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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549____________
FORM 8-K____________CURRENT REPORT
Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of
1934
Date of Report (Date of earliest event reported): March 9,
2018____________
R1 RCM Inc.(Exact Name of Registrant as Specified in Charter)
____________Delaware 001-34746 02-0698101
(State or Other Jurisdictionof Incorporation)
(CommissionFile Number)
(IRS EmployerIdentification No.)
401 North Michigan Avenue, Suite 2700, Chicago, Illinois
60611(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (312)
324-7820
(Former Name or Former Address, if Changed Since Last
Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of theSecurities Exchange Act of 1934 (17 CFR §240.12b-2).Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 2.02 Results of Operations and Financial Condition.
On March 9, 2018, R1 RCM Inc. (the “Company”) announced its financial results for its fiscal year ended December 31, 2017. The full text of the press release issued inconnection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The slide presentation to be used in conjunction with the investor conferencecall referenced in the press release is furnished as Exhibit 99.2 to this Current Report on Form 8-K and will be posted on the Company’s website.
The information in this Form 8-K (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the“Exchange
Act”) or otherwise subject to
the liabilities of that section,
nor shall it be deemed
incorporated by reference in any
filing under the Securities Act
of 1933 or
theExchange Act, except as expressly set forth by specific reference in such a filing.
1
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibit Number Description 99.1
Press Release of R1 RCM Inc., dated March 9, 2018
99.2 March 9, 2018 Slide Presentation
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto dulyauthorized.
Date: March 9, 2018
R1 RCM Inc.
By:
/s/ Christopher S. Ricaurte
Christopher S. Ricaurte
Chief Financial Officer and Treasurer
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Exhibit 99.1
R1 RCM Reports Fourth Quarter and Full Year 2017 Results
CHICAGO - March 9, 2018 -
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 and year ended December 31, 2017.
Fourth Quarter 2017 Results:
•
GAAP net services revenue of $140.3 million, up $17.1 million sequentially
•
GAAP operating loss of $3.7 million, better by $1.4 million sequentially
•
GAAP net loss of $40.2 million, down $36.6 million sequentially
•
Adjusted EBITDA of $5.7 million, up $2.6 million sequentially
•
GAAP cash flow from operating activities of $25.2 million, up $6.6 million sequentially
Full Year 2017 Results:
•
GAAP net services revenue of $449.8 million
•
GAAP operating loss of $27.5 million
• GAAP net loss of $58.8 million
• Adjusted EBITDA of $4.1 million
•
GAAP cash flow from operating activities of $20.9 million
“In 2017, we made significant progress in returning the company to a path of sustained profitability, and in the fourth quarter we generated our sixth
consecutive quarter of revenue growth” said Joe Flanagan, President and Chief Executive Officer of R1. “We continue to invest in enhancing our value
proposition and positioning in the market. The new business wins we have announced to date in 2018 are indicative of the value we deliver and market
dynamics.”
“We are pleased to have generated positive adjusted EBITDA and cash flow from operating activities in the second half of 2017, which was a key milestone
for us,” added Chris Ricaurte, Chief Financial Officer and Treasurer of R1. “We remain focused on driving our performance to achieve the financial and
strategic objectives we have provided for 2018.”
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Preliminary 2018 Outlook
Subject to close of the recently announced Intermedix transaction and related accounting changes, for 2018, R1 expects to generate:
•
Revenue of between $850 million and $900 million
•
GAAP operating loss of $30 million to $55 million
•
Adjusted EBITDA of $50 to $55 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 866-393-4306 (734-385-2616 outside the U.S. and Canada) using conference code number 6999396. 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 measures, which are included in this press release.
ForthethreemonthsandyearendedDecember31,2017:As of January 1, 2017, the Company adopted Accounting Standards Update ("ASU") No. 2014-
09, Revenue from Contracts with Customers (Topic 606). Subsequent to adoption of Topic 606, the non-GAAP financial measure referenced in the press
release is adjusted EBITDA. Adjusted EBITDA is defined as GAAP net income before net interest income, income tax provision, depreciation and
amortization expense, share-based compensation expense, and severance & certain other items.
