Cantor Fitzgerald 2017 Global Healthcare Conference. September 26, 2017

Transcription

1 Cantor Fitzgerald 2017 Global Healthcare Conference September 26, 2017

2 Forward-Looking Statements and Non-GAAP Financial Measures This presentation contains forward-looking statements, including statements regarding future growth, plans and performance. All forwardlooking 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, 2016, filed with the SEC on March 1, The words strive, objective, anticipates, believes, estimates, expects, intends, may, plans, projects, vision, would, guidance, 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. This presentation includes the following non-gaap financial measures on a projected basis: Gross Cash Generated from Customer Contracting Activities, Adjusted EBITDA and Free Cash Flow. Please refer to the supplemental information located at the end of this presentation for a reconciliation of these projected non-gaap financial measures to the most directly comparable projected GAAP financial measures and other important information. 2

3 T H E N E W R 1 Healthcare RCM Pure Play. Significant Growth Trajectory LARGE TARGET MARKET DIFFERENTIATED VALUE PROPOSITION REVENUE GROWTH Adj. EBITDA GROWTH Acute Care Hospital Market $52B Robust, Proven OPERATING MODEL From $ M to ~$800M From $0-5M to ~$120M Projected Revenue and Adjusted EBITDA growth through 2020 from existing contracts 3

4 W H A T W E D O We Drive Financial Improvement and a Better Patient Experience for Integrated Health Systems NEED Growing pressure to run revenue cycle more efficiently VALUE ADD We plug into health providers existing IT systems RESULT Lower costs, faster collections and higher revenue OPERATING MODEL Proprietary technology + Experienced Talent + Analytics + Global Shared Services 4

5 W H A T W E D O Comprehensive Coverage of Provider Requirements Care Setting Physician Acute Revenue Cycle Phases Order to Intake Care to Claim Claim to Payment Payment Models Payor-based Fee for Service, Risk-based Patient-based Insured/uninsured We manage revenue cycle needs across care settings and payment models 5

6 The R1 RCM Story Transformed business Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 RCM investment proposition 6

7 A T A G L A N C E Building on a Solid Base 1 FY 2017E Revenue Employees Market cap 2 Contracted RCM Hospitals/ states Cash / debt $ M 8k ~$700M 139 / 17 $134M / Zero Note 1 : All numbers as of Q Note 2 : Includes preferred convertible shares on an as-converted basis to common shares 7

8 At an Inflection Point, Entering a New Growth Era Foundation Pioneered end-to-end revenue cycle outsourcing Restatement/ Restructuring Revamped financial reporting and processes Built best-in-class technology and operations platform New Growth Era Relaunched Company $9.5B in new NPR Expand capabilities integrated physician-acute RCM 8

9 Demonstrated Revenue Momentum Quarterly Revenue 1 $87M $99M $60M $70M $38M Q2'16 Q3'16 Q4'16 Q1'17 Q2 '17 Note 1 : 2016 Quarterly Revenue data reflects Gross Cash Generated from Customer Contracting Activities, a non-gaap metric utilized by the Company prior to the adoption of ASC606 on January 1,

10 Adjusted EBITDA Turns Positive, then Ramps Up Adjusted EBITDA ~$120M $0-5M -$27M Guidance 2020 Contracted Business 10

11 Major Repositioning Last 3 Years Pricing Simplified pricing model Operations Improved Shared Services, created operating framework Technology Invested in new platform, doubled IT investment spend Metrics Demonstrable improvement in customers balance sheet and income statement metrics Compliance Overhauled organization, addressed internal controls 11

12 Landmark Partnership Deal with Ascension/TowerBrook The Partnership Ascension Largest Catholic not-for-profit health system in the U.S. Oldest and largest customer of R1 RCM TowerBrook Capital Partners Extensive healthcare investment experience The Investment $200M cash investment Hold 46% ownership in R1 Benefits to R1 $200M cash investment R1 exclusive provider of RCM services and PAS to fully-owned Ascension hospitals for 10-year term +$9.5B in new net patient revenue (NPR) from Ascension over a three-year period Interests of all parties aligned building shareholder value 12

