Accretive Health Reports Third Quarter 2016 Results

CHICAGO, Nov. 02, 2016 (GLOBE NEWSWIRE) -- Accretive Health, Inc. (the "Company")  (OTC Pink:ACHI), a leading provider of revenue cycle services and physician advisory services to healthcare providers, today announced results for the quarter ended September 30, 2016.

Third Quarter 2016 Results:
  • GAAP net services revenue of $125.5 million, compared to $15.8 million for the third quarter of 2015
  • GAAP net income of $37.3 million, compared to a net loss of $33.0 million for the third quarter of 2015
  • Non-GAAP gross cash generated from customer contracting activities of $59.7 million, compared to $55.4 million for the third quarter of 2015
  • Non-GAAP net cash generated from customer contracting activities of $3.6 million, compared to $3.7 million for the third quarter of 2015

"Accretive Health's third quarter results reflect the progress we are making in executing against our near-term objectives," said Joe Flanagan, President and Chief Executive Officer of Accretive Health. "We successfully initiated the transition of the first tranche of new Ascension ministries onto our platform, renewed our relationship with our second-largest customer for a multi-year term, and continued to make investments in personnel, technology and infrastructure to enable the company to succeed over the long term."

"We have a number of initiatives underway designed to improve our financial results and position the company to effectively grow at scale. Our third quarter results reflect the results of the actions we have taken, including the realignment of our cost structure conducted at the end of the second quarter.  We are focused on driving our performance to achieve our financial and strategic objectives," added Chris Ricaurte, Chief Financial Officer and Treasurer.

Conference Call and Webcast DetailsAccretive Health's management team will host a conference call today at 4:30 p.m. Eastern Time to discuss the results and business outlook. To participate, please dial 877-880-5884 (631-601-2894 outside the U.S. and Canada) using conference code number 1300961. A live webcast and replay of the call will be available at the Investor Relations section of the Company's web site at www.accretivehealth.com.

Non-GAAP Financial MeasuresIn 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. 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 programs 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 expense, reorganization-related expense 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, and customer liabilities - related party balance in the condensed consolidated balance sheets available in the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 2016.

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 HarborThis press release contains forward-looking statements, and in particular, any statements about future growth, plans and performance are forward-looking statements. All forward-looking statements contained in this press release 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 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 HealthAccretive Health is a leading provider of revenue cycle services and physician advisory services to healthcare providers. Accretive Health's mission is to help healthcare providers strengthen their financial stability so they can deliver better care at a more affordable cost to the communities they serve, increasing healthcare access for all. Accretive Health's distinctive operating model includes people, processes, and sophisticated integrated technology and analytics that help customers realize sustainable improvements in their operating margins and improve the satisfaction of their patients, physicians, and staff. Accretive Health's customers typically are multi-hospital systems, including faith-based or community healthcare systems, academic medical centers and independent ambulatory clinics, and their affiliated physician practice groups.

Table 1 Accretive Health, Inc. Condensed Consolidated Balance Sheets (In thousands, except share and per share data)
  September 30,  2016   December 31,  2015
  (Unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 201,947     $ 103,497  
Short-term investments     1,023  
Accounts receivable, net 8,904     10,194  
Prepaid income taxes 856     1,102  
Other current assets 16,024     10,924  
Total current assets 227,731     126,740  
Property, equipment and software, net 30,082     27,217  
Non-current deferred tax assets 184,270     300,825  
Restricted cash equivalents 1,500     1,500  
Other assets 6,692     4,007  
Total assets $ 450,275     $ 460,289  
Liabilities and stockholders' equity (deficit)      
Current liabilities:      
Accounts payable $ 3,888     $ 5,306  
Current portion of customer liabilities 71,582     202,516  
Current portion of customer liabilities - related party 124,072      
Accrued compensation and benefits 17,397     9,062  
Other accrued expenses 17,123     15,743  
Total current liabilities 234,062     232,627  
Non-current portion of customer liabilities 750     432,477  
Non-current portion of customer liabilities - related party 62,835      
Other non-current liabilities 10,152     8,498  
Total liabilities 307,799     673,602  
       
8.00% Series A convertible preferred stock: par value $0.01 per share, 204,040 shares issued and outstanding as of September 30, 2016; no shares authorized or issued as of December 31, 2015 (aggregate liquidation value of $210,160 as of September 30, 2016) 167,389      
Stockholders' equity (deficit):      
Common stock, $0.01 par value, 500,000,000 shares authorized,116,386,064 shares issued and 106,816,919 shares outstanding at September 30, 2016; 113,259,408 shares issued and 107,715,436 shares outstanding at December 31, 2015 1,164     1,133  
Additional paid-in capital 348,980     322,492  
Accumulated deficit (317,828 )   (481,773 )
Accumulative other comprehensive loss (2,540 )   (2,488 )
Treasury stock (54,689 )   (52,677 )
Total stockholders' equity (deficit) (24,913 )   (213,313 )
Total liabilities and stockholders' equity (deficit) $ 450,275     $ 460,289  
               

