Q2 2022 R1 RCM Holdco Inc Earnings Call
Good morning, and welcome to the Q2 2022 our one Archie M Inc earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time press star one on your telephone keypad, if you'd like to withdraw your question Press Star. One again. Thank you at this time you may begin your conference.
Good morning, everyone and welcome to the call certain statements made during this call maybe considered forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 in particular any statements about our future growth plans and performance, including statements about the expected benefits of the cloud with acquisition that was strategic.
And cost saving initiatives, our liquidity position for growth opportunities and our future financial performance are forward looking statements. These.
These statements are often identified by the use of words, such as anticipate believe estimate expect intend design May plan project would and similar expressions or variations investors are cautioned not to place undue reliance on such forward looking statements.
Forward looking statements made on today's call involve risks and uncertainties, while we may elect to update these forward looking statements at some point in the future. We have no current intention of doing so except to the extent required by applicable law.
Actual results and outcomes to differ materially from those included in these forward looking statements as a result of various factors, including but not limited to geopolitical and economic market conditions.
To realize the expected benefits of the cloud MIT acquisition or growth strategy. The ongoing impacts of the COVID-19 pandemic and factors discussed under the heading risk factors in our most recent annual report on Form 10-K, all of our latest quarterly report on Form 10-Q annual proxy statement and prospectus related to the cloud nine acquisition on other SEC.
Filings.
We will also be referencing non-GAAP metrics and certain key performance metrics on this call for a reconciliation of the non-GAAP amounts and more information on non-GAAP metrics mentioned to the equivalent GAAP amounts. Please refer to our press release and the Investor presentation, now I would like to turn the call over to Joe.
Thanks, Jeff and good morning, everyone and thank you for joining us I'm pleased to report our second quarter results were at the high end of the range as we communicated on our guidance update call in June revenue of $391.9 million and adjusted EBITDA of $87 $2 million reflects strong operational execution, while absorbing cost to onboard new.
Business and expand our deployment capacity.
Volumes in the second quarter and year to date have been in line with our expectations and slightly above 2019 levels with inpatient admissions and outpatient surgery is trending ahead of emergency visits and office space visits.
With the completion of the cloud and that acquisition on June 21st we're ready to embark on our next phase of growth, we expect cloud to accelerate our growth in three primary ways.
First cotton, that's deep focus on revenue intelligence significantly enhances our capabilities in this area and positions us to expand our value proposition and extend our competitive advantage second.
Second cloud much Blue chip installed base serves as an excellent reference base for potential new end to end wins, and finally cloud Mets World class modular sales engine unlocks meaningful growth synergies for all once historical modular solutions.
We're very excited to bring the two platforms together and deliver even better results to health care providers since close our teams have been actively engaged in executing on our integration priorities.
I'll, let Lee comment on this given his leadership role in integration and as President of the combined company, but first I'd like to cover two important topics.
Commercial activity in the current macro environment and second our continued investments in technology and how we're leveraging our combined technology to fuel our value proposition.
Starting with commercial activity.
Please stop signs Sutter health is our newest end to end operating partner customer.
With 10 billion in net patient revenue under our scope for a 10 year term this win presents meaningful growth and expansion on the west coast.
<unk> is one of the largest health systems in the country, serving more than 3 million Californians across 22 counties. We are honored to have been selected by Sutter and look forward to delivering meaningful financial benefits to the organization and an exceptional experience to the patients they serve.
Onboarding activities are fully underway and expected to occur in two main phases, starting with a wave of employee transitions this coming fall and concluding in the first half of 2024.
Technology was once again, a critical driver in the selection process. The investments we've made in automation and patient experience allow providers to access these capabilities without any upfront capital investments, having these capabilities embedded in our value proposition is a significant competitive differentiator.
Wage inflation in tight labor market conditions. We're also decision drivers for Sutter from a broader lens labor dynamics have become a predominant concern for health care providers and are driving increased activity into our end to end pipeline relative to providers, we are better positioned to navigate current labor related challenges.
Given our significant scale global shared services footprint and comprehensive technology coverage, particularly around investments in automation and patient experience capabilities.
As a company we are not immune to inflationary pressures. However, we are distinctly positioned to offset inflationary pressures given the disproportionate amount of manual work currently performed in our industry.