13 The R1 RCM Story Transformed business Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 RCM investment proposition 13

14 Targeting Large, Growing Market. R1 Expects to Grow 2x Faster. Large Acute Care Revenue Cycle Market : $52B Internal RCM Spend $43.3B $8.3B External RCM Spend External RCM Spend Growing Steadily 15% Projected CAGR through 2020 R1 Revenue Set to Grow Faster 2 >30% Projected CAGR through 2020 Target Market R1 RCM Note 1 : CMS NHE Projections, KPMG, R1 estimates Note 2 : R1 RCM growth based on contracted revenue from

15 Market Dynamics Play to Our Strengths Hospital Market Dynamics Implication for Hospitals Need for sustainable solutions Financial pressures Increasing complexity Industry consolidation Capital constraints Consumer demands Sub-optimal collections rate Weakening margins Infrastructure not delivering scale advantages Falling behind in technology Transform from a wholesale to retail mindset Best value proposition = 15

16 Scalability Differentiated Player in the Industry High Niche Competitors Major end-to-end Competitors Low Single-focus Revenue Cycle Capabilities End-to-End Scalable infrastructure, broadest capabilities 16

17 The R1 RCM Story Transformed business Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 RCM investment proposition 17

18 Differentiated Capabilities Robust and proven operating model Flexible deployment models Ability to scale Integrated physician-acute offering, across payment models 18

19 Robust and Proven Operating Model PERFORMANCE STACK SM COMPREHENSIVE GAINS ASSURED STANDARDIZATION DIMENSIONAL VISIBILITY ANALYTICS & ACCOUNTABILITY PROPRIETARY TECHNOLOGIES PROVEN PROCESS EXPERIENCED TALENT Demonstrable Results Improved Healthcare Provider Economics 5% 20% 30% increase in net revenue UP TO reduction in A/R days reduction in cost to collect 19

20 Superior Performance Versus Competitors Comparison of $10B+ systems that are served by mature End-to-End RCM Providers % Change Decrease is Favorable 40% AR Days 1 Performance 30% 20% 10% 0% -10% + 26% + 23% + 10% Competitor 1 Competitor 2 Competitor 3-20% % R1 RCM R1 Performance: 17% reduction in AR days Source: Definitive Healthcare Note 1 : Gross Accounts Receivable divided by average daily Gross Revenue 20

21 Three Flexible Engagement Models Customer Need OPERATING PARTNER Full, risk-sharing infrastructure partners CO-MANAGED Embedded managers, processes & technologies in the organization End-to-end solution MODULAR Leverage specific R1 strengths and capabilities Specific components of revenue cycle 21

22 Ability to Scale is a Key Differentiator Scaling successfully is a function of several key variables: Proven Operating Systems Strong Talent Reliable, Scalable Infrastructure Effective Capacity Planning Defined operating model and deployed across sites Ownership and development of talent Ability to support higher volumes Planning & datadriven standards for utilization R1 has proven the ability to scale rapidly and successfully: 10,000 employees expected by end of 2017, up 7,000 y-o-y Ascension onboarding ahead of schedule $650M projected annual revenue run rate exiting

23 The R1 RCM Story Transformed business Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 RCM investment proposition 23

24 Key Growth Drivers Ascension onboarding Margin expansion + 1 Incremental new business wins Execute on our vision to be hospital systems One Revenue Partner 24

25 Ascension: Accelerated and Expanded Onboarding of New Business Accelerated onboarding of $700M NPR New NPR added in 2017 (includes $500M from physician RCM services) $1.5B new NPR $15.5B $700M 2016 PLAN $8B new NPR +$9.5B Under management pre-2016 $6B $6B Each $1B in NPR under management adds $40-50M to R1 revenue 25

26 Margins to Expand as Onboarding Completed Expected Adjusted EBITDA % ~15% ~1% Move work to shared services centers Rationalize vendor spend Technologydriven productivity enhancement Revenue lift from performance improvement 14+ percentage points in 3 years