ForthethreemonthsandyearendedDecember31,2016:Prior to the adoption of Topic 606, non-GAAP financial measures utilized by the company
included gross cash generated from customer contracting activities, and net cash generated from customer contacting activities. Gross cash generated from
customer contracting activities was defined as GAAP net services revenue, plus the change in deferred customer billings. Accordingly, gross cash generated
from customer contracting activities was the sum of (i) invoiced or accrued net operating fees, (ii) cash collections on incentive fees and (iii) other services
fees. Net cash generated from customer contracting activities
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was defined as net income before net interest income, income tax provision, depreciation and amortization expense, share-based compensation expense,
severance and certain other items, and change in deferred customer billings. Deferred customer billings included the portion of both (i) invoiced or accrued
net operating fees and (ii) cash collections of incentive fees, in each case, that did not meet our prior revenue recognition criteria. Deferred customer billings
are included in the detail of our customer liabilities and customer liabilities - related party balance in the consolidated balance sheets available in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
Our board and management team use non-GAAP measures 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 and 5 present a reconciliation of GAAP net services revenue to gross cash generated from customer contracting activities, GAAP net income to
adjusted EBITDA, and GAAP net income to net cash generated from customer contracting activities. Table 9 presents a reconciliation of GAAP operating
income guidance to non-GAAP adjusted EBITDA guidance. Adjusted EBITDA and net cash generated from customer contracting activities are non-GAAP
measures and 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. 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
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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, our ability to enter into a contract to provide services to Presence Health, our ability to
enter into a contract to provide services to Ascension Medical Group, our ability to close the acquisition of and integrate the Intermedix business as planned,
our ability to successfully deliver on our commitments to Intermountain and Ascension, and the factors discussed under the heading “Risk Factors” in our
annual report on Form 10-K for the year ended December 31, 2017 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 model, the R1 Performance Stack ℠ , seamlessly complements 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 [email protected]
Media Relations:Natalie [email protected]
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Table 1R1 RCM Inc.
Consolidated Balance Sheets(In millions)
December 31, December 31, 2017
2016Assets Current assets:
Cash and cash equivalents
$ 164.9 $ 181.2Accounts receivable, net
8.2
4.0Accounts receivable, net - related party
15.4 1.8Prepaid income taxes 0.6
3.8Prepaid expenses and other current assets
13.2 13.8Total current assets 202.3
204.6Property, equipment and software, net
48.3
32.8Non-current deferred tax asset 70.5
169.9Restricted cash 1.5
1.5Other assets 13.4 6.3Total assets
$ 336.0 $ 415.1
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable $ 7.2 $
7.9Current portion of customer liabilities
1.1
69.7Current portion of customer liabilities - related party
27.1
14.2Accrued compensation and benefits 37.8
24.8Other accrued expenses 16.7
18.5Total current liabilities 89.9
135.1Non-current portion of customer liabilities
—
1.0Non-current portion of customer liabilities - related party
11.5 110.0Other non-current liabilities
11.9 9.7Total liabilities $ 113.3
$ 255.8
Preferred Stock 189.3 171.6Stockholders’
equity (deficit): Common stock
1.2 1.2Additional paid-in capital
337.9 349.2Accumulated deficit (244.5)
(304.7)Accumulated other comprehensive loss
(1.6) (2.8)Treasury stock (59.6)
(55.2)Total stockholders’ equity (deficit)
33.4
(12.3)Total liabilities and stockholders’ equity (deficit)
$ 336.0 $ 415.1
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Table 2R1 RCM Inc.
Consolidated Statements of Operations(In millions, except share
and per share data)
Three Months Ended December 31, Year Ended
December 31, 2017 2016 2017
2016RCM services: net operating fees $
119.4 $ 68.5 $ 374.8 $
368.8RCM services: incentive fees 8.8
24.8 29.0 191.3RCM services: other
3.8 8.0 13.6 16.3Other services fees
8.3 4.8 32.4
16.1Net services revenue 140.3 106.2
449.8 592.6Operating expenses:
Cost of services
127.2 62.1 416.3
199.7Selling, general and administrative 14.7
15.7 56.3 74.1Other 2.1 0.8
4.7 20.8Total operating expenses
144.0 78.6 477.3
294.7Income (loss) from operations (3.7)
27.6 (27.5) 297.9Net interest income
0.1 0.1 0.2
0.3Income (loss) before income taxprovision
(3.6) 27.7 (27.3)
298.2Income tax provision (benefit) 36.6
14.5 31.5 121.1
Net income (loss) $ (40.2) $ 13.2
$ (58.8) $ 177.1
Net income (loss) per common share:
Basic
$ (0.44) $ 0.65 $ (0.75) $ 0.65Diluted
$ (0.44) $ 0.65 $ (0.75) $
0.65Weighted average shares used incalculating net income (loss) percommon share:
Basic
102,180,517 100,160,206 102,062,051
100,160,206Diluted 102,180,517 100,160,206
102,062,051 100,160,206
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Table 3R1 RCM Inc.