Table 2 Accretive Health, Inc. Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share data)
  Three Months Ended September 30,   Nine Months Ended September 30,
    2016       2015       2016       2015  
  (unaudited)   (unaudited)
Net services revenue $ 125,535     $ 15,842     $ 486,400     $ 48,898  
Operating expenses:              
Cost of services     47,376         45,326         137,618         130,284  
Selling, general and administrative     16,201         21,395         58,397         59,726  
Restatement and other     536         3,964         19,993         5,850  
Total operating expenses     64,113         70,685         216,008         195,860  
Income (loss) from operations     61,422         (54,843 )       270,392         (146,962 )
Net interest income     57         73         187         147  
Income (loss) before income tax provision     61,479         (54,770 )       270,579         (146,815 )
Income tax provision (benefit)     24,146         (21,800 )       106,634         (57,112 )
Net income (loss) $ 37,333     ($ 32,970 )   $ 163,945     ($ 89,703 )
               
Net income (loss) per common share:              
Basic $ 0.18     ($ 0.34 )   $ 0.62     ($ 0.93 )
Diluted $ 0.18     ($ 0.34 )   $ 0.62     ($ 0.93 )
Weighted average shares used in calculating net income (loss) per common share:              
Basic     100,934,561         97,230,069         99,870,685         96,358,342  
Diluted     102,176,280         97,230,069         101,018,450         96,358,342  
Consolidated statements of comprehensive income (loss)              
Net income (loss)     37,333         (32,970 )       163,945         (89,703 )
Other comprehensive loss:              
Foreign currency translation adjustments     192         (429 )       (52 )       (702 )
Comprehensive income (loss) $ 37,525     ($ 33,399 )   $ 163,893     ($ 90,405 )
                               

Table 3 Accretive Health, Inc. Condensed Consolidated Statements of Cash Flows (In thousands)
  Nine Months Ended September 30,
  2016   2015
   (Unaudited)
Operating activities:      
Net income (loss) $ 163,945     $ (89,703 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:          
Depreciation and amortization 7,305     6,556  
Share-based compensation 25,173     22,974  
Provision/(Recoveries) for doubtful receivables 87     (79 )
Deferred income taxes 106,548     (58,567 )
Excess tax benefits from share-based awards      
Changes in operating assets and liabilities:      
Accounts receivable 1,203     (621 )
Prepaid income taxes 216     632  
Other assets (7,939 )   (334 )
Accounts payable (1,416 )   (6,108 )
Accrued compensation and benefits 8,336     311  
Other liabilities 3,054     (3,648 )
Customer liabilities and customer liabilities - related party (375,754 )   135,058  
Net cash provided by (used in) operating activities (69,242 )   6,471  
Investing activities:      
Purchases of property, equipment and software (10,395 )   (18,304 )
Proceeds from maturation of short-term investments 1,023      
Net cash used in investing activities (9,372 )   (18,304 )
Financing activities:      
Series A convertible preferred stock and warrant issuance, net of issuance costs 178,669      
Exercise of vested options 88     1,331  
Restricted cash released from letter of credit     5,000  
Excess tax benefit from share-based awards      
Purchase of treasury stock (2,012 )   (1,382 )
Net cash provided by financing activities 176,745     4,949  
Effect of exchange rate changes on cash 319     (567 )
Net increase (decrease) in cash and cash equivalents 98,450     (7,451 )
Cash and cash equivalents at beginning of period 103,497     145,167  
Cash and cash equivalents at end of period $ 201,947     $ 137,716  
               

Table 4 Accretive Health, Inc. Reconciliation of GAAP Revenue to Non-GAAP Gross Cash Generated from Customer Contracting Activities (In thousands)
  Three Months Ended September 30,   2016 vs. 2015 Change   Nine Months Ended September 30,   2016 vs. 2015 Change
    2016       2015     Amount %     2016       2015     Amount %
                           
Consolidated Statement of Operations Data:                        
RCM services: net operating fees $ 48,950     $ 6,232     $ 42,718   fav.   $ 300,259     $ 19,402     $ 280,857   fav.
RCM services: incentive fees     68,538         1,017         67,521   fav.       166,537         9,022         157,515   fav.
RCM services: other     3,830         5,359         (1,529 )   -28.5 %       8,292         9,591         (1,299 )   -13.5 %
Other services fees     4,217         3,234         983     30.4 %       11,312         10,883         429     3.9 %
Total net services revenue     125,535         15,842         109,693   fav.       486,400         48,898         437,502   fav.
Change in deferred customer billings     (65,805 )       39,541         (105,346 ) n.m.       (347,542 )       108,601         (456,143 ) n.m.
Gross cash generated from customer contracting activities $ 59,730     $ 55,383     $ 4,347     7.8 %   $ 138,858     $ 157,499     ($ 18,641 )   -11.8 %
                           
