R1 RCM Reports First Quarter 2023 Results

MURRAY, Utah, May 04, 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 March 31, 2023.

First Quarter 2023 Results:

• Revenue of $545.6 million, up $159.9 million or 41.5% compared to the same period last year.
• GAAP net income of $0.3 million, compared to $29.4 million in the same period last year.
• Adjusted EBITDA of $142.2 million, up $52.9 million or 59.2% compared to the same period last year.

"Our strong first quarter results demonstrate the team's focus on execution and our ability to deliver value to stakeholders in a dynamic operating environment," said Lee Rivas, chief executive officer of R1. "Demand for our services remains robust and we continue to invest in technology to enhance our value proposition for healthcare providers."

"We are pleased with our first quarter results, which were driven by strong operating discipline and our commitment to customer delivery," added Jennifer Williams, chief financial officer. "With the momentum generated in the first quarter, we are confident in the balance of 2023. We remain focused on execution to drive sustained long-term growth."

2023 Outlook

For 2023, R1 continues to expect to generate:

• Revenue of between $2,280 million and $2,330 million
• GAAP operating income of $115 million to $140 million
• Adjusted EBITDA of $595 million to $630 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 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, strategic initiatives, and the global business services center expansion project in the Philippines. 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," "designed," "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; (xii) the Company's substantial indebtedness; and (xiii) the ongoing impact of the COVID-19 pandemic on the Company's business, operating results, and financial condition. 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

[email protected]

Media Relations:

Allison+Partners

Amanda Critelli

[email protected]

Table 1
R1 RCM Inc.
Consolidated Balance Sheets
(In millions)
		(Unaudited)
		March 31,				December 31,
			2023				2022
Assets
Current assets:
Cash and cash equivalents		$	104.2			$	110.1
Accounts receivable, net of $16.0 million and $15.1 million allowance as of March 31, 2023 and December 31, 2022, respectively			229.4				235.2
Accounts receivable, net of $0.1 million and $0.1 million allowance - related party as of March 31, 2023 and December 31, 2022, respectively			24.9				25.0
Current portion of contract assets, net			81.8				83.9
Prepaid expenses and other current assets			105.2				110.3
Total current assets			545.5				564.5
Property, equipment and software, net			173.8				164.8
Operating lease right-of-use assets			81.0				80.5
Non-current portion of contract assets, net			37.3				32.0
Non-current portion of deferred contract costs			28.2				26.7
Intangible assets, net			1,464.4				1,514.5
Goodwill			2,648.5				2,658.2
Deferred tax assets			10.5				10.4
Other assets			83.4				88.2
Total assets		$	5,072.6			$	5,139.8
Liabilities
Current liabilities:
Accounts payable		$	24.6			$	33.4
Current portion of customer liabilities			45.6				57.5
Current portion of customer liabilities - related party			9.4				7.4
Accrued compensation and benefits			84.7				109.0
Current portion of operating lease liabilities			18.8				18.0
Current portion of long-term debt			58.3				53.9
Accrued expenses and other current liabilities			76.7				70.6
Total current liabilities			318.1				349.8
Non-current portion of customer liabilities			5.2				5.0
Non-current portion of customer liabilities - related party			13.2				13.7
Non-current portion of operating lease liabilities			92.7				94.4
Long-term debt			1,707.0				1,732.6
Deferred tax liabilities			192.1				200.7
Other non-current liabilities			24.9				23.1
Total liabilities			2,353.2				2,419.3
Stockholders' equity:
Common stock			4.4				4.4
Additional paid-in capital			3,136.2				3,123.2
Accumulated deficit			(121.6	)			(121.9	)
Accumulated other comprehensive loss			(4.6	)			(3.4	)
Treasury stock			(295.0	)			(281.8	)
Total stockholders' equity			2,719.4				2,720.5
Total liabilities and stockholders' equity		$	5,072.6			$	5,139.8

Table 2
R1 RCM Inc.
Consolidated Statements of Operations (Unaudited)
(In millions, except share and per share data)
		Three Months Ended March 31,
		2023			2022
Net operating fees		$	361.0		$	322.8
Incentive fees			23.6			30.2
Modular and other			161.0			32.7
Net services revenue			545.6			385.7
Operating expenses:
Cost of services			434.7			296.5
Selling, general and administrative			47.0			28.9
Other expenses			30.2			17.1
Total operating expenses			511.9			342.5
Income from operations			33.7			43.2
Net interest expense			30.7			4.7
Income before income tax provision			3.0			38.5
Income tax provision			2.7			9.1
Net income		$	0.3		$	29.4
Net income per common share:
Basic		$	—		$	0.11
Diluted		$	—		$	0.09
Weighted average shares used in calculating net income per common share:
Basic			417,346,840			278,747,261
Diluted			452,925,789			321,043,371

Table 3
R1 RCM Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
		Three Months Ended March 31,
			2023				2022
Operating activities
Net income		$	0.3			$	29.4
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			66.0				18.9
Amortization of debt issuance costs			1.4				0.3
Share-based compensation			10.5				10.1
CoyCo 2 share-based compensation			1.8				—
Loss on disposal and right-of-use asset write-downs			—				2.0
Provision for credit losses			1.5				—
Deferred income taxes			1.8				7.3
Non-cash lease expense			2.9				3.2
Other			—				1.5
Changes in operating assets and liabilities:
Accounts receivable and related party accounts receivable			4.7				22.1
Contract assets			(4.0	)			—
Prepaid expenses and other assets			8.2				(20.5	)
Accounts payable			(10.9	)			3.2
Accrued compensation and benefits			(24.5	)			(27.5	)
Lease liabilities			(4.4	)			(2.1	)
Other liabilities			9.7				1.7
Customer liabilities and customer liabilities - related party			(10.3	)			(18.7	)
Net cash provided by operating activities			54.7				30.9
Investing activities
Purchases of property, equipment, and software			(23.4	)			(10.0	)
Other			(2.2	)			—
Net cash used in investing activities			(25.6	)			(10.0	)
Financing activities
Repayment of senior secured debt			(12.4	)			(4.4	)
Repayments on revolver			(10.0	)			—
Exercise of vested stock options			0.5				0.4
Purchase of treasury stock			—				(0.6	)
Shares withheld for taxes			(13.4	)			(21.5	)
Other			(0.1	)			(0.1	)
Net cash used in financing activities			(35.4	)			(26.2	)
Effect of exchange rate changes in cash, cash equivalents and restricted cash			0.4				(0.9	)
Net decrease in cash, cash equivalents and restricted cash			(5.9	)			(6.2	)
Cash, cash equivalents and restricted cash, at beginning of period			110.1				130.1
Cash, cash equivalents and restricted cash, at end of period		$	104.2			$	123.9

Table 4
R1 RCM Inc.
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA (Unaudited)
(In millions)
		Three Months Ended March 31,						2023 vs. 2022 Change
		2023			2022			Amount				%
Net income		$	0.3		$	29.4		$	(29.1	)		(99	)	%
Net interest expense			30.7			4.7			26.0			553		%
Income tax provision			2.7			9.1			(6.4	)		(70	)	%
Depreciation and amortization expense			66.0			18.9			47.1			249		%
Share-based compensation expense			10.5			10.1			0.4			4		%
CoyCo 2 share-based compensation expense			1.8			—			1.8			100		%
Other expenses			30.2			17.1			13.1			77		%
Adjusted EBITDA (non-GAAP)		$	142.2		$	89.3		$	52.9			59		%

Table 5
R1 RCM Inc.
Reconciliation of GAAP Cost of Services to Non-GAAP Cost of Services (Unaudited)
(In millions)
		Three Months Ended March 31,
		2023			2022
Cost of services		$	434.7		$	296.5
Less:
Share-based compensation expense			6.4			4.3
CoyCo 2 share-based compensation expense			0.5			—
Depreciation and amortization expense			65.6			18.6
Non-GAAP cost of services		$	362.2		$	273.6

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 March 31,
		2023			2022
Selling, general and administrative		$	47.0		$	28.9
Less:
Share-based compensation expense			4.1			5.8
CoyCo 2 share-based compensation expense			1.3			—
Depreciation and amortization expense			0.4			0.3
Non-GAAP selling, general and administrative		$	41.2		$	22.8

Table 7
R1 RCM Inc.
Consolidated Non-GAAP Financial Information (Unaudited)
(In millions)
		Three Months Ended March 31,
		2023			2022
Net operating fees		$	361.0		$	322.8
Incentive fees			23.6			30.2
Modular and other			161.0			32.7
Net services revenue			545.6			385.7
Operating expenses:
Cost of services (non-GAAP)			362.2			273.6
Selling, general and administrative (non-GAAP)			41.2			22.8
Sub-total			403.4			296.4
Adjusted EBITDA		$	142.2		$	89.3

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	$115-140
Plus:
Depreciation and amortization expense	$260-280
Share-based compensation expense	$75-85
CoyCo 2 share-based compensation expense	$10-15
Strategic initiatives, severance and other costs	$110-135
Adjusted EBITDA Guidance	$595-630

Table 9
R1 RCM Inc.
Reconciliation of Total Debt to Net Debt (Unaudited)
(In millions)
		March 31,			December 31,
		2023			2022
Senior Revolver		$	90.0		$	100.0
Term A Loans			1,200.3			1,211.4
Term B Loan			497.5			498.7
Total debt			1,787.8			1,810.1
Less:
Cash and cash equivalents			104.2			110.1
Net Debt		$	1,683.6		$	1,700.0