Accretive Health, Inc. : Accretive Health Reports First Quarter 2012 Financial Results
05/09/2012| 07:35am US/Eastern
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Net services revenue of $254 million, up 55%
Net income of $1.5 million
Non-GAAP Adjusted EBITDA of $12.9 million, up 54%
Non-GAAP adjusted diluted EPS of $0.06, up 50%
PCARR, as of today, $910 million to $930 million, up $147 million
or 19% year-over-year
Company updates 2012 outlook
Accretive Health, Inc. (NYSE: AH), today reported financial results for
the first quarter ended March 31, 2012.
Highlights for First Quarter 2012
Net services revenue for the first quarter increased 55% to $253.7
million from $163.7 million in the first quarter of 2011.
Net income for the first quarter was $1.5 million, compared with $0.2
million in the first quarter of 2011.
Diluted earnings per share increased to $0.01 from $0.00 in the first
quarter of 2011.
Non-GAAP adjusted EBITDA increased 54% to $12.9 million from $8.4
million in the first quarter of 2011.
Non-GAAP adjusted diluted earnings per share increased 50% to $0.06
from $0.04 in the first quarter of 2011.
Mary Tolan, Accretive Health's Founder and Chief Executive Officer,
said, "We were pleased by our operating results in the first quarter,
which were in line with our expectations. Our business produced
meaningful increases in net services revenue, non-GAAP adjusted EBITDA
and operating cash flow. In addition, we established a new, five-year
relationship with one of the largest healthcare systems in the country
that will enable its hospitals to enroll in our services over time.
"Our business model is focused on helping hospitals work better by
producing higher revenues, lower costs, better patient outcomes, and
better patient satisfaction. We are proud not only of our results, but
of our people, whose compassion and effort is the basis of the results
we deliver to our clients -- and to the lives of their patients. Since
our founding, we have assisted our clients in finding insurance coverage
or government programs for more than 250,000 patients."
Ms. Tolan continued, "We believe our performance, not only this quarter,
but since our founding, reflects the success of our fundamental mission
of providing comprehensive services to healthcare providers, and by
doing so helping strengthen their financial stability and increase
healthcare access for all.
"We continue to work hard to resolve the issues with the Minnesota
Attorney General. On April 30, we filed a motion in federal district
court in Minnesota to dismiss the charges the Attorney General brought
against our company in January. We will continue to pursue our legal
defenses against charges that do not reflect the essence of what we do."
Financial Review
First Quarter 2012
Net services revenue for the first quarter of 2012 grew by 55% to $253.7
million, an increase of $90.0 million over the first quarter of 2011.
Net base fee revenue was $214.8 million for the first quarter of 2012,
an increase of $73.0 million over the first quarter of 2011.
Incentive revenue was $23.9 million during the first quarter of 2012,
an increase of $6.6 million over the first quarter of 2011.
Other services revenue was $15.0 million for the first quarter of
2012, an increase of $10.4 million over the first quarter of 2011.
Operating margin for the first quarter of 2012 was $44.7 million
compared with $34.2 million for the first quarter of 2011.
Infused management and technology expense for the first quarter of 2012
was $25.1 million, or 9.9% of net services revenue, compared with $19.5
million, or 11.9% of net services revenue, for the first quarter of
2011. Selling, general and administrative expenses were $17.3 million
for the first quarter of 2012, or 6.8% of net services revenue, compared
with $14.2 million, or 8.7% of net services revenue, for the first
quarter of 2011.
Net income for the first quarter of 2012 was $1.5 million, compared with
$0.2 million in the first quarter of 2011. After adjusting for non-cash
employee stock-based compensation expenses on an after-tax basis,
non-GAAP adjusted net income for the first quarter of 2012 was $6.3
million, compared with $3.7 million in the first quarter of 2011.
Non-GAAP adjusted net income per diluted common share was $0.06 for the
first quarter of 2012, an increase of 50% over the non-GAAP adjusted net
income per diluted common share of $0.04 in the first quarter of 2011.
EBITDA for the first quarter of 2012 was $4.8 million, compared with
$2.4 million for the first quarter of 2011. Included in these results
were non-cash employee stock-based compensation expenses of $8.1 million
and $6.0 million for the first quarter of 2012 and the first quarter of
2011, respectively. After adjusting for these expenses, non-GAAP
adjusted EBITDA for the first quarter of 2012 was $12.9 million,
compared with $8.4 million for the first quarter of 2011, an increase of
$4.5 million.
