Attached files

file filename
EX-99.2 - EX-99.2 - R1 RCM INC.d844430dex992.htm
8-K - 8-K - R1 RCM INC.d844430d8k.htm

Exhibit 99.1

 

LOGO

Accretive Health Completes Financial Restatement

and Provides Business Update

 

  Files 2013 10-K, including results for 2013 and 2012, and restated results for 2011

 

  Timing of revenue recognition places emphasis on cash generated from customer contracts; company introduces new non-GAAP measures

 

  Company serves 83 hospitals with collective net patient revenue of $17 billion

 

  Provides financial outlook for 2014 and 2015

CHICAGO – Dec. 30, 2014 – Accretive Health, Inc. (OTC Pink: ACHI) today announced that it has completed its financial restatement and filed its Annual Report on Form 10-K for the year ended December 31, 2013, which also includes results for the year ended December 31, 2012 and restated results for the year ended December 31, 2011.

“Completing the restatement is an important milestone for Accretive Health, and we appreciate the patience of our customers and shareholders as we worked through this process, as well as our employees for continuing to deliver outstanding service to our customers,” said Emad Rizk, M.D., President and Chief Executive Officer of Accretive Health. “While the restatement put our financial reporting on hold, we have focused on improving our operational execution and advancing our IT infrastructure during this period.”

The most significant result of the restatement is that, under generally accepted accounting principles (GAAP), the vast majority of revenue generated from Accretive Health’s revenue cycle agreements is recognized in periods substantially later than when the Company provides services to its customers. Revenue recognition occurs when Accretive Health and its customers reach a final determination of the value generated under the Company’s performance-based contracts. As a result, the Company believes that GAAP financial measures, on their own, may not provide shareholders with a full understanding of the Company’s operating and financial performance. Accordingly, the Company is focusing on certain non-GAAP measures to evaluate and convey additional information concerning its operating and financial performance. These non-GAAP measures are gross cash and net cash generated from customer contracting activities, each of which is described below.


Over the past year, Accretive Health has improved its operational discipline across the Company by strengthening its front line teams and standardizing service delivery models. These improvements, combined with an increase in technology investment in 2014, have led to greater predictability and accountability in the value delivered to the Company’s healthcare provider customers. In addition, the Company has strengthened its management team and Board of Directors, adding executives with strong operational experience and deep healthcare expertise.

“As reimbursement models in the healthcare industry evolve toward risk-sharing and the proactive management of patient populations, Accretive Health offers broad capabilities, delivered in collaboration with our customers, to help them address these financial and administrative challenges.” Rizk said. “Strategically this requires the deliberate and structured integration of our operational units into a comprehensive, but flexible end-to-end revenue cycle management solution, delivering predictable and measureable outcomes and operational excellence to our customers.”

Rizk added “Accretive Health moves forward with a renewed growth focus that offers its integrated revenue cycle expertise and analytics to large integrated delivery networks, which are being challenged by meeting the complexities associated with multiple value-based payment models.”

Peter Csapo, Chief Financial Officer and Treasurer, commented, “We are focused on managing our business with rigor and discipline. We are improving our internal control environment, and we expect to continue to achieve operating efficiencies as we invest in growth and focus on improving long-term profitability.”

Financial Restatement

The Form 10-K includes audited consolidated financial statements for the years ended December 31, 2012 and 2013, audited consolidated restated financial statements for the year ended December 31, 2011, unaudited consolidated quarterly results for the periods in 2013, and unaudited consolidated restated quarterly results for the periods in 2012 and 2011. The filing also includes selected unaudited restated financial information for the years ended December 31, 2009 and 2010.


Filing of the 2013 Form 10-K is a major step toward the Company becoming current in its filings with the SEC, and the Company will now shift financial reporting-related resources to complete its 2014 quarterly and annual filings.

As a result of the restatement, and in accordance with GAAP, the Company’s financial reporting is changing as described below:

 

    Base fees: The Company is presenting revenue recognized from base fee customer billings as a component of net services revenue called net operating fees. Net operating fees consist of (i) gross base fees invoiced to customers; less (ii) any cost savings shared with customers; less (iii) corresponding costs of customers’ revenue cycle operations which the Company undertakes to pay pursuant to its RCM agreements. Additionally, net operating fees include fixed fees received from customers.