Consolidated Statements of Cash Flows(In millions)
Twelve Months Ended December 31, 2017
2016Operating activities
Net income (loss) $ (58.8) $
177.1Adjustments to reconcile net income (loss) to net cash used in operations:
Depreciation and amortization 16.3
10.2Share-based compensation 10.7
29.8Loss on disposal 0.2
0.2Allowance for doubtful accounts 0.3
—Deferred income taxes 29.7
121.8Changes in operating assets and liabilities:
Accounts receivable and related party accounts receivable
(13.0) 4.4Prepaid income taxes 3.2
(2.8)Prepaid expenses and other assets
(5.8) (6.9)Accounts payable (0.3)
1.2Accrued compensation and benefits 12.9
15.7Other liabilities 1.5
1.1Customer liabilities and customer liabilities - related party
24.0 (440.1)
Net cash provided by (used in) operating activities
20.9 (86.9)Investing activities
Purchases of property, equipment, and software
(33.6)
(12.6)Proceeds from maturation of short-term investments
— 1.0
Net cash used in investing activities
(33.6) (11.6)Financing activities
Series A convertible preferred stock and warrant issuance, net of issuancecosts
—
178.7Exercise of vested stock options
0.2 0.2Purchase of treasury stock
(2.5) (0.4)Shares withheld for taxes
(1.9) (2.0)
Net cash (used in) provided by financing activities
(4.2)
176.5Effect of exchange rate changes in cash
0.6
(0.3)Net increase (decrease) in cash and cash equivalents
(16.3)
77.7Cash and cash equivalents, at beginning of period
181.2
103.5Cash and cash equivalents, at end of period
$ 164.9 $ 181.2
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Table 4R1 RCM Inc.
Reconciliation of GAAP to Non-GAAP(In millions)
Three Months Ended
December 31, 2017 vs. 2016 Change Year Ended
December 31, 2017 vs. 2016 Change 2017
2016 Amount % 2017 2016 Amount
% (Unaudited)
(Unaudited)
RCM services: net operating fees $
119.4 $ 68.5 $ 50.9 74.3 % $ 374.8
$ 368.8 $ 6.0
1.6 %RCM services: incentive fees 8.8
24.8 (16.0) (64.5)% 29.0 191.3
(162.3) (84.8)%RCM services: other
3.8 8.0 (4.2) (52.5)% 13.6 16.3
(2.7) (16.6)%Other services fees 8.3
4.8 3.5 72.9 % 32.4 16.1
16.3 101.2 %Net Services Revenue $ 140.3
$ 106.2 $ 34.1 32.1 % $ 449.8
$ 592.6 $ (142.8) (24.1)%
Change in deferred
customerbillings (non-GAAP) (1) n.a.
(36.3) n.m. n.m. n.a. (383.9)
n.m. n.m.
Gross cash generated fromcustomer contracting activities
(non-GAAP) n.a. $ 69.9 n.m. n.m.
n.a. $ 208.7 n.m. n.m.
Net income (loss) $ (40.2)
$ 13.2 $ (53.4) (404.5)% $ (58.8)
$ 177.1 $ (235.9) (133.2)%
Net interest income (0.1) (0.1) —
— % (0.2) — (0.3) 0.1
(33.3)%Income tax provision (benefit) 36.6
14.5 22.1 152.4 % 31.5
121.1 (89.6) (74.0)%Depreciation and
amortizationexpense (GAAP) 4.8 2.9
1.9 65.5 % 16.3 10.2 6.1
59.8 %Share-based compensationexpense (GAAP)
2.5 4.6 (2.1) (45.7)% 10.7 28.1
(17.4) (61.9)%Other (GAAP) 2.1 0.8
1.3 162.5 % 4.7 20.8 (16.1)
(77.4)%
Adjusted EBITDA (non-GAAP) $ 5.7 $ 35.9 $
(30.2) (84.1)% $ 4.1 $ 357.0 $ (352.9)
(98.9)%Change in deferred customer
billings(non-GAAP) (1) n.a. (36.3)
n.m. n.m. n.a. (383.9) n.m.
n.m.Net cash generated from customercontracting activities
(non-GAAP) n.a. $ (0.4) n.m. n.m.
n.a. $ (26.8) n.m. n.m.
n.m. - not meaningfuln.a. - Due to the adoption of Topic 606 as of January 1, 2017, the non-GAAP measure of gross and net cash generated from customer contracting activities, that was utilized by theCompany in 2016, is not applicable for 2017. Gross and net cash generated from customer contracting activities has been provided for the three months and year ended December 31,2016 as they are the most comparable metric to net services revenue and adjusted EBTIDA for the three months and year ended December 31, 2017.
Due to rounding, numbers presented in this table may not add up precisely to the totals provided.
