R1 RCM Inc.

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the R1 RCM Q3 2020 Earnings Conference Calls. At this time, all participants are in a lesson-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please test star zero. I would now like to turn the call over to your speaker today, Atif Rahim, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to the call. Certain statements made during this call may be considered forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In particular, any statements about our future growth, plans, and performance, including statements about our strategic and cost-saving initiatives, our liquidity position, our growth opportunities, and our future financial performance, are forward-looking statements. These statements are often identified by the use of words such as anticipate, believe, estimate, expect, intend, design, may, plan, project, and similar expressions or variations. Investors are cautioned not to place undue reliance on such forward-looking statements. All forward-looking statements made on today's call involve risks and uncertainties. While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Our actual results and outcomes could differ materially from those included in these forward-looking statements as a result of various factors, including but not limited to the potential impacts of the COVID-19 pandemic and the factors discussed under the heading risk factors, in our annual report on our latest Form 10-K and in our latest report on Form 10-Q. We will also be referencing non-GAAP metrics on this call. For a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. Now, I'd like to turn the call over to Joe.

Thank you, Atif. Good morning, everyone, and thank you for joining us. I am pleased to report that our team continues to perform extremely well in the current environment. Our 20,000-plus employees have demonstrated incredible commitment and have made a tremendous effort to ensure our success and the success of our customers during this pandemic. In addition to navigating the operational challenges presented by COVID-19, we have exceeded the new business targets we set at the start of the year and have successfully completed the acquisitions of SCI and RevWorks, as well as the divestiture of the EMS business. Our customer relationships are stronger as a result of these efforts, and the company is on solid footing for continued growth. I'd like to extend a big thank you to the team for the outstanding work this year. Third quarter revenue of $307.2 million and adjusted EBITDA of $50.4 million were ahead of the expectations we communicated on the second quarter call. Revenue upside was driven by higher incentive fees as a result of strong execution and a focus on customer performance. This, along with proven cost management from the actions we took earlier in the year, drove higher adjusted EBITDA. As we look to the balance of the year, we are updating our revenue guidance to $1.25 billion to $1.26 billion and continue to expect adjusted EBITDA of $230 to $240 million. While COVID-19 continues to present a degree of uncertainty, patient volumes across our customer base in aggregate have been relatively stable at 90% to 95% of pre-COVID levels in recent weeks. We remain prepared for a variety of scenarios, and our working assumption at this time is that volumes will remain at current levels until there is a full rebound in economic activity. Overall, our business is performing well, as we have demonstrated over the past few quarters. More importantly, our commercial pipeline continues to gain momentum, and we remain very bullish on our long-term prospects. Last week, we announced an end-to-end operating partner agreement for LifePoint Health, one of the nation's largest health systems with over $8 billion in annual net patient revenue, or NPR. The agreement encompasses more than one-third of LifePoint's hospitals and covers $2.8 billion in NPR for a 10-year term. We are honored to have been selected by LifePoint after an extensive evaluation process and are excited to deliver meaningful financial benefits as well as a better patient experience. We expect onboarding to begin in January in three phases and conclude in the summer of 2022. With economics in line with the operating partner contract economics we have provided in the past. In addition to currently contracted business, we look forward to expanding our relationship with LifePoint in the future to allow them to achieve greater operating efficiencies, freeing up resources to deliver high-quality patient care. LifePoint, like many health systems across the country, faces increased financial pressure, growing revenue cycle complexity, and evolving demands from patients and physicians. Our tech-enabled service platform is built for purpose to address these needs. In fact, our technology was a critical driver in LifePoint's selection process, led by our PX platform and automation capabilities. The successful outcome of this process gives us increased confidence in our competitive positioning. Taking into account Penn State Health, which we signed earlier this year, we have signed on $5 billion in NPR this year despite the backdrop of the pandemic, well ahead of the $3 billion target we set at the start of the year. On the heels of this and the $4.1 billion in NPR we signed in 2019, we have made the conscious decision to increase our nominal annual deployment capacity to $5 billion in end-to-end NPR. Our ongoing discussions with prospects indicate support for this level of deployment capacity as we look out over the next three to five years. Beyond LifePoint, our pipeline remains active for all three of our go-to-market models. Interest in our end-to-end offerings continues to grow, as IDNs are increasingly seeing the value of us as a strategic partner, allowing them to focus their core efforts on patient care. We've also seen an uptick in demand from physician groups following the launch of our physician solution earlier this year. In the third quarter, we signed 11 deals with physician organizations across a diverse range of specialties. Modular activity also remains strong, with 10 deals in the quarter across our revenue cycle and patient experience solutions. Our partnership with Cerner is also off to a good start. Both of our teams are working closely to coordinate and communicate our value prop to Cerner's customer base, and the interest we have received to date is very encouraging. In addition to activity on the commercial front, there are three areas I'd like to discuss on today's call. First, technology and how we are extending our competitive lead. Second, an update on customer deployments and integration of our recent acquisitions. Third, COVID-19 and how we are adapting to the current environment. Starting with technology. As I mentioned earlier, technology was a critical driver in LifePoint's selection process and is increasingly becoming the deciding factor in many of our pipeline discussions. IDNs are recognizing that our comprehensive end-to-end solution is better positioned to achieve scale benefits from technology investments than the patchwork of in-house resources and point solutions predominantly in use today. We see a significant opportunity for technology to fundamentally transform the revenue cycle and drive improved yield, lower cost, and a substantially better experience for patients and providers. Our business model is uniquely suited to drive this transformation. Operational control over revenue cycle processes allows us to benefit from a quick feedback loop and prioritize investments accordingly, driving rapid innovation. The investments we have made in recent years are clearly starting to pay dividends for