 

    Timing of revenue recognition: The vast majority of revenue generated under the Company’s revenue cycle management (RCM) agreements is recognized in periods substantially later than when the Company provides its services, invoices and collects cash from its customers. The Company recognizes revenue under its RCM contracts upon reaching a final determination of the value generated for a customer, which often occurs at the end of a contract. Cash collections for incentive fees and invoiced net operating fees that do not yet meet revenue recognition criteria are added to deferred customer billings within the customer liabilities account on the Company’s balance sheet.

 

    Software capitalization: Costs associated with internally developed software are expensed, rather than capitalized. However, hardware and purchased software costs that advance the Company’s technology capabilities are capitalized in accordance with GAAP.

For purposes of better understanding Accretive Health’s operating and financial performance from period-to-period, the Company believes it is important to take into account the cash generated from provision of services to customers. As a result, the Company is providing the following non-GAAP measures to provide a more complete understanding of its business:

 

    Gross cash generated from customer contracting activities is defined as GAAP net services revenue, plus the change in deferred customer billings. Deferred customer billings include the portion of both (i) invoiced net operating fees and (ii) cash collections related to incentive fees, in each case, that have not met the Company’s revenue recognition criteria.


    Net cash generated from customer contracting activities is defined as net income before net interest income, provision for income taxes, depreciation and amortization expense, share-based compensation, and certain non-recurring costs, plus the change in deferred customer billings.

Financial Highlights

 

    On a GAAP basis, net services revenue was $504.8 million in 2013 as compared to $72.3 million in 2012. On a non-GAAP basis, gross cash generated from customer contracting activities was $251.6 million in 2013 as compared to $272.4 million in 2012.

 

    On a GAAP basis, net income was $130.1 million in 2013 as compared to a net loss of $119.7 million in 2012. On a non-GAAP basis, adjusted EBITDA was $268.7 million in 2013 as compared to a loss of $152.5 million in 2012 and net cash generated from customer contracting activities was $15.6 million in 2013 as compared to $47.6 million in 2012.

 

    The Company incurred restatement and other one-time costs of $34.0 million in 2013 and $3.7 million in 2012 related to litigation and other one-time items.

 

    The Company currently serves 83 hospitals with collective net patient revenue (NPR) of $17 billion. NPR represents net revenue collected annually by our customers from their patients and is not a measure of the revenue we recognize.

Outlook

Accretive Health expects to generate gross cash from customer contracting activities of $223 million to $233 million for 2014, and expects net cash generated from contracting activities to be in a range of $5 million to $10 million, excluding restatement and restructuring costs, as well as other one-time costs. Additionally the Company expects gross cash generated from customer contracting activities in 2015 to be in a range of $225 million to $235 million. Net cash generated from customer contracting activities is expected to be in a range of $30 million to $40 million excluding one-time post-restatement related costs. The timing of cash collected from customers for incentive fees creates variability in the Company’s non-GAAP measures due to the accounting of incentive fees on a cash basis.

Conference Call and Webcast Details

Accretive Health’s management will host a conference call today at 3:30 p.m. CT (4:30 p.m. ET) to discuss the restatement and business outlook. To participate, please dial 877-280-4954 (857- 244-7311 from outside the U.S. and Canada) using conference code number 32430071, or visit the Investor Relations section of Accretive Health’s web site at www.accretivehealth.com to access the live webcast. A replay will be available for one week following the conference call at 888-286-8010 (617-801-6888 from outside the U.S. and Canada) using conference code number 46013693. A replay of the conference call will also be available online at www.accretivehealth.com.


Accompanying slides have been posted to the Investor Relations section of Accretive Health’s web site at www.accretivehealth.com.

Non-GAAP Financial Measures

In order to provide a more comprehensive understanding of the information used by Accretive Health’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. These include gross and net cash generated from customer contracting activities, and adjusted EBITDA.

Gross cash generated from customer contracting activities reflects GAAP net services revenue and the change in deferred customer billings. Net cash generated from customer contracting activities reflects non-GAAP adjusted EBITDA and the change in deferred customer billings.

Adjusted EBITDA is defined as net income before net interest income, provision for income taxes, depreciation and amortization expense, share-based compensation and certain non-recurring, or one-time, items. The use of adjusted EBITDA to measure financial and operating performance is limited in that under GAAP, net services revenue is recognized at the end of a contract or other contractual agreement event. Adjusted EBITDA does not adequately match corresponding cash flows from customer contracting activities. As a result, the Company uses gross cash and net cash generated from customer contracting activities to better compare cash flows to operating performance.

