R1 RCM Reports Second Quarter 2023 Results

R1 RCM Inc.

MURRAY, Utah, Aug. 02, 2023 (GLOBE NEWSWIRE) -- R1 RCM Inc. (NASDAQ: RCM), a leading provider of technology-driven solutions that transform the patient experience and financial performance of healthcare providers, today announced results for the three months ended June 30, 2023.

Second Quarter 2023 Results:

• Revenue of $560.7 million, up $168.8 million or 43.1% compared to the same period last year.

• GAAP net income of $0.3 million, compared to net loss of $20.4 million in the same period last year.

• Adjusted EBITDA of $142.9 million, up $55.7 million or 63.9% compared to the same period last year.

• GAAP net income and adjusted EBITDA were negatively impacted by an $11.6 million increase in the reserve for credit losses related to a physician customer.

“The results in the quarter and year to date demonstrate our commitment to delivering on our operational and financial objectives to support both our near- and long-term goals,” said Lee Rivas, chief executive officer of R1. “We believe embedding advanced technology across our portfolio to drive improved performance for our customers is accelerating momentum in market demand and increasing activity in our pipeline.”

“Operational results were strong in the second quarter and well ahead of our expectations, excluding the reserve we took for credit losses related to a physician customer,” added Jennifer Williams, chief financial officer. “The revised guidance reflects our continued focus on initiatives to drive results and deliver increased value to our customers.”

2023 Outlook

For 2023, R1 now expects to generate:

• Revenue of between $2,255 million and $2,275 million

• GAAP operating income of $140 million to $155 million

• Adjusted EBITDA of $600 million to $615 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 the Company’s financial results and business outlook. To participate, please dial 888-330-2022 (646-960-0690 outside the U.S. and Canada) using conference code number 5681952. A live webcast and replay of the call will be available at the Investor Relations section of the Company’s website 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 measures, including adjusted EBITDA, non-GAAP cost of services, non-GAAP selling, general and administrative expenses, and net debt. Adjusted EBITDA is defined as GAAP net income (loss) before net interest income/expense, income tax provision/benefit, depreciation and amortization expense, share-based compensation expense, CoyCo 2, L.P. (“CoyCo 2”) share-based compensation expense, and certain other items, including business acquisition costs, integration costs, technology transformation, strategic initiatives, the global business services center expansion project in the Philippines, and facility-exit charges. Non-GAAP cost of services is defined as GAAP cost of services less share-based compensation expense, CoyCo 2 share-based compensation expense, and depreciation and amortization expense attributed to cost of services. Non-GAAP selling, general and administrative expenses is defined as GAAP selling, general and administrative expenses less share-based compensation expense, CoyCo 2 share-based compensation expense, and depreciation and amortization expense attributed to selling, general and administrative expenses. Net debt is defined as debt less cash and cash equivalents, inclusive of restricted cash. Adjusted EBITDA guidance is reconciled to operating income guidance, the most closely comparable available GAAP measure.

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. Non-GAAP cost of services and non-GAAP selling, general and administrative expenses are used to calculate adjusted EBITDA. Net debt is used as a supplemental measure of our liquidity.

