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Accretive Health Reports Third Quarter 2016 Results

CHICAGO, Nov. 02, 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 September 30, 2016.

Third Quarter 2016 Results:

  • GAAP net services revenue of $125.5 million, compared to $15.8 million for the third quarter of 2015
  • GAAP net income of $37.3 million, compared to a net loss of $33.0 million for the third quarter of 2015
  • Non-GAAP gross cash generated from customer contracting activities of $59.7 million, compared to $55.4 million for the third quarter of 2015
  • Non-GAAP net cash generated from customer contracting activities of $3.6 million, compared to $3.7 million for the third quarter of 2015

“Accretive Health’s third quarter results reflect the progress we are making in executing against our near-term objectives,” said Joe Flanagan, President and Chief Executive Officer of Accretive Health. “We successfully initiated the transition of the first tranche of new Ascension ministries onto our platform, renewed our relationship with our second-largest customer for a multi-year term, and continued to make investments in personnel, technology and infrastructure to enable the company to succeed over the long term.”

“We have a number of initiatives underway designed to improve our financial results and position the company to effectively grow at scale. Our third quarter results reflect the results of the actions we have taken, including the realignment of our cost structure conducted at the end of the second quarter.  We are focused on driving our performance to achieve our financial and strategic objectives,” 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 4:30 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 1300961. 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 three months ended September 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)

 September 30,
 2016
 December 31,
 2015
 (Unaudited)  
Assets   
Current assets:   
Cash and cash equivalents$201,947  $103,497 
Short-term investments  1,023 
Accounts receivable, net8,904  10,194 
Prepaid income taxes856  1,102 
Other current assets16,024  10,924 
Total current assets227,731  126,740 
Property, equipment and software, net30,082  27,217 
Non-current deferred tax assets184,270  300,825 
Restricted cash equivalents1,500  1,500 
Other assets6,692  4,007 
Total assets$450,275  $460,289 
Liabilities and stockholders' equity (deficit)   
Current liabilities:   
Accounts payable$3,888  $5,306 
Current portion of customer liabilities71,582  202,516 
Current portion of customer liabilities - related party124,072   
Accrued compensation and benefits17,397  9,062 
Other accrued expenses17,123  15,743 
Total current liabilities234,062  232,627 
Non-current portion of customer liabilities750  432,477 
Non-current portion of customer liabilities - related party62,835   
Other non-current liabilities10,152  8,498 
Total liabilities307,799  673,602 
    
8.00% Series A convertible preferred stock: par value $0.01 per share, 204,040 shares issued and outstanding as of September 30, 2016; no shares authorized or issued as of December 31, 2015 (aggregate liquidation value of $210,160 as of September 30, 2016)167,389   
Stockholders' equity (deficit):   
Common stock, $0.01 par value, 500,000,000 shares authorized,116,386,064 shares issued and 106,816,919 shares outstanding at September 30, 2016; 113,259,408 shares issued and 107,715,436 shares outstanding at December 31, 20151,164  1,133 
Additional paid-in capital348,980  322,492 
Accumulated deficit(317,828) (481,773)
Accumulative other comprehensive loss(2,540) (2,488)
Treasury stock(54,689) (52,677)
Total stockholders' equity (deficit)(24,913) (213,313)
Total liabilities and stockholders’ equity (deficit)$450,275  $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 September 30, Nine Months Ended September 30,
  2016   2015   2016   2015 
 (unaudited) (unaudited)
Net services revenue$125,535  $15,842  $486,400  $48,898 
Operating expenses:       
Cost of services   47,376     45,326     137,618     130,284 
Selling, general and administrative   16,201     21,395     58,397     59,726 
Restatement and other   536     3,964     19,993     5,850 
Total operating expenses   64,113     70,685     216,008     195,860 
Income (loss) from operations   61,422     (54,843)    270,392     (146,962)
Net interest income   57     73     187     147 
Income (loss) before income tax provision   61,479     (54,770)    270,579     (146,815)
Income tax provision (benefit)   24,146     (21,800)    106,634     (57,112)
Net income (loss)$37,333   ($32,970) $163,945   ($89,703)
        
