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Share Name | Share Symbol | Market | Type |
---|---|---|---|
R1 RCM Inc | NASDAQ:RCM | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.14 | 1.13% | 12.50 | 12.45 | 12.49 | 12.55 | 12.19 | 12.37 | 962,204 | 00:59:54 |
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þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
02-0698101
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(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification Number)
|
|
|
401 North Michigan Avenue Suite 2700 Chicago, Illinois
|
60611
|
(Address of principal executive offices)
|
(Zip code)
|
Large accelerated filer
o
|
Accelerated filer
þ
|
Non-accelerated filer
o
|
Smaller reporting company
o
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Part I. Financial Information
|
|
|
Consolidated Financial Statements
|
||
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Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015
|
|
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) — For the Three and Nine Months ended September 30, 2016 and 2015
|
|
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Condensed Consolidated Statements of Stockholders' Equity (Deficit) (unaudited) — For the Nine Months ended September 30, 2016
|
|
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Condensed Consolidated Statements of Cash Flows (unaudited) — For the Nine Months ended September 30, 2016 and 2015
|
|
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Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
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Part II.
Other Information
|
|
|
|
|
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SIGNATURES
|
||
|
|
|
EXHIBIT INDEX
|
|
ITEM 1.
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
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, net
|
8,904
|
|
|
10,194
|
|
||
Prepaid income taxes
|
856
|
|
|
1,102
|
|
||
Other current assets
|
16,024
|
|
|
10,924
|
|
||
Total current assets
|
227,731
|
|
|
126,740
|
|
||
Property, equipment and software, net
|
30,082
|
|
|
27,217
|
|
||
Non-current deferred tax assets
|
184,270
|
|
|
300,825
|
|
||
Restricted cash equivalents
|
1,500
|
|
|
1,500
|
|
||
Other assets
|
6,692
|
|
|
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 liabilities
|
71,582
|
|
|
202,516
|
|
||
Current portion of customer liabilities - related party
|
124,072
|
|
|
—
|
|
||
Accrued compensation and benefits
|
17,397
|
|
|
9,062
|
|
||
Other accrued expenses
|
17,123
|
|
|
15,743
|
|
||
Total current liabilities
|
234,062
|
|
|
232,627
|
|
||
Non-current portion of customer liabilities
|
750
|
|
|
432,477
|
|
||
Non-current portion of customer liabilities - related party
|
62,835
|
|
|
—
|
|
||
Other non-current liabilities
|
10,152
|
|
|
8,498
|
|
||
Total liabilities
|
307,799
|
|
|
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, 2015
|
1,164
|
|
|
1,133
|
|
||
Additional paid-in capital
|
348,980
|
|
|
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
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Net services revenue ($343.4 million and $0 million from related party for the nine months ended September 30, 2016 and September 30, 2015, respectively. $22.7 million and $0 million from related party for the three months ended September 30, 2016 and September 30, 2015, respectively. )
|
$
|
125,535
|
|
|
$
|
15,842
|
|
|
$
|
486,400
|
|
|
$
|
48,898
