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RR

R1 RCM Inc. /DE (RCM)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 revenue rose 14.7% year over year to $656.8M; GAAP net loss was $19.9M and adjusted EBITDA was $148.2M, impacted by vendor and customer technology outages and continued integration costs .
  • Sequentially, revenue increased versus Q2 ($627.9M), but adjusted EBITDA fell to $148.2M from $156.1M and operating margin compressed as outages and higher interest expense weighed on profitability .
  • Management withdrew guidance due to the pending take-private transaction; final Q3 results came in near the high end of preliminary ranges (revenue $643–$658M; adj. EBITDA $140–$148M; net loss $(33.5)–$(17.5)M) .
  • Stock reaction catalysts: the merger process (withdrawn guidance), outage recovery trajectory, large interest expense from higher leverage, and progress onboarding a “newest end-to-end partner” .

What Went Well and What Went Wrong

What Went Well

  • Revenue growth: Net services revenue grew 14.7% YoY to $656.8M, driven by modular and other revenues ($221.4M vs. $174.7M YoY) and strong net operating fees ($413.0M vs. $368.0M YoY) .
  • Customer onboarding: CFO highlighted successful execution onboarding the newest end-to-end partner despite industry/customer outages (“R1 continued to successfully execute the onboarding of our newest end-to-end partner”) .
  • Operating resilience and scale: Management underscored ability to deliver positive outcomes for providers amid outages, consistent with earlier quarters’ technology and scale messaging .

What Went Wrong

  • Profitability pressure: Adjusted EBITDA declined YoY to $148.2M from $161.5M; operating income fell to $15.8M (from $41.2M), compressing margins as outages and higher costs hit results .
  • Interest burden: Net interest expense increased to $43.2M in Q3 vs. $32.1M YoY; YTD interest expense reached $128.1M, reflecting elevated leverage post‑Acclara financing .
  • Incentive fees softness: Incentive fees fell to $22.4M from $30.1M YoY, reflecting outage impacts on collections timing and performance metrics, consistent with prior commentary on cyberattack effects .

Financial Results

Revenue, EPS, Margins vs Prior Periods and Estimates

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Net Services Revenue ($USD Millions)$572.8 $603.9 $627.9 $656.8
GAAP Diluted EPS ($USD)$0.00 $(0.08) $(0.02) $(0.05)
Operating Income ($USD Millions)$41.2 $8.0 $29.1 $15.8
EBIT Margin %7.2% (41.2/572.8) 1.3% (8.0/603.9) 4.6% (29.1/627.9) 2.4% (15.8/656.8)
Adjusted EBITDA ($USD Millions)$161.5 $152.2 $156.1 $148.2
Adjusted EBITDA Margin %28.2% (161.5/572.8) 25.2% (152.2/603.9) 24.9% (156.1/627.9) 22.6% (148.2/656.8)
Net Interest Expense ($USD Millions)$32.1 $41.3 $43.6 $43.2

Note: Wall Street consensus (S&P Global) for Q3 2024 EPS/revenue was unavailable due to missing mapping in S&P Global Capital IQ; estimates could not be retrieved. Values would have been retrieved from S&P Global.

Segment/Revenue Component Breakdown

Component ($USD Millions)Q3 2023Q1 2024Q2 2024Q3 2024
Net Operating Fees$368.0 $381.5 $374.6 $413.0
Incentive Fees$30.1 $15.6 $21.7 $22.4
Modular and Other$174.7 $206.8 $231.6 $221.4
Net Services Revenue$572.8 $603.9 $627.9 $656.8

KPIs

KPIQ3 2023Q1 2024Q2 2024Q3 2024
Non‑GAAP Cost of Services ($USD Millions)$364.7 $401.1 $421.0 $456.6
Non‑GAAP SG&A ($USD Millions)$46.6 $50.6 $50.8 $52.0
Net Debt ($USD Millions)$1,482.7 (Dec 31, 2023) $2,133.3 (Mar 31, 2024) $2,130.0 (Jun 30, 2024) $2,069.3 (Sep 30, 2024)
Cash & Cash Equivalents ($USD Millions)$173.6 (Dec 31, 2023) $178.0 (Mar 31, 2024) $163.0 (Jun 30, 2024) $167.3 (Sep 30, 2024)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY 2024$2.60–$2.64 Not providing guidance due to proposed acquisition Withdrawn
GAAP Operating Income ($USD Millions)FY 2024$85–$105 Not providing guidance due to proposed acquisition Withdrawn
Adjusted EBITDA ($USD Millions)FY 2024$625–$650 Not providing guidance due to proposed acquisition Withdrawn
Other Assumptions (interest expense, D&A, other expenses)FY 2024Interest: $175–$180; D&A: $330–$350; Other: $105–$120 Not updated (guidance withdrawn) Withdrawn

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2024)Trend
Industry/customer outages & cyberattacksQ1: ~$20M revenue and $25M adj. EBITDA full‑year impact from Change Healthcare; modular client bankruptcy . Q2: “impacts to both revenue and costs as a result of recent vendor and customer outages” .Q3: Continued impacts to revenue and costs; CFO reiterates navigating industry and customer‑specific outages; references ongoing effects including Ascension and Change Healthcare cyberattacks .Stabilizing but still a headwind .
Technology and operating scaleQ1: Emphasis on tech roadmap, flexible models, global scale . Q2: Technology platform strength and execution despite events .Q3: Commitment to delivering positive outcomes for providers while onboarding largest partner .Consistent positive narrative .
M&A and capital structure (Acclara; take‑private)Q1: Acclara acquisition reflected in outlook, higher interest/D&A . Q2: Announced take‑private by TowerBrook/CD&R; guidance suspended .Q3: Guidance remains withdrawn due to merger process; elevated interest expense persists .Transaction overshadowing near‑term guidance .
Customer onboardingQ1: Onboarding largest new customer began . Q2: Continued execution .Q3: Successfully executing onboarding of newest end‑to‑end partner .Improving execution .

Management Commentary

  • “R1 continued to successfully execute the onboarding of our newest end-to-end partner while navigating previously disclosed industry and customer-specific technology outages… remain committed to delivering positive outcomes for the provider industry.” — Jennifer Williams, CFO .
  • Q2 framing: “strength of R1’s technology platform… ability to execute on our growth strategy while navigating industry and customer specific events.” — CEO Lee Rivas .
  • Q1 framing: “While addressing the impact of the Change Healthcare cyberattack, R1 continued to deliver operationally and began the onboarding of our largest new customer.” — CEO Lee Rivas .

Q&A Highlights

  • A full Q3 2024 earnings call transcript was not available in our document set; Q2 featured a pre‑recorded call and Q1 had a live call with slides, but no Q3 transcript was found to extract Q&A themes .
  • As a result, no Q3 Q&A guidance clarifications or tone changes can be cited from a transcript.

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 2024 EPS and revenue was unavailable due to missing mapping in the S&P Global Capital IQ dataset; we attempted retrieval but could not obtain the estimates. Values would have been retrieved from S&P Global.
  • Given the lack of consensus data, we cannot formally classify beats/misses vs. estimates for Q3 2024. Final results fell near the high end of management’s preliminary range (revenue $643–$658M; adj. EBITDA $140–$148M; net loss $(33.5)–$(17.5)M) .

Key Takeaways for Investors

  • Revenue momentum continued despite outages, with net services revenue up 14.7% YoY and sequential growth; modular and other remains a key driver .
  • Margin compression persisted: adjusted EBITDA margin fell to 22.6% and operating margin to 2.4%, reflecting outage‑related costs and integration/other expenses .
  • Elevated interest expense is a structural headwind; Q3 interest expense was $43.2M vs. $32.1M YoY, consistent with higher leverage post‑Acclara .
  • Guidance withdrawn amid the take‑private process; investors should anchor on operational KPIs and outage normalization rather than formal FY targets .
  • Net debt improved sequentially to $2,069.3M at quarter end, but remains materially higher than year‑end 2023; liquidity and deleveraging path post‑transaction warrant monitoring .
  • Execution on onboarding the newest end‑to‑end partner is a positive operational catalyst; sustained delivery could underpin medium‑term margin recovery as outages subside .
  • With estimates unavailable, near‑term trading may be driven by merger milestones, outage recovery updates, and commentary on incentive fee normalization rather than pure beat/miss dynamics .

Appendix: Cross‑References and Disclosures

  • Final Q3 2024 press release and full GAAP/non‑GAAP reconciliations: revenue $656.8M; GAAP net loss $(19.9)M; adjusted EBITDA $148.2M; component revenues and cash/metrics .
  • Preliminary Q3 ranges (for financing context): revenue $643–$658M; adj. EBITDA $140–$148M; net loss $(33.5)–$(17.5)M .
  • Prior quarters’ full results: Q2 2024 revenue $627.9M; adj. EBITDA $156.1M; EPS $(0.02) . Q1 2024 revenue $603.9M; adj. EBITDA $152.2M; EPS $(0.08) .
  • Guidance history: Q1 updated FY 2024 guidance ($2.60–$2.64B revenue; $625–$650M adj. EBITDA), withdrawn in Q2/Q3 due to transaction .
  • Outage references (Ascension/Change Healthcare) and transaction risks detailed in forward‑looking statements .