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8-K - 8-K - R1 RCM INC. | form8-kxregulationfddisclo.htm |
Investor Presentation
September 2016
Exhibit 99.1
©2013 Accretive Health Inc.
Safe Harbor Statement
2
This presentation contains forward-looking statements, including statements regarding future growth, plans and performance. All
forward-looking statements contained in this presentation involve risks and uncertainties. The Company’s actual results and
outcomes could differ materially from those anticipated in these forward-looking statements as a result of various factors, including
the factors set forth under the heading “Risk Factors” in its Annual Report on Form 10-K for the year ended December 31, 2015,
filed with the SEC on March 10, 2016. 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 presentation 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.
©2013 Accretive Health Inc.
Use of Non-GAAP Measures
3
· 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 presentation. These include gross
and net cash generated from customer contracting activities and adjusted EBITDA. Our Board and management team
use these 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 plans for
employees.
· Gross cash generated from customer contracting activities is defined as GAAP net services revenue, plus the change in
deferred customer billings. Accordingly, gross cash generated from customer contracting activities is 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 reflects non-GAAP adjusted EBITDA and the change in deferred
customer billings.
· Adjusted EBITDA is defined as net income before net interest income (expense), income tax provision, depreciation
and amortization expense, share-based compensation, transaction-related expenses, reorganization-related expenses
and certain other items. The use of adjusted EBITDA to measure operating and financial performance is limited by our
revenue recognition criteria, pursuant to which 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 (i) invoiced or accrued net operating fees and (ii) cash
collections of incentive fees, in each case, that have not met our revenue recognition criteria. Deferred customer
billings are included in the detail of our customer liabilities balance in the consolidated balance sheet available in the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
· 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.
©2013 Accretive Health Inc.
Contents
4
· Who We Are
· Industry Dynamics
· Differentiated Value Proposition
· Strategy and Financials
· Appendix
©2013 Accretive Health Inc.
A Leader in Revenue Cycle Management…
The largest pure-play provider of outsourced revenue cycle management
(RCM) services to healthcare providers
…with End-to-End Capability…
We optimize the full spectrum of revenue cycle operations – functions
ranging from patient pre-registration to cash posting
…Positioned to Serve an Evolving Market
Our technology-enabled services can be deployed through a variety of
models and are designed to help providers adapt to evolving payment
models
Who We Are
5
©2013 Accretive Health Inc.
Company Profile
6
Equity snapshot
Ticker: ACHI (OTC1)
IPO: May 2010
Market Cap2: ~$380M
2015 top-line: $230M
Operational highlights
Customers: 72 hospitals
Global Shared Services Centers
3,500 employees
1 We expect to list on one of the major exchanges in early 2017
2 Market cap includes preferred convertible shares on an as-converted basis
Expected 2019 Profile, based on current contracts:
Top-line: ~$600 million Employees: ~10,000
Customers: 132 hospitals
©2013 Accretive Health Inc.
Why Invest in Accretive Health?
7
Leader in a nascent market: <10% of Hospital RCM spend is
outsourced to service providers
Significant Competitive Advantages: Only service provider
with robust technology and scalable infrastructure encapsulated in a
proprietary operating framework
Compelling valuation: Significant discount to projected 2020
targets
Improving fundamentals: Current contracts provide predictable
growth over the next 5 years, with simplified accounting starting 2017
©2013 Accretive Health Inc.
Contents
8
· Who We Are
· Industry Dynamics
· Differentiated Value Proposition
· Strategy and Financials
· Appendix
©2013 Accretive Health Inc.
Several Forces are Reshaping Revenue Cycle Management
9
• Declining
reimbursement
• Increasing
patient
responsibility,
with poor
collection rates
• Emerging
payment
models
• ICD-10
• Consumerism
• Regional
consolidation of
health systems
• Integration
across
continuum of
care settings
• Decades-old
technology and
fragmented
solutions
largely in use
• Scarcity of
human capital
Financial
Pressures
Increasing
Complexity
Industry
Consolidation
Capital
Constraints
• Tighter provider margins = Lower capital investment in operations
• Capital is prioritized for care-related investments and acquisitions
©2013 Accretive Health Inc.
Outsourced RCM Services: Fastest Growing Segment of
the RCM Market
10
Source: CMS NHE Projections, KPMG, Accretive Health Estimates
52.2
8.8
7.7
16.5
2015: $51.6B 2020: $68.7B
In-House RCM Spend
External RCM Spend
Outsourced RCM Services
External RCM Apps / Software
43.3
4.5
3.8
8.3
Estimated Hospital Revenue Cycle Spend:
15% CAGR
©2013 Accretive Health Inc.
Contents
11
· Who We Are
· Industry Dynamics
· Differentiated Value Proposition
· Strategy and Financials
· Appendix
©2013 Accretive Health Inc.
We Have Three Core Value Propositions…
12
Lower Cost of Revenue Cycle Operations
Improve Revenue Collections
Manage Emerging Payment Models
1
3
2
©2013 Accretive Health Inc.