For the first quarter of 2012, operating cash flow totaled $14.5
million, compared with negative operating cash flow of $45.3 million for
the same period of 2011 primarily due to the timing of payments from
customers and to vendors. For similar reasons free cash flow, defined as
operating cash flow less capital expenditures and the acquisition of
software, was $9.9 million for the first quarter of 2012, compared with
negative free cash flow of $47.3 million for the same period of 2011.
At March 31, 2012, Accretive Health's balance sheet remained strong with
a total cash balance of $214.5 million, compared with $196.7 million at
December 31, 2011.
Fiscal Year 2012 Guidance
Accretive Health is revising its previously issued guidance for fiscal
year 2012 in light of the following factors: the decision by the Company
and Fairview Health Services to transition revenue cycle operations to
Fairview leadership; the Company's receipt of a notice of termination of
its Quality and Total Cost of Care contract by Fairview; and the
Company's assessment of the current situation and related uncertainties.
Accretive Health now estimates that PCARR at year end will be in the
range of $960 million to $1,005 million and 2012 net services revenue
will be in the range of $960 million to $992 million.
In addition, the Company now estimates that fiscal year 2012 non-GAAP
adjusted EBITDA will be in the range of $80 million to $95 million. This
range reflects, among other things, the factors cited above and
additional expenses relating to the defense of the lawsuit by the
Minnesota Attorney General and related matters.
As a result, the Company expects non-GAAP adjusted diluted earnings per
share for fiscal 2012 to be in the range of $0.42 to $0.50. The Company
continues to actively pursue new business opportunities, and will
provide updates as appropriate.
Conference Call
Accretive Health's management will host a conference call today at 7:30
a.m. CDT (8:30 a.m. EDT) to discuss its first quarter 2012 results and
business outlook for fiscal year 2012. To participate, please dial
800-299-9630 (617-786-2904 outside the U.S. and Canada) using conference
code number 50461695, or visit the Investor Relations section of
Accretive Health's web site at www.accretivehealth.com
to access the live webcast. A replay will be available for one week
following the conference call at 888-286-8010 (617-801-6888 outside the
U.S. and Canada) using conference code number 31787327. A replay of the
conference call will also be available online at www.accretivehealth.com.
About Accretive Health
Accretive Health partners with healthcare providers to help them more
effectively manage their revenue cycles, strengthen their financial
stability, and improve the quality of care they provide while reducing
overall healthcare costs. Our people, processes and sophisticated
integrated technology complement our clients' existing resources to
enhance results for patients, physicians and staff. For more
information, please visit www.accretivehealth.com.
Safe Harbor
This document contains forward-looking statements, including statements
regarding Accretive Health's expectations for future financial and
operational performance, expected growth, new services, profitability or
business outlook, the allegations made by the Minnesota Attorney
General, the lawsuit filed against us by the Minnesota Attorney General
and the Company's motion to dismiss the lawsuit, securities-related
class action and derivative lawsuits filed against us and certain of our
officers and directors, follow-on investigations and inquiries by
government authorities, and other litigation matters, all of which
involve risks and uncertainties. Our actual results and outcomes could
differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth in
our Annual Report on Form 10-K for the year ended December 31, 2011, as
amended, filed with the SEC (File No. 001-34746), under the heading
"Risk Factors". The words "strive," "objective," "anticipates,"
"believes," "estimates," "expects," "intends," "may," "plans,"
"projects," "would," "will," and similar expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain these identifying words. We have based these
forward-looking statements on our current expectations and projections
about future events. Although we believe that the expectations
underlying any of our 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 report are expressly
qualified in their entirety by the foregoing cautionary statements. We
wish to caution 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 we may consider immaterial or do not
anticipate at this time. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we do not
know whether our expectations will prove correct. Our expectations
reflected in our forward-looking statements can be affected by
inaccurate assumptions we 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 us and our business, including factors that
potentially could materially affect our financial results or condition
or relationships with customers and potential customers, may emerge from
time to time. We assume no, and we specifically disclaim 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. We advise you, however, to consult any
further disclosures we make on related subjects in our periodic reports
that we file with or furnish to the U.S. Securities and Exchange
Commission.
