Accretive Health Reports Second Quarter 2016 Results

CHICAGO, Aug. 04, 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 June 30, 2016.

Second Quarter 2016 Results:

  • GAAP  net services revenue of $8.7 million, compared to $22.1 million for the second quarter of 2015

  • GAAP  net loss of $40.8 million, compared to a net loss of $26.3 million for the second quarter of 2015

  • Non-GAAP gross cash generated from customer contracting activities of $38.3 million, compared to $47.2 million for the second quarter of 2015

  • Non-GAAP net cash generated from customer contracting activities of negative $17.4 million, compared to negative $6.6 million for the second quarter of 2015

“In the second quarter, we made progress in aligning our cost structure to our current business needs while investing in our organizational capabilities to drive future growth. We are firmly committed to making the right investments to enable the company to succeed over the long term. I am pleased with the pace of execution against our near term objectives and our clarity of strategic focus going forward,” said Joe Flanagan, President and Chief Executive Officer of Accretive Health.

“The actions we took in the second quarter are an important step in placing us on a path back to profitability.  We now have a more efficient company cost structure which provides us with better operating leverage as we grow,” added Chris Ricaurte, Chief Financial Officer and Treasurer.

Conference Call and Webcast Details
Accretive Health’s management team will host a conference call today at 5:00 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 50457674. 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 Measures
In 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 six months ended June 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 Harbor

This 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 Health

Accretive 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)
 
 June 30,
 2016
 December 31,
 2015
 (Unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$221,673  $103,497 
Short-term investments  1,023 
Accounts receivable, net6,575  10,194 
Prepaid income taxes534  1,102 
Other current assets13,392  10,924 
Total current assets242,174  126,740 
Property, equipment and software, net30,447  27,217 
Non-current deferred tax assets213,908  300,825 
Restricted cash equivalents1,500  1,500 
Other assets4,902  4,007 
Total assets$492,931  $460,289 
Liabilities and stockholders' equity (deficit)   
Current liabilities:   
Accounts payable$3,735  $5,306 
Current portion of customer liabilities144,619  202,516 
Current portion of customer liabilities - related party141,089   
Accrued compensation and benefits16,273  9,062 
Other accrued expenses20,434  15,743 
Total current liabilities326,150  232,627 
Non-current portion of customer liabilities24,667  432,477 
Non-current portion of customer liabilities - related party26,554    
Other non-current liabilities9,810  8,498 
Total liabilities387,181  673,602 
    
8.00% Series A convertible preferred stock: par value $0.01 per share, 200,000 shares issued and outstanding as of June 30, 2016; no shares authorized or issued as of December 31, 2015 (aggregate liquidation value of $206,040 as of June 30, 2016)163,269   
Stockholders' equity (deficit):   
Common stock, $0.01 par value, 500,000,000 shares authorized,116,378,064 shares issued and 107,222,530 shares outstanding at June 30, 2016; 113,259,408 shares issued and 107,715,436 shares outstanding at December 31, 20151,164  1,133 
Additional paid-in capital353,856  322,492 
Accumulated deficit(355,161) (481,773)
Accumulative other comprehensive loss(2,732) (2,488)
Treasury stock(54,646) (52,677)
Total stockholders’ equity (deficit)(57,519) (213,313)
Total liabilities and stockholders’ equity (deficit)$492,931  $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 June 30, Six Months Ended June 30,
  2016   2015   2016   2015 
 (unaudited) (unaudited)
Net services revenue$8,672  $22,085  $360,865  $33,056 
Operating expenses:       
Cost of services 45,112   42,762   90,242   84,958 
Selling, general and administrative 24,660   20,969   42,196   38,331 
Other 8,651   611   19,457   1,886 
Total operating expenses 78,423   64,342   151,895   125,175 
Income (loss) from operations (69,751)  (42,257)  208,970   (92,119)
Net interest income 46   69   130   74 
Income (loss) before income tax provision (69,705)  (42,188)  209,100   (92,045)
Income tax provision (benefit) (28,914)  (15,900)  82,488   (35,312)
Net income (loss)$(40,791) $(26,288) $126,612   $(56,733)
Net income (loss) per common share:       
Basic$(0.45) $(0.27) $0.45  $(0.59)
Diluted$(0.45) $(0.27) $0.45  $(0.59)
Weighted average shares used in calculating net income (loss) per common share:       
Basic 99,414,066   95,941,077   98,851,934   95,915,255 
Diluted 99,414,066   95,941,077   99,951,394   95,915,255 
Consolidated statements of comprehensive income (loss)       
Net income (loss) (40,791)  (26,288)  126,612   (56,733)
Other comprehensive loss:       
Foreign currency translation adjustments (304)  (221)  (244)  (273)
Comprehensive income (loss)$(41,095) $(26,509) $126,368  $(57,006)
                