…Delivered Through Three Deployment Models
13
• Full control over
customer revenue cycle
operations
• Customer employees
transition to Accretive
Health
• Complementary talent
deployed on-site to work
with customer’s revenue
cycle team
• Certain functions
performed from shared
services centers
• Non-end-to-end RCM (e.g.
Physician Advisory
Services, Limited-scope
RCM)
• Offered as Pathway to a
Full Outsource or Co-
Managed model
Full Outsource
Model
Co-Managed
Model
Modular
Services
1 2 3
One partner, regardless of deployment preference or payer payment model
©2013 Accretive Health Inc.
Differentiated Approach to Driving Value: End-to-End
Insight, Powered by Proprietary Capabilities
14
HITRUST Compliant
©2013 Accretive Health Inc.
Our Operating System is Built on a Decade-plus of
Experience
15
Operating
System Technology Shared Services Analytics
· Over 150 detailed methods for operational excellence,
supported by >100 proprietary operating measures
· Full alignment to the five financial outcomes we deliver for
customers
· Processes are hard-wired into operations via our
technology
©2013 Accretive Health Inc.
Processes and Workflows are Supported by Proprietary
Technology
16
Operating System
Technology
Shared Services Analytics
· Technology automates & institutionalizes our operations –
80% of operating methods are powered by AH technology
· Enables scaled operations and distribution of work across
geographic locations; Agnostic to EHR
· Architected for real-time data and workflow; processing
200k+ real-time transactions per hour
©2013 Accretive Health Inc.
Shared Services Centers Provide a Lever for Cost
Reduction
17
Operating System Technology
Shared
Services Analytics
· Domestic and offshore shared services infrastructure
· Networked to allow seamless transition of work between
different locations
· Centralization of functions improves standardization,
productivity and consistency
· Better quality relative to work performed on-site
©2013 Accretive Health Inc.
Analytics Capabilities Provide Powerful Business
Insights
18
Operating System Technology Shared Services
Analytics
· Repository of >300 intelligence reports tied to value
creation
· Integration with applications activity data provides unique
operational analytics capabilities
· Self-service monitoring system provides total visibility into
performance; even at the most granular level of operations
©2013 Accretive Health Inc.
Contents
19
· Who We Are
· Industry Dynamics
· Differentiated Value Proposition
· Strategy and Financials
· Appendix
©2013 Accretive Health Inc.
Near-Term Strategy to Re-launch the Company
20
1) Generate Compelling Proof Points from Ascension Deployment
• Demonstrate value proposition by achieving financial performance targets
• Establish scaling as a competitive advantage via deployment approach
2) Increase External Focus Translating into Growth
• Re-launch brand and identity of the company
• Re-design go-to-market approach that drives sales and marketing structure
3) Improve Clarity of Financial Performance
• Simplify accounting (expected 2017)
• Build Street’s confidence in Company’s long-term model
4) Differentiate Capabilities by Utilizing Balance Sheet
• Front-end revenue cycle, including patient-engagement
• Physician RCM
©2013 Accretive Health Inc.
Ascension Contract Provides Stability, Growth and
Visibility
21
10-year agreement
$8+ billion in new net patient revenue (NPR)
Three-year onboarding plan beginning 2H’16
Agreement
signed
Feb. 2016
1st Tranche
onboarding
(~$3B NPR)
2H’16 to 1H’17
Launched
Deployment
Office
1H’16
First full-year
revenue run-rate
2020
2nd and 3rd
Tranches
($5B+ NPR)
2H’17 to 2H’19
Note: NPR represents revenue collected by customers and is not a measure of the Company’s revenue.
©2013 Accretive Health Inc.
Financials: Intro to Non-GAAP Measures
22
Gross Cash Generated from
Customer Contracting
Activities
GAAP revenue plus change in deferred
customer billings
Net Cash Generated from
Customer Contracting
Activities
GAAP net income less interest, taxes,
depreciation and amortization expense,
share-based compensation, and certain
other items including transaction-
related expenses and reorganization-
related expenses, plus the change in
deferred customer billings
We use two non-GAAP measures
to supplement GAAP measures
©2013 Accretive Health Inc.
Financial Model
23
Illustrative1 Revenue and EBITDA margins by Contract Type
Full-Outsource Model Co-Managed Model Modular Services
Gross Cash Generated from
Customer Contracting Activities
Net Cash Generated from
Customer Contracting Activities
Yr 1 Yr 5
20-25
40-50
5-8
$M
~(2.0)
Yr 1 Yr 5
3-5
10-20
3-7
~(1.0)
Yr 1 Yr 5
3-10 1-4
$M $M
1: Expected Gross Cash and Net Cash Generated based on Typical $1B NPR Customer
3-10 1-4
©2013 Accretive Health Inc.
~90% of low-end
currently contracted*
2020 Outlook: Healthy Growth as new Ascension
Business is Onboarded
24
2016
Expectations
$220
$200
2020
Expectations
$900
$700
G
ro
ss
C
as
h
G
en
er
at
ed
fr
om
C
us
to
m
er
Co
nt
ra
ct
in
g
A
ct
iv
it
ie
s
($
M
M
)
Mid- to high-teens
Net Cash Generated
Margin
* Includes anticipated contract renewals, including the contract with Intermountain Healthcare which was
recently renewed for up to a three-year term
©2013 Accretive Health Inc.