us. Let me highlight the areas we are currently prioritizing our efforts on. The first area is our patient experience, or PX platform, which is a digital interface between patients and providers. PX enables providers to develop a digital front door strategy and benefit via higher order conversion rates, along with digitized scheduling, intake, referral, and authorizations. Net promoter scores for PX have consistently held above 75, and our customer locations with PX installed are now achieving a 60% patient self-service rate. With the acquisition of SCI earlier this year, we now have substantive IP to drive forward further innovation in this area and have developed an extensive roadmap to further advance and differentiate our capabilities. During the third quarter, we launched our new analytics platform focused on scheduling-related performance metrics such as orders management, time to schedule, digital self-service adoption, and capacity utilization. This platform has been designed with best-in-class visualizations, role-aligned dashboards, and in-process measures correlated to high-value outcomes. Our partnership with Cerner is also helping advance our PX journey. Certain of our PX platform assets are now Cerner's preferred solutions, and Cerner is actively marketing these assets to its install base. In addition to providing a valuable distribution channel, we expect our collaborative approach to deliver improved value to customers and enhance the overall patient experience. Our second focus area is robotic process automation, or RPA. As discussed on our last call, the original portfolio of routines we started developing in 2019 is generating results ahead of our expectations. We continue to see significant promise in this area and are devoting further investment to our RPA efforts. We have a team of over 100 employees fully dedicated to advancing our automation and machine learning goals. In the third quarter, we developed seven net new routines to a targeted group of customers. One of the most impactful of these recently developed routines is the automated posting of adjustments to more than 10 different patient accounting systems in use across our customer base. We plan to roll out these new routines across other customers in the coming months. The current portfolio of routines in production are expected to automate approximately 30 million manual tasks out of an opportunity set of approximately 100 million manual tasks. Our backlog of opportunities also continues to be robust with nine additional routines in various stages of development. Third, we are just scratching the surface with machine learning, which we believe presents a significant opportunity to improve productivity and reduce financial leakage. In the third quarter, we deployed our first machine learning model into production. This model uses historical claim patterns to predict if a denied claim is likely unrecoverable based on our standard processes and would therefore result in a write-off. This is a great example of a situation where our deep expertise and control of the process allows us to iteratively refine our technology before deploying it at scale across our customer network. Another area we are devoting resources to is technology integration in order to accelerate and streamline our onboarding process. Historically, one of our biggest hurdles to speed to value has been the complexity, latency, and cost of integrating with customers' EHR systems. Through our partnership with Cerner, we expect to reduce our normal eight to 10 week technology integration window by up to 60%. In addition to reducing the integration timeline, this will also reduce the lift required by our customers by facilitating direct standard integration. Next, I'd like to update you on our deployment activities. We initiated onboarding activities at Penn State Health in May and are on track to conclude in the first quarter of 2021. Both the Penn State Health and R1 teams have been focused on maintaining strong momentum and have collaborated extremely well in a virtual deployment model. Early results are positive, and the teams are focused on maintaining the strong momentum established in the first few months of the relationship. At Rush Health, all major work streams have been substantially completed, and we are on track to complete any remaining onboarding activities by the end of the year. The partnership and collaboration with Rush remains very strong and a comprehensive program of operational performance improvement initiatives is underway. The Rush and R01 teams continue to operate effectively in a virtual model to drive execution of these initiatives and work streams. For the 700 million NPR position contract we signed in the third quarter of 2019, we are currently 90% through our deployment plan and expect to complete onboarding in the first quarter of 2021. Both the customer and R1 teams have moved to a virtual model to continue collaboration and execution of the onboarding work streams. Turning to an update on recent M&A activities, the integration of SCI is on target, and we're delighted to report that customer and employee retention are both meaningfully ahead of our original forecast. This gives us increasing conviction in the differentiated value proposition for clients, excitement about the substantive IP we now own, as well as confidence in the financial, operational, and cultural synergies of these businesses. As discussed earlier, we have an ambitious roadmap in place to be the most comprehensive platform for digital engagement with patients and providers, and we are generally at or ahead of targets for delivering this roadmap. The integration of RevWorks is also progressing well. We are tracking ahead of plan and consolidating work performed by third-party vendors to our shared services locations. This bodes well for us since rationalizing third-party spend is an important element in achieving steady-state adjusted EBITDA margins of 25% to 30% for this business. Lastly, let me provide some thoughts related to COVID-19. The health and safety of our workforce remains our top priority. The vast majority of our employees continue to work from home, and we do not expect to revert to an in-office environment for the foreseeable future. Productivity, engagement, and retention continue to remain at satisfactory levels. At a macro level, the operating environment remains very dynamic given the recent rise in cases in many geographies and resulting regional restrictions. Relative to the February timeframe, we and our customers are generally much better prepared to navigate and mitigate the challenges presented by COVID-19. Patient volumes across our customer base have stabilized at 90 to 95% of pre-COVID levels in recent weeks, with some variation as we look across care settings. In some physician and inpatient environments, volumes are back to normal, but ER volumes continue to lag at around 80% of pre-COVID levels. Our working assumption is that volumes remain at these levels until the economic activity reverts to normal. We remain vigilant and ready to adapt to changes in the operating environment in a way that balances the long-term opportunity we see in the market with near-term conditions. In closing, I'd like to once again acknowledge the remarkable effort by everyone at R1. We remain focused on serving our customers as they fight this pandemic. The need for our services continues to grow, and we are very bullish on our long-term prospects. We continue to invest in advancing our technology to find better ways to serve our customers, which we are confident will deepen relationships with our existing customers and drive new business over time. Now I'd like to turn the call over to Rachel.