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|||||||
Costs of services
|
47,376
|
|
|
45,326
|
|
|
137,618
|
|
|
130,284
|
|
||||
Selling, general and administrative
|
16,201
|
|
|
21,395
|
|
|
58,397
|
|
|
59,726
|
|
||||
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 income (loss):
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
192
|
|
|
(429
|
)
|
|
(52
|
)
|
|
(702
|
)
|
||||
Comprehensive income (loss)
|
$
|
37,525
|
|
|
$
|
(33,399
|
)
|
|
$
|
163,893
|
|
|
$
|
(90,405
|
)
|
|
|
Common Stock
|
|
Treasury Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Accumulated
other
comprehensive
income (loss)
|
|
Total
|
||||||||||||||||||
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at December 31, 2015
|
|
113,259,408
|
|
|
$
|
1,133
|
|
|
(5,543,972
|
)
|
|
$
|
(52,677
|
)
|
|
$
|
322,492
|
|
|
$
|
(481,773
|
)
|
|
$
|
(2,488
|
)
|
|
$
|
(213,313
|
)
|
Share-based compensation expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,173
|
|
|
—
|
|
|
—
|
|
|
25,173
|
|
||||||
Deferred tax asset write off including shortfall of $3,434
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,021
|
)
|
|
—
|
|
|
—
|
|
|
(10,021
|
)
|
||||||
Issuance of common stock related to share-based compensation plans
|
|
3,071,876
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Exercise of vested stock options
|
|
54,780
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
—
|
|
|
88
|
|
||||||
Beneficial conversion feature
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
48,320
|
|
|
|
|
—
|
|
|
48,320
|
|
|||||||
Issuance of stock warrants
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,440
|
|
|
—
|
|
|
—
|
|
|
21,440
|
|
||||||
Dividends paid/accrued dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,161
|
)
|
|
—
|
|
|
—
|
|
|
(10,161
|
)
|
||||||
Deemed preferred stock dividend
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48,320
|
)
|
|
—
|
|
|
—
|
|
|
(48,320
|
)
|
||||||
Treasury stock purchases
|
|
—
|
|
|
—
|
|
|
(4,025,173
|
)
|
|
(2,012
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,012
|
)
|
||||||
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52
|
)
|
|
(52
|
)
|
||||||
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
163,945
|
|
|
—
|
|
|
163,945
|
|
||||||
Balance at September 30, 2016
|
|
116,386,064
|
|
|
$
|
1,164
|
|
|
(9,569,145
|
)
|
|
$
|
(54,689
|
)
|
|
$
|
348,980
|
|
|
$
|
(317,828
|
)
|
|
$
|
(2,540
|
)
|
|
$
|
(24,913
|
)
|
|
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 amortization
|
7,305
|
|
|
6,556
|
|
||
Share-based compensation
|
25,173
|
|
|
22,974
|
|
||
Provision/(Recoveries) for doubtful receivables
|
87
|
|
|
(79
|
)
|
||
Deferred income taxes
|
106,548
|
|
|
(58,567
|
)
|
||
Excess tax benefits from share-based awards
|
—
|
|
|
—
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
1,203
|
|
|
(621
|
)
|
||
Prepaid income taxes
|
216
|
|
|
632
|
|
||
Other assets
|
(7,939
|
)
|
|
(334
|
)
|
||
Accounts payable
|
(1,416
|
)
|
|
(6,108
|
)
|
||
Accrued compensation and benefits
|
8,336
|
|
|
311
|
|
||
Other liabilities
|
3,054
|
|
|
(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 investments
|
1,023
|
|
|
—
|
|
||
Net cash used in investing activities
|
(9,372
|
)
|
|
(18,304
|
)
|
||
Financing activities:
|
|
|
|
|
|||
Series A convertible preferred stock and warrant issuance, net of issuance costs
|
178,669
|
|
|
—
|
|
||
Exercise of vested options
|
88
|
|
|
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 activities