Our global delivery infrastructure and technology investments are two drivers that position us well in the current environment. We continue to invest aggressively in both of these areas in 2022.
In the second quarter, we opened a new shared services center in the Philippines to expand our global operating capacity and further solidify our business resiliency options.
We will be offering a range of services from this center, including customer service patient outreach and utilization management, we chose the Philippines spreads known availability of specialized health care talent, which will help us further scale, our paths and clinical denial offerings. We are already seeing excellent results with over 500 current employ.
We plan to expand this operation to over 3000 employees in the next three years.
Our automation effort, which is now in its fourth year has reduced our reliance on manual labor by approximately 15% relative to our baseline or in house provider operations. We see significant runway ahead to further automate and digitize our operations.
Overall macro trends in the economy are creating favorable dynamics for us providers recognize that these levers available to us are not readily available to them and certainly not at the same price points. As a result commercial activity remains very robust across our end to end and modular channels, our active pipeline for new <unk>.
And opportunities grew sufficiently in the first half of the year or to replace the signing up Sutter.
We anticipate an elevated level of activity in the coming years, and therefore are investing to expand our deployment capacity. We are on track to increase our capacity to 9 billion in NPR annually as we exit 2022.
On the modular side, we signed 14 modular agreements in the second quarter for all one on a standalone basis. The macro trends I discussed earlier are also driving strong interest in cloud meds revenue integrity solutions, and we continue to make progress selling more solutions into current customers as well as expanding our market share with new <unk>.
Customers.
And lastly, with the cloud Med acquisition now complete we've started to see early signs of commercial activity that point to our thesis on revenue synergies playing out as expected.
Turning next to technology with approximately $55 billion in NPR under management and end to end relationships in $800 billion of NPR touched by cloud Mad we have significant scale and are distinctly positioned to automate that numerous manual tasks performed in the revenue cycle process.
Yes.
The building blocks for this automation effort and our end to end business related several years ago. When we reinsured the revenue cycle process by systematically standardizing sub processes and integrating our core technology across workflows and care settings.
As a result, we've been able to effectively automate manual processes app scale in the second quarter, we automated more than 15 million additional tasks.
Combined with cosmetics automation capabilities, we have automated more than $110 million annual tasks and expect to exit 2022 with $140 million task automate it up from a 100 million for all one on a standalone basis.
The combination with Cosmo positions all want to be a clear leader in revenue cycle automation.
Immediately after close we began the integration of our automation solutions with the goal of combining all ones breadth of coverage with cloud Mats top ranked class capabilities I am excited to announce that we launched a new modular automation solution. Shortly after close based on five automation use cases that have been.
And product ties that implemented at scale.
<unk> prior authorization, a follow up and denial management.
The response from health systems has been very encouraging and we have already signed our first three customers with another handful of prospects in late stage negotiations.
These customers have highlighted rapid implementation the domain expertise of our team and our robust monitoring and support capability as key differentiators.
This is one example of how we are leveraging our combined technology and an area that we expect to grow significantly in the years ahead.
Before I turn it over to leave for more detailed I'd like to share a few high level thoughts on our integration efforts I'm very pleased with how the two organizations are coming together, it's been a pleasure partnering literally over the past few months and it's very clear that the cloud med team's successful experience with integrations as a significant ASP.
That for US as a result integration is off to a strong start with organizational integration of our commercial teams completed by leveraging cloud <unk> best in class modular commercial engine, we are starting to unlock the revenue and cost synergies embedded in our acquisition thesis the positive feedback we've received from customers.
[noise] reinforces our view that the combined entity can deliver superior value to providers as well to all stakeholders at large.
In closing I remain very optimistic about the prospects for our business market dynamics present, a favorable backdrop, we have a strong competitively differentiated platform. Our teams are highly engaged and motivated and we see long term opportunity for margin expansion. In addition to strong top line growth.
These are all critical components for long term growth and we look forward to executing on the opportunity ahead of us now.
Now I'd like to turn the call over to Lee.
Thank you Joe.
I'd like to now cover cloud met performance.
I'd like to expand on how our combined businesses are positioned for the future.
With some focus on our technology platform and lastly will cover progress on our integration.