Accretive Health, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
March 31,
2012
2011
(In thousands, except share and per share amounts)
Net services revenue (1)
$
253,742
$
163,714
Costs of services
209,033
129,541
Operating margin
44,709
34,173
Other operating expenses:
Infused management and technology
25,077
19,532
Selling, general and administrative
17,288
14,240
Total operating expenses
42,365
33,772
Income from operations
2,344
401
Interest income, net
1
9
Net income before provision for income taxes
2,345
410
Provision for income taxes
852
250
Net income
$
1,493
$
160
Net income per common share
Basic
$
0.02
$
0.00
Diluted
0.01
0.00
Weighted average shares used in calculating net income per common
share
Basic
98,923,908
95,162,411
Diluted
102,582,322
99,178,443
Comprehensive income
$
1,571
$
105
Other operating and Non-GAAP financial data
As of March 31,
2012
2011
Projected contracted annual revenue run rate
Net base fees for managed service contracts
$750 to $754
$585 to $588
Incentive payments for managed service contracts
$118 to $131
$116 to $126
Other services
$59 to $62
$43 to $45
Total Projected contracted annual revenue run rate
$927 to $947
$744 to $759
(1) The components of net services revenue were:
Three Months Ended
March 31,
2012
2011
(In thousands, except share and per share amounts)
Net base fees for managed service contracts
$
214,750
$
141,732
Incentive payments for managed service contracts
23,944
17,310
Other services
15,048
4,672
Net services revenue
$
253,742
$
163,714
Accretive Health, Inc.
Condensed Consolidated Balance Sheets
March 31,
December 31,
2012
2011
(Unaudited)
(In thousands, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
$
214,474
$
196,725
Accounts receivable, net of allowance for doubtful accounts of
$3,561 and $3,191 at March 31, 2012 and December 31, 2011,
respectively
111,164
94,105
Prepaid taxes
6,758
6,026
Prepaid assets
5,321
4,004
Due from related party
1,297
1,294
Other current assets
3,908
3,432
Total current assets
342,922
305,586
Deferred income taxes
20,082
17,878
Furniture and equipment, net
27,264
25,073
Restricted cash
5,000
5,000
Goodwill
1,468
1,468
Other, net
11,679
9,187
Total assets
$
408,415
$
364,192
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
23,356
$
15,210
Accrued service costs
67,909
48,889
Accrued compensation and benefits
3,581
15,763
Deferred income tax
3,738
3,738
Other accrued expenses
8,949
6,979
Accrued income tax
200
153
Deferred revenue
31,909
24,137
Total current liabilities
139,642
114,869
Non-current liabilities:
Deferred revenue
9,072
7,055
Other non-current liabilities
4,311
4,179
Total non-current liabilities
13,383
11,234
Total liabilities
$
153,025
$
126,103
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no
shares issued and outstanding at March 31, 2012 and December 31, 2011
--
--
Common stock, $0.01 par value, 500,000,000 shares authorized,
99,321,136 shares issued and 99,306,332 shares outstanding at March
31, 2012; 98,701,161 shares issued and 98,686,357 shares outstanding
at December 31, 2011
993
987
Additional paid-in capital
242,912
227,188
Retained earnings
12,823
11,330
Cumulative translation adjustment
(959
)
(1,037
)
Treasury stock (14,804 shares of common stock held in treasury)
(379
)
(379
)
Total stockholders' equity
255,390
238,089
Total liabilities and stockholders' equity
$
408,415
$
364,192
Accretive Health, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
2012
2011
(In thousands)
Operating activities:
Net income
$
1,493
$
160
Adjustments to reconcile net income to net cash provided by (used
in) operations:
Depreciation and amortization
2,456
1,997
Employee stock based compensation
8,079
5,976
Deferred income taxes
(2,204
)
--
Excess tax benefits from equity-based awards
(3,186
)
(4,994
)
Changes in operating assets and liabilities:
Accounts receivable
(17,057
)
(39,803
)
Prepaid taxes
2,481
26
Prepaid and other assets
(4,455
)
(1,135
)
Accounts payable
8,138
(2,947
)
Accrued service costs
19,020
3,101
Accrued compensation and benefits
(12,186
)
(8,313
)
Other accrued expenses
1,943
929
Accrued income taxes
47
--
Other liabilities
122
177
Deferred revenue
9,789
(484
)
Net cash provided by (used in) operating activities
14,480
(45,310
)
Investing activities:
Purchases of furniture and equipment
(2,903
)
(1,335
)
Acquisition of software
(1,664
)
(661
)
Collection of note receivable
204
931
Net cash used in investing activities
(4,363
)
(1,065
)
Financing activities:
Proceeds from issuance of common stock from stock option exercises
4,463
4,777
Collection of non-executive employees' notes receivable
--
41
Excess tax benefit from equity-based awards
3,186
4,994
Net cash provided by financing activities
7,649
9,812
Effect of exchange rate changes on cash
(17
)
(36
)
Net increase (decrease) in cash and cash equivalents
17,749
(36,599
)
Cash and cash equivalents at beginning of period
196,725
155,573
Cash and cash equivalents at end of period
$
214,474
$
118,974
Explanation of Operational Metrics
We define Projected Contracted Annual Revenue Run-Rate (PCARR) as the
expected total net services revenue for the subsequent 12 months for all
healthcare providers for which we are providing services that are under
contract. We believe that our Projected Contracted Annual Revenue
Run-Rate is a useful measure of our overall business volume at a
particular point in time and of changes in the volume of business over
time because it eliminates the time impact associated with the signing
of new contracts during a quarterly or annual period.