|
176,745
|
|
|
4,949
|
|
||
Effect of exchange rate changes on cash
|
319
|
|
|
(567
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
98,450
|
|
|
(7,451
|
)
|
||
Cash and cash equivalents at beginning of period
|
103,497
|
|
|
145,167
|
|
||
Cash and cash equivalents at end of period
|
$
|
201,947
|
|
|
$
|
137,716
|
|
|
|
|
|
||||
Supplemental disclosure of non-cash financing activities
|
|
|
|
||||
Accrued dividends payable to Preferred Stockholders
|
$
|
6,120
|
|
|
$
|
—
|
|
Accrued liabilities related to purchases of property, equipment and software
|
545
|
|
|
348
|
|
||
Accounts payable related to purchases of property, equipment and software
|
—
|
|
|
—
|
|
•
|
Level 1:
Observable inputs such as quoted prices in active markets for identical assets and liabilities;
|
•
|
Level 2:
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
|
•
|
Level 3:
Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Beginning balance
|
$
|
41
|
|
|
$
|
112
|
|
|
$
|
99
|
|
|
$
|
314
|
|
(Recoveries) provision
|
114
|
|
|
(34
|
)
|
|
87
|
|
|
(79
|
)
|
||||
Write-offs
|
(7
|
)
|
|
(12
|
)
|
|
(38
|
)
|
|
(169
|
)
|
||||
Ending balance
|
$
|
148
|
|
|
$
|
66
|
|
|
$
|
148
|
|
|
$
|
66
|
|
|
September 30, 2016
|
|
December 31, 2015
|
||||
|
(unaudited)
|
|
|
||||
Computer and other equipment
|
$
|
21,209
|
|
|
$
|
21,348
|
|
Leasehold improvements
|
15,151
|
|
|
17,851
|
|
||
Software
|
25,872
|
|
|
22,302
|
|
||
Office furniture
|
4,530
|
|
|
4,888
|
|
||
Property, equipment and software, gross
|
66,762
|
|
|
66,389
|
|
||
Less: Accumulated depreciation and amortization
|
(36,680
|
)
|
|
(39,172
|
)
|
||
Property, equipment and software, net
|
$
|
30,082
|
|
|
$
|
27,217
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
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
|
|
|
September 30,
|
|
December 31,
|
||||
|
2016
|
|
2015
|
||||
|
(unaudited)
|
|
|
||||
Deferred customer billings, current
(1)
|
$
|
151,690
|
|
|
$
|
130,124
|
|
Accrued service costs, current
(1)
|
36,430
|
|
|
70,656
|
|
||
Customer deposits, current
(1)
|
7,529
|
|
|
1,641
|
|
||
Deferred revenue, current
|
5
|
|
|
95
|
|
||
Current portion of customer liabilities
|
195,654
|
|
|
202,516
|
|
||
Deferred customer billings, non-current
(2)
|
$
|
62,835
|
|
|
$
|
431,944
|
|
Customer deposits, non-current
|
—
|
|
|
533
|
|
||
Deferred revenue, non-current
|
$
|
750
|
|
|
$
|
—
|
|
Non current portion of customer liabilities
|
$
|
63,585
|
|
|
$
|
432,477
|
|
Total customer liabilities
|
$
|
259,239
|
|
|
$
|
634,993
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Share-based compensation expense allocation details:
|
|
|
|
|
|
|
|
||||||||
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 (1)
|
$
|
4,760
|
|
|
$
|
12,315
|
|
|
$
|
25,271
|
|
|
$
|
25,318
|
|
|
Nine Months Ended September 30,
|
||
|
2016
|
|
2015
|
Future dividends
|
—
|
|
—
|
Risk-free interest rate
|
1.2% to 1.9%
|
|
1.5% to 2.0%
|
Expected volatility
|
45% to 50%
|
|
50% to 68%
|
Expected life
|
6.25
|
|
6.25
|
Forfeitures
|
5.68% annually
|
|
5.68% annually
|
|
Shares
|
|
Weighted-Average Exercise Price
|
|||
Outstanding at January 1, 2016
|
15,260,266
|
|
|
$
|
10.23
|
|
Granted
|
1,274,559
|
|
|
2.19
|
|
|
Exercised
|
(54,780
|
)
|
|
1.89
|
|
|
Canceled
|
(2,177,007
|
)
|
|
7.62
|
|
|
Forfeited
|
(3,399,358
|
)
|
|
9.99
|
|
|
Outstanding at September 30, 2016
|
10,903,680
|
|
|
$
|
9.93
|
|
Outstanding and vested and exercisable at September 30, 2016