Regarding performance I'm pleased to report that modular solutions at our one had a very strong first half with our revenues and EBITDA tracking ahead of our full year goals.
Cloud met is the largest portion of our module solutions, but I'm personally and the team are equally excited about our opportunities to help customers with our patient experience.
Physician advisory services and automation solutions.
I'll first talk about module solutions in the first half with a focus on cloud and that's performance.
As a reminder, cloud <unk> mission is to help providers get paid for services they provide.
Our team members are very connected to this mission.
And it's fundamental to focusing on helping our provider customers.
We help solve the $100 billion large scale data problem driven by reimbursement complexity.
<unk> changes.
And hospital system challenges hiring deep revenue cycle expertise.
Directly leading to lost revenues.
We help providers recover revenues that go towards patient care buying medical equipment hiring medical professionals and more.
Part of our success year to date and longer term, it's driven by our data and analytics centric approach centered around our technology platform.
This starts with our customer scale and related data footprint.
As Joe mentioned, we touched 800 billion of NPR and have over 400 hospital system customers.
And over 90 of the top 100 systems.
We help our customers analyze medical records payment data and complex insurance model, which vary by program state and by systemic.
Our technology platform is purpose built to identify and deliver outcomes on a merit of policies governing how hospital system.
These payment for services.
Our platform is at the core of how we deliver superior results to our customers.
Our platform combines revenue intelligence automation and domain expertise to analyze large volumes of clinical and financial data.
I'd like to go in just a bit of detail on the components of our platform given the importance to our customer base and to our mission.
The first component is our cloud based data infrastructure.
Our applications are built using the latest cloud computing technologies to be flexible and scalable or.
Our system's elastically expand to ingest inquiry large quantities and formats of data daily.
Our cloud based architecture is structured as a single remotely hosted data stack to minimize customer implementation and costs.
This architecture allows us to onboard some customers in a matter of weeks or even days.
The second component is intelligent automation and AI.
We have built thousands of proprietary algorithms and models to Lincoln analyze highly variable datasets.
Our machine learning identifies anomalies in the data that we use to create additional rules.
We then leverage automation to retrieve information from our customer and payer systems without the need for employees to perform time consuming repetitive tasks.
The last component of our platform is revenue intelligence expertise.
Our deep domain expertise in healthcare payments is a critical capability.
Which enables us to deliver premium results to our customers.
Our data scientists and role of experts use that domain expertise to enhance our platform and deliver the network effects that make our platform so powerful.
Now, let me shift and talk about the how the climate platform helps our one and our combined current and future customers.
First we can deliver additional incremental value to our customers by leveraging the model and AI the cloud platform provides.
Not only improves our value proposition to the customer, but also differentiates us in the market.
In addition over time, we believe the platform will accelerate our technology innovation cycle.
Revenue cycle processes are inherently interconnected with work done early in the patient journey.
Dictating optimal workflow later.
Having a single technology and data platform, which supports the end to end process unlocks the ability to run more sophisticated algorithms to optimize the manual work and automation routines to eliminate it.
Our platform Leverages extendable core components, such as workflow and rules engine and a common data model drastically reducing the time to develop new functionality or even entirely new products.
Finally, due to being built in a cloud native architecture.
The platform provides the necessary scale and performance to support the combined company's rapid growth while also driving efficiency.
And our ones and add model our operational control over all these process steps allows us to optimize the system as a whole, particularly when compared to point solutions.
The last topic I'd like to discuss is integration and how our businesses are coming together.
The first point I would like to make is cloud met strong modular commercial engine is a significant asset and one that we will be leveraging to drive growth that the combined company.
This engine is one of the key drivers of over 20% revenue growth in the first half of 2022.
As well as very strong bookings track record that has led to start serving over 400 plus customers.
We see significant opportunities to leverage this engine and cross sell our ones module solutions into cloud minutes customer base.
And our commercial team is excited to have our ones patient facing solutions, such as <unk>, such as visit pay in our portfolio.
We also believe we have an opportunity with net new health systems and physician groups. So we do not serve today as the 800 billion covered NPR implies another one two trillion of customer N P or we can sell into.
By leveraging this commercial engine via our frequent interactions with heads of revenue cycle and health system Cfos.