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Table 5R1 RCM Inc.
Reconciliation of GAAP to Non-GAAP(In millions)
Three Months Ended September 30, 2017
(Unaudited)Net income (loss)
(3.6)Net interest income
—Income tax provision (benefit)
(1.5)Depreciation and amortization expense (GAAP)
4.5Share-based compensation expense (GAAP)
2.4Other (GAAP) 1.4Adjusted EBITDA (non-GAAP)
$ 3.1
Table 6R1 RCM Inc.
Reconciliation of GAAP Cost of Services to Non-GAAP Cost of
Services(In millions)
Three Months Ended
December 31, Twelve Months Ended
December 31, 2017 2016 2017
2016Cost of services 127.2 62.1
416.3 199.7Less:
Share-based compensation expense 1.2
1.3 4.5
6.1Depreciation and amortization expense 4.1
2.6 14.5 9.5
Non-GAAP cost of services $ 121.9 $ 58.2 $
397.3 $ 184.1
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Table 7R1 RCM Inc.
Reconciliation of GAAP Selling, General and Administrative to
Non-GAAP Selling, General and Administrative(In millions)
Three Months Ended
December 31, Twelve Months Ended
December 31, 2017 2016 2017
2016Selling, general and administrative $
14.7 $ 15.7 $ 56.3 $ 74.1Less:
Share-based compensation expense 1.3
3.3 6.1
22.0Depreciation and amortization expense 0.7
0.3 1.8 0.7
Non-GAAP selling, general and administrative $ 12.7
$ 12.1 $ 48.4 $ 51.4
Table 8R1 RCM Inc.
Reconciliation of GAAP Net Services Revenue to Non-GAAP Gross
Cash Generated from Customer ContractingActivities
(In millions)
Three Months Ended
December 31, 2016 Year Ended December 31, 2016
Net Services
Revenue
Change indeferredcustomerbillings
Gross cashgenerated
Net ServicesRevenue
Change indeferredcustomerbillings
Gross cashgenerated
RCM services: netoperating fees $ 68.5 $ (12.8) $
55.7 $ 368.8 $ (218.3) $
150.5RCM services: incentivefees 24.8 (19.5) 5.3
191.3 (162.2) 29.1RCM services: other 8.0 (3.9) 4.1
16.3 (3.3) 13.0Other services fees 4.8 — 4.8
16.1 — 16.1
Total $ 106.2 $ (36.2) $ 69.9 $ 592.6 $ (383.8) $
208.7
(1) Due to the adoption of Topic 606 as of January 1, 2017, the non-GAAP measure of gross cash generated from customer contracting activities that was utilized by the Companyin 2016 is not applicable for 2017. Gross cash generated from customer contracting activities has been provided for the three months and year ended December 31, 2016 as it is themost comparable metric to net services revenue for the three months and year ended December 31, 2017.
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Table 9R1 RCM Inc.
Condensed Consolidated Non-GAAP Financial Information(In
millions)
Three Months Ended December 31, Year Ended
December 31, 2017 2016 2017 2016
(Unaudited)
(Unaudited)RCM services: net operating fees
$ 119.4 $ 55.7 $ 374.8 $
150.5RCM services: incentive fees 8.8
5.3 29.0 29.1RCM services: other 3.8
4.1 13.6 13.0Other services fees
8.3 4.8 32.4 16.1Net services revenue
(GAAP) (2017),Gross cash generated from customercontracting
activities (non-GAAP) (2016)(2) $ 140.3 $ 69.9
$ 449.8 $ 208.7
Operating expenses (1) :
Cost of services (non-GAAP)
121.9 58.2 397.3
184.1 Selling, general and administrative(non-GAAP)
12.7 12.1 48.4 51.4Sub-total $
134.6 $ 70.3 $ 445.7 $ 235.5
Adjusted EBITDA (non-GAAP) (2017),Net cash generated from
customercontracting activities (non-GAAP) (2016)(2) $ 5.7
$ (0.4) $ 4.1 $ (26.8)
(1) Excludes share-based compensation, depreciation and amortization and other costs(2) Due to the adoption of Topic 606 as of January 1, 2017, the non-GAAP measure of gross and net cash generated from customer contracting activities that were utilized by theCompany in 2016 are not applicable for 2017. Gross and net cash generated from customer contracting activities have been provided for the three months and year endedDecember 31, 2016 as they are the most comparable metric to net services revenue and adjusted EBITDA, respectively, for the three months and year ended December 31, 2017.
Due to rounding, numbers presented in this table may not add up precisely to the totals provided.
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Table 10R1 RCM Inc.
