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R1 RCM Reports Second Quarter 2018 Results

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CHICAGO, Aug. 09, 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 June 30, 2018.

Second Quarter 2018 Results:

  • GAAP net services revenue of $207.9 million, up $108.5 million compared to the same period last year
  • GAAP net loss of $2.9 million, compared to net loss of $6.7 million in the same period last year
  • Adjusted EBITDA of $9.2 million, up $12.5 million compared to the same period last year

"Our second quarter results reflect the continued momentum in our business, driven by the successful onboarding of customers," said Joe Flanagan, President and Chief Executive Officer of R1. "We remain focused on onboarding additional new customers in the second half of 2018 while continuing to serve our customers and drive innovation to further differentiate our value proposition."

"Our growth in revenue and adjusted EBITDA this quarter is driven by continued execution across the business," added Chris Ricaurte, Chief Financial Officer and Treasurer of R1. "The new customers we have already onboarded, as well as those planned to be onboarding in the balance of the year, give us a high degree of confidence to deliver on our financial commitments."

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 2190285. 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.

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:
Natalie Joslin
678-585-1206
media@r1rcm.com

 
 
 
Table 1
R1 RCM Inc.
Consolidated Balance Sheets
(In millions)
    June 30,   December 31,
    2018   2017
    (Unaudited)    
Assets        
Current assets:        
Cash and cash equivalents   $ 38.8     $ 164.9  
Current portion of restricted cash equivalents   2.0      
Accounts receivable, net   40.9     8.2  
Accounts receivable, net - related party   40.3     15.4  
Prepaid income taxes   0.5     0.6  
Prepaid expenses and other current assets   26.6     13.2  
Total current assets   149.1     202.3  
Property, equipment and software, net   90.7     48.3  
Intangible assets, net   199.4      
Goodwill   244.7      
Non-current deferred tax asset   47.6     70.5  
Non-current portion of restricted cash   1.5     1.5  
Other assets   20.1     13.4  
Total assets   $ 753.1     $ 336.0  
         
Liabilities and stockholders' equity (deficit)        
Current liabilities:        
Accounts payable   $ 14.6     $ 7.2  
Current portion of customer liabilities   8.5     1.1  
Current portion of customer liabilities - related party   23.3     27.1  
Accrued compensation and benefits   53.0     37.8  
Current portion of long-term debt   2.7      
Other accrued expenses   35.4     16.7  
Total current liabilities   137.5     89.9  
Non-current portion of customer liabilities - related party   17.4     11.5  
Long-term debt   255.6      
Long-term debt - related party   101.1      
Other non-current liabilities   19.2     11.9  
Total liabilities   530.8     113.3  
         
Preferred Stock   198.6     189.3  
Stockholders' equity (deficit):        
Common stock   1.2     1.2  
Additional paid-in capital   359.8     337.9  
Accumulated deficit   (270.7 )   (244.5 )
Accumulated other comprehensive loss   (4.1 )   (1.6 )
Treasury stock   (62.5 )   (59.6 )
Total stockholders' equity (deficit)   23.7     33.4  
Total liabilities and stockholders' equity (deficit)   $ 753.1     $ 336.0  
             


 
Table 2
R1 RCM Inc.
Consolidated Statements of Operations
(In millions, except share and per share data)
                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2018   2017   2018   2017
    (Unaudited)   (Unaudited)
Net operating fees   $ 181.7     $ 80.1     $ 309.3     $ 150.8  
Incentive fees   9.9     7.1     17.9     12.7  
Other   16.3     12.2     28.0     22.8  
Net services revenue   207.9     99.4     355.2     186.3  
Operating expenses:                
Cost of services   189.9     96.4     328.6     177.3  
Selling, general and administrative   22.5     12.2     39.5     26.5  
Other   13.2     1.0     15.6     1.2  
Total operating expenses   225.6     109.6     383.7     205.0  
Income (loss) from operations   (17.7 )   (10.2 )   (28.5 )   (18.7 )
Net interest (expense) income   (5.8 )       (5.6 )   0.1  
Income (loss) before income tax provision   (23.5 )   (10.2 )   (34.1 )   (18.6 )
Income tax provision (benefit)   (20.6 )   (3.5 )   (7.9 )   (3.6 )
Net income (loss)   $ (2.9 )   $ (6.7 )   $ (26.2 )   $ (15.0 )
                 
Net income (loss) per common share:                
Basic   $ (0.07 )   $ (0.11 )   $ (0.33 )   $ (0.23 )
Diluted   $ (0.07 )   $ (0.11 )   $ (0.33 )   $ (0.23 )
Weighted average shares used in calculating net income (loss) per common share:                
Basic   108,157,583     102,467,078     107,001,002     101,918,797  
Diluted   108,157,583     102,467,078     107,001,002     101,918,797  
                         


 
Table 3
R1 RCM Inc.
Consolidated Statements of Cash Flows
(In millions)
       