|
7,932,963
|
|
|
$
|
11.44
|
|
Outstanding and vested and exercisable at December 31, 2015
|
8,876,517
|
|
|
$
|
11.63
|
|
|
|
|
Weighted-Average Grant Date Fair Value
|
|||
|
Shares
|
|
||||
Outstanding at January 1, 2016
|
9,255,932
|
|
|
$
|
4.24
|
|
Granted
|
3,071,876
|
|
|
2.58
|
|
|
Vested
|
(3,336,334
|
)
|
|
3.73
|
|
|
Forfeited
|
(3,061,230
|
)
|
|
4.63
|
|
|
Outstanding at September 30, 2016
|
5,930,244
|
|
|
$
|
3.05
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Reorganization liability, beginning balance
|
$
|
5,493
|
|
|
$
|
844
|
|
|
$
|
2,493
|
|
|
$
|
3,454
|
|
Restructuring charges
|
(182
|
)
|
|
2,428
|
|
|
5,013
|
|
|
2,428
|
|
||||
Cash payments
|
(4,055
|
)
|
|
(852
|
)
|
|
(4,422
|
)
|
|
(3,462
|
)
|
||||
Non-cash payments
|
—
|
|
|
—
|
|
|
(1,828
|
)
|
|
—
|
|
||||
Reorganization liability, ending balance
|
$
|
1,256
|
|
|
$
|
2,420
|
|
|
$
|
1,256
|
|
|
$
|
2,420
|
|
|
|
Preferred Stock
|
|||||
|
|
Shares Issued and Outstanding
|
|
Carrying Value
|
|||
Balance at December 31, 2015
|
|
—
|
|
|
$
|
—
|
|
Issuance of preferred stock
|
|
200,000
|
|
|
108,909
|
|
|
Beneficial conversion feature deemed dividend
|
|
—
|
|
|
48,320
|
|
|
Dividends paid/accrued dividends
|
|
4,040
|
|
|
10,160
|
|
|
Balance at September 30, 2016
|
|
204,040
|
|
|
$
|
167,389
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
|
September 30,
|
|
September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
(unaudited)
|
|
(unaudited)
|
||||||||||||
Basic EPS:
|
|
|
|
|
|
|
|
||||||||
Net income (loss)
|
$
|
37,333
|
|
|
$
|
(32,970
|
)
|
|
$
|
163,945
|
|
|
$
|
(89,703
|
)
|
Less dividends on preferred shares
|
(4,120
|
)
|
|
—
|
|
|
(58,480
|
)
|
|
—
|
|
||||
Less income allocated to preferred shareholders
|
(15,092
|
)
|
|
—
|
|
|
(43,423
|
)
|
|
—
|
|
||||
Net income (loss) available/(allocated) to common shareholders - basic
|
$
|
18,121
|
|
|
$
|
(32,970
|
)
|
|
$
|
62,042
|
|
|
$
|
(89,703
|
)
|
Diluted EPS:
|
|
|
|
|
|
|
|
||||||||
Net income (loss)
|
37,333
|
|
|
(32,970
|
)
|
|
163,945
|
|
|
(89,703
|
)
|
||||
Less dividends on preferred shares
|
(4,120
|
)
|
|
—
|
|
|
(58,480
|
)
|
|
—
|
|
||||
Less income allocated to preferred shareholders
|
(14,991
|
)
|
|
—
|
|
|
(43,132
|
)
|
|
—
|
|
||||
Net income (loss) available/(allocated) to common shareholders - diluted
|
$
|
18,222
|
|
|
$
|
(32,970
|
)
|
|
$
|
62,333
|
|
|
$
|
(89,703
|
)
|
Basic weighted-average common shares
|
100,934,561
|
|
|
97,230,069
|
|
|
99,870,685
|
|
|
96,358,342
|
|
||||
Add: Effect of dilutive securities
|
1,241,719
|
|
|
—
|
|
|
1,147,765
|
|
|
—
|
|
||||
Diluted weighted average common shares
|
102,176,280
|
|
|
97,230,069
|
|
|
101,018,450
|
|
|
96,358,342
|
|
||||
Net income (loss) per common share (basic)
|
$
|
0.18
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.62
|
|
|
$
|
(0.93
|
)
|
Net income (loss) per common share (diluted)
|
$
|
0.18
|
|
|
$
|
(0.34
|
)
|
|
$
|
0.62
|
|
|
$
|
(0.93
|
)
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
Three Months Ended September 30,
|
|
2016 vs. 2015
Change
|
|
Nine Months Ended September 30,
|
|
2016 vs. 2015
Change
|
||||||||||||||||||||||
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
2016
|
|
2015
|
|
Amount
|
|
%
|
||||||||||||||
|
(In thousands except percentages)
|
||||||||||||||||||||||||||||
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 service 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.
