GlobeNewswire Inc | Nov 3, 2020 07:00AM EST

November 03, 2020

CHICAGO, Nov. 03, 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 September30, 2020.

Third Quarter 2020 Results:

-- Revenue of $307.2 million, up $6.0 million and 2.0% compared to the same period last year -- GAAP net income of $5.2 million, compared to net income of $9.2 million in the same period last year -- Adjusted EBITDA of $50.4 million, up $1.5 million compared to the same period last year

I am incredibly proud of the team's continued dedication in delivering outstanding performance to our customers during these challenging times. Given our learnings over the past several months, we are very well prepared to help customers navigate challenges presented by the pandemic going forward, said Joe Flanagan, President and Chief Executive Officer of R1. We continue to see strong demand for our solutions and are pleased to have signed end-to-end agreements covering $5 billion in annual net patient revenue to date in 2020, well ahead of the $3 billion target we set at the start of the year.

Our third quarter results reflect continued strong execution by the team. The quarter was noteworthy as we absorbed the peak of Covid-19 pressure and delivered results ahead of our expectations, added Rachel Wilson, Chief Financial Officer and Treasurer. The fundamentals of the business are strong and we look forward to our continued growth, driven by the new business we have signed this year.

Outlook

For 2020, R1 expects to generate:

-- Revenue of between $1,250 million and $1,260 million -- GAAP operating income of $90 million to $110 million -- Adjusted EBITDA of $230 million to $240 million

Conference Call and Webcast Details

R1s 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 1778649. A live webcast and replay of the call will be available at the Investor Relations section of the Companys web site at ir.r1rcm.com.

Non-GAAP Financial Measures

In order to provide a more comprehensive understanding of the information used by R1s 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 managements 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 systems revenue cycle performance across settings of care. R1s proven and scalable operating models seamlessly complement a healthcare organizations 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 Rahim312-324-5476investorrelations@r1rcm.com

Media Relations:

Natalie Joslin678-585-1206media@r1rcm.com

Table 1R1 RCM Inc.Consolidated Balance Sheets(In millions)

(Unaudited) September December 30, 31, 2020 2019Assets Current assets: Cash and cash equivalents $ 106.3 $ 92.0 Accounts receivable, net of $3.6 million and $2.8 76.7 52.3 million allowanceAccounts receivable, net of $0.1 million and 35.5 30.8 $0.0million allowance - related partyPrepaid expenses and other current assets 62.4 41.6 Assets held for sale 101.5 ? Total current assets 382.4 216.7 Property, equipment and software, net 102.8 116.9 Operating lease right-of-use assets 63.5 77.9 Intangible assets, net 175.7 164.7 Goodwill 375.3 253.2 Non-current deferred tax assets 54.5 64.2 Non-current portion of restricted cash equivalents 1.0 0.5 Other assets 49.3 35.0 Total assets $ 1,204.5 $ 929.1 Liabilities Current liabilities: Accounts payable $ 21.8 $ 20.2 Current portion of customer liabilities 18.8 14.0 Current portion of customer liabilities - related party 22.6 34.1 Accrued compensation and benefits 54.5 95.1 Current portion of operating lease liabilities 12.9 12.8 Current portion of long-term debt 29.0 16.3 Other accrued expenses 55.6 40.0 Liabilities held for sale 25.3 ? Total current liabilities 240.5 232.5 Non-current portion of customer liabilities - related 17.2 18.6 partyNon-current portion of operating lease liabilities 73.6 82.7 Long-term debt 529.2 337.7 Other non-current liabilities 35.8 10.4 Total liabilities 896.3 681.9 Preferred Stock 245.7 229.1 Stockholders? equity: Common stock 1.3 1.3 Additional paid-in capital 384.0 372.7 Accumulated deficit (240.1 ) (277.8 )Accumulated other comprehensive loss (7.9 ) (4.5 )Treasury stock (74.8 ) (73.6 )Total stockholders? equity 62.5 18.1 Total liabilities and stockholders? equity $ 1,204.5 $ 929.1

Table 2R1 RCM Inc.Consolidated Statements of Operations (Unaudited)(In millions, except share and per share data)