Deferred customer billings include the portion of both invoiced net operating fees and cash collections related to incentive fees that, in each case, have not met the Company’s revenue recognition criteria. Deferred customer billings are included in the detail of the customer liabilities account in the consolidated balance sheet available on the Company’s Annual Report on Form 10-K.

Table 4 presents a reconciliation of GAAP revenue to gross cash generated from customer contracting activities, and Table 5 presents a reconciliation of GAAP net income (loss), the most comparable GAAP measure, to adjusted EBITDA and net cash generated from customer contracting activities, in each case, for each of the periods indicated. 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.


Safe Harbor

This press release contains forward-looking statements, including the Company’s ability to continue to achieve operating efficiencies, improve long-term profitability and generate specified levels of cash from contracting activities. All forward-looking statements contained in this press release involve risks and uncertainties. Our actual results and outcomes could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the possibility that our ongoing restatement could have unanticipated consequences and the factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on December 30, 2014, under the heading “Risk Factors”. The words “strive,” “objective,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “vision,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The Company has based these forward-looking statements on its current expectations and projections about future events. Although the Company believes that the expectations underlying any of its forward-looking statements are reasonable, these expectations may prove to be incorrect and all of these statements are subject to risks and uncertainties. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections, or expectations prove incorrect, actual results, performance, financial condition, or events may vary materially and adversely from those anticipated, estimated, or expected.

All forward-looking statements included in this press release are expressly qualified in their entirety by these cautionary statements. The Company cautions readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the uncertainties and factors described above, as well as others that the Company may consider immaterial or does not anticipate at this time. Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, the Company does not know whether its expectations may prove correct. The Company’s expectations reflected in its forward-looking statements can be affected by inaccurate assumptions it might make or by known or unknown uncertainties and factors, including those described above. The risks and uncertainties described above are not exclusive, and further information concerning the Company and its business, including factors that potentially could materially affect its financial results or condition or relationships with customers and potential customers, may emerge from


time to time. The Company assumes no, and it specifically disclaims any, obligation to update, amend, or clarify forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. The Company advises investors, however, to consult any further disclosures it makes on related subjects in our periodic reports that it files with or furnishes to the SEC.

About Accretive Health

At Accretive Health, our mission is to partner with healthcare communities to serve as a catalyst for a healthier future for all. For more information, visit www.accretivehealth.com.

Contact:

Accretive Health, Inc.

Investor Relations:

Atif Rahim

312.324.5476

investorrelations@accretivehealth.com

Media Relations:

Renae Godish

312.320.6421

renae.godish@hkstrategies.com


Table 1

Accretive Health, Inc.

Condensed Balance Sheet

($ in thousands)

 

     December 31,  
     2013     2012     2011  
                 As restated  

Assets

      

Current assets:

      

Cash and cash equivalents

   $ 228,891      $ 176,956      $ 196,725   

Accounts receivable, net

     24,557        25,859        17,118   

Prepaid income taxes

     9,738        4,986        7,575   

Current deferred tax asset

     105,015        247,659        189,676   

Other current assets

     6,943        21,522        5,894   
  

 

 

   

 

 

   

 

 

 

Total current assets

     375,144        476,982        416,988   

Property, equipment and software, net

     16,275        21,354        17,169   

Non-current deferred tax asset

     112,993        53,436        36,457   

Restricted cash

     5,000        5,000        5,000   

Goodwill and other assets, net

     579        605        666   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 509,991      $ 557,377      $ 476,280   
  

 

 

   

 

 

   

 

 

 

Liabilities and stockholders’ equity (deficit)

      

Current liabilities:

      

Accounts payable

   $ 4,254      $ 900      $ 1,257   

Current portion of customer liabilities

     356,694        676,619        487,998   

Accrued compensation and benefits

     11,810        8,004        15,586   

Other accrued expenses

     20,046        22,206        7,796   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     392,804        707,729        512,637   

Non-current portion of customer liabilities

     195,392        77,443        58,412   

Other non-current liabilities

     7,407        8,405        6,662   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     595,603        793,577        577,711   
  

 

 

   

 

 

   

 

 

 

Commitments and contingencies

      

Stockholders’ equity (deficit):

      