|
|
||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cost of services
|
47,376
|
|
|
45,326
|
|
|
2,050
|
|
|
4.5
|
%
|
|
137,618
|
|
|
130,284
|
|
|
7,334
|
|
|
5.6
|
%
|
||||||
Selling, general and administrative
|
16,201
|
|
|
21,395
|
|
|
(5,194
|
)
|
|
(24.3
|
)%
|
|
58,397
|
|
|
59,726
|
|
|
(1,329
|
)
|
|
(2.2
|
)%
|
||||||
Other
|
536
|
|
|
3,964
|
|
|
(3,428
|
)
|
|
(86.5
|
)%
|
|
19,993
|
|
|
5,850
|
|
|
14,143
|
|
|
unfav.
|
|
||||||
Total operating expenses
|
64,113
|
|
|
70,685
|
|
|
(6,572
|
)
|
|
(9.3
|
)%
|
|
216,008
|
|
|
195,860
|
|
|
20,148
|
|
|
10.3
|
%
|
||||||
Income (loss) from operations
|
61,422
|
|
|
(54,843
|
)
|
|
116,265
|
|
|
fav.
|
|
|
270,392
|
|
|
(146,962
|
)
|
|
417,354
|
|
|
fav.
|
|
||||||
Net interest income
|
57
|
|
|
73
|
|
|
(16
|
)
|
|
(21.9
|
)%
|
|
187
|
|
|
147
|
|
|
40
|
|
|
27.2
|
%
|
||||||
Net income (loss) before income tax provision
|
61,479
|
|
|
(54,770
|
)
|
|
116,249
|
|
|
fav.
|
|
|
270,579
|
|
|
(146,815
|
)
|
|
417,394
|
|
|
fav.
|
|
||||||
Income tax provision (benefit)
|
24,146
|
|
|
(21,800
|
)
|
|
45,946
|
|
|
fav.
|
|
|
106,634
|
|
|
(57,112
|
)
|
|
163,746
|
|
|
unfav.
|
|
||||||
Net income (loss)
|
$
|
37,333
|
|
|
$
|
(32,970
|
)
|
|
$
|
70,303
|
|
|
fav.
|
|
|
163,945
|
|
|
(89,703
|
)
|
|
253,648
|
|
|
fav.
