R1 RCM Inc.

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the R1 RCN Q4 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. And to withdraw your question, please press star one again. Thank you. Atif Rahim, head of investor relations You may begin.

Good morning, everyone, and welcome to the call. Certain statements made during this call may be considered forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Mitigation 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, would, 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. The 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 acquisition of CloudNet, which may not be completed on our anticipated timeline, or at all, our growth strategy, the impacts of the COVID-19 pandemic, and factors discussed under the heading risk factors in our most recent annual report on Form 10-K and in our latest fall report on 10-Q. We will also be referencing non-GAAP metrics on this call. For a reconciliation of the non-GAAP amounts mentioned to the equivalent GAAP amounts, please refer to our press release. Information related to CloudNet is based on data available to us and has not been audited and is subject to change. Now, I'd like to turn the call over to Joe.

Thanks, Atif. Good morning, everyone, and thank you for joining us. I'm pleased to report 2021 was another strong year for R1, with revenue and adjusted EBITDA ahead of our expectations at the start of the year. I'd like to recognize our global team for their continued resilience and hard work through what has been a challenging operating environment. Our solid execution would not have been possible without the tremendous dedication of our 22,000-person strong team. For the fourth quarter, we generated revenue of $398.9 million and adjusted EBITDA of $95.1 million, representing 22% and 52% growth, respectively. return to normal patient volumes new customer wins strong kpi performance and benefits from our digitization efforts all contribute to the strong fourth quarter results on the call today i'd like to cover four topics i'll start with highlights from 2021 followed by incremental color on the pending cloudmed acquisition based on questions we've received from investors I'll then cover our key priorities for 2022, and lastly, update you on R1's ESG journey. 2021 was a successful year for R1 across multiple fronts. In addition to exceeding the financial goals we laid out at the start of the year, we made progress across several areas to position the company for sustained long-term growth. Starting with technology, automation and patient engagement have been two key focus areas over the past few years. We accelerated the pace of automation to 10 million tasks per quarter and exited the year with a run rate of 70 million tasks automated annually, up from 30 million at the end of 2020. We also uncovered new opportunities for automation and currently have an additional 110 million tasks we can automate. We expect to exit 2022 with over 100 million tasks automated, contributing approximately $45 million to our expected adjusted EBITDA for the year. Our automation capabilities now extend beyond robotic process automation, optical character recognition, natural language processing, and machine learning. These extensions enable us to successfully digitize the wide range of complex processes found in provider organizations and develop a more robust capability set, which we characterize as intelligent automation. On the patient engagement front, we formally launched Entry, our patient engagement platform, last August. Entry brings together robust functionality to create what we believe is the most advanced patient engagement solution on the market. empowering patients to search, book, register, and pay for care in one experience on any device. With the acquisition of Visipay, we now own all the components we need for this solution, which provides us with flexibility to drive our internal roadmap. As a result, we've been able to consolidate and centralize roles that were previously fragmented and have achieved operating efficiencies equivalent to over 500 FTEs as a direct result of the entry platform. We're now FHIR API interoperable with the top four EHR systems and the only offering in the market that can support customers' needs to present appointment availability across disparate systems and care settings. This provides opportunities for our customers to win market share while simultaneously driving higher patient satisfaction. Turning next to commercial activity, while we were below our target of $4 billion in new end-to-end NPR in 2021, we are pleased to share that we are in the contracting stage and have increased the scope of business with a $10 billion NPR customer. We are substantively complete on negotiations with this customer, but have not executed the contract pending the customer's internal processes. This continued progression is a positive step, and we expect to execute the contract in the coming weeks. This is an important relationship for us across three key dimensions. First, it demonstrates the continued momentum in the market to transition revenue cycle operations to our built-for-purpose platform. Our platform offers comprehensive technology, global delivery infrastructure, and a best-in-class operating system to drive performance. Second, we believe our track record of successfully onboarding 15 billion of