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019Net operating $ 253.7 $ 266.6 $ 822.4 $ 760.8 feesIncentive fees 25.1 12.3 43.2 41.9 Other 28.4 22.3 76.8 69.4 Net services 307.2 301.2 942.4 872.1 revenueOperating expenses:Cost of services 255.2 241.9 757.4 725.2 Selling, generaland 25.7 28.3 74.5 76.6 administrativeOther expenses 15.7 7.4 42.4 26.9 Total operating 296.6 277.6 874.3 828.7 expensesIncome from 10.6 23.6 68.1 43.4 operationsLoss on debt ? ? ? 18.8 extinguishmentNet interest 4.4 5.0 13.0 25.1 expenseIncome (loss)before income tax 6.2 18.6 55.1 (0.5 )provision(benefit)Income taxprovision 1.0 9.4 16.6 (4.7 )(benefit)Net income $ 5.2 $ 9.2 $ 38.5 $ 4.2 Net income (loss) per commonshare:Basic $ ? $ 0.02 $ 0.10 $ (0.10 )Diluted $ ? $ 0.01 $ 0.08 $ (0.10 )Weighted averageshares used incalculating net income (loss) percommon share:Basic 115,976,377 112,230,439 115,164,631 111,005,255 Diluted 115,976,377 165,622,407 171,178,086 111,005,255 Basic: Net income $ 5.2 $ 9.2 $ 38.5 $ 4.2 Less dividends on (5.6 ) (5.3 ) (16.6 ) (15.4 )preferred sharesLess incomeallocated to ? (1.9 ) (10.9 ) ? preferredshareholdersNet income (loss)available/allocated to $ (0.4 ) $ 2.0 $ 11.0 $ (11.2 )commonshareholders -basicDiluted: Net income $ 5.2 $ 9.2 $ 38.5 $ 4.2 Less dividends on (5.6 ) (5.3 ) (16.6 ) (15.4 )preferred sharesLess incomeallocated to ? (1.5 ) (8.7 ) ? preferredshareholdersNet income (loss)available/allocated to $ (0.4 ) $ 2.4 $ 13.2 $ (11.2 )commonshareholders -diluted

Table 3R1 RCM Inc.Consolidated Statements of Cash Flows (Unaudited)(In millions)

Nine Months Ended September 30, 2020 2019Operating activities Net income $ 38.5 $ 4.2 Adjustments to reconcile net income to net cash provided by operations:Depreciation and amortization 50.9 39.9 Amortization of debt issuance costs 0.8 1.4 Share-based compensation 15.9 12.8 Loss on disposal and right-of-use asset write-downs 5.1 ? Loss on debt extinguishment ? 18.8 Provision for credit losses 1.3 2.3 Deferred income taxes 16.2 (9.4 )Non-cash lease expense 8.7 8.5 Change in value of contingent consideration 1.6 ? Changes in operating assets and liabilities: Accounts receivable and related party accounts receivable (47.2 ) 9.8 Prepaid expenses and other assets (11.8 ) (20.1 )Accounts payable 1.9 10.5 Accrued compensation and benefits (36.1 ) (7.3 )Lease liabilities (7.8 ) (8.9 )Other liabilities 22.5 1.0 Customer liabilities and customer liabilities - related (10.0 ) (20.2 )partyNet cash provided by operating activities 50.5 43.3 Investing activities Purchases of property, equipment, and software (42.3 ) (43.1 )Acquisition of SCI, net of cash acquired and earn-out (189.0 ) ? provisionAcquisition of RevWorks, net of contingent consideration (5.0 ) ? Net cash used in investing activities (236.3 ) (43.1 )Financing activities Issuance of senior secured debt, net of discount and 190.6 321.8 issuance costsBorrowings on revolver 50.0 60.0 Repayment of senior secured debt (17.0 ) (272.7 )Repayment of subordinated notes and prepayment penalty ? (112.2 )Repayments on revolver (20.0 ) (10.0 )Exercise of vested stock options 11.0 9.5 Shares withheld for taxes (7.5 ) (4.7 )Finance lease payments (0.8 ) (0.6 )Other (5.0 ) ? Net cash provided by (used in) financing activities 201.3 (8.9 )Effect of exchange rate changes in cash, cash equivalents (0.7 ) (0.3 )and restricted cashNet increase (decrease) in cash, cash equivalents and 14.8 (9.0 )restricted cashCash, cash equivalents and restricted cash, at beginning of 92.5 65.1 periodCash, cash equivalents and restricted cash, at end of $ 107.3 $ 56.1 period