We believe we can accelerate uptake of our ones and then solutions.
In the few weeks since close we have already had several highly strategic discussions with large systems, who are struggling to manage the complexity of the revenue cycle given.
Given a challenging higher environment and are asking our teams how it can help them.
Integration of our commercial teams is underway with the modular sales teams led by cloud Metz Chief revenue Officer, we.
We have started to see some immediate results with the expansion of our pipeline.
Over the next six months, we will focus on CRM integration cross selling patient solutions in the cloud met customer base and creating one modular marketing message.
The second key component of integration, we are focused on its operational delivery and related customer value.
A key driver of our value to customers and over $1 8 billion in revenue delivered to customers in 2021.
Is our high quality operational and delivery structure and ecosystem of customer facing team members.
Who consult with our customers to ensure our analytics are implemented effectively.
We deliver analytics on our results for our customers through our technology platform and people that same platform is also used by our operations team members to engage directly with our customers to consult on how to drive the most ROI from the results we deliver.
Through the integration with our one we're leveraging that subject matter expertise of the revenue integrity premium services to further strengthen our cloud med AI rule sets and machine learning opportunities. Additionally.
Additionally, our ones offshore resources enable us to realize cost synergies as well as deliver even more value faster for our customers by helping us work more inventory and reduce backlogs faster.
Last I would like to talk about the third and most important component of our integration people.
Most important driver of customer value in our view, having been part of several large scale integrations as retaining and developing key people. As an example, I'm pleased to say cloud <unk> Chief operating Officer, Chief Revenue Officer, Chief product Officer, I'll have key leadership roles in the combined organization and its theme of getting people expanded roles in the new.
Organization.
Holds true throughout all levels of our water.
Among the key focus areas for people integration is system integration to resolve duplicate systems office rationalization and we are also putting significant work in the cultural integration.
In summary, we are pleased with our modular solutions and cloud met performance for the first half of the year.
Integration of the organizations is off to a strong start.
And we are excited about the opportunities to leverage with both organizations do best to add incremental value to our customers.
Now I'll turn the call over to Rachel.
Thank you Lee and good morning, everyone.
He used to report another solid quarter with revenue up 10, 9% year over year to $391 9 million and adjusted EBITDA up 10, 7% to $87 2 million.
As discussed in our guidance update call on June 27th we expected revenue of $390 million to $392 million and adjusted EBITDA of 85 to 87 million for the second quarter and we're pleased to report results at the high end of these ranges.
Net operating fees at $318 3 million grew $33 1 million year over year, primarily driven by the Onboarding, new end to end customers and improve patient volumes across our customer base.
On a quarterly sequential basis, there was one less billing day any applicable period for our large <unk> customers. That's net operating fees decreased modestly by $4.5 million.
Incentive fees of $29 9 million declined by $7 6 million compared to <unk> 21, <unk> chicken and think that the net operating fees for one of our customers contract as previously discussed partly offset by positive performance. Excluding this contractual change on a quarterly sequential basis incentive fees.
It can be flat.
Other revenue, which now includes revenue from cloud and Ed since completion of the acquisition was $43 7 million up 13 million over the prior year and $11 million over the prior quarter driven by a $13 3 million contribution from cloud model, partly offset by a delay in revenue from the VA contract and planned customer.
And related to Netflix.
non-GAAP cost of services in Q2, with $280 5 million up 26 million year over year, driven by costs associated with the Onboarding of new customers and recent acquisition.
Q1, non-GAAP cost of services increased $6 9 million, primarily due to costs associated with Onboarding Science and center automation and Digitization efforts continued to offset the increase in cost of services and we remain on track to generate $45 million of cumulative cost savings over a three year period exiting 2022.
non-GAAP SG&A expenses of $25 2 million were at the start playing 1 million year over year, and $1 5 million relative to Q1 of 2022, driven by costs related to recent acquisitions sales and marketing spend to support business growth and increased travel expenses as COVID-19 related restrictions are lifted.
Adjusted EBITDA for the quarter was $87 2 million up $8 4 million year over year. This increase was driven by strong operational execution contribution from cloud and then it's about as lower costs as a result of our automation and digitization initiatives.