NPR over the past three years under end-to-end agreements is viewed as a strong proof point by prospective customers seeking a reliable partner to address the growing challenges they face. Third, technology was once again a critical driver in the selection process. The investments we've made in automation and entry allow providers to access these capabilities without any upfront capital investments. Having these capabilities embedded in our value proposition is a significant competitive differentiator. We look forward to delivering meaningful financial benefits to this customer as well as an exceptional experience to the patients they serve Additionally, in the past year, we added MedMax and VillageMD as end-to-end operating partner customers and renewed our agreements with Ascension and American Physician Partners for 10 years. With the latest 10 billion NPR, the weighted average life of end-to-end contracts will be eight and a half years, providing significant long-term visibility. We also signed several notable modular deals, including Adventist Health, Memorial Sloan Kettering, the Department of Veterans Affairs, ChenMed, Alliance, Spine and Paint, and Texas Health Resources. The last area I'd like to highlight with respect to 2021 is operational readiness to absorb the growth ahead of us. One of our 2021 goals was to ensure that our operations and deployment teams were fully resourced to successfully absorb $5 billion in new NPR annually exiting 2021. To enable this, we added capacity in our central delivery infrastructure to ensure we can begin transitioning work as close as possible to contract signing. We also invested in data integration tools to accelerate the deployment of our core revenue cycle technology at new customers and implemented processes to drive earlier adoption of our automation tools to improve speed to value. I'm pleased to say our onboarding capacity is currently in the 5 billion NPR range. However, given the current level of activity in our pipeline, we plan to increase capacity to approximately 7 billion as we exit 2022. I'll touch on this in more detail as part of the discussions on 2022 priorities. Turning now to CloudNet, we are very excited about the capabilities that we expect CloudNet to add to our portfolio as part of our vision to be the strategic revenue partner to providers. As we discussed in our announcement last month, CloudNet has capabilities that build on our once existing business and will also help drive incremental value to our customers. There are two key areas I want to focus on today. The first is CloudNet's platform and technology. CloudMed has built a data-driven platform with deep revenue intelligence functionality to holistically address the complex reimbursement challenges that providers face. It includes a robust data set that captures demographic, clinical, and financial data on over 500 million patient encounters annually using a highly scalable cloud-based architecture. This data set spans payers and geographies across the country. To put it in perspective, CloudMed ingests 10 times more data than R1 does today across our existing customer base. This data set enables CloudMed's predictive analytics and machine learning to identify patterns and errors in clinical documentation, claim submission, and payer denials, and thereby create automated rules that generate value for customers. As a result, CloudMed has developed a robust set of solutions, many of which we expect to significantly enhance R1's existing functionality in our end-to-end solutions, and some of which will be entirely new capabilities. For example, CloudMed's results in underpayments, complex claims, and charge capture are superior to R1's, given their deep focus and scale in these areas. Additionally, CloudMed brings to the table solutions that R1 has not developed historically, For example, DRG validation, Medicare cost reporting, 340B reimbursement, and a demonstrated track record of productizing and commercializing automation capabilities sold directly to providers. These would all be net new solutions we expect to add as a result of the pending acquisition. The second point I want to focus on is CloudMed's strong financial profile and commercial engine. CloudMed's 12,000-plus rules generated over $1.7 billion in incremental revenue for customers in 2021. This strong value proposition has resulted in a financial profile with high recurring revenue and 20% plus year-over-year top-line growth in 2021. In terms of scale, CloudMed processed over $800 billion of NPR in 2021 for more than 400 health systems in all 50 states. including 87 of the top 100 health systems. Even with this scale, there is still a significant opportunity to cross-sell additional solutions to current customers, since a majority use only one out of Convent's nine solutions. Their commercial engine has a multi-year demonstrated track record of increasing the attach rate with existing customers and continuing to develop new opportunities across the remaining $1.2 trillion of NPR at health systems and physician practices that are not CloudNet customers today. These attributes give us a high degree of confidence that our modular channel can grow 20% in the medium term post-acquisition. bolstered by strong bookings from CloudMed in 2021 and adding our existing modular solutions such as PaaS, Entry, and VisitPay to CloudMed's commercial engine beyond 