Net income (loss) per common share:       
Basic$0.18  ($0.34) $0.62  ($0.93)
Diluted$0.18  ($0.34) $0.62  ($0.93)
Weighted average shares used in calculating net income (loss) per common share:       
Basic   100,934,561     97,230,069     99,870,685     96,358,342 
Diluted   102,176,280     97,230,069     101,018,450     96,358,342 
Consolidated statements of comprehensive income (loss)       
Net income (loss)   37,333     (32,970)    163,945     (89,703)
Other comprehensive loss:       
Foreign currency translation adjustments   192     (429)    (52)    (702)
Comprehensive income (loss)$37,525  ($33,399) $163,893  ($90,405)
                

Table 3
Accretive Health, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)

 Nine Months Ended
September 30,
 2016 2015
  (Unaudited)
Operating activities:   
Net income (loss)$163,945  $(89,703)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:     
Depreciation and amortization7,305  6,556 
Share-based compensation25,173  22,974 
Provision/(Recoveries) for doubtful receivables87  (79)
Deferred income taxes106,548  (58,567)
Excess tax benefits from share-based awards   
Changes in operating assets and liabilities:   
Accounts receivable1,203  (621)
Prepaid income taxes216  632 
Other assets(7,939) (334)
Accounts payable(1,416) (6,108)
Accrued compensation and benefits8,336  311 
Other liabilities3,054  (3,648)
Customer liabilities and customer liabilities - related party(375,754) 135,058 
Net cash provided by (used in) operating activities(69,242) 6,471 
Investing activities:   
Purchases of property, equipment and software(10,395) (18,304)
Proceeds from maturation of short-term investments1,023   
Net cash used in investing activities(9,372) (18,304)
Financing activities:   
Series A convertible preferred stock and warrant issuance, net of issuance costs178,669   
Exercise of vested options88  1,331 
Restricted cash released from letter of credit  5,000 
Excess tax benefit from share-based awards   
Purchase of treasury stock(2,012) (1,382)
Net cash provided by financing activities176,745  4,949 
Effect of exchange rate changes on cash319  (567)
Net increase (decrease) in cash and cash equivalents98,450  (7,451)
Cash and cash equivalents at beginning of period103,497  145,167 
Cash and cash equivalents at end of period$201,947  $137,716 
        

Table 4
Accretive Health, Inc.
Reconciliation of GAAP Revenue to Non-GAAP Gross Cash Generated from Customer Contracting Activities
(In thousands)

 Three Months Ended September 30, 2016 vs. 2015 Change Nine Months Ended September 30, 2016 vs. 2015 Change
  2016   2015  Amount%  2016   2015  Amount%
              
Consolidated Statement of Operations Data:            
RCM services: net operating fees$48,950  $6,232  $42,718 fav. $300,259  $19,402  $280,857 fav.
RCM services: incentive fees   68,538     1,017     67,521 fav.    166,537     9,022     157,515 fav.
RCM services: other   3,830     5,359     (1,529) -28.5%    8,292     9,591     (1,299) -13.5%
Other services fees   4,217     3,234     983  30.4%    11,312     10,883     429  3.9%
Total net services revenue   125,535     15,842     109,693 fav.    486,400     48,898     437,502 fav.
Change in deferred customer billings   (65,805)    39,541     (105,346)n.m.    (347,542)    108,601     (456,143)n.m.
Gross cash generated from customer contracting activities$59,730   $55,383   $4,347   7.8% $138,858   $157,499   ($18,641) -11.8%
              