Common stock, $0.01 par value, 500,000,000 shares authorized, 100,525,241 shares issued and 96,010,911 shares outstanding at December 31, 2013; 100,007,538 shares issued and 95,670,051 shares outstanding at December 31, 2012; 98,701,161 shares issued and 98,686,357 shares outstanding at December 31, 2011

     1,005        1,000        987   

Additional paid-in capital

     283,439        262,075        226,911   

Accumulated deficit

     (317,897     (447,980     (328,240

Accumulated other comprehensive loss

     (1,459     (756     (710

Treasury stock

     (50,700     (50,539     (379
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (85,612     (236,200     (101,431
  

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ 509,991      $ 557,377      $ 476,280   
  

 

 

   

 

 

   

 

 

 


Table 2

Accretive Health, Inc.

Condensed Statement of Cash Flows

($ in thousands)

 

     Year Ended December 31,  
     2013     2012     2011  
                 As restated  

Operating activities

      

Net income (loss)

   $ 130,083      $ (119,740   $ (71,745

Adjustments to reconcile net income (loss) to net cash provided by operations:

      

Depreciation and amortization

     6,823        6,355        4,862   

Employee share-based compensation

     25,025        25,298        25,186   

Provision for doubtful receivables

     634        183        114   

Deferred income taxes

     79,356        (76,887     (74,544

Excess tax benefit from share-based awards

     (15     (4,403     (23,886

Changes in operating assets and liabilities:

      

Accounts receivable

     658        (8,926     (11,943

Prepaid income taxes

     (4,836     6,980        27,890   

Other assets

     14,434        (1,571     (1,838

Accounts payable

     3,378        (358     (1,214

Accrued compensation and benefits

     3,813        (7,581     3,089   

Other liabilities

     (2,955     2,166        3,622   

Customer liabilities

     (201,975     207,650        132,108   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     54,423        29,166        11,701   
  

 

 

   

 

 

   

 

 

 

Investing activities

      

Purchases of property, equipment, and software

     (1,877     (10,544     (7,405
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (1,877     (10,544     (7,405
  

 

 

   

 

 

   

 

 

 

Financing activities

      

Excess tax benefit from share-based awards

     15        4,403        23,886   

Exercise of vested stock options

     46        7,396        18,152   

Restricted cash secured for letter of credit

     —         —         (5,000

Purchase of treasury stock

     (161     (50,160     (379

Collection of non-executive employee loans

     —         —         41   
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (100     (38,361     36,700   
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes in cash

     (511     (30     (338
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     51,935        (19,769     40,658   

Cash and cash equivalents, at beginning of year

     176,956        196,725        156,067   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, at end of year

   $ 228,891      $ 176,956      $ 196,725   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosures of cash flow information

      

Income taxes paid

   $ (1,742   $ (1,531   $ (1,923

Income taxes refunded

   $ 754      $ 87      $ 4,403   

Supplemental disclosure of non-cash operating activities

      

Non-cash increase in litigation liability and related insurance receivable included in other liabilities and other assets, respectively

     —       $ 14,000        —    

 


Table 3

Accretive Health, Inc.

Consolidated Statement of Operations

($ in thousands, except per share data)

 

     Year ended December 31,  
     2013      2012     2011
(As restated)
 

Revenue

       

RCM net operating fees

   $ 224,937       $ 9,888      $ 34,923   

RCM incentive fees

     210,303         928        25,946   

Other services

     69,528         61,438        41,097   
  

 

 

    

 

 

   

 

 

 

Net services revenue

   $ 504,768       $ 72,254      $ 101,966   

Operating Expenses:

       

Cost of services

     186,752         188,666        158,715   

Selling, general and administrative

     79,951         67,750        63,268   

Restatement and other nonrecurring costs

     33,963         3,714        0   
  

 

 

    

 

 

   

 

 

 

Total operating expenses

     300,666         260,130        221,983   
  

 

 

    

 

 

   

 

 

 

Operating income (loss)

     204,102         (187,876     (120,017

Net interest income

     330         141        26   
  

 

 

    

 

 

   

 

 

 

Net income (loss) before provision for income taxes

     204,432         (187,735     (119,991

Provision for income taxes

     74,349         (67,995     (48,246
  

 

 

    

 

 

   

 

 

 

Net income (loss)

     130,083         (119,740     (71,745
  

 

 

    

 

 

   

 

 

 

Net income (loss) per common share

       

Basic

   $ 1.36       $ (1.21   $ (0.74
  

 

 

    

 

 

   

 

 

 

Diluted

   $ 1.34       $ (1.21   $ (0.74
  

 

 

    

 

 

   

 

 

 

Weighted average common shares outstanding

       

Basic

     95,687,940         98,602,099        96,964,661   

Diluted

     96,845,664         98,602,099        96,964,661   


Table 4

Accretive Health, Inc.

Reconciliation of GAAP revenue to Gross Cash Generated from Customer Contracting Activities

($ in thousands)

 

     Year ended December 31,  
                  2011  
     2013     2012      (As restated)  

Components of net services revenue:

       

RCM net operating fees (NOF)

   $ 224,937      $ 9,888       $ 34,923   

RCM incentive fees (IF)

     210,303        928         25,946   

Other

     69,528        61,438         41,097   
  

 

 

   

 

 

    

 

 

 

Net services revenue (GAAP)

     504,768        72,254         101,966   
  

 

 

   

 

 

    

 

 

 

Change in deferred customer billings:

       

Change in NOF deferred customer billings

     (118,484     108,142         86,877   

Change in IF deferred customer billings

     (134,643     91,972         58,920   

Gross cash generated from customer contracting activities:

       

RCM net operating fees

     106,453        118,030         121,800   

RCM incentive fees

     75,660        92,900         84,866   
  

 

 

   

 

 

    

 

 

 

RCM Sub total

     182,113        210,930         206,666   

Other

     69,528        61,438         41,097   
  

 

 

   

 

 

    

 

 

 

Gross cash generated from customer contracting activities

     251,641        272,368         247,763   
  

 

 

   

 

 

    

 

 

 

Table 5

Accretive Health, Inc.

Reconciliation of GAAP net income (loss) to Net Cash Generated from Customer Contracting Activities

($ in thousands)

 

     Year ended December 31,  
     2013     2012     2011  

Net income (loss)

   $ 130,083      $ (119,740   $ (71,745

Net interest income

     (330     (141     (26

Provision for income taxes

     74,349        (67,995     (48,246

Depreciation and amortization expense

     6,823        6,355        4,862   

Share-based compensation expense

     23,801        25,298        25,186   

Restatement and other costs

     33,963        3,714        —     
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     268,689        (152,509     (89,969

Change in deferred customer billings

     (253,127     200,114        145,797   
  

 

 

   

 

 

   

 

 

 

Net cash generated from customer contracting activities

     15,562        47,605        55,828   
  

 

 

   

 

 

   

 

 

 


Table 6

Accretive Health, Inc.

Share-Based Compensation Expense

($ in thousands)

 

     Year ended December 31,  
                   2011  
     2013      2012      (As restated)  

Cost of services

   $ 10,740       $ 11,625       $ 13,119   

Selling, general and administrative

     13,061         13,673         12,067   

Restatement and other nonrecurring costs

     1,224         —           —     
  

 

 

    

 

 

    

 

 

 

Total share-based compensation

     25,025         25,298         25,186   
  

 

 

    

 

 

    

 

 

 

Table 7

Accretive Health, Inc.

Depreciation and Amortization Expense

($ in thousands)

 

     Year ended December 31,  
                   2011  
     2013      2012      (As restated)  

Cost of services

   $ 4,697       $ 3,957       $ 2,269   

Selling, general and administrative

     2,126         2,398         2,593   
  

 

 

    

 

 

    

 

 

 

Total depreciation and amortization expense

     6,823         6,355         4,862   
  

 

 

    

 

 

    

 

 

 


Table 8

Accretive Health, Inc.

Condensed Non-GAAP Financial Information

($ in thousands)

 

     Year ended December 31,  
                 2011  
     2013     2012     (As restated)  

GAAP net services revenue

   $ 504,768      $ 72,254      $ 101,966   

Increase (decrease) in deferred customer billings

     (253,127     200,114        145,797   
  

 

 

   

 

 

   

 

 

 

Gross cash generated from customer contracting activities

     251,641        272,368        247,763   

Operating Expenses1:

      

Cost of services

     171,315        173,084        143,327   

Selling, general and administrative

     64,764        51,679        48,608   
  

 

 

   

 

 

   

 

 

 

Sub-total

     236,079        224,763        191,935   

Net cash generated from customer contracting activities

     15,562        47,605        55,828   

Net cash generated margin

     6     17     23

 

1  Excludes share-based compensation, depreciation and amortization and one-time items