Components of Gross Cash Generated from Customer Contracting Activities:                                          
RCM services: net operating fee $ 46,124     $ 31,522     $ 14,602     46.3 %   $ 94,814     $ 88,761     $ 6,053     6.8 %
RCM services: incentive fee     7,568         14,859         (7,291 )   -49.1 %       23,803         47,501         (23,698 )   -49.9 %
RCM services: other     1,821         5,749         (3,928 )   -68.3 %       8,929         10,196         (1,267 )   -12.4 %
Total RCM services fees     55,513         52,130         3,383     6.5 %       127,546         146,458         (18,912 )   -12.9 %
Other services fees     4,217         3,253         964     29.6 %       11,312         11,041         271     2.5 %
Gross cash generated from customer contracting activities $ 59,730     $ 55,383     $ 4,347     7.8 %   $ 138,858     $ 157,499     ($ 18,641 )   -11.8 %
                                                           

* fav. - Favorable

   unfav. - Unfavorable

   n.m. - Not Meaningful

Table 5 Accretive Health, Inc. Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Cash Generated from Customer Contracting Activities (In thousands)
  Three Months Ended September 30,   2016 vs. 2015 Change   Nine Months Ended September 30,   2016 vs. 2015 Change
    2016       2015     Amount %     2016       2015     Amount %
                           
Net income (loss) $ 37,333     ($ 32,970 )   $ 70,303     fav.     $ 163,945     ($ 89,703 )   $ 253,648     fav.  
Net interest income     (57 )       (73 )       16     -21.9 %       (187 )       (147 )       (40 )   27.2 %
Income tax provision (benefit)     24,146         (21,800 )       45,946     unfav.         106,634         (57,112 )       163,746     unfav.  
Depreciation and amortization expense     2,673         2,738         (65 )   -2.4 %       7,305         6,556         749     11.4 %
Share-based compensation expense     4,760         12,315         (7,555 )   -61.3 %       23,443         25,318         (1,875 )   -7.4 %
Other     536         3,964         (3,428 )   fav.         19,993         5,850         14,143     unfav.  
Adjusted EBITDA     69,391         (35,826 )       105,217     fav.         321,133        (109,238 )       430,371     fav.  
Change in deferred customer billings     (65,805 )       39,541        (105,346 )   n.m.        (347,542 )       108,601        (456,143 )   n.m.  
Net cash generated from customer contracting activities $ 3,586     $ 3,715     ($ 129 )   unfav.     ($ 26,409 )   ($ 637 )   ($ 25,772 )   unfav.  
                                                   

* fav. - Favorable

   unfav. - Unfavorable

   n.m. - Not Meaningful

Table 6 Accretive Health, Inc. Share-Based Compensation Expense Allocation Details (In thousands)
  Three Months Ended September 30,   Nine Months Ended September 30,
    2016       2015       2016       2015  
  (unaudited)   (unaudited)
               
Cost of services $ 1,281     $ 3,152     $ 4,804     $ 5,756  
Selling, general and administrative     3,479         9,163         18,639         19,562  
Other    —        —         1,828        —  
Total share-based compensation expense $ 4,760     $ 12,315     $ 25,271     $ 25,318  
                               

Table 7 Accretive Health, Inc. Depreciation and Amortization Expense Allocation Details (In thousands)
  Three Months Ended September 30,   Nine Months Ended September 30,
    2016       2015       2016       2015  
  (unaudited)   (unaudited)
               
Cost of services $ 2,545     $ 2,491     $ 6,872     $ 5,799  
Selling, general and administrative     128         247         433         757  
Total depreciation and amortization $ 2,673     $ 2,738     $ 7,305     $ 6,556  
                               

Table 8 Accretive Health, Inc. Condensed Consolidated Non-GAAP Financial Information (In thousands)
  Three Months Ended September 30,   Nine Months Ended September 30,
    2016       2015       2016       2015  
               
GAAP net services revenue $ 125,535     $ 15,842     $ 486,400     $ 48,898  
Increase/(decrease) in deferred customer billings     (65,805 )       39,541         (347,542 )       108,601  
Gross cash generated from customer contracting activities     59,730         55,383         138,858         157,499  
               
Operating Expenses 1:              
Cost of services     43,550         39,683         125,942         118,729  
Selling, general and administrative     12,594         11,985         39,325         39,407  
Sub-total     56,144         51,668         165,267         158,136  
               
Net cash generated from customer contracting activities $ 3,586     $ 3,715     ($ 26,409 )   ($ 637 )
               
Net cash generated margin   6.0 %     6.7 %     -19.0 %     -0.4 %
                               

1Excludes share-based compensation, depreciation and amortization, and other costs 
Contact:Accretive Health, Inc.Investor and Media Relations:Atif Rahim312.324.5476investorrelations@accretivehealth.com

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