On a quarterly sequential basis, adjusted EBITDA declined by $2 1 million due to onboarding costs associated with the scion and set our contracts lastly, we incurred $88 9 million and other costs, primarily due to costs associated with the cloud in that transaction.
Turning to the balance sheet as he closed cloud met on June 21st <unk> represents a consolidated balance sheet increases the cloud and that despite the fact that the income statement and cash flow still only reflect 10 days of combined activity in the calendar quarter accounts receivable and other balance sheet items are shown on a consolidated basis.
Other metrics such as revenue capture is eliminate combined activity.
Cash and cash equivalents at the end of June were $163 5 million compared to $123 9 million at the end of March we used $96 4 million in cash from operations in the quarter, primarily related to transaction costs related to the Catlin acquisition.
Debt at the end of June was $1 65 billion up approximately $1 billion from March due to debt incurred as part of the cloud nine acquisition.
Net debt leverage for credit agreement purposes of three one times immediately post close as previously indicated in the guidance that they call.
We expect net leverage to decline as previously stated by the end of the year.
The vast majority of our debt post close as floating rate debt tied to so far in early July we entered into a swap arrangement to <unk> $500 million box. Those are at a rate of three <unk> percent at current so for rates, we expect the average interest expense across our debt portfolio to be in the 555% range.
Any position remains strong with over $670 million available for questions. We.
We did not conduct any share repurchase activity in the quarter.
Turning to our financial outlook consistent with the outlook provided on our guidance update call in late June we expect to generate revenue of $1 85 billion to $1 87 billion and adjusted EBITDA of 470 million to $480 million in 2022. This guidance accounts for the partial year contribution from cloud net investments related.
Through expansion of our planning capacity and upfront cost to onboard more than $8 billion of new NPR in 2022.
We expect adjusted EBITDA ramp higher in Q3, and Q4 accounting for approximately 30% and 33% at our full year EBITDA respectively.
This reflects contribution from <unk> and the typical ramp and our wins performance in the second half.
In closing I'm proud of our team's continued strong operational execution and the results delivered in the first half with the cloud and that acquisition now complete we're focused on a successful integration to deliver superior long term value to our customers and shareholders I look forward to updating you on our progress in the future now.
Now I'll turn the call over to the operator for Q&A operator.
Thank you at this time I would like to remind everyone in order to ask a question press star one on your telephone keypad, well pause for just a moment to compile the Q&A roster.
Your first question Charles <unk> from Cowen. Please go ahead.
Yes, thanks for taking the questions and congrats on the results here.
Just two questions really first Joe on the on the Sutter agreement. If you could just remind us how we should think about the onboarding of that client I know you talked about costs in the fourth quarter, how much of the MPR should we be kind of factoring in as part of that within the guidance that you gave or should we.
Consider most of that into next year.
First question.
Yeah, if you think about.
Charles on the Sutter deployment as we've characterized on prior calls we expect that to occur over two major phases.
Looking in the near term Charles.
As you think about drivers on Onboarding and conversion to contract economics. The thing I would highlight is.
We expect the first wave of employee transitions to occur in November of this year.
No change from our prior views are very consistent.
And a lot of the Onboarding activity is fully underway, obviously costs being incurred in all of the mobilization of that deployment.
Work streams so to speak.
In this year for that first phase.
And it's not perfect but.
Directionally I would say, we will have a little bit of of waiting on revenue in the second phase, but but directionally, yes, we.
We basically characterize that and it's consistent with how we view it right now is.
If I was to convert it to NPR kind of.
The 50% in the first phase of 50% in the second phase.
From that standpoint.
And when you say the first phase of the part of it sounds like it will hit more in the end of the fourth quarter. So from a modeling standpoint, we wouldn't want that.
Yeah.
Thats correct Charles.
We will start in November and so youll feel basically have.
Seven to eight weeks.
That activity this year and then kind.
Kind of.
And full going into 'twenty three.
Okay, Great and then secondly, Lee you talked about cloud met really tracking ahead of plan at the start of this call.
Was that captured in the guidance that you guys gave at the end of the quarter or or is that potential for additional upside as we think through the rest of the year.
Charles Thanks for the question.
It was captured in the guidance just to reiterate what we've said we feel very strong about what we're doing with modular solutions and obviously cloud is a big part of that.