2021. We are excited about the opportunities to unlock additional growth and value for providers and remain on track to close the acquisition in the second quarter, subject to closing conditions as previously disclosed. Turning to our priorities for 2022, Our top overarching priority is to successfully complete the acquisition and integrate CloudNet. A high-quality outcome here is of paramount importance to us with three key goals in mind. Post-integration, we want to, one, drive commercial success given our enhanced value proposition, unlocking and accelerating the growth potential presented by the modular channel. Two, establish R1 as the technology and data platform leader in the industry. And three, be recognized as the premier brand to serve healthcare providers' revenue cycle management needs. Integration planning is well underway, and we expect to launch our plans immediately post-cause. Second, we want to ensure that our core execution remains on track and we fully capture the market opportunity presented to us. Our end-to-end pipeline remains extremely active and was up 30% at the end of the fourth quarter compared to Q3 21. on top of the 50% sequential growth in Q3. Two of our key goals in 2022 are to reduce the cycle time to onboard new customers and to increase our onboarding capacity to $7 billion in NPR annually. We expect incremental near-term costs as a result of this, with a significant return on investment given the long-term nature of our contracts. Third, looking to the next stage of automation. As a result of the planned acquisition of CloudMed, we expect to have the broadest coverage on revenue cycle processes automation. We expect our data footprint to increase tenfold, enabling further advancements in machine learning, which will in turn create a more powerful value proposition for customers. R1's automation efforts, which has historically been internally focused, It's highly complementary with CloudMed's capabilities, which are sold directly to providers on a standalone basis. Building on our combined capabilities, we plan to launch a multi-year AI-driven strategy to unlock the full potential this expanded data set presents to us. We expect these efforts will significantly expand automated decision-making and increase the universe of automatable process. Increasing automated decision-making will benefit multiple outcomes, including lower reliance on manual labor, improved revenue yield, faster working capital conversion, and higher patient satisfaction. Ultimately, technology is playing an increasingly important role in our process workflows and is helping us navigate tight labor markets. While we are not immune to the current labor environment, As we sit today, with the efficiencies created by automation and entry, our labor needs are 10% to 15% lower than providers' in-house revenue cycle operations. This technology-driven productivity, combined with our global scale footprint, is increasingly recognized by providers as a superior alternative to their standalone efforts or other solutions in the market. And we believe this is contributing to the growth in our end-to-end pipeline. Lastly, before I turn it over to Rachel, I'd like to update you on R01's ESG journey. In March of last year, we published our inaugural report in which we highlighted how we are enhancing the interests of all stakeholders through our ESG commitments. We continue to build on these commitments over the course of 2021, and I'm particularly proud of a few initiatives I'd like to highlight. With the launch of ENTRI, we significantly advanced our commitment to improve access to healthcare. Our role in the healthcare ecosystem positions us to transform the patient experience by integrating the numerous revenue cycle touchpoints and disparate support systems found across care settings. By combining our innovative technology with our financial advocacy for patients, we are making healthcare simpler by increasing patient access to healthcare, and we're pleased to be removing barriers to high-quality healthcare for patients. Second, we continued to invest heavily in our people. We introduced a number of new learning and development resources, including new educational content for our people leaders to enable them to build effective working relationships and a certification program for our hourly staff to advance career and pay progression. We also evaluated minimum wage floors on a geographically differentiated basis and increased base pay in select markets. with the intent to continue similar evaluations and actions more broadly in 2022 and beyond. Third, we enhanced our protection of vital information with robust internal controls as independently verified through SOC 1 and SOC 2 certifications. I'm very proud of our team for actively embracing and advancing these initiatives, which overarchingly tied to our core mission to make healthcare simpler. We plan to publish our 2021 ESG report in early March, and I encourage you to review a copy on our website. In closing, I'm very pleased with our progress in 2021, which positions us for a strong 2022. With the pending acquisition of CloudNet, we stand to significantly advance our value proposition post-closing and improve our competitive positions. We're very excited about the journey ahead of us and look forward to updating you on our progress on future calls. Now I'd like to turn the call over to Rachel.