R1 RCM Inc. (NASDAQ:RCM) Q3 2018 Earnings Conference Call Transcript

Nov 07, 2018 • 08:00 am ET

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R1 RCM Inc. (NASDAQ:RCM) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the R1 RCM Q3 2018 Earnings Call. (Operator Instructions) Atif Rahim, Head of Investor Relations, you may begin your conference.

Executive
Atif A. Rahim

Thank you. Good morning, everyone, and welcome to the call. We'll start with prepared remarks by Joe Flanagan, President and CEO, and Chris Ricaurte, CFO and Treasurer. We will then turn it over to Q&A. Today's conference call is being recorded.

(Forward-Looking Cautionary Statements)

Now I'd like to turn the call over to Joe.

Executive
Joseph Gerard Flanagan

Thanks, Atif. Good morning, everyone, and thank you for joining us.

We are pleased to report another strong quarter driven by continued underlying momentum in our business. Revenue of $250.4 million was up $127.2 million over the last year and adjusted EBITDA of $20.4 million was up $17.3 million. These strong results were driven by continued execution of our customer onboarding process and growth in our contracted book of business.

From a commercial and operational execution standpoint, I'm pleased to say our team has done an excellent job staying focused on performance at existing customers while signing and onboarding a substantial amount of new business this year and at the same time integrating the Intermedix acquisition. We now expect adjusted EBITDA for the full year to be at the higher end of our $50 million to $55 million guidance range. The momentum we see in the business, both from execution of our current contracted book of business as well as the pipeline of opportunities is very encouraging.

Let me take a moment to explain. First, our current contracted book of business will not be fully mature in 2020. The customers we are onboarding now, in particular Ascension Medical Group and Presence/AMITA, which represents $6.5 billion in NPR will just be entering the 12 month deployment mark as we enter 2020. This is relatively early in terms of profitability progression for our operating partner model, which projects steady-state or mature margin contribution at or near the three year mark. So we fully expect continued margin expansion and EBITDA growth beyond 2020.

Second, despite favorable end market dynamics our guidance does not include any new operating partner wins. In line with my comments on the last call, we are in active discussions with large health systems and our pipeline of opportunities is robust. As such, we would expect this activity to translate into a new operating partner win in 2019.

Third, as a result of our Intermedix acquisition combined with the scale we are establishing via the Ascension, Intermountain and AMITA physician wins in 2018, we are seeing increased traction with our value proposition in the physician market, in particular with hospital affiliated physician groups and large independent physician groups.

Our ongoing conversations with customers and prospects give us increased confidence that our operating model is well suited to address the increasing complexity and financial pressures facing healthcare providers. We see growing inclination by large