We saw as I said earlier, we solve complex problems for our customers and what we're seeing is both in our current customer base significant opportunity and also making progress with net new customers and physician groups and customers. We don't touch today. So we feel very good about prospects for the rest of the year and into next year.
Great. Thank you.
Thanks Charles.
And your next question comes from Glen Santangelo from Jefferies. Please go ahead.
Yes. Thanks for taking my question I also wanted to follow up on sort of the MPR question. Rachel If I think I heard you correctly. You said that you are now the expectations for 8 billion of NPR. In 2022 I was just curious if you could just sort of give us a sense for what the NPR.
The rate will be at the end of 2022, and and Joe I think what we're trying to figure out is how much is already in the funnel for fiscal 'twenty three as we sort of reconcile that to some of your June 27th comments that you expected, 12% to 14% NPR growth post.
2022.
Yes, so why don't I ask Rachel just to cover kind of the.
The NPR exiting.
2022, I think that's your question Glen and then I'll come back to how we're looking at 'twenty three and 'twenty four.
Okay.
We had in our original guidance that far and a half to 5 billion that we had planned for NPR that was part of our various retail and initial guidance.
That are being yeah, that's $5 billion is taking that away.
What have we landed.
And the answer to that is the science.
Now that we've talked about we talked about $500 million per physician in the $500 million under contracting. So that's about three to five additional MTR.
Having heard for the year in total.
And so that's something that we are addressing this.
Just one quick update there on the physician.
So Q1.
We have <unk> plus $750 million in physician just no problem, Rachel and then.
And then as Rachel said and one thing that might be helpful.
For context, Nothing's changed from our June 27th commentary Glenn as it relates to the end to end.
System, we have in contract and that's still in contracting and we expect to <unk>.
Communicate that.
Due course over.
What I would characterize as short term. So so when you look at exiting the year.
Just the accounting for the first half or the first phase.
It's kind of forecast that exit rate.
Now the.
The second part of your question as you look at 'twenty three.
And I want a normalized four.
And I'll comment Glen on 'twenty, three and actually 24, because I think its relevant all normalized for <unk>.
<unk> phase two okay.
Our contracted activity and deployment that will be occurring and 'twenty three.
Net new portion of that we're very very comfortable with our end to end revenue guide independent of Sunrise. If you look at 'twenty three and when you look at that that essentially covers the deployment capacity kind of we're entering 'twenty three web.
And then as you look at 'twenty four and this gets into a little bit of revenue synergies on the cloud value.
Combination.
We really see 4 billion.
And NPR coming out of the cloud and that installed base.
At least by 'twenty four we would be delighted to have been occurred earlier, but we're very very comfortable kind of with that view based on realized.
Triangulation of all of it.
The installed base discussions.
Youll characterization.
<unk> systems et cetera, So that's really the backdrop for us that gave us the confidence to make the investments we are right now.
And you'll get us really excited about the long term growth prospects.
The market is presenting that.
That's super helpful. Joe I really appreciate all that detail maybe I just ask one quick follow up on the profitability side and it's again, it's something we may be touched on on the June 27th call. I think on that call. You said you were and I'm not trying to get you to give 'twenty three guidance does not right here, but I think you said at that point in time, you were kind of very comfortable with those numbers that you all lay.
It out in the proxy at the time the cloud Med deal was announced in and then I think even on the call. You said that may be cloud med was running a little bit faster than in some of the synergies were coming in maybe earlier than you had anticipated that may be above and beyond kind of some of the some of the amounts that you had in the proxy and I. Just was wondering if you could just clarify.
He comments around that.
And then I'll stop there thanks.
No problem Glenn so so just to recap the 27th call. We basically said, we're not going to give 'twenty three guidance on this call, but we do think given all the moving parts. It makes sense to provide color and directional.
Contact so start with the Standalone businesses, we feel good about the standalone businesses kind of as as we characterized two.
23 in the proxy.
And then the second thing we said on the on the 27th call as right now, we see converting $15 million to $30 million of synergies.
In 2003 in that range now what I'll, what I'll say about the synergies and I'm really pleased with the work the finance teams been doing with our with our functions.
When you look at that that synergy range right now.
We've been working in earnest.
And some of the fully controllable categories that you would expect us to corporate cost structure.