  Six Months Ended June 30,
  2018   2017
  (Unaudited)
Operating activities      
Net income (loss) $ (26.2 )   $ (15.0 )
Adjustments to reconcile net income (loss) to net cash used in operations:      
Depreciation and amortization 13.4     7.0  
Amortization of debt issuance costs 0.4      
Share-based compensation 9.0     5.9  
Loss on disposal 0.7     0.2  
Provision (recovery) for doubtful receivables 0.2     0.1  
Deferred income taxes (10.5 )   (4.1 )
Changes in operating assets and liabilities:      
Accounts receivable and related party accounts receivable (21.6 )   (13.2 )
Prepaid income taxes (0.8 )   3.5  
Prepaid expenses and other assets (7.3 )   (9.2 )
Accounts payable 1.4     (2.3 )
Accrued compensation and benefits 7.9     (0.4 )
Other liabilities 11.4     (0.4 )
Customer liabilities and customer liabilities - related party 0.9     5.0  
Net cash used in operating activities (21.1 )   (22.9 )
Investing activities      
Purchases of property, equipment, and software (15.3 )   (23.2 )
Acquisition of IMX, net of cash acquired (465.3 )    
Net cash used in investing activities (480.6 )   (23.2 )
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 105.9      
Issuance of common stock and stock warrants, net of issuance costs 19.3      
Exercise of vested stock options 2.8      
Purchase of treasury stock     (1.2 )
Shares withheld for taxes (2.9 )   (1.9 )
Net cash provided (used in) by financing activities 378.2     (3.1 )
Effect of exchange rate changes in cash, cash equivalents and restricted cash (0.6 )   0.4  
Net increase (decrease) in cash, cash equivalents and restricted cash (124.1 )   (48.8 )
Cash, cash equivalents and restricted cash, at beginning of period 166.4     182.7  
Cash, cash equivalents and restricted cash, at end of period $ 42.3     $ 133.9  
               


 
Table 4
R1 RCM Inc.
Reconciliation of GAAP net income to Non-GAAP adjusted EBITDA
(In millions)
                                 
    Three Months Ended June 30,   2018 vs. 2017
Change
  Six Months Ended June 30,   2018 vs. 2017
Change
    2018   2017   Amount   %   2018   2017   Amount   %
    (Unaudited)           (Unaudited)        
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     (5,700 )%
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     1,220 %   15.6     1.2     14.4     1,200 %
Adjusted EBITDA (non-GAAP)   $ 9.2     $ (3.3 )   $ 12.5     (379 )%   $ 9.5     $ (4.7 )   $ 14.2     (302 )%
                                                             

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
(In millions)
                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2018   2017   2018   2017
    (Unaudited)   (Unaudited)
Cost of services   $ 189.9     $ 96.4     $ 328.6     $ 177.3  
Less:                
Share-based compensation expense   1.5     1.0     2.8     2.1  
Depreciation and amortization expense   7.3     3.5     11.9     6.4  
Non-GAAP cost of services   $ 181.1     $ 91.9     $ 313.9     $ 168.8  
                                 


 
Table 6
R1 RCM Inc.
Reconciliation of GAAP Selling, General and Administrative to Non-GAAP Selling, General and Administrative
(In millions)
                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2018   2017   2018   2017
    (Unaudited)   (Unaudited)
Selling, general and administrative   $ 22.5     $ 12.2     $ 39.5     $ 26.5  
Less:                
Share-based compensation expense   3.5     1.1     6.1     3.6  
Depreciation and amortization expense   1.2     0.3     1.5     0.6  
Non-GAAP selling, general and administrative   $ 17.8     $ 10.8     $ 31.9     $ 22.3  
                                 


 
Table 7
R1 RCM Inc.
Consolidated Non-GAAP Financial Information
(In millions)
                 
    Three Months Ended June 30,   Six Months Ended June 30,
    2018   2017   2018   2017
    (Unaudited)   (Unaudited)
RCM services: net operating fees   $ 181.7     $ 80.1     $ 309.3     $ 150.8  
RCM services: incentive fees   9.9     7.1     17.9     12.7  
RCM services: other   16.3     12.2     28.0     22.8  
Net services revenue   207.9     99.4     355.2     186.3  
                 
Operating expenses:                
Cost of services (non-GAAP)   181.1     91.9     313.9     168.7  
Selling, general and administrative (non-GAAP)   17.8     10.8     31.9     22.3  
Sub-total   198.9     102.7     345.8     191.0  
                 
Adjusted EBITDA   $ 9.2     $ (3.3 )   $ 9.5     $ (4.7 )
                             

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) $115-$155
Plus:    
Depreciation and amortization expense $25-$30 $30-$40
Share-based compensation expense $15-$20 $20-$25
Amortization of intangibles $10-$15 $25-$40
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
(In millions)
     
    June 30, 2018
    (Unaudited)
Current portion of long-term debt   $ 2.7  
Long-term debt   255.6  
Long-term debt - related party   101.1  
    359.4  
     
Unamortized discount and issuance costs   (20.6 )
Total Debt (gross of discount and issuance costs)   380.0  
     
Less:    
Cash and cash equivalents   38.8  
Current portion of restricted cash   2.0  
Non-current portion of restricted cash equivalents   1.5  
Net Debt   $ 337.7  
         

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