Reconciliation of GAAP Operating Income Guidance to non-GAAP
Adjusted EBITDA Guidance(In millions)
2018GAAP Operating Income Guidance
($30)-($55)Plus:
Depreciation and amortization expense
$25-$30Share-based compensation expense
$15-$20Amortization of intangibles
$15-$30Transaction expenses, severance and other costs
$15-$20Adjusted EBITDA Guidance $50-55
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Fourth Quarter and Full Year 2017 Results Conference Call March 9, 2018 Exhibit 99.2
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Forward-Looking Statements and Non-GAAP Financial Measures This presentation 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. 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 our ability to close the acquisition of and integrate the Intermedix business as planned, our ability to enter into contracts to provide services to Ascension Medical Group and Presence Health, our ability to successfully deliver on our commitments to Intermountain and Ascension, our ability to successfully integrate transitioned Ascension employees, our ability to achieve or maintain profitability and retain existing customers or acquire new customers, risks associated with the implementation of our technologies or services with our customers or implementation costs that exceed our expectations, fluctuations in our quarterly results of operations and cash flows, as well as the factors discussed under the heading “Risk Factors” in our annualreport on Form 10-K for the year ended December 31, 2017, and any other periodic reports that the Company files with the Securities and Exchange Commission. This presentation includes the following non-GAAP financial measures : Gross Cash Generated and Net Cash Generated from Customer Contracting Activities (on a historical basis), free cash flow (on a historical basis) and Adjusted EBITDA (on a historical and projected basis). Please refer to the Appendix located at the end of this presentation for a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measure.
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3 Q4 and Full Year 2017 Financial Highlights Fourth Quarter Financial Highlights ▪ Revenue of $140.3 million, up $17.1 million sequentially ▪ GAAP net loss of $40.2 million, down $36.6 million sequentially ▪ Adjusted EBITDA of $5.7 million, up $2.6 million sequentially ▪ Includes $0.5 million of legal costs primarily related to Intermountain contract Full Year 2017 Financial Highlights ▪ Revenue of $449.8 million ▪ GAAP net loss of $58.8 million ▪ Adjusted EBITDA of $4.1 million Additional Highlights ▪ $33 million free cash flow in 2H’17 ▪ Driven by positive adjusted EBITDA in 2H’17 and working capital
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4 2017 Highlights First Quarter ▪ Announced new company brand and vision ▪ Listed on Nasdaq and early-adopted ASC 606 accounting Second Quarter ▪ Expanded Ascension relationship in Wisconsin; added Physician business ▪ Launched Modular Solutions; followed by hiring of chief commercial officer Third Quarter ▪ Strategic partnership with Phreesia ▪ Launched front-end transformation pilot sites Fourth Quarter ▪ Completed buildout of commercial team ▪ Exited 2017 with robust qualified pipeline of new leads Overall 2017 ▪ Onboarded $8.5 billion in NPR ▪ Increased headcount by 4,700
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5 2018 Announcements Year-to-Date ▪ Intermountain Healthcare ▪ 10-year exclusive operating partner agreement, increases NPR under management by $800M ▪ R1 technology suite fully deployed across 23 hospitals, core platform for RCM workflow, data validation and analytics ▪ Onboarding expected to begin in April ▪ Presence Health ▪ Presence has $2.2 billion in NPR, including $100 million in Physician NPR ▪ Contract signing expected in Q2’18, and onboarding to begin shortly thereafter ▪ Intermedix ▪ Transaction expected to close in Q2’18, subject to HSR approval and other closing conditions ▪ Intermedix will add deep capabilities to serve non-acute markets, increase target addressable market by $40 billion, and accelerates onboarding of $3.2 billion in physician NPR ▪ Ascension Medical Group ▪ Contract signing expected in Q2’18, and onboarding scheduled to begin in Q3 or Q4 2018 ▪ Lessons learned from Wisconsin, and capacity/capability from Intermedix should allow for easier deployment and faster value creation
