9% 11.5%
1Excludes share-based compensation, depreciation and amortization, and other costs

Table 9
Reconciliation of GAAP Operating Income Guidance to Non-GAAP Adjusted EBITDA Guidance
(In millions)
GAAP Operating Income Guidance ($25) - ($30)
Plus:
Depreciation and amortization expense~$13
Share-based compensation expense~$13
Severance and other costs~$5
Adjusted EBITDA Guidance$0 - $5


Contact: R1 RCM Inc. Investor and Media Relations: Atif Rahim 312.324.5476 investorrelations@r1rcm.com

Source:R1 RCM Inc.