Table 3
Accretive Health, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
 
 Six Months Ended
June 30,
 2016 2015
  (Unaudited)
Operating activities:   
Net income (loss)$126,612  $(56,733)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:     
Depreciation and amortization4,632  3,818 
Share-based compensation20,413  12,576 
Provision/(Recoveries) for doubtful receivables(27) (45)
Deferred income taxes82,420  (36,369)
Excess tax benefits from share-based awards   
Changes in operating assets and liabilities:   
Accounts receivable3,646  1,101 
Prepaid income taxes503  445 
Other assets(3,394) (4,472)
Accounts payable(1,565) (7,540)
Accrued compensation and benefits7,213  (2,830)
Other liabilities5,079  (2,038)
Customer liabilities and customer liabilities - related party(298,064) 72,904 
Net cash provided by (used in) operating activities(52,532) (19,183)
Investing activities:   
Purchases of property, equipment and software(7,097) (8,348)
Proceeds from maturation of short-term investments1,023   
Net cash used in investing activities(6,074) (8,348)
Financing activities:   
Series A convertible preferred stock and warrant issuance, net of issuance costs178,669   
Exercise of vested options88   
Restricted cash released from letter of credit  5,000 
Excess tax benefit from share-based awards   
Purchase of treasury stock(1,969) (517)
Net cash provided by financing activities176,788  4,483 
Effect of exchange rate changes on cash(6) (222)
Net increase (decrease) in cash and cash equivalents118,176  (23,270)
Cash and cash equivalents at beginning of period103,497  145,167 
Cash and cash equivalents at end of period$221,673  $121,897 
    
Supplemental disclosure of non-cash financing activities   
Accrued dividends payable to Preferred Stockholders$(4,040) $ 
Accrued liabilities related to purchases of property, equipment and software991   
Accounts payable related to purchases of property, equipment and software  5,250 
      


Table 4
Accretive Health, Inc.
Reconciliation of GAAP Revenue to Non-GAAP Gross Cash Generated from Customer Contracting Activities
(In thousands)
 
 Three Months Ended June 30,   2016 vs. 2015 Change   Six Months Ended June 30,   2016 vs. 2015 Change
  2016   2015    Amount%    2016   2015    Amount%
                    
Consolidated Statement of Operations Data:                  
RCM services: net operating fees$2,608  $9,560    $(6,952) -72.7%   $251,309  $13,170    $238,139 fav. 
RCM services: incentive fees -   6,105     (6,105) -100.0%    97,999   8,005     89,994 fav. 
RCM services: other 2,061   2,958     (897) -30.3%    4,462   4,092     370  9.0%
Other services fees 4,003   3,462     541  15.6%    7,095   7,789     (694) -8.9%
Total net services revenue 8,672   22,085     (13,413) -60.7%    360,865   33,056     327,809  fav. 
Change in deferred customer billings 29,602   25,133     4,469  17.8%    (281,737)  69,060     (350,797) fav. 
Gross cash generated from customer contracting activities$38,274   $47,218     $(8,944) -18.9%   $79,128   $102,116     $(22,988) -22.5%
                    