Contents
25
· Who We Are
· Industry Dynamics
· Differentiated Value Proposition
· Strategy and Financials
· Appendix
©2013 Accretive Health Inc.
Condensed Non-GAAP P&L
26
($ in millions) 2013 2014 2015 2016E
Gross Cash Generated from
Cust. Contracting Activities
$251.6 $233.6 $230.2 $200 - $220
Operating expenses:
Cost of Sales $171.3 $170.9 $154.2 N/P
SG&A $64.8 $54.9 $49.6 N/P
Net Cash Generated from
Cust. Contracting Activities
$15.6 $7.8 $26.4 N/P
N/P: Not Provided
Note: Non-GAAP Cost of Sales and SG&A exclude D&A expense and stock-based compensation expense
©2013 Accretive Health Inc.
GAAP Consolidated Statement of Operations
27
($ in thousands, except per share data)
2013 2014 2015 Q1 2016 Q2 2016
Net services revenue $504,768 $210,140 $117,239 $352,193 $8,672
Operating expenses :
Cost of services 186,752 182,144 168,977 45,130 45,112
Sel l ing, genera l and adminis trative 79,951 69,883 74,963 17,536 24,660
Other 33,963 86,766 9,343 10,806 8,651
Tota l operating expenses 300,666 338,793 253,283 73,472 78,423
Income (loss ) from operations 204,102 (128,653) (136,044) 278,721 (69,751)
Net interest income 330 302 231 84 46
Income (loss ) before income tax provis ion 204,432 (128,351) (135,813) 278,805 (69,705)
Income tax provis ion (benefi t) 74,349 (48,731) (51,557) 111,402 (28,914)
Net income (loss) 130,083 (79,620) (84,256) 167,403 (40,791)
Net income (loss ) per common share:
Bas ic $1.36 ($0.83) ($0.87) $0.85 ($0.45)
Di luted $1.34 ($0.83) ($0.87) $0.85 ($0.45)
Weighted average shares used in ca lculating net income (loss ) per common share:
Bas ic 95,687,940 95,760,762 96,806,885 98,289,802 99,414,066
Di luted 96,845,664 95,760,762 96,806,885 99,232,974 99,414,066
Consolidated statements of comprehensive income (loss)
Net income (loss ) 130,083 (79,620) (84,256) 167,403 (40,791)
Other comprehens ive loss :
Foreign currency trans lation adjustments (703) (304) (725) 60 (304)
Comprehens ive income (loss ) $129,380 ($79,924) ($84,981) $167,463 ($41,095)
©2013 Accretive Health Inc.
Reconciliation of GAAP to Non-GAAP Financials
28
($ in thousands , except per share data)
2013 2014 2015 Q1 2016 Q2 2016
Tota l net services revenue $504,768 $210,140 $117,239 $352,193 $8,672
Change in deferred customer bi l l ings (253,127) 23,427 112,938 (311,339) 29,602
Gross cash generated from customer
contracting activi ties
$251,641 $233,567 $230,177 $40,854 $38,274
Net income (loss ) $130,083 ($79,620) ($84,256) $167,403 ($40,791)
Net interest income (330) (302) (231) (84) (46)
Income tax provis ion (benefi t) 74,349 (48,731) (51,557) 111,402 (28,914)
Depreciation and amortization expense 6,823 6,047 8,462 2,271 2,361
Share-based compensation expense 23,801 20,172 31,671 6,898 11,785
Other 33,963 86,766 9,343 10,806 8,651
Adjusted EBITDA 268,689 (15,668) (86,568) 298,696 (46,954)
Change in deferred customer bi l l ings (253,127) 23,427 112,938 (311,339) 29,602
Net cash generated from customer contracting
activi ties
$15,562 $7,759 $26,370 ($12,643) ($17,352)
©2013 Accretive Health Inc.
Summary of Convertible Preferred Shares and Warrants
Issued to Ascension-TowerBrook
29
Convertible
Preferred Stock
$200 million of convertible preferred stock is convertible into Accretive
common stock at $2.50 per share
8.0% annual dividend, payable in-kind on a quarterly basis with additional
convertible preferred stock for first seven years and in cash thereafter
Equivalent to 80 million common shares at the close of the transaction,
growing to ~140 million at the end of seven years
Warrants
Ascension/TowerBrook investment vehicle has warrants to acquire 60
million ACHI common shares at $3.50 per share
Warrants have a ten-year term and may be exercised on a cash or cashless
basis
Pro forma
Ownership &
Voting
Preferred stock currently represents approximately 44% of Accretive’s
voting shares (excludes warrants)
Each share of preferred stock has votes equal to the number of shares of
common stock into which it is convertible
Preferred and common shares vote together as a single class, unless
otherwise required by Delaware law
Board
Structure
Ascension and TowerBrook nominate 5 individuals to Accretive’s 9-
member Board