Footprint rationalization and third party vendor rationalization.
And I'm not going to discreetly give exactly what those numbers are on a bottoms up basis coming through the only thing I'll say is we feel good about the trajectory on synergies that we laid out on that call and the thing that Lee and I are working on and you heard Lee comment on this and I am very excited about this between now and the end of the year.
In addition to the work our finance teams will do on budgeting et cetera from a business standpoint, Lee and I are very focused on mobilizing the revenue synergy opportunity.
And the channel that's most exciting for us just because of converged quicker.
And we have.
A very very active commercial team with the cloud.
Sales engine is that modular book of business and so.
We just closed the transaction until close we haven't been able to have our collective sales teams working and so I am excited to really sink our teeth into that opportunity area and we will see what what that yields, but I think thats an opportunity from from <unk> perspective.
<unk>.
And really it's building on the great momentum cloud, Matt has in that channel on a standalone basis.
Very helpful. Thank you very much.
Thank you Glenn.
Your next question comes from Michael Cherny from Bank of America. Please go ahead.
Hi, This is Charlotte called on for Mike. Thanks for taking my question.
We have outlined some of the macro pressures United customers are seeing whether it's.
Inflation dynamic or just Epicentral recessionary environment could you talk a little bit more about.
How those pressures could change demand in the near to medium term and any changes that would have on your contracting process.
Yes, I think the biggest macro or environmental.
Theme that we see impacting demand is really.
The labor the labor market and the correlating inflationary dynamics, driven off kind of supply and demand in the labor market now as you break that down.
We have seen and we do think that we'll continue to to.
To create robust demand for.
The holistic solution that.
We can provide.
We think.
Our with our scale and commitment to Digitization.
That is from our standpoint, a long term driver of growth for us and I think I think if you look at other services businesses that have achieved scale in committed early to digitization.
The return on that has been meaningful over a multiyear period and we're excited about that now.
That same macro environment impacts us on our cost structure and so it is very important.
And we commented on this Li commented on this.
That we have.
Our maniacal commitment to automating manual processes, and so long as we do that and.
And we generate the returns.
The leverage on our cost structure, and we can convey that scale and technology leverage to customers I think it will.
Our strong view is that all net net results in.
Multiyear growth trajectory for the business.
That's probably the biggest thing now year to year.
Yes.
As as we've talked about before we do have to watch provider revenues as I said.
My formal comments.
We feel good about the assumptions we've made in 'twenty, two and as we always do every year part of our budgeting process is really to do the best job. We can to triangulate what is acuity doing whats provider revenue doing.
Does that flows through and is probably the biggest driver on our end to end.
Contract economics.
Great and then just just going off of that when you think about the competitive landscape and again factoring in those.
Macro factors and how do you think you are differentiating versus competitors, especially given that recent acquisition of biomed.
Well.
Let me, let me talk about first Standalone, and then and there.
Then on cloud met and what I'd like to do is actually have Lee comment as well on <unk> impact on our one because I think.
What's the most interesting external perspective from my standpoint, but on a standalone.
Alone basis, what I would highlight in terms of competitive differentiators.
First is just global scale.
At the size we are.
There are very real scale benefits.
We're in a position to convey to the providers.
We're very sophisticated operators of global delivery a good example of that is most recently, we committed to delivery capability out of the Philippines.
We made a formal decision in our August Board meeting last year, we established a legal entity in Q1 of this year and as we sit right now we have 550 people delivering services out of the Philippines and expect to have 1000 people delivering services by the end of the year. When you look at that that's a relatively rapid.
<unk>.
In addition to the sophisticated operation we run in other geographies. So first thing is global scale. The second thing is comprehensive coverage of the process with our technology and because of that comprehensive coverage of the process with our technology, we're in a position to automate.
At a higher penetration rate than we think.
Competitors and other market participants are and then finally.
Our commitment four or five years ago to digitizing and enabling self service on patient engagement and so those are things I would highlight are one stand alone now one of the things we fully recognized is our middle offering revenue intelligence clinical interfaces.
Those are very very valuable areas for us and.
And so with the cloud mode combination.
I am extremely excited about that capability.
What I'd like to do is have re comment on that from his perspective, how they can impact and how they've impacted.