Components of Gross Cash Generated from Customer Contracting Activities:                     
RCM services: net operating fee$46,124  $31,522  $14,602  46.3% $94,814  $88,761  $6,053  6.8%
RCM services: incentive fee   7,568     14,859     (7,291) -49.1%    23,803     47,501     (23,698) -49.9%
RCM services: other   1,821     5,749     (3,928) -68.3%    8,929     10,196     (1,267) -12.4%
Total RCM services fees   55,513     52,130     3,383  6.5%    127,546     146,458     (18,912) -12.9%
Other services fees   4,217     3,253     964  29.6%    11,312     11,041     271  2.5%
Gross cash generated from customer contracting activities$59,730   $55,383   $4,347   7.8% $138,858   $157,499   ($18,641) -11.8%
                              

* fav. - Favorable

   unfav. – Unfavorable

   n.m. – Not Meaningful

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 September 30, 2016 vs. 2015 Change Nine Months Ended September 30, 2016 vs. 2015 Change
  2016   2015  Amount%  2016   2015  Amount%
              
Net income (loss)$37,333  ($32,970) $70,303  fav.  $163,945  ($89,703) $253,648  fav. 
Net interest income   (57)    (73)    16  -21.9%    (187)    (147)    (40) 27.2%
Income tax provision (benefit)   24,146     (21,800)    45,946  unfav.     106,634     (57,112)    163,746  unfav. 
Depreciation and amortization expense   2,673     2,738     (65) -2.4%    7,305     6,556     749  11.4%
Share-based compensation expense   4,760     12,315     (7,555) -61.3%    23,443     25,318     (1,875) -7.4%
Other   536     3,964     (3,428) fav.     19,993     5,850     14,143  unfav. 
Adjusted EBITDA   69,391     (35,826)    105,217  fav.     321,133    (109,238)    430,371  fav. 
Change in deferred customer billings   (65,805)    39,541    (105,346) n.m.    (347,542)    108,601    (456,143) n.m. 
Net cash generated from customer contracting activities$3,586   $3,715   ($129) unfav.  ($26,409) ($637) ($25,772) unfav. 
                          

* fav. - Favorable

   unfav. - Unfavorable

   n.m. – Not Meaningful

Table 6
Accretive Health, Inc.
Share-Based Compensation Expense Allocation Details
(In thousands)

 Three Months Ended September 30, Nine Months Ended September 30,
  2016   2015   2016   2015 
 (unaudited) (unaudited)
        
Cost of services$1,281  $3,152  $4,804  $5,756 
Selling, general and administrative   3,479     9,163     18,639     19,562 
Other  —    —     1,828    — 
Total share-based compensation expense$4,760   $12,315   $25,271   $25,318  
                

Table 7
Accretive Health, Inc.
Depreciation and Amortization Expense Allocation Details
(In thousands)

 Three Months Ended September 30, Nine Months Ended September 30,
  2016   2015   2016   2015 
 (unaudited) (unaudited)
        
Cost of services$2,545  $2,491  $6,872  $5,799 
Selling, general and administrative   128     247     433     757 
Total depreciation and amortization$2,673   $2,738   $7,305   $6,556  
                

Table 8
Accretive Health, Inc.
Condensed Consolidated Non-GAAP Financial Information
(In thousands)

 Three Months Ended September 30, Nine Months Ended September 30,
  2016   2015   2016   2015 
        
GAAP net services revenue$125,535  $15,842  $486,400  $48,898 
Increase/(decrease) in deferred customer billings   (65,805)    39,541     (347,542)    108,601 
Gross cash generated from customer contracting activities   59,730      55,383      138,858      157,499  
        
Operating Expenses1:       
Cost of services   43,550     39,683     125,942     118,729 
Selling, general and administrative   12,594     11,985     39,325     39,407 
Sub-total   56,144      51,668      165,267      158,136  
        
Net cash generated from customer contracting activities$3,586   $3,715   ($26,409) ($637)
        
Net cash generated margin 6.0%  6.7%  -19.0%  -0.4%
                

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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