R1 RCM Reports First Quarter 2024 Results

Rhea-AI Summary

R1 RCM Inc. reported its First Quarter 2024 Results showcasing a revenue of $603.9 million, a 10.7% increase compared to the same period last year. Despite a GAAP net loss of $35.1 million, the Company had an Adjusted EBITDA of $152.2 million. The results were affected by the Change Healthcare cyberattack and a modular customer bankruptcy. The CEO, Lee Rivas, highlighted the company's technology platform and global scale. The updated outlook for 2024 includes revenue expectations of $2.60 billion to $2.64 billion, GAAP operating income of $85 million to $105 million, and Adjusted EBITDA of $625 million to $650 million.

Positive

• R1 RCM Inc. reported a revenue increase of 10.7% in the First Quarter of 2024 compared to the same period last year.

• The Company's CEO emphasized the strength and flexibility of their technology platform and global scale.

• R1 RCM Inc. updated its 2024 outlook with revenue expectations of $2.60 billion to $2.64 billion and Adjusted EBITDA of $625 million to $650 million.

Negative

• R1 RCM Inc. experienced a GAAP net loss of $35.1 million in the First Quarter of 2024.

• The results were impacted by the Change Healthcare cyberattack and a modular customer bankruptcy.

• The updated outlook for 2024 reflects increased expenses to support customers and the impact of the cyberattack on collections timing and claims inflows.

Insights

Financial Analyst

R1 RCM Inc.'s reported revenue increase to $603.9 million marks a substantial growth of 10.7% year-over-year. While the revenue trajectory appears positive, the GAAP net loss of $35.1 million is a point of concern, as it contrasts with a net income of $1.6 million in the same period last year. The net loss is significantly influenced by one-off events such as the Change Healthcare cyberattack and a client's bankruptcy. However, the growth in adjusted EBITDA from $142.2 million to $152.2 million suggests that the underlying operational efficiency remains intact. A critical financial indicator for investors is the updated 2024 outlook projecting revenues between $2.60 billion to $2.64 billion and an adjusted EBITDA of $625 million to $650 million. This forward guidance is important as it signals management's expectations despite recent setbacks. As a result, investors should monitor R1's ability to mitigate impacts from the cyberattack and client issues and focus on the company's execution against its technology roadmap.

Cybersecurity Analyst

The reference to the Change Healthcare cyberattack highlights cybersecurity risk as a critical factor impacting R1 RCM's financials. Cyber incidents like these can have a substantial short-term financial impact due to immediate costs and potentially longer-term consequences due to reputational damage and loss of trust. The cyberattack's cost of $9.5 million underscores the need for robust cybersecurity measures and incident response planning. Investors should consider cybersecurity resilience as an increasingly important aspect of company valuation. The incident may prompt R1 RCM to bolster its security framework, which could lead to increased operational costs yet would be essential to safeguard against future threats. This proactive approach towards cybersecurity may differentiate R1 in the healthcare technology sector, giving investors an additional lens through which to assess the company's long-term prospects.

Healthcare Technology Market Analyst

R1 RCM's emphasis on the strength and flexibility of its technology platform aligns with the healthcare industry's continued shift towards digital transformation. Their focus on aligning strategy with their customers' business needs signals an understanding of the importance of customer-centric solutions in the healthcare tech space. The onboarding of their largest new customer is indicative of R1’s competitive positioning within the market. Despite the adverse events of the cyberattack and a major customer's bankruptcy, the company's increased guidance for the remainder of 2024 suggests confidence in their business model and market demand. Investors should weigh the company's ability to navigate industry-specific challenges and realize the revenue potential from their expanding client base. The intersection of technology and healthcare is evolving and R1's commitment to their technology roadmap could be indicative of their potential to capture more market share and create shareholder value over the long term.

MURRAY, Utah, May 08, 2024 (GLOBE NEWSWIRE) -- R1 RCM Inc. (NASDAQ: RCM) (“R1” or the “Company”), a leading provider of technology-driven solutions that transform the financial performance and patient experience for health systems, hospitals, and physician groups, today announced results for the three months ended March 31, 2024 and updated full year 2024 outlook.

First Quarter 2024 Results:

• Revenue of $603.9 million, up $58.3 million or 10.7% compared to the same period last year.
• GAAP net loss of $35.1 million, compared to net income of $1.6 million in the same period last year.
• Adjusted EBITDA of $152.2 million, compared to adjusted EBITDA of $142.2 million in the same period last year.
  

The quarter reflects impacts of the Change Healthcare cyberattack totaling $9.5 million for revenue and adjusted EBITDA as well as additional impact from a modular customer bankruptcy.

“First quarter results reflect the strength and flexibility of our technology platform, our people, and our global scale. While addressing the impact of the Change Healthcare cyberattack, R1 continued to deliver operationally and began the onboarding of our largest new customer,” stated Lee Rivas, R1’s CEO. “Looking ahead, we will remain focused on executing against our technology roadmap, delivering excellent results, and aligning our strategy to our customers’ business, while achieving measurable results for our shareholders.”

2024 Updated Outlook

For 2024, R1 now expects to generate:

• Revenue of $2.60 billion to $2.64 billion
• GAAP operating income of $85 million to $105 million
• Adjusted EBITDA of $625 million to $650 million
  

The updated guidance reflects the impacts of the Change Healthcare cyberattack on first quarter and expected full year 2024 revenue related to collections timing, claims inflows, and the ability to meet key performance metrics, as well as increased expenses to support our customers.

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 888-596-4144 (646-968-2525 outside the U.S. and Canada) using conference code number 9123341. 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, including the amortization of cloud computing arrangement implementation fees, share-based compensation expense, CoyCo 2, L.P. (“CoyCo 2”) share-based compensation expense, and certain other items, including acquisition and integration costs, various exit activities costs, strategic and transformation initiatives costs, costs related to organization changes to improve business alignment and cost structure, and costs related to review of strategic alternatives and stockholder litigation. 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 8 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” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this press release are forward-looking statements. The words “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 are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such forward-looking statements include, among other things, statements about the Company’s review of strategic alternatives, strategy, future operations, future financial position, prospects, plans, challenges faced by health systems and their revenue cycle operations and the role of business therein, objectives of management, ability to successfully deliver on commitments to customers, impacts of the Change Healthcare cyberattack and a customer bankruptcy on the business, ability to deploy new business as planned, ability to successfully implement new technologies, ability to complete or integrate acquisitions as planned and to realize the expected benefits from acquisitions, including the acquisition of Acclara, the expected outcome or impact of pending or threatened litigation, and expected market growth. 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 the Company’s actual results to differ materially from those expressed or implied in its 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 does not undertake to update its 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. The Company’s 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 impact that the review of strategic alternatives could have on the business or stock price; the outcome and timing of the review of strategic alternatives and a suspension thereof; economic downturns and market conditions beyond the Company’s control, including high inflation; the quality of global financial markets; the Company’s ability to timely and successfully achieve the anticipated benefits and potential synergies of the acquisitions of Cloudmed and Acclara; the Company’s ability to retain existing customers or acquire new customers; the development of markets for the Company’s revenue cycle management offering; variability in the lead time of prospective customers; competition within the market; breaches or failures of the Company’s or their vendors’ information security measures or unauthorized access to a customer’s data; delayed or unsuccessful implementation of the Company’s technologies or services, or unexpected implementation costs; disruptions in or damages to the Company’s global business services centers, third-party operated data centers or other services provided by other third-parties; the volatility of the Company’s stock price; the Company’s substantial indebtedness; and the factors set forth under the heading “Risk Factors” in the Company’s most recent annual report on Form 10-K, and any other periodic reports that the Company may file with the U.S. Securities and Exchange Commission.

About R1 RCM

R1 is a leading provider of technology-driven solutions that transform the financial performance and patient experience for health systems, hospitals, and physician groups. 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 driving revenue yield, reducing operating costs, and enhancing the patient experience. To learn more, visit: r1rcm.com.

Contact:

R1 RCM Inc.

Investor Relations:

Evan Smith, CFA
516-743-5184
investorrelations@r1rcm.com

Media Relations:

Joshua Blumenthal
678-895-9401
media@r1rcm.com

Table 1
R1 RCM Inc.
Consolidated Balance Sheets
(In millions)
	(Unaudited)
	March 31,				December 31,
	2024				2023
Assets
Current assets:
Cash and cash equivalents	$	178.0			$	173.6
Accounts receivable, net of $46.7 million and $48.2 million allowance as of March 31, 2024 and December 31, 2023, respectively		291.4				243.3
Accounts receivable - related party, net of $0.1 million allowance as of March 31, 2024 and December 31, 2023		26.5				26.1
Current portion of contract assets, net		96.3				94.4
Prepaid expenses and other current assets		107.9				95.9
Total current assets		700.1				633.3
Property, equipment and software, net		186.6				173.7
Operating lease right-of-use assets		72.6				62.5
Non-current portion of contract assets, net		41.4				37.7
Non-current portion of deferred contract costs		33.3				30.4
Intangible assets, net		1,626.5				1,310.7
Goodwill		3,049.4				2,629.4
Deferred tax assets		10.9				10.9
Other assets		74.4				71.6
Total assets	$	5,795.2			$	4,960.2
Liabilities
Current liabilities:
Accounts payable	$	27.1			$	22.7
Current portion of customer liabilities		37.6				39.8
Current portion of customer liabilities - related party		5.7				5.2
Accrued compensation and benefits		98.7				126.3
Current portion of operating lease liabilities		21.7				19.3
Current portion of long-term debt		91.0				67.0
Accrued expenses and other current liabilities		110.2				65.9
Total current liabilities		392.0				346.2
Non-current portion of customer liabilities		3.5				2.7
Non-current portion of customer liabilities - related party		11.3				11.8
Non-current portion of operating lease liabilities		87.4				77.8
Long-term debt		2,189.6				1,570.5
Deferred tax liabilities		263.1				176.6
Other non-current liabilities		24.7				23.2
Total liabilities		2,971.6				2,208.8
Stockholders’ equity:
Common stock		4.5				4.5
Additional paid-in capital		3,306.6				3,197.4
Accumulated deficit		(171.8	)			(136.7	)
Accumulated other comprehensive loss		(5.2	)			(5.9	)
Treasury stock		(310.5	)			(307.9	)
Total stockholders’ equity		2,823.6				2,751.4
Total liabilities and stockholders’ equity	$	5,795.2			$	4,960.2

Table 2
R1 RCM Inc.
Consolidated Statements of Operations (Unaudited)
(In millions, except share and per share data)
	Three Months Ended March 31,
	2024				2023
Net operating fees	$	381.5			$	361.0
Incentive fees		15.6				23.6
Modular and other		206.8				161.0
Net services revenue		603.9				545.6
Operating expenses:
Cost of services		497.6				434.7
Selling, general and administrative		64.4				47.0
Other expenses		33.9				30.2
Total operating expenses		595.9				511.9
Income from operations		8.0				33.7
Net interest expense		41.3				30.7
Income (loss) before income tax provision		(33.3	)			3.0
Income tax provision		1.8				1.4
Net income (loss)	$	(35.1	)		$	1.6
Net income (loss) per common share:
Basic	$	(0.08	)		$	—
Diluted	$	(0.08	)		$	—
Weighted average shares used in calculating net income (loss) per common share:
Basic		420,427,136				417,346,840
Diluted		420,427,136				452,925,789

Table 3
R1 RCM Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In millions)
	Three Months Ended March 31,
	2024				2023
Operating activities
Net income (loss)	$	(35.1	)		$	1.6
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		78.3				66.0
Amortization of debt issuance costs		1.8				1.4
Share-based compensation		30.2				10.5
CoyCo 2 share-based compensation		1.8				1.8
Provision (recoveries) for credit losses		(0.5	)			1.5
Deferred income taxes		1.6				0.5
Non-cash lease expense		3.4				2.9
Other		1.8				—
Changes in operating assets and liabilities:
Accounts receivable and related party accounts receivable		0.1				4.7
Contract assets		(5.6	)			(4.0	)
Prepaid expenses and other assets		1.3				8.2
Accounts payable		(0.3	)			(10.9	)
Accrued compensation and benefits		(49.5	)			(24.5	)
Lease liabilities		(5.4	)			(4.4	)
Other liabilities		25.4				9.7
Customer liabilities and customer liabilities - related party		(2.6	)			(10.3	)
Net cash provided by operating activities		46.7				54.7
Investing activities
Purchases of property, equipment, and software		(24.4	)			(23.4	)
Acquisition of Acclara, net of cash acquired		(661.9	)			—
Other		(12.1	)			(2.2	)
Net cash used in investing activities		(698.4	)			(25.6	)
Financing activities
Issuance of senior secured debt, net of discount and issuance costs		561.5				—
Borrowings on revolver		80.0				—
Repayment of senior secured debt		—				(12.4	)
Repayments on revolver		—				(10.0	)
Refund of inducement dividend		16.4				—
Exercise of vested stock options		0.6				0.5
Shares withheld for taxes		(2.3	)			(13.4	)
Other		(0.1	)			(0.1	)
Net cash provided by (used in) financing activities		656.1				(35.4	)
Effect of exchange rate changes in cash, cash equivalents and restricted cash		—				0.4
Net increase (decrease) in cash, cash equivalents and restricted cash		4.4				(5.9	)
Cash, cash equivalents and restricted cash, at beginning of period		173.6				110.1
Cash, cash equivalents and restricted cash, at end of period	$	178.0			$	104.2

Table 4
R1 RCM Inc.
Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted EBITDA (Unaudited)
(In millions)
	Three Months Ended March 31,							2024 vs. 2023  Change
	2024				2023			Amount				%
Net income (loss)	$	(35.1	)		$	1.6		$	(36.7	)		n.m.
Net interest expense		41.3				30.7			10.6			35	%
Income tax provision		1.8				1.4			0.4			29	%
Depreciation and amortization expense		78.3				66.0			12.3			19	%
Share-based compensation expense		30.2				10.5			19.7			188	%
CoyCo 2 share-based compensation expense		1.8				1.8			—			—	%
Other expenses (1)		33.9				30.2			3.7			12	%
Adjusted EBITDA (non-GAAP)	$	152.2			$	142.2		$	10.0			7	%

(1) For details, see Note 9 to the Condensed Consolidated Financial Statements included in the Company’s Quarterly Report on Form 10-Q.

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,
	2024			2023
Cost of services	$	497.6		$	434.7
Less:
Share-based compensation expense		18.3			6.4
CoyCo 2 share-based compensation expense		0.5			0.5
Depreciation and amortization expense		77.7			65.6
Non-GAAP cost of services	$	401.1		$	362.2

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,
	2024			2023
Selling, general and administrative	$	64.4		$	47.0
Less:
Share-based compensation expense		11.9			4.1
CoyCo 2 share-based compensation expense		1.3			1.3
Depreciation and amortization expense		0.6			0.4
Non-GAAP selling, general and administrative	$	50.6		$	41.2

Table 7
R1 RCM Inc.
Reconciliation of GAAP Operating Income Guidance to Non-GAAP Adjusted EBITDA Guidance (Unaudited)
(In millions)
	2024E
GAAP Operating Income Guidance	$85-105
Plus:
Depreciation and amortization expense	$330-350
Share-based compensation expense	$85-95
Strategic initiatives, severance and other costs	$105-120
Adjusted EBITDA Guidance	$625-650

Table 8
R1 RCM Inc.
Reconciliation of Total Debt to Net Debt (Unaudited)
(In millions)
	March 31,			December 31,
	2024			2023
Senior Revolver	$	80.0		$	—
Term A Loans		1,162.5			1,162.5
Term B Loans		1,068.8			493.8
Total debt		2,311.3			1,656.3
Less:
Cash and cash equivalents		178.0			173.6
Net Debt	$	2,133.3		$	1,482.7

FAQ

What was R1 RCM Inc.'s revenue in the First Quarter of 2024?

R1 RCM Inc. reported a revenue of $603.9 million in the First Quarter of 2024, reflecting a 10.7% increase compared to the same period last year.

What was the GAAP net loss for R1 RCM Inc. in the First Quarter of 2024?

R1 RCM Inc. experienced a GAAP net loss of $35.1 million in the First Quarter of 2024.

What is the updated revenue outlook for R1 RCM Inc. in 2024?

R1 RCM Inc. expects to generate revenue of $2.60 billion to $2.64 billion for the full year 2024.

What is the Adjusted EBITDA guidance for R1 RCM Inc. in 2024?

R1 RCM Inc. has an Adjusted EBITDA guidance of $625 million to $650 million for the full year 2024.