The end to end provider space at large, but they are incremental technology and domain expertise. Thanks.
Thanks, Joe Charlotte, just a few points I'd like to make.
<unk>.
Our Wan and cloud, Matt just building off Joe's point.
The first point I'd make is just adding onto what Joe said is in the revenue integrity space.
We have coverage, both pre and post claim along the middle revenue cycles, you've heard Joe say in previous calls and this is us helping customers solve a $100 billion problem of revenue leakage either identify clinical code errors, although way too when claims are.
While that identifying underpayments are helping them manage denials. So we have.
Leadership position in this area already has mentioned with over 90 of the top 100 health system and 800 billion of NPR covered I just wanted to touch on this point the second point I'd make is data at scale.
So why do we keep mentioning it.
800 billion touch.
One solution sold into 90 of the top 100 system. The reason is that data the scale of the data matters. So when we see clinical codes across all 50 states across all payer types.
Across 450 customers, what we get is an ability to develop a model that can predict and identify trends that help our customers and just kind of backing up into the customer problem hospitals only see their own data. So theyre seeing limited datasets theyre not getting visibility across the <unk>.
Entre that across all payer types across different types of systems, we see data across the country.
Codes reimbursement episodes of care and so on we're then able to apply those models to our customers and identify areas, where there are certain leakage.
I wanted to touch on how that helps our one we can do the same thing for our ones current existing customer base.
We can also apply this data across the entire platform of <unk> and <unk> combined customers.
Third point I want to make is is a bit on the platform I mentioned in the prepared comment, but the scale of the platform. The cloud infrastructure. The architecture rebuilt a cloud managed very much applies to our one more broadly.
I will cover it in much detail because I talked about in prepared remarks, but that is a key component of the cloud met value propositions. You are won and they are one a positive value proposition for our customers. The last point I'd make is on the commercial model, we talked about it a bit but maybe just anecdotally gives you a bit of.
Thoughts on how we engage with our customers. Our primary customer is that head of revenue cycle and we've been very intentional about being true to the value proposition of augment and focusing on revenue integrity, but because of some of the issues that Joe highlighted labor challenges hospital.
And ability to invest in technology and their inability to solve some of the most complex data problems in some cases, even over the last 60 days those conversations have evolved and can you help us more broadly and so that over time leads into what Joe mentioned, the 4 billion of NPR and why we have confidence that cloud med.
<unk> enables our one to solve much larger problems on behalf of our customers.
Hopefully that helps Charlotte.
Great. Thank you so much for that very helpful.
Your next question comes from Stephanie Davis.
<unk> Leerink. Please go ahead.
Hey, guys. Thanks for taking my question congrats on the quarter.
Two questions one for Joe one for Lee, Joe, Let's start with you.
But the biggest surprises the Sutter health deal was that your first data ethics.
Christians are more cerner leaning routes that I was hoping you can give us some color around how that factored into your initial win process and what if any impact that could have on your onboarding and ramp up process.
Integrations or anything like that.
<unk> requirement of lifting your act.
Yes, no. Thanks Stephanie.
And what I would start to say is.
Even before the subtler win.
And one of the things we pride ourselves on is given.
Sutter 44, or nominally $1 billion of of of end to end.
Business that we contract into we have a sizable book of business with all of the <unk>.
And we would we would make the statement or argue that.
A competitive differentiator for US is the diversity of the EMR ecosystems that we interface into both on the acute side and on the ambulatory side.
Now.
Cause of.
Some of the M&A activity obviously.
We have a.
Our relationship with Cerner, we have an understanding of their system, but we understand the other systems and have prior experience integrating into but as you say.
The installed base.
With Sutter is opex.
We're excited about that partnership with some with <unk> to deliver significant value.
And we're actively working.
On the deployment around that I don't necessarily I wouldn't know.
So as stuffy highlight any anomalies in deployment as it relates to that because as I mentioned before we do have.
Significant experience.
And then as you look at.
The cloud Meg organization coming in they have significant experience.
Integrating into all that.
Host systems as well so we're excited about that domain expertise, especially on technology deployment and data interfaces.
So we're we are generally very encouraged and as I said, Stephanie we're excited.
With the with EMR footprint.
Kind of.
The credