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R1 RCM Reports Second Quarter 2020 Results

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CHICAGO, Aug. 04, 2020 (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, 2020.

Second Quarter 2020 Results:

  • Revenue of $314.7 million, up $19.7 million and 6.7% compared to the same period last year

  • GAAP net income of $15.1 million, compared to net loss of $5.2 million in the same period last year

  • Adjusted EBITDA of $65.3 million, up $24.7 million compared to the same period last year

“I want to thank all of our employees for supporting our healthcare provider customers and the patients they serve during these challenging times. From enabling contactless check-in to enhancing collections, R1 has been at the forefront of helping customers navigate the current crisis, and I am incredibly proud of the team,” said Joe Flanagan, President and Chief Executive Officer of R1. “We continue to be prepared for a variety of scenarios in the back half of the year while ensuring R1 is positioned for sustained long-term growth.”

“Our second quarter results demonstrate our team's commitment to successfully navigate the challenges presented by COVID-19 through disciplined overhead cost reduction while supporting growth,” added Rachel Wilson, Chief Financial Officer and Treasurer. “With the recovery in patient volumes experienced to date and the visibility in our business model, we are pleased to re-introduce 2020 financial guidance.”

Outlook

For 2020, R1 expects to generate:

  • Revenue of between $1,220 million and $1,250 million

  • GAAP operating income of $90 million to $110 million

  • Adjusted EBITDA of $230 million to $240 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 833-968-2190 (778-560-2796 outside the U.S. and Canada) using conference code number 5343659. 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 income/expense, income tax provision/benefit, depreciation and amortization expense, share-based compensation expense, expense arising from debt extinguishment, strategic initiatives costs, transitioned employee restructuring expense, digital transformation office expenses, and certain other items. Net debt is defined as debt less cash and cash 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.

Tables 4 through 9 present a reconciliation of GAAP financial measures to non-GAAP financial measures, including adjusted EBITDA. 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. These forward-looking statements include, among other things, statements about the potential impacts of the COVID-19 pandemic, our strategic initiatives, our capital plans, our costs, our ability to successfully deliver on our commitments to our customers, our ability to deploy new business as planned, our ability to successfully implement new technologies, our future financial performance, and our liquidity. 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 severity, magnitude and duration of the COVID-19 pandemic; responses to the pandemic by the government and healthcare providers and the direct and indirect impacts of the pandemic on our customers and personnel; the disruption of national, state and local economies as a result of the pandemic; the impact of the pandemic on our financial results, including possible lost revenue and increased expenses; and the factors discussed under the heading “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2019 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 models seamlessly complement 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)

(Unaudited)

June 30,

December 31,

2020

2019

Assets

Current assets:

Cash and cash equivalents

$

123.1

$

92.0

Accounts receivable, net of $5.1 million and $2.8 million allowance

64.3

52.3

Accounts receivable, net of $0.1 million and $0.0 million allowance - related party

25.3

30.8

Prepaid expenses and other current assets

48.0

41.6

Total current assets

260.7

216.7

Property, equipment and software, net

112.3

116.9

Operating lease right-of-use assets

68.3

77.9

Intangible assets, net

240.0

164.7

Goodwill

379.8

253.2

Non-current deferred tax assets

39.1

64.2

Non-current portion of restricted cash equivalents

1.0

0.5

Other assets

39.7

35.0

Total assets

$

1,140.9

$

929.1

Liabilities

Current liabilities:

Accounts payable

$

24.2

$

20.2

Current portion of customer liabilities

19.9

14.0

Current portion of customer liabilities - related party

23.4

34.1

Accrued compensation and benefits

52.4

95.1

Current portion of operating lease liabilities

13.4

12.8

Current portion of long-term debt

25.8

16.3

Other accrued expenses

46.4

40.0

Total current liabilities

205.5

232.5

Non-current portion of customer liabilities - related party

18.2

18.6

Non-current portion of operating lease liabilities

76.5

82.7

Long-term debt

538.6

337.7

Other non-current liabilities

15.9

10.4

Total liabilities

854.7

681.9

Preferred Stock

240.1

229.1

Stockholders’ equity:

Common stock

1.3

1.3

Additional paid-in capital

375.2

372.7

Accumulated deficit

(245.3

)

(277.8

)

Accumulated other comprehensive loss

(10.4

)

(4.5

)

Treasury stock

(74.7

)

(73.6

)

Total stockholders’ equity

46.1

18.1

Total liabilities and stockholders’ equity

$

1,140.9

$

929.1


Table 2

R1 RCM Inc.

Consolidated Statements of Operations (Unaudited)

(In millions, except share and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Net operating fees

$

287.8

$

252.9

$

568.7

$

494.2

Incentive fees

1.3

17.4

18.1

29.6

Other

25.6

24.7

48.4

47.1

Net services revenue

314.7

295.0

635.2

570.9

Operating expenses:

Cost of services

248.3

246.1

502.2

483.3

Selling, general and administrative

23.3

25.8

48.8

48.3

Other expenses

18.0

10.7

26.7

19.5

Total operating expenses

289.6

282.6

577.7

551.1

Income from operations

25.1

12.4

57.5

19.8

Loss on debt extinguishment

18.8

18.8

Net interest expense

4.8

9.9

8.6

20.1

Income (loss) before income tax provision (benefit)

20.3

(16.3

)

48.9

(19.1

)

Income tax provision (benefit)

5.2

(11.1

)

15.6

(14.1

)

Net income (loss)

$

15.1

$

(5.2

)

$

33.3

$

(5.0

)

Net income (loss) per common share:

Basic

$

0.04

$

(0.09

)

$

0.10

$

(0.14

)

Diluted

$

0.03

$

(0.09

)

$

0.08

$

(0.14

)

Weighted average shares used in calculating net income (loss) per common share:

Basic

115,067,552

110,956,014

114,754,298

110,382,509

Diluted

165,887,964

110,956,014

167,809,324

110,382,509


Table 3

R1 RCM Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In millions)

Six Months Ended June 30,

2020

2019

Operating activities

Net income (loss)

$

33.3

$

(5.0

)

Adjustments to reconcile net income (loss) to net cash provided by operations:

Depreciation and amortization

33.6

25.8

Amortization of debt issuance costs

0.5

1.2

Share-based compensation

9.1

9.0

Loss on disposal and right-of-use asset write-downs

4.5

Loss on debt extinguishment

18.8

Provision for credit losses

1.7

1.0

Deferred income taxes

15.1

(17.3

)

Non-cash lease expense

6.0

5.6

Changes in operating assets and liabilities:

Accounts receivable and related party accounts receivable

(5.4

)

25.4

Prepaid expenses and other assets

(10.5

)

(10.1

)

Accounts payable

4.5

7.2

Accrued compensation and benefits

(44.2

)

(12.9

)

Lease liabilities

(5.9

)

(5.5

)

Other liabilities

12.7

8.3

Customer liabilities and customer liabilities - related party

(9.7

)

(7.5

)

Net cash provided by operating activities

45.3

44.0

Investing activities

Purchases of property, equipment, and software

(31.1

)

(32.3

)

Acquisition of SCI, net of cash acquired and earn-out provision

(189.0

)

Net cash used in investing activities

(220.1

)

(32.3

)

Financing activities

Issuance of senior secured debt, net of discount and issuance costs

190.6

321.8

Borrowings on revolver

50.0

60.0

Repayment of senior secured debt

(10.5

)

(268.7

)

Repayment of subordinated notes and prepayment penalty

(112.2

)

Repayments on revolver

(20.0

)

Exercise of vested stock options

4.3

7.7

Shares withheld for taxes

(1.1

)

(4.7

)

Finance lease payments

(0.7

)

(0.4

)

Other

(5.0

)

Net cash provided by financing activities

207.6

3.5

Effect of exchange rate changes in cash, cash equivalents and restricted cash

(1.2

)

0.3

Net increase in cash, cash equivalents and restricted cash

31.6

15.5

Cash, cash equivalents and restricted cash, at beginning of period

92.5

65.1

Cash, cash equivalents and restricted cash, at end of period

$

124.1

$

80.6


Table 4

R1 RCM Inc.

Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA (Unaudited)

(In millions)

Three Months Ended
June 30,

2020 vs. 2019
Change

Six Months Ended
June 30,

2020 vs. 2019
Change

2020

2019

Amount

%

2020

2019

Amount

%

Net income (loss)

$

15.1

$

(5.2

)

$

20.3

390

%

$

33.3

$

(5.0

)

$

38.3

766

%

Net interest expense

4.8

9.9

(5.1

)

(52

)

%

8.6

20.1

(11.5

)

(57

)

%

Income tax provision (benefit)

5.2

(11.1

)

16.3

147

%

15.6

(14.1

)

29.7

211

%

Depreciation and amortization expense

17.9

12.9

5.0

39

%

33.6

25.8

7.8

30

%

Share-based compensation expense

4.3

4.6

(0.3

)

(7

)

%

9.1

8.9

0.2

2

%

Loss on debt extinguishment

18.8

(18.8

)

(100

)

%

18.8

(18.8

)

(100

)

%

Other expenses

18.0

10.7

7.3

68

%

26.7

19.5

7.2

37

%

Adjusted EBITDA (non-GAAP)

$

65.3

$

40.6

$

24.7

61

%

$

126.9

$

74.0

$

52.9

71

%


Table 5

R1 RCM Inc.

Reconciliation of GAAP Cost of Services to Non-GAAP Cost of Services (Unaudited)

(In millions)

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

Cost of services

$

248.3

$

246.1

$

502.2

$

483.3

Less:

Share-based compensation expense

1.5

1.5

3.4

2.8

Depreciation and amortization expense

17.0

12.1

31.4

24.5

Non-GAAP cost of services

$

229.8

$

232.5

$

467.4

$

456.0


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
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

Selling, general and administrative

$

23.3

$

25.8

$

48.8

$

48.3

Less:

Share-based compensation expense

2.8

3.1

5.7

6.1

Depreciation and amortization expense

0.9

0.8

2.2

1.3

Non-GAAP selling, general and administrative

$

19.6

$

21.9

$

40.9

$

40.9


Table 7

R1 RCM Inc.

Consolidated Non-GAAP Financial Information (Unaudited)

(In millions)

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

Net operating fees

$

287.8

$

252.9

$

568.7

$

494.2

Incentive fees

1.3

17.4

18.1

29.6

Other

25.6

24.7

48.4

47.1

Net services revenue

314.7

295.0

635.2

570.9

Operating expenses:

Cost of services (non-GAAP)

229.8

232.5

467.4

456.0

Selling, general and administrative (non-GAAP)

19.6

21.9

40.9

40.9

Sub-total

249.4

254.4

508.3

496.9

Adjusted EBITDA

$

65.3

$

40.6

$

126.9

$

74.0


Table 8

R1 RCM Inc.

Reconciliation of GAAP Operating Income Guidance to Non-GAAP Adjusted EBITDA Guidance (Unaudited)

(In millions)

2020

GAAP Operating Income Guidance

$90-110

Plus:

Depreciation and amortization expense

$65-75

Share-based compensation expense

$20-25

Strategic initiatives, severance and other costs

$45-50

Adjusted EBITDA Guidance

$230-240


Table 9

R1 RCM Inc.

Reconciliation of Total Debt to Net Debt (Unaudited)

(In millions)

June 30,

December 31,

2020

2019

Senior Revolver

$

70.0

$

40.0

Senior Term Loan

497.5

316.9

567.5

356.9

Less:

Cash and cash equivalents

123.1

92.0

Non-current portion of restricted cash equivalents

1.0

0.5

Net Debt

$

443.4

$

264.4