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6 Technology and Commercial Update ▪ Technology ▪ Announced general availability of R1 Patient Experience platform at HIMSS’18 ▪ R1 Automate – expect to have more than 100 RPA programs by year-end ▪ Intermedix to add full suite of physician practice management services and related technology ▪ Commercial ▪ Commercial effort fully ramped up, driving company’s awareness in the market ▪ Prospective customer funnel is growing ▪ Actively involved in discussions with integrated health systems ▪ Considerable inbound interest for both modular and end-to-end offerings
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7 2018 Goals Growth Goals ▪ Signing of new end-to-end agreement ▪ Launch patient experience platform Operational Goals ▪ High-quality deployment across newly signed business ▪ Expansion of R1 Automate capability Strategic Goals ▪ Close Intermedix acquisition ▪ Leverage Intermedix platform to deliver a highly differentiated physician-acute RCM platform to our customers and the market
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8 4Q’17 non-GAAP Results – Q/Q and Y/Y Comparison ($ in millions) 4Q’17 3Q’17 4Q’16 Key change driver(s) Revenue (for 2017); Gross Cash Generated (for 2016) $140.3 $123.2 $69.9 • Q/Q: Onboarding of Wisconsin • Y/Y: Onboarding of Phase 2 and Wisconsin Cost of Services (non-GAAP) $121.9 $106.6 $58.2 • Q/Q: Onboarding of Wisconsin employees • Y/Y: Onboarding of Phase 2 and Wisconsin employees SG&A (non-GAAP) $12.7 $13.4 $12.1 • Seasonality in Q3, and expansion of commercial efforts Adjusted EBITDA (for 2017); Net Cash Generated (for 2016) $5.7 $3.1 ($0.4) • Q/Q and Y/Y improvement due to EBITDA contribution from onboarded ABMs A reconciliation of non-GAAP to GAAP measures is provided in the Appendix of this presentation
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9 2017 vs. 2016 Results (non-GAAP) ($ in millions) 2017 2016 y/y chg. Key change driver(s) Revenue (for 2017); Gross Cash Generated (for 2016) $449.8 $208.7 115.6% • Onboarding of Ascension Phase-1 and Phase-2 Cost of Services (non-GAAP) $397.3 $184.1 115.8% • Onboarding of Ascension employees SG&A (non-GAAP) $48.4 $51.4 (5.9%) • Restructuring actions taken in 2016 • Executive-related severance in 2016 Adjusted EBITDA (for 2017); Net Cash Generated (for 2016) $4.1 ($26.8) N/A • Combination of above reasons
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10 Additional Commentary ▪ Cash and equivalents of $166 million as of 12/31/17, incl. restricted cash ▪ Increased $22 million from 9/30/17, driven by: ▪ $5.7 million adjusted EBITDA in Q4 ▪ Positive contribution from working capital ▪ $1.8M Acquisition-related diligence costs in Q4 2017 ▪ Continued diligence costs related to Intermedix acquisition ▪ Costs included in GAAP financials but not reflected in non-GAAP adjusted EBITDA
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11 Preliminary 2018 Financial Outlook1 ($ in millions) Prior 2018 Outlook (provided 1/8/18) Revenue $675 – $725 GAAP Operating Income $5 – $15 Adjusted EBITDA $40 – $50 NPR growth assumptions – $B New customer $3.0 Total $3.0 Updated 2018 Outlook (provided 2/28/18) $850 – $900 ($30)-($55) $50 – $55 NPR growth assumptions – $B Intermountain Health $4.6 Presence Health $2.2 Ascension Medical Group $2.0 Total $8.8 Note: Adjusted EBITDA is a non-GAAP measure, please refer to the Appendix for a reconciliation of non-GAAP financial measures. Updated guidance absorbs ~$25 million of upfront costs associated with onboarding of new business announced in 2018 Note1: Preliminary outlook subject to changes including but not limited to adoption of ASC 606 accounting for Intermedix, depreciation of fixed assets, purchase-price accounting for amortization of intangibles, signing of Ascension Medical Group and Presence Health contracts, and closing date of Intermedix acquisition.
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12 Preliminary 2020 Financial Outlook1 ($ in millions) Prior 2020 Outlook (provided 1/8/18) Revenue $800 – $900 GAAP Operating Income $80 – $100 Adjusted EBITDA $120 – $135 Updated 2020 Outlook (provided 2/26/18) $1,200 – $1,300 $115 – $155 $225 – $250 Note: Adjusted EBITDA is a non-GAAP measure, please refer to the Appendix for a reconciliation of non-GAAP financial measures. Note1: Preliminary outlook subject to changes including but not limited to adoption of ASC 606 accounting for Intermedix, depreciation of fixed assets, purchase-price accounting for amortization of intangibles, signing of Ascension Medical Group and Presence Health contracts, and closing date of Intermedix acquisition.