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Non-GAAP Measures:
|
(in thousands)
|
|
(in thousands)
|
||||||||||||
Adjusted EBITDA
|
$
|
69,391
|
|
|
$
|
(35,826
|
)
|
|
$
|
321,133
|
|
|
$
|
(109,238
|
)
|
Net cash generated from customer contracting activities
|
$
|
3,586
|
|
|
$
|
3,715
|
|
|
$
|
(26,409
|
)
|
|
$
|
(637
|
)
|
Gross cash generated from customer contracting activities
|
$
|
59,730
|
|
|
$
|
55,383
|
|
|
$
|
138,858
|
|
|
$
|
157,499
|
|
•
|
Gross and net cash generated from customer contracting activities include invoiced or accrued net operating fees, and invoiced as well as collected incentive fees which may be subject to adjustment or concession prior to the end of a contract or "other contractual agreement event";
|
•
|
Gross and net cash generated from customer contracting activities include progress billings on incentive fees that have been collected for a number of our RCM contracts. These progress billings have, from time-to-time, been subject to adjustments, and the fees included in these non-GAAP measures may be subject to adjustments in the future;
|
•
|
Net cash generated from customer contracting activities and adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
|
•
|
Net cash generated from customer contracting activities and adjusted EBITDA do not reflect share-based compensation expense;
|
•
|
Net cash generated from customer contracting activities and adjusted EBITDA do not reflect income tax expenses or cash requirements to pay taxes;
|
•
|
Although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and net cash generated from customer contracting activities and adjusted EBITDA do not reflect cash requirements for such replacements or other purchase commitments, including lease commitments; and
|
•
|
Other companies in our industry may calculate gross or net cash generated from customer contracting activities or adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
|
(1)
|
Share-based compensation expense represents the expense associated with stock options and restricted shares granted, as reflected in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). $1.8 million of non-cash expense related to share-based compensation expense for the acceleration of existing RSAs for employees affected by the Company's June restructuring and is included in Other. See Note 7, Share-Based Compensation, to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the detail of the amounts of share-based compensation expense.
|
(2)
|
Other costs are comprised of reorganization-related and certain other costs. For the three and nine months ended September 30, 2016, we incurred other costs of $0.5 million and $20.0 million, respectively. The costs incurred during the nine months ended September 30, 2016 primarily related to the incentive payments and legal fees paid in
|
(3)
|
Deferred customer billings include the portion of both (i) invoiced or accrued net operating fees and (ii) cash collections on 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 account in the condensed consolidated balance sheet. Deferred customer billings are reduced by revenue recognized when revenue recognition occurs. Change in deferred customer billings represents the net change in the cumulative net operating fees and incentive fees that have not met revenue recognition criteria.
|
|
Nine Months Ended
|
||||||
|
September 30,
|
||||||
Cash Flows
|
2016
|
|
2015
|
||||
Net cash provided by (used in):
|
|
|
|
|
|
||
Operating activities
|
$
|
(69,242
|
)
|
|
$
|
6,471
|
|
Investing activities
|
(9,372
|
)
|
|
(18,304
|
)
|
||
Financing activities
|
176,745
|
|
|
4,949
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
•
|
Execution of a more thorough and repeatable financial statement close process, thereby allowing us to conduct additional analysis and substantive procedures, including preparation of account reconciliations
|
•
|
Hiring additional resources with relevant accounting experience, skills and knowledge, working under our supervision and direction to assist with our remediation efforts.
|
•
|
adopted new accounting policies for revenue recognition and software capitalization;
|
•
|
implemented periodic reviews with the relevant internal process owners of tangible and intangible asset acquisitions and dispositions to ensure proper accounting;
|
•
|
established a contract governance committee to oversee all contracting activity;
|
•
|
completed the implementation of a more robust contract governance structure to assure appropriate administration, compliance and accounting treatment for new or amended contract terms;
|
•
|
established a contracting boundaries protocol to clarify the delegation of contracting authority to personnel involved in establishing customer contract terms;
|
•
|
appointed experienced professionals to key leadership positions;
|
•
|
established a new reporting structure with more clearly defined accountabilities;
|
•
|
hired additional accounting personnel with appropriate backgrounds and skill sets, including professionals with certified public accountant qualifications, master’s degrees and public accounting experience and created new positions for a Director of Revenue and a Director of Taxes;
|
•
|
implemented a new internal reporting model and performance metrics based on cash flow performance;
|
•
|
centralized certain accounting functions and revised organizational structures to enhance accurate reporting and ensure appropriate accountability;
|
•
|
established a formal delegation of authority from the Board to management with further delegation to accountable personnel;
|
•
|
expanded the use of our financial reporting systems to facilitate more robust analysis of operating performance, budgeting and forecasting; and
|
•
|
strengthened our current disclosure committee with formalized processes to enhance the transparency of our external financial reporting.