Tables 4 through 9 present a reconciliation of GAAP financial measures to non-GAAP financial measures. Non-GAAP measures 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 contains “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally relate to future events and relationships, plans, future growth, and future performance. These statements are often identified by the use of words such as “anticipate,” “believe,” “contemplate,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “outlook,” “plan,” “predict,” “project,” “see,” “seek,” “target,” “would,” and similar expressions or variations or negatives of these words, although not all forward-looking statements contain these identifying words. These statements are based on various assumptions, whether or not identified in this press release, and on the current expectations of the Company’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, assurance, prediction or definitive statement of fact or probability. Actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of uncertainties, risks, and changes in circumstances, including but not limited to risk and uncertainties related to: (i) economic downturns and market conditions beyond the Company’s control, including periods of inflation; (ii) the quality of global financial markets; (iii) the Company’s ability to timely and successfully achieve the anticipated benefits and potential synergies of the acquisition of Cloudmed; (iv) the Company’s ability to retain existing customers or acquire new customers; (v) the development of markets for the Company’s revenue cycle management offering; (vi) variability in the lead time of prospective customers; (vii) competition within the market; (viii) breaches or failures of the Company’s information security measures or unauthorized access to a customer’s data; (ix) delayed or unsuccessful implementation of the Company’s technologies or services, or unexpected implementation costs; (x) disruptions in or damages to the Company’s global business services centers and third-party operated data centers; (xi) the volatility of the Company’s stock price; and (xii) the Company’s substantial indebtedness. Additional risks and uncertainties that could cause actual outcomes and results to differ materially from those contemplated by the forward-looking statements are included under the heading “Risk Factors” in the Company’s annual report on Form 10-K for the year ended December 31, 2022, and any other periodic reports that the Company may file with the United States Securities and Exchange Commission. The foregoing list of factors is not exhaustive. All forward-looking statements included herein are expressly qualified in their entirety by these cautionary statements as of the date hereof and involve many risks and uncertainties that could cause the Company’s actual results to differ materially from those expressed or implied in the Company’s forward-looking statements. Subsequent events and developments, including actual results or changes in the Company’s assumptions, may cause the Company’s views to change. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law. You are cautioned not to place undue reliance on such forward-looking statements.

About R1 RCM

R1 is a leading provider of technology-driven solutions that transform the patient experience and financial performance of healthcare providers. 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:

Allison+Partners
Amanda Critelli
R1PR@allisonpr.com

Table 1
R1 RCM Inc.
Consolidated Balance Sheets
(In millions)
		(Unaudited)
		June 30,				December 31,
		2023				2022
Assets
Current assets:
Cash and cash equivalents		$	123.1			$	110.1
Accounts receivable, net of $31.5 million and $15.1 million allowance as of June 30, 2023 and December 31, 2022, respectively			245.2				235.2
Accounts receivable, net of $0.1 million allowance - related party as of June 30, 2023 and December 31, 2022			18.4				25.0
Current portion of contract assets, net			89.9				83.9
Prepaid expenses and other current assets			108.3				110.3
Total current assets			584.9				564.5
Property, equipment and software, net			181.8				164.8
Operating lease right-of-use assets			74.8				80.5
Non-current portion of contract assets, net			37.8				32.0
Non-current portion of deferred contract costs			30.1				26.7
Intangible assets, net			1,413.2				1,514.5
Goodwill			2,647.4				2,658.2
Deferred tax assets			10.5				10.4
Other assets			93.7				88.2
Total assets		$	5,074.2			$	5,139.8
Liabilities
Current liabilities:
Accounts payable		$	26.1			$	33.4
Current portion of customer liabilities			41.9				57.5
Current portion of customer liabilities - related party			7.8				7.4
Accrued compensation and benefits			93.1				109.0
Current portion of operating lease liabilities			19.4				18.0
Current portion of long-term debt			62.6				53.9
Accrued expenses and other current liabilities			74.3				70.6
Total current liabilities			325.2				349.8
Non-current portion of customer liabilities			4.9				5.0
Non-current portion of customer liabilities - related party			12.7				13.7
Non-current portion of operating lease liabilities			89.3				94.4
Long-term debt			1,691.5				1,732.6
Deferred tax liabilities			184.0				200.7
Other non-current liabilities			23.6				23.1
Total liabilities			2,331.2				2,419.3
Stockholders’ equity:
Common stock			4.4				4.4
Additional paid-in capital			3,159.3				3,123.2
Accumulated deficit			(121.3	)			(121.9	)
Accumulated other comprehensive income (loss)			0.4				(3.4	)
Treasury stock			(299.8	)			(281.8	)
Total stockholders’ equity			2,743.0				2,720.5
Total liabilities and stockholders’ equity		$	5,074.2			$	5,139.8

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,
		2023				2022				2023				2022
Net operating fees		$	357.8			$	318.3			$	718.8			$	641.1
Incentive fees			30.8				29.9				54.4				60.1
Modular and other			172.1				43.7				333.1				76.4
Net services revenue			560.7				391.9				1,106.3				777.6
Operating expenses:
Cost of services			445.9				310.1				880.6				606.6
Selling, general and administrative			62.6				30.9				109.6				59.8
Other expenses			28.3				88.9				58.5				106.0
Total operating expenses			536.8				429.9				1,048.7				772.4
Income (loss) from operations			23.9				(38.0	)			57.6				5.2
Net interest expense			32.5				6.9				63.2				11.6
Income (loss) before income tax benefit			(8.6	)			(44.9	)			(5.6	)			(6.4	)
Income tax benefit			(8.9	)			(24.5	)			(6.2	)			(15.4	)
Net income (loss)		$	0.3			$	(20.4	)		$	0.6			$	9.0
Net income (loss) per common share:
Basic		$	—			$	(0.07	)		$	—			$	0.03
Diluted		$	—			$	(0.07	)		$	—			$	0.03
Weighted average shares used in calculating net income (loss) per common share:
Basic			418,525,625				294,658,635				417,939,489				286,746,902
Diluted			455,245,607				294,658,635				454,097,654				328,169,238

Table 3
R1 RCM Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
		Six Months Ended June 30,
		2023				2022
Operating activities
Net income		$	0.6			$	9.0
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization			134.8				43.6
Amortization of debt issuance costs			2.8				0.7
Share-based compensation			30.5				21.7
CoyCo 2 share-based compensation			3.7				—
Loss on disposal and right-of-use asset write-downs			4.9				2.7
Provision for credit losses			16.5				0.3
Deferred income taxes			(8.4	)			(17.5	)
Non-cash lease expense			5.8				6.0
Other			3.0				1.5
Changes in operating assets and liabilities:
Accounts receivable and related party accounts receivable			(20.2	)			(34.0	)
Contract assets			(10.8	)			(1.6	)
Prepaid expenses and other assets			(5.7	)			(20.0	)
Accounts payable			(11.5	)			5.0
Accrued compensation and benefits			(16.1	)			(76.1	)
Lease liabilities			(8.9	)			(5.1	)
Other liabilities			6.9				13.5
Customer liabilities and customer liabilities - related party			(15.8	)			(15.2	)
Net cash provided by (used in) operating activities			112.1				(65.5	)
Investing activities
Purchases of property, equipment, and software			(48.7	)			(42.7	)
Acquisition of Cloudmed, net of cash acquired			—				(847.7	)
Proceeds from disposal of assets			—				0.4
Other			1.5				—
Net cash used in investing activities			(47.2	)			(890.0	)
Financing activities
Issuance of senior secured debt, net of discount and issuance costs			—				1,016.6
Borrowings on revolver			30.0				30.0
Payment of debt issuance costs			—				(1.0	)
Repayment of senior secured debt			(24.8	)			(8.8	)
Repayments on revolver			(40.0	)			(20.0	)
Payment of equity issuance costs			—				(2.0	)
Exercise of vested stock options			0.9				2.5
Purchase of treasury stock			—				(0.6	)
Shares withheld for taxes			(18.1	)			(25.1	)
Other			(0.1	)			(0.1	)
Net cash (used in) provided by financing activities			(52.1	)			991.5
Effect of exchange rate changes in cash, cash equivalents and restricted cash			0.2				(2.6	)
Net increase in cash, cash equivalents and restricted cash			13.0				33.4
Cash, cash equivalents and restricted cash, at beginning of period			110.1				130.1
Cash, cash equivalents and restricted cash, at end of period		$	123.1			$	163.5

Table 4
R1 RCM Inc.
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA (Unaudited)
(In millions)
		Three Months Ended June 30,								2023 vs. 2022 Change							Six Months Ended June 30,								2023 vs. 2022 Change
		2023				2022				Amount				%			2023				2022				Amount				%
Net income (loss)		$	0.3			$	(20.4	)		$	20.7			(101)	%		$	0.6			$	9.0			$	(8.4	)		(93)	%
Net interest expense			32.5				6.9				25.6			371	%			63.2				11.6				51.6			445	%
Income tax benefit			(8.9	)			(24.5	)			15.6			(64)	%			(6.2	)			(15.4	)			9.2			(60)	%
Depreciation and amortization expense			68.8				24.7				44.1			179	%			134.8				43.6				91.2			209	%
Share-based compensation expense			20.0				11.6				8.4			72	%			30.5				21.7				8.8			41	%
CoyCo 2 share-based compensation expense			1.9				—				1.9			100	%			3.7				—				3.7			100	%
Other expenses			28.3				88.9				(60.6	)		(68)	%			58.5				106.0				(47.5	)		(45)	%
Adjusted EBITDA (non-GAAP)		$	142.9			$	87.2			$	55.7			64	%		$	285.1			$	176.5			$	108.6			62	%

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,
		2023			2022			2023			2022
Cost of services		$	445.9		$	310.1		$	880.6		$	606.6
Less:
Share-based compensation expense			12.4			5.1			18.8			9.4
CoyCo 2 share-based compensation expense			0.4			—			0.9			—
Depreciation and amortization expense			68.6			24.5			134.2			43.1
Non-GAAP cost of services		$	364.5		$	280.5		$	726.7		$	554.1

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,
		2023			2022			2023			2022
Selling, general and administrative		$	62.6		$	30.9		$	109.6		$	59.8
Less:
Share-based compensation expense			7.6			6.5			11.7			12.3
CoyCo 2 share-based compensation expense			1.5			—			2.8			—
Depreciation and amortization expense			0.2			0.2			0.6			0.5
Non-GAAP selling, general and administrative		$	53.3		$	24.2		$	94.5		$	47.0

Table 7
R1 RCM Inc.
Consolidated Non-GAAP Financial Information (Unaudited)
(In millions)
		Three Months Ended June 30,						Six Months Ended June 30,
		2023			2022			2023			2022
Net operating fees		$	357.8		$	318.3		$	718.8		$	641.1
Incentive fees			30.8			29.9			54.4			60.1
Modular and other			172.1			43.7			333.1			76.4
Net services revenue			560.7			391.9			1,106.3			777.6
Operating expenses:
Cost of services (non-GAAP)			364.5			280.5			726.7			554.1
Selling, general and administrative (non-GAAP)			53.3			24.2			94.5			47.0
Sub-total			417.8			304.7			821.2			601.1
Adjusted EBITDA		$	142.9		$	87.2		$	285.1		$	176.5

Table 8
R1 RCM Inc.
Reconciliation of GAAP Operating Income Guidance to Non-GAAP Adjusted EBITDA Guidance (Unaudited)
(In millions)
	2023
GAAP Operating Income Guidance	$140-155
Plus:
Depreciation and amortization expense	$270-280
Share-based compensation expense	$70-75
CoyCo 2 share-based compensation expense	$7-10
Strategic initiatives, severance and other costs	$100-110
Adjusted EBITDA Guidance	$600-615

Table 9
R1 RCM Inc.
Reconciliation of Total Debt to Net Debt (Unaudited)
(In millions)
		June 30,			December 31,
		2023			2022
Senior Revolver		$	90.0		$	100.0
Term A Loans			1,189.1			1,211.4
Term B Loan			496.3			498.7
Total debt			1,775.4			1,810.1
Less:
Cash and cash equivalents			123.1			110.1
Net Debt		$	1,652.3		$	1,700.0