PCARR is calculated by accumulating our estimates of the next 12 months'
base fees, cost saving sharing credits and incentive payments for each
contract in place at the reporting date. Our base fee estimate is based
on the contractual agreement with each customer relating to the services
that we will provide and the costs that the customer was incurring for
completing such activities prior to entering into its agreement with us.
Our estimates for cost sharing credits and incentive payments are based
on the Company's prior experiences regarding the level of cost
reductions and increases in net revenue yield and its management's
experience regarding potential reductions in total medical cost for a
defined patient population, which are likely to be earned during each
year a contract is in place given the level of infused management as
well as the degree to which we have implemented our technology. We
update these estimates regularly to incorporate changes in activities
under management for a specific contract, and changes in our overall
experience with our portfolio of contracts. There were no significant
changes in our overall assumptions used in the calculation of PCARR as
of March 31, 2012.
All of our contracts have "evergreen" provisions that extend the term of
our services automatically unless the customer provides notification of
non-renewal. Therefore, unless a notice of non-renewal has been
received, our PCARR calculation assumes that each contract in place at
the reporting date will continue for at least the next 12 months. In the
event that we receive a non-renewal notice from a customer, we reduce
the PCARR calculation by the amount associated with that specific
contract for any periods after the contract's then current end date. At
March 31, 2012, PCARR includes approximately $94 million related to
periods subject to assumed contract extensions, mostly relating to the
Ascension master services agreement that is due for renewal in December,
2012. The termination of the quality and total cost of care services
contract by Fairview Health Services on April 27, 2012 will reduce the
projected contracted annual revenue run rate for the year ended December
31, 2012.
PCARR is not a projection of expected revenues for specific future
periods because any such projection would also need to include the
additional revenue resulting from any future contracts signed with new
customers subsequent to the reporting date. Further, actual future
revenues from existing customers may differ from the projected amounts
used for purposes of calculating PCARR because the scope of services
provided to existing customers may change and the incentive fees we earn
may be more or less than we estimate depending on our ability to achieve
projected increases in our customers' net revenue yield and projected
reductions in total medical cost of the customers' patient population.
We define the contracting phase of our sales process as the final stage
when we have reached general agreement with the potential customer on
scope, business terms and conditions under which our services will be
provided and the written contract is in the process of being negotiated
and finalized for execution.
Explanation and Use of Non-GAAP Financial
Measures
To provide investors with greater insight and a better understanding of
how our management and board of directors analyze our financial
performance and make operational decisions, we supplement our
consolidated financial statements that are presented on a GAAP basis in
this press release with the following non-GAAP financial measures:
adjusted EBITDA, adjusted net income, and adjusted net income per
diluted common share.
These non-GAAP financial measures should not be considered in isolation;
they are in addition to, and are not a substitution, for financial
performance measures under GAAP. These non-GAAP financial measures may
be different from non-GAAP measures used by other companies. Further, we
may utilize other measures to illustrate performance in the future.
Non-GAAP measures have limitations since they do not reflect all of the
amounts associated with the Company's results of operations as
determined in accordance with GAAP.