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Appendix
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14 Use of 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, which are included in this presentation. ▪ For the three months and year ended December 31, 2017: As of January 1, 2017, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). Subsequent to adoption of Topic 606, the non-GAAP financial measure referenced in the press release is adjusted EBITDA. Adjusted EBITDA is defined as GAAP net income before net interest income, income tax provision, depreciation and amortization expense, share-based compensation expense, and severance & certain other items. ▪ For the three months and year ended December 31, 2016: Prior to the adoption of Topic 606, non-GAAP financial measures utilized by the company included gross cash generated from customer contracting activities, and net cash generated from customer contracting activities. Gross cash generated from customer contracting activities was defined as GAAP net services revenue, plus the change in deferred customer billings. Accordingly, gross cash generated from customer contracting activities was the sum of (i) invoiced or accrued net operating fees, (ii) cash collections on incentive fees and (iii) other services fees. Net cash generated from customer contracting activities was defined as net income before net interest income, income tax provision, depreciation and amortization expense, share-based compensation expense, severance and certain other items, and change in deferred customer billings. Deferred customer billings included the portion of both (i) invoiced or accrued net operating fees and (ii) cash collections of incentive fees, in each case, that did not meet our prior revenue recognition criteria. Deferred customer billings are included in the detail of our customer liabilities and customer liabilities – related party balance in the condensed consolidated balance sheets available in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. ▪ Our Board and management team use non-GAAP measures as (i) one of the primary methods forplanning 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. ▪ Free cash flow is defined as cash flow from operations less capital expenditures. ▪ These adjusted measures are non-GAAP and should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP.
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15 Reconciliation of GAAP net services revenue to non-GAAP Gross Cash Generated from Customer Contracting Activities (for 2016 only) Due to the adoption of Topic 606 as of January 1, 2017, the non-GAAP measure of gross cash generated from customer contracting activities that was utilized by the Company in 2016 is not applicable for 2017. Gross cash generated from customer contracting activities has been provided for the three months and year ended December 31, 2016 as it is the most comparable metric to net services revenue for the three months and year ended December 31, 2017. Due to rounding, numbers presented in this table may not add up precisely to the totals provided. $ in millions Three Months Ended December 31, 2016 Year Ended December 31, 2016 Net Services Revenue Change in deferred customer billings Gross cash generated Net Services Revenue Change in deferred customer billings Gross cash generated RCM services: net operating fees $68.5 $(12.8 ) $55.7 $368.8 $(218.3 ) $150.5 RCM services: incentive fees 24.8 (19.5 ) 5.3 191.3 (162.2 ) 29.1 RCM services: other 8.0 (3.9 ) 4.1 16.3 (3.3 ) 13.0 Other services fees 4.8 — 4.8 16.1 — 16.1 Total $106.2 $(36.2 ) $69.9 $592.6 $(383.8 ) $208.7
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16 Reconciliation of GAAP to non-GAAP Financials n.m. - not meaningful n.a. - not applicable Due to the adoption of Topic 606 as of January 1, 2017, the non-GAAP measure of gross and net cash generated from customer contracting activities, that was utilized by the Company in 2016, is not applicable for 2017. Gross and net cash generated from customer contracting activities has been provided for the three months and year ended December 31, 2016 as they are the most comparable metric to net services revenue and adjusted EBTIDA for the three months and year ended December 31, 2017. Due to rounding, numbers may not add up precisely to the totals provided. Three Months Ended December 31, Three Months Ended September 30, Year Ended December 31, 2017 2016 2017 2016 2017 2016 (Unaudited) (Unaudited) RCM services: net operating fees $ 119.4 $ 68.5 $ 104.6 $49.0 $ 374.8 $ 368.8 RCM services: incentive fees 8.8 24.8 7.5 68.5 29.0 191.3 RCM services: other 3.8 8.0 2.8 3.8 13.6 16.3 Other services fees 8.3 4.8 8.3 4..2 32.4 16.1 