Baird 2018 Global Healthcare Conference. September 5, 2018

Transcription

1 Baird 2018 Global Healthcare Conference September 5, 2018

2 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 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, including, but not limited to, our ability to integrate the Intermedix business as planned and to realize the expected benefits from the acquisition, our ability to successfully deliver on our commitments to Intermountain and Ascension, our ability to deploy new business as planned, fluctuations in our results of operations and cash flows, 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. This presentation includes the following non-gaap financial measures : Gross Cash Generated from Customer Contracting Activities (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. 2

3 Who We Are: Healthcare RCM Pure Play. Significant Growth Trajectory. LARGE TARGET MARKET DIFFERENTIATED VALUE PROPOSITION REVENUE GROWTH EXPECTED Adj. EBITDA GROWTH EXPECTED Acute and Physician RCM Market $100B Robust, Proven Operating Model From $ M to $ B From $50-55M to $ M High Visibility Driven by Announcements in

4 What We Do: 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 + + Experienced Talent + Analytics + Global Shared Services + Demonstrated Results Proprietary Technology 4

5 The R1 Story Building an Industry Leader Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 investment proposition 5

6 Major Repositioning Since 2013 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 6

7 Demonstrated Revenue Momentum Quarterly Revenue 1 $208M $38M $60M $70M $87M $99M $123M $140M $147M Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Note 1 : 2016 data reflects Gross Cash Generated from Customer Contracting Activities, a non-gaap metric utilized by the Company prior to the adoption of ASC 606 on January 1, 2017 (see slide 33) data reflects GAAP revenue. 7

8 Acquisition of Intermedix Advances our Vision to be the One Revenue Cycle Partner for Providers Enterprise Value Phase 1 Relaunch Effective re-launch of company Phase 2 Solidify Acute Care Lead Strengthen acute care position via Ascension deployment Phase 3 Extend Integrated Solution Further build out integrated revenue cycle (acute care + physician) across payment models COMPLETE COMPLETE TODAY 8

9 Intermedix Transaction Overview Transaction Terms Transaction valued at approximately $460M (cash) LTM 9/30/17 adjusted EBITDA of $48M + expected cost synergies Ascension Medical Group contract signed in Q $80M cash from balance sheet plus transaction fees Financing New $270M first lien term loan New $110M subordinated debt Expected net leverage of ~3.0x Q4 18 adjusted EBITDA run rate Timing Closed on May 8, 2018 Note: See slide 33 for a reconciliation to Adjusted EBITDA for Intermedix. R1 expects to generate annualized cost synergies of $15M. Adjusted EBITDA is a non-gaap measure; please refer to the Appendix for a reconciliation of non-gaap financial measures. 9

10 Intermedix at a Glance $4.2B 20M Scaled Platform Net Patient Revenue Under Mgmt. Annual Patient Encounters Differentiated Capabilities Experience across settings of care End-to-End Physician RCM offering 15K Providers Served 700+ Customers 2.2K Employees Global Onshore & Offshore Delivery Centers Technology Comprehensive Coverage Full suite of practice management services with technology Significant investment in data analytics and automation Clinical insights platform well-positioned to serve value-based payment models 10

11 Intermedix Adds Meaningful Capabilities to Serve Customers Non-Acute Markets End Market IMX + IMX Acute Care Hospital-Based Physicians Office-Based Physicians Alternate Site Emergency Medical Services 11

12 The R1 Story Building an Industry Leader Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 investment proposition 12

13 Targeting Large, Growing Industry. R1 Expects to Grow 2x Faster. Intermedix Expands TAM to $100B 1 External RCM Spend Growing Steadily 2 R1 Revenue Expected to Grow Faster $B $40 $100 12% Projected CAGR through %+ Projected CAGR through 2020 $60 Historical Served Physician Segment New TAM Target Industry Note 1 : CMS NHE Projections and R1 estimates. Note 2 : Research and Markets Global Forecast to 2022, published January

14 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 = 14

15 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 15

16 The R1 Story Building an Industry Leader Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 investment proposition 16

17 Differentiated Capabilities Robust and Proven Operating Model Flexible Deployment Models Ability to Scale Integrated Physician-Acute Offering, Across Payment Models 17

18 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 18

19 Superior Performance Versus Competitors Comparison of $10B+ systems that are served by mature End-to-End RCM Providers % Change Decrease is Favorable AR Days 1 Performance 40% 30% 20% 10% 0% -10% -20% -30% + 26% + 21% + 1% Competitor 1 Competitor 2 Competitor % R1 RCM R1 Performance 22% Reduction in AR Days Source: Definitive Healthcare Note 1 : Gross Accounts Receivable divided by average daily Gross Revenue 19