27 + Multi-faceted Approach to Growth Ascension Rollout Onboarding roadmap provides growth through 2020 New end-to-end wins New Business Wins New modular wins Cross-sell into existing base Expansion of Capabilities Selectively pursue acquisitions and fund internal initiatives Included in growth projections Not included in growth projections Productivity Enhancements Margin expansion through scaling benefits and automation Multiple levers to drive long-term growth 27

28 1 Phased Approach to Execute on our Vision to be hospital systems One Revenue Partner Enterprise Value Phase #1 Relaunch Effective re-launch of company Phase #2 Solidify acute care lead Strengthen leading acute care position via Ascension deployment Phase #3 Extend integrated solution Further build out integrated revenue cycle (acute + physician) across payment models Complete In-progress 28

29 High Visibility to 2020 Financial Targets from Currently Contracted Business Revenue ($M) Adjusted EBITDA ($M) ~$800 ~$120 $ $ E 2020E 2017E 2020E Additional business wins are incremental to 2020 projections Note: 2020 Targets from Currently Contracted Business are at the midpoint of the Company s 2020 guidance 29

30 Key 2017 Targets Complete successful relaunch rebrand, relist Expanded Ascension Scope, added WI Physician RCM business Launch Modular RCM offerings Hire Chief Commercial Officer Launch front-end transformation pilot sites Positive free cash flow and adjusted EBITDA in 2H 17 Deliver on full year 2017 guidance On track to deliver on key milestones 30

31 The R1 RCM Story Transformed business Solid foundation for accelerated growth Large, underpenetrated market R1 growing faster than market Differentiated business model Strong competitive advantages, scalable Multiple growth & profit drivers Strong growth trajectory with high visibility R1 RCM investment proposition 31

32 Appendix

33 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 on a projected basis. These include Gross Cash Generated from Customer Contracting Activities, Free Cash Flow, 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. The Company does not report Gross Cash Generated from Customer Contracting Activities following the adoption of the new revenue recognition accounting standard in 2017 (ASC 606). 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 customer liabilities balance in the consolidated balance sheet available in the Company s Annual Report on Form 10-K for the year ended December 31, 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. Free Cash Flow is defined as cash flow from operations, less capital expenditures. For 2017 and 2020 the Company expects Free Cash Flow to be approximately equal to GAAP Operating Income. 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. 33

34 Reconciliation of GAAP to Non-GAAP Financials Reconciliation of GAAP Operating Income Guidance to Non-GAAP Adjusted EBITDA Guidance $ in millions GAAP Operating Income Guidance ($25) - ($30) $75 - $105 Plus: Depreciation and amortization expense ~$13 $10- $15 Share-based compensation expense ~$13 $10- $15 Severance and other costs ~$5 ~$5 Adjusted EBITDA guidance $0 - $5 $105 - $135 Reconciliation of 2016 GAAP Revenue to Non-GAAP Gross Cash Generated from Customer Contracting Activities $ in millions Q2'16 Q3'16 Q4'16 GAAP Revenue Change in deferred customer billings 29.6 (65.8) (36.3) Gross cash generated from customer contracting activities $38.3 $59.7 $

35 Capital Structure (as of 6/30/17) Cash $134 million in cash and equivalents Debt No debt Common Stock 105 million shares outstanding Convertible Preferred Stock Equivalent to 87.5 million common shares 200,000 shares issued in Feb (equivalent to 80 million common shares) 8% annual dividend payable in kind on a quarterly basis for 7 years, and cash or kind thereafter Warrants Ascension/TowerBrook investment vehicle has warrants to acquire 60 million common shares at $3.50 per share Can be exercised on a cash or cashless basis 35

36 Possible Share Count Scenarios by 2020 Effect of preferred convertible securities and warrants on diluted share count Common Stock Outstanding Shares in M, Dec Scenario 1: $5.00 Common Stock Price Scenario 2: $7.50 Common Stock Price 105M as of 6/30/ Potential dilution from employee equity awards Preferred Convertible Shares 80M issued plus 8% annual dividend in kind for 7 years Warrants Treasury method used to calculate dilution Scenario 1: $5.00 common stock price 18 Scenario 2: $7.50 common stock price 32 Fully Diluted Share Count ~248 ~262 36