Table 4R1 RCM Inc.Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA (Unaudited)(In millions)

Three Months 2020 vs. 2019 Nine Months Ended 2020 vs. 2019 Ended Change September 30, Change September 30, 2020 2019 Amount % 2020 2019 Amount %Net income $ 5.2 $ 9.2 $ (4.0 ) (43 ) % $ 38.5 $ 4.2 $ 34.3 817 %Net interest 4.4 5.0 (0.6 ) (12 ) % 13.0 25.1 (12.1 ) (48 ) %expenseIncome taxprovision 1.0 9.4 (8.4 ) (89 ) % 16.6 (4.7 ) 21.3 453 %(benefit)Depreciationand 17.3 14.1 3.2 23 % 50.9 39.9 11.0 28 %amortizationexpenseShare-basedcompensation 6.8 3.8 3.0 79 % 15.9 12.7 3.2 25 %expenseLoss on debt ? ? ? ? % ? 18.8 (18.8 ) (100 ) %extinguishmentOther expenses 15.7 7.4 8.3 112 % 42.4 26.9 15.5 58 %AdjustedEBITDA $ 50.4 $ 48.9 $ 1.5 3 % $ 177.3 $ 122.9 $ 54.4 44 %(non-GAAP)



Table 5R1 RCM Inc.Reconciliation of GAAP Cost of Services to Non-GAAP Cost of Services(Unaudited)(In millions)

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019Cost of services $ 255.2 $ 241.9 $ 757.4 $ 725.2Less: Share-based compensation expense 2.7 1.5 6.1 4.3Depreciation and amortization expense 16.3 12.7 47.7 37.2Non-GAAP cost of services $ 236.2 $ 227.7 $ 703.6 $ 683.7

Table 6R1 RCM Inc.Reconciliation of GAAP Selling, General and Administrative to Non-GAAP Selling,General and Administrative (Unaudited)(In millions)

Three Months Nine Months Ended Ended September 30, September 30, 2020 2019 2020 2019Selling, general and administrative $ 25.7 $ 28.3 $ 74.5 $ 76.6Less: Share-based compensation expense 4.1 2.3 9.8 8.4Depreciation and amortization expense 1.0 1.4 3.2 2.7Non-GAAP selling, general and $ 20.6 $ 24.6 $ 61.5 $ 65.5administrative

Table 7R1 RCM Inc.Consolidated Non-GAAP Financial Information (Unaudited)(In millions)

Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019Net operating fees $ 253.7 $ 266.6 $ 822.4 $ 760.8Incentive fees 25.1 12.3 43.2 41.9Other 28.4 22.3 76.8 69.4Net services revenue 307.2 301.2 942.4 872.1 Operating expenses: Cost of services 236.2 227.7 703.6 683.7(non-GAAP) Selling, general and 20.6 24.6 61.5 65.5administrative (non-GAAP)Sub-total 256.8 252.3 765.1 749.2 Adjusted EBITDA $ 50.4 $ 48.9 $ 177.3 $ 122.9

Table 8R1 RCM Inc.Reconciliation of GAAP Operating Income Guidance to Non-GAAP Adjusted EBITDAGuidance (Unaudited)(In millions)

2020GAAP Operating Income Guidance $90-110Plus: Depreciation and amortization expense $65-75Share-based compensation expense $20-25Strategic initiatives, severance and other costs $45-50Adjusted EBITDA Guidance $230-240

Table 9R1 RCM Inc.Reconciliation of Total Debt to Net Debt (Unaudited)(In millions)

September 30, December 31, 2020 2019Senior Revolver $ 70.0 $ 40.0Senior Term Loan 491.0 316.9 561.0 356.9 Less: Cash and cash equivalents 106.3 92.0Non-current portion of restricted cash 1.0 0.5equivalentsNet Debt $ 453.7 $ 264.4