We define non-GAAP adjusted EBITDA as net income (loss) before net
interest income (expense), income tax expense (benefit), depreciation
and amortization expense and share based compensation expense. We define
non-GAAP adjusted net income as net income (loss) before share based
compensation expense, net of the estimated tax impact of such expense.
We define non-GAAP adjusted net income per diluted common share as
non-GAAP adjusted net income applicable to common shareholders divided
by the weighted average fully diluted common shares outstanding during
the period as computed in accordance with GAAP.
We use non-GAAP adjusted EBITDA:
as a measure of operating performance, because it does not include the
impact of items that we do not consider indicative of our core
operating performance;
for planning purposes, including the preparation of our annual
operating budget;
to allocate resources to enhance the financial performance of our
business;
to evaluate the effectiveness of our business strategies; and
in communications with our board of directors and investors concerning
our financial performance.
We believe that non-GAAP adjusted EBITDA, non-GAAP adjusted net income,
and non-GAAP adjusted net income per diluted common share are useful to
investors in evaluating our operating performance for the following
reasons:
these and similar non-GAAP measures are widely used by investors to
measure a company's operating performance without regard to items that
can vary substantially from company to company depending upon
financing and accounting methods, book values of assets, capital
structures and the methods by which assets were acquired;
securities analysts often use these and similar non-GAAP measures as
supplemental measures to evaluate the overall operating performance of
companies; and
by comparing our non-GAAP adjusted EBITDA in different historical
periods, our investors can evaluate our operating results without the
additional variations of interest income (expense), income tax expense
(benefit), depreciation and amortization expense and share-based
compensation expense.
We understand that, although measures similar to non-GAAP adjusted
EBITDA and non-GAAP adjusted net income are frequently used by investors
and securities analysts in their evaluation of companies, these measures
have limitations as an analytical tool, and you should not consider them
in isolation or as a substitute for analysis of our results of
operations as reported under GAAP. Some of the limitations of these
specific non-GAAP financial measures are:
non-GAAP adjusted EBITDA does not reflect our cash expenditures or
future requirements for capital expenditures or other contractual
commitments;
non-GAAP adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
non-GAAP adjusted EBITDA and non-GAAP adjusted net income do not
reflect share-based compensation expense;
non-GAAP adjusted EBITDA does not reflect cash requirements for income
taxes; and
non-GAAP adjusted EBITDA does not reflect net interest income
(expense).
Non-GAAP Adjusted EBITDA
The following table presents a reconciliation of non-GAAP adjusted
EBITDA to net income, the most comparable GAAP measure (unaudited; in
thousands):
Three Months Ended
March 31,
2012
2011
Net income
$
1,493
$
160
Net interest income (a)
(1
)
(9
)
Provision for income taxes
852
250
Depreciation and amortization expense
2,456
1,997
EBITDA
$
4,800
$
2,398
Stock compensation expense
8,079
5,976
Non-GAAP Adjusted EBITDA
$
12,879
$
8,374
(a) Net interest income represents earnings from our cash and cash
equivalents. No debt or other interest-bearing obligations were
outstanding during any of the periods presented.
Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Net Income per
Diluted Common Share
The following table presents a reconciliation of non-GAAP adjusted net
income to net income, the most comparable GAAP measure, details how we
calculate non-GAAP adjusted net income per diluted common share, and
reconciles non-GAAP adjusted net income per diluted common share to
fully diluted earnings per common share, the most comparable GAAP
measure (unaudited; in thousands, except share and per share amounts):
Three Months Ended
March 31,
2012
2011
Non-GAAP Adjusted Net Income
GAAP net income per common share
$
1,493
$
160
Add: Stock compensation expense
8,079
5,976
Less: Tax impact of stock compensation expense (a)
3,232
2,390
Adjusted net income
$
6,340
$
3,746
Weighted average common shares, diluted
102,582,322
99,178,443
Non-GAAP adjusted net income per diluted common share
$
0.06
$
0.04
Three Months Ended
March 31,
2012
2011
Non-GAAP Adjusted Net Income per Diluted Share
GAAP fully diluted earnings per common share
$
0.01
$
0.00
Add: Stock compensation expense
0.08
0.06
Less: Tax impact of stock compensation expense (a)
0.03
0.02
Non GAAP adjusted net income per diluted share
$
0.06
$
0.04
(a) Tax impact calculated using a tax rate of 40% which excludes the
impact of state taxes on gross receipts.
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