Components of Gross Cash Generated from Customer Contracting Activities:           
RCM services: net operating fee$23,886  $27,050    $(3,164) -11.7%   $48,690  $57,239    $(8,549) -14.9%
RCM services: incentive fee 7,368   14,511     (7,143) -49.2%    16,235   32,642     (16,407) -50.3%
RCM services: other 3,016   2,196     820  37.3%    7,108   4,447     2,661  59.8%
Total RCM services fees 34,270   43,757     (9,487) -21.7%    72,033   94,328     (22,295) -23.6%
Other services fees 4,004   3,461     543  15.7%    7,095   7,788     (693) -8.9%
Gross cash generated from customer contracting activities$38,274   $47,218     $(8,944) -18.9%   $79,128   $102,116     $(22,988) -22.5%

* fav. - Favorable

unfav. - Unfavorable


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
June 30,
 2016 vs. 2015
Change
 Six Months Ended
June 30,
 2016 vs. 2015
Change
  2016   2015  Amount%  2016   2015  Amount%
              
Net income (loss)$(40,791) $(26,288) $(14,503) unfav.  $126,612  $(56,733) $183,345  fav. 
Net interest income (46)  (69)  23  -33.3%  (130)  (74)  (56) 75.7%
Income tax provision (benefit) (28,914)  (15,900)  (13,014) 81.8%  82,488   (35,312)  117,800  unfav. 
Depreciation and amortization expense 2,361   2,101   260  12.4%  4,632   3,818   814  21.3%
Share-based compensation expense 11,785   7,807   3,978  51.0%  18,683   13,003   5,680  43.7%
Other 8,651   611   8,040  unfav.   19,457   1,886   17,571  unfav. 
Adjusted EBITDA (46,954)  (31,738)  (15,216) 47.9%  251,742   (73,412)  325,154  fav. 
Change in deferred customer billings 29,602   25,133   4,469  17.8%  (281,737)  69,060   (350,797) fav. 
Net cash generated from customer contracting activities$(17,352) $(6,605) $(10,747) unfav.  $(29,995) $(4,352) $(25,643) unfav. 

* fav. - Favorable

unfav. - Unfavorable


Table 6
Accretive Health, Inc.
Share-Based Compensation Expense Allocation Details
(In thousands)
 
 Three Months Ended June 30, Six Months Ended June 30,
  2016   2015   2016   2015 
 (unaudited) (unaudited)
        
Cost of services$1,520  $1,204  $3,523  $2,604 
Selling, general and administrative 10,265   6,603   15,160   10,399 
Other 1,828   -   1,828   - 
Total share-based compensation expense$13,613   $7,807   $20,511   $13,003  
                


Table 7
Accretive Health, Inc.
Depreciation and Amortization Expense Allocation Details
(In thousands)
 
 Three Months Ended June 30, Six Months Ended June 30,
  2016   2015   2016   2015 
 (unaudited) (unaudited)
        
Cost of services$2,229  $1,826  $4,327  $3,308 
Selling, general and administrative 132   275   305   510 
Total depreciation and amortization$2,361   $2,101   $4,632   $3,818  
                


Table 8
Accretive Health, Inc.
Condensed Consolidated Non-GAAP Financial Information
(In thousands)
 
 Three Months Ended June 30, Six Months Ended June 30,
  2016   2015   2016   2015 
        
GAAP net services revenue$8,672  $22,085  $360,865  $33,056 
Increase (decrease) in deferred customer billings 29,602   25,133   (281,737)  69,060 
Gross cash generated from customer contracting activities   38,274      47,218      79,128      102,116  
        
Operating Expenses1:       
Cost of services 41,363   39,732   82,392   79,046 
Selling, general and administrative 14,263   14,091   26,731   27,422 
Sub-total   55,626      53,823      109,123      106,468  
        
Net cash generated from customer contracting activities$(17,352) $(6,605) $(29,995) $(4,352)
        
Net cash generated margin -45.3%  -14.0%  -37.9%  -4.3%
                
1Excludes share-based compensation, depreciation and amortization, and other costs
 

 

Contact:
Accretive Health, Inc.
Investor and Media Relations:
Atif Rahim
312.324.5476
investorrelations@accretivehealth.com

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