Net Services Revenue $ 140.3 $ 106.2 $ 123.2 $125.5 $ 449.8 $ 592.6 Change in deferred customer billings (non-GAAP) n.a. (36.3 ) n.a. (65.8) n.a. (383.9 ) Gross cash generated from customer contracting activities (non-GAAP) n.a. $ 69.9 n.a. 59.7 n.a. $ 208.7 Net income (loss) $ (40.2 ) $ 13.2 $ (3.6) $37.4 $ (58.8 ) $ 177.1 Net interest income (0.1 ) (0.1 ) - (0.1) (0.2 ) — (0.3 ) Income tax provision (benefit) 36.6 14.5 (1.5) 24.1 31.5 121.1 Depreciation and amortization expense (GAAP) 4.8 2.9 4.5 2.7 16.3 10.2 Share-based compensation expense (GAAP) 2.5 4.6 2.4 4.8 10.7 28.1 Other (GAAP) 2.1 0.8 1.4 0.5 4.7 20.8 Adjusted EBITDA (non-GAAP) $ 5.7 $ 35.9 $ 3.1 $69.4 $ 4.1 $ 357.0 Change in deferred customer billings (non-GAAP) n.a. (36.3 ) n.a. (65.8) n.a. (383.9 ) Net cash generated from customer contracting activities (non-GAAP) n.a. $ (0.4 ) n.a. $3.6 n.a. $ (26.8 )
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17 Reconciliation of GAAP to non-GAAP Financials Reconciliation of GAAP Cash Flow from Operating Activities to Free Cash Flow (for 2H’17) $ in millions $ in millions $ in millions Reconciliation of GAAP Cost of Services to Non-GAAP Cost of Services Reconciliation of GAAP Selling, General and Administrative to Non-GAAP Selling, General and Administrative Three Months Ended December 31, Three Months Ended September 30, Twelve Months Ended December 31, 2017 2016 2017 2016 2017 2016 Cost f servic s 127.2 62.1 $ 111.8 $ 47.4 416.3 199.7 Less: Share-based compensation expense 1.2 1.3 1.2 1.3 4.5 6.1 Depreciation and amortization expense 4.1 2.6 4.0 2.6 14.5 9.5 Non-GAAP cost of services $ 121.9 $ 58.2 $ 106.6 $ 43.5 $ 397.3 $ 184.1 Three Months Ended December 31, Three Months Ended September 30, Twelve Months Ended December 31, 2017 2016 2017 2016 2017 2016 Selling, general a d dministrative $ 14.7 $ 15.7 $ 15.1 $ 16.2 $ 56.3 $ 74.1 Less: Share-based compensation expense 1.3 3.3 1.2 3.5 6.1 22.0 Depreciation and amortization expense 0.7 0.3 0.5 0.1 1.8 0.7 Non-GAAP selling, general and administrative $ 12.7 $ 12.1 $ 13.4 $ 12.6 $ 48.4 $ 51.4 Six months ended June 30, 2017 Twelve months ended December 31, 2017 Free cash flow change in 2H'17 Net cash provided by (used in) operating activities ($22.9) $20.9 $43.8 Less: Purchases of property, equipment, and software ( 3.2) ($33.6) ($10.4) Free cash flow during period ($46.1) ( 12.7) 33.
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18 Consolidated non-GAAP Financial Information $ in millions (1) Excludes share-based compensation, depreciation and amortization and other costs (2) Due to the adoption of Topic 606 as of January 1, 2017, the non-GAAP measure of gross and net cash generated from customer contracting activities that were utilized by the Company in 2016 are not applicable for 2017. Gross and net cash generated from customer contracting activities have been provided for the three months and year ended December 31, 2016 as they are the most comparable metric to net services revenue and adjusted EBITDA, respectively, for the three months and year ended December 31, 2017. Three Months Ended December 31, Year Ended December 31, 2017 2016 2017 2016 (Unaudited) (Unaudited) RCM services: net operating fees $ 119.4 $ 55.7 $ 374.8 $ 150.5 RCM services: incentive fees 8.8 5.3 29.0 29.1 RCM services: other 3.8 4.1 13.6 13.0 Other services fees 8.3 4.8 32.4 16.1 Net services revenue (GAAP) (2017), Gross cash generated from customer contracting activities (non-GAAP) (2016) (2) $ 140.3 $ 69.9 $ 449.8 $ 208.7 Operating expenses (1) : Cost of services (non-GAAP) 121.9 58.2 397.3 184.1 Selling, general and administrative (non- GA P) 12.7 12.1 48.4 51.4 Sub-total $ 134.6 $ 70.3 $ 445.7 $ 235.5 Adjusted EBITDA (non-GAAP) (2017), Net cash generated from customer contracting activities (non-GAAP) (2016) (2) $ 5.7 $ (0.4 ) $ 4.1 $ (26.8 )
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19 Reconciliation GAAP Operating Income Guidance to non-GAAP Adjusted EBITDA Guidance $ in millions Prior Outlook (provided on 1/08/18) Updated 2018 and 2020 Outlook (provided on 2/26/18) $ in millions 2018 2020 GAAP perating Income Guidance ($30)-($55) $115-$155 Plus: Depreciation and amortization expense $25-$30 $30-$40 Share-based compensation expense $15-$20 $20-$25 Amortization of intangibles $15-$30 $25-$40 Transaction expenses, severance and other costs $15-$20 $5-$10 Adjusted EBITDA Guidance $50-$55 $225-$250 2018 2020 GAAP Operating Income Guidance $5-$15 $80-$100 Plus: Depreciation and amortization expense $13-$18 $15-$20 Share-based compensation expense $15-$20 $15-$20 Severance and other costs $3-$5 $3-$5 Adjusted EBITDA Guidance $40-$50 $120-$135
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