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Date of Grant
|
|
Common Stock Subject to Options Granted
|
|
Exercise Price
|
|
Number of
Employees and
Directors Granted
Options
|
||||
7/1/2016
|
|
35,898
|
|
|
$
|
2.00
|
|
|
2
|
|
8/1/2016
|
|
350,000
|
|
|
$
|
1.93
|
|
|
1
|
|
9/2/2016
|
|
420,000
|
|
|
$
|
1.95
|
|
|
3
|
|
9/9/2016
|
|
12,000
|
|
|
$
|
2.00
|
|
|
12
|
|
Period
|
Number of
Shares Purchased (1)
|
|
Average Price Paid per Share
|
|
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs (2)
|
|
Maximum Dollar
Value of Shares
that May Yet be
Purchased Under
Publicly
Announced Plans
or Programs (2)
|
|||||||
July 1, 2016 through July 31, 2016
|
|
9,253
|
|
|
$
|
1.97
|
|
|
—
|
|
|
$
|
50,000
|
|
August 1, 2016 through August 31, 2016
|
|
80,783
|
|
|
$
|
1.80
|
|
|
—
|
|
|
$
|
50,000
|
|
September 1, 2016 through September 30, 2016
|
|
3,809
|
|
|
$
|
1.93
|
|
|
—
|
|
|
$
|
50,000
|
|
(1)
|
Repurchases of our common stock related to employees’ tax withholding upon vesting of RSAs. See Note 7, Share-Based Compensation, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
|
(2)
|
On November 13, 2013, our Board announced that it authorized, subject to the completion of the restatement, the repurchase of up to $50.0 million of our common stock from time to time in the open market or in privately negotiated transactions, (the"2013 Repurchase Program"). The timing and amount of any shares repurchased under the 2013 Repurchase Program will be determined by our management based on its evaluation of market conditions and other factors. The 2013 Repurchase Program may be suspended or discontinued at any time. We currently intend to fund any repurchases from cash on hand. We did not repurchase any shares of common stock under the 2013 Repurchase Program during the quarters ended September 30, 2016 and 2015.
|
ITEM 6.
|
EXHIBITS
|
Exhibit
Number
|
Exhibit Description
|
10.1
|
Agreement by and between TCP-ASC ACHI Series LLLP and the Registrant dated September 9, 2016 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (file No. 001-34746) filed on September 9, 2016)
|
10.2
|
Form of Restricted Stock Unit Grant Agreement under the Amended and Restated 2010 Stock Incentive Plan
|
10.3
|
Form of Performance Based Restricted Stock Unit Grant Agreement under the Amended and Restated 2010 Stock Incentive Plan
|
10.4
|
Form of Nonstatutory Stock Option Agreement under the Amended and Restated 2010 Stock Incentive Plan
|
10.5
|
Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Christopher Ricaurte and the Registrant (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)
|
10.6
|
Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Christopher Ricaurte and the Registrant (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)
|
10.7
|
Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Joseph G. Flanagan and the Registrant (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)
|
10.8
|
Non-Statutory Stock Option Award Grant Agreement, dated as of October 3, 2016, by and between Joseph G. Flanagan and the Registrant (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (file No. 001-34746) filed on October 5, 2016)
|
31.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Schema Document
|
101.CAL
|
XBRL Calculation Linkbase Document
|
101.LAB
|
XBRL Labels Linkbase Document
|
101.DEF
|
XBRL Taxonomy Extension Document
|
101.PRE
|
XBRL Presentation Linkbase Document
|
Date:
|
November 2, 2016
|
ACCRETIVE HEALTH, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
By:
|
/s/ Joseph Flanagan
|
|
|
Joseph Flanagan
|
|
|
President, Chief Executive Officer and Chief Operating Officer
|
|
|
|
|
|
|
|
By:
|
/s/ Christopher Ricaurte
|
|
|
Christopher Ricaurte
|
|
|
Chief Financial Officer and Treasurer
|
|
|
|
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