20 Three Flexible Engagement Models OPERATING PARTNER Fully outsourced, risk-sharing infrastructure partners CO-MANAGED Embedded managers, processes & technologies in the organization Customer Need End-to-End Solution MODULAR Leverage specific R1 strengths and capabilities Specific Components of Revenue Cycle 20

21 Contract Economics by Engagement Model Illustrative Revenue and EBITDA contribution based on typical $3B NPR Operating Partner Co-Managed Modular $M $M $M ~(12) Year 1 ~(2.0) Year 5 Year 1 Year 5 Year 1 Year 5 Revenue contribution EBITDA contribution 21

22 Financial Model for Operating Partner Model Illustrative Contribution from $3B NPR Customer Launch Growth Steady State 0 12 Months Months 36+ Months Deploy transition resources Perform financial assessment Invest in infrastructure Implement technology Finalize employee transitions Transfers to Shared Services Complete standardization Steady state org structure Continuous optimization: KPI metric improvement Technology advancement Productivity improvement Financial Impact $M Mid-Point of Range Financial Impact $M Mid-Point of Range Financial Impact $M Mid-Point of Range Revenue 75 Revenue 120 Revenue 135 Adj. EBITDA contribution (12) Adj. EBITDA contribution 17 Adj. EBITDA contribution 35 Adj. EBITDA contribution % (16%) Adj. EBITDA contribution % 14% Adj. EBITDA contribution % 26% Profitability Trends Up as Model is Fully Deployed 22

23 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 talent development Ability to support higher volumes Planning & datadriven standards for utilization R1 has Proven the Ability to Scale Rapidly and Successfully: 10,000 FTE Employees YE 17 +4,700 YOY Ascension Onboarding Ahead of Plan 400 Technology Installs in 17 $11B In new net patient revenue (NPR) to be onboarded in

24 The R1 Story Building an Industry Leader Large, underpenetrated market Differentiated business model Multiple growth & profit drivers R1 investment proposition 24

25 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 Productivity Enhancements Selectively pursue acquisitions and fund internal initiatives Margin expansion through scaling benefits and automation Multiple Levers to Drive Long-Term Growth 25

26 Our 2018 Focus Complete Ascension onboarding Onboard 2018 Wins Integrate Intermedix Drive Margin Expansion 26

27 Ascension: Accelerated and Expanded Onboarding of New Business New NPR added in 2017 includes $500M from physician RCM services $14.8B Accelerated onboarding $700M NPR $700M $1.5B new NPR $8B 2016 Plan New NPR + $8.8B $6B Under Management Pre $6B Each $1B NPR Under Management adds $40-50M to R1 Revenue 27

28 Onboarding $11B NPR in 2018 $B Net Patient Revenue Ascension Medical Group Presence Health + AMITA Health $2.0 $4.0 Ascension Phase-3 $0.4 Intermountain Healthcare Q2 18 Q3 18 Q4 18 $4.6 $11.0 Note: NPR (Net Patient Revenue) is a measure of customers revenue, not R1 revenue. 28

29 Margin Expansion Drivers Expected Adjusted EBITDA 1 % ~19% ~6% Move work to shared services centers Rationalize vendor spend Technologydriven productivity enhancement Revenue lift from performance improvement Note 1 : Based on midpoints of current guidance ranges. 29

30 Financial Outlook 1 ($ in millions) Revenue GAAP Operating Income Adjusted EBITDA 2018 Outlook $850 $900 ($30)-($50) $50 $ Outlook $1,200 $1,300 $115 $155 $225 $250 New NPR 2 adds in $B Intermountain Health $4.6 Presence + AMITA Health $4.0 Ascension Medical Group $2.0 Total $10.6 Note 1 : Outlook subject to changes related to depreciation of fixed assets, purchase price accounting for amortization of intangibles. Note 2 : NPR (Net Patient Revenue) is a measure of customers revenue, not R1 revenue. Note: Adjusted EBITDA is a non-gaap measure, please refer to the Appendix for a reconciliation of non-gaap financial measures. 30

31 Appendix

32 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. 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. 32

33 Reconciliation GAAP to non-gaap Financials 2018 and 2020 Outlook $ in millions GAAP Operating Income Guidance ($30)-($50) $115-$155 Plus: Depreciation and amortization expense $25-$30 $30-$40 Share-based compensation expense $15-$20 $20-$25 Amortization of intangibles $10-$15 $25-$40 Transaction expenses, severance and other c $25-$30 $5-$10 Adjusted EBITDA Guidance $50-55 $225-$250 Reconciliation of Intermedix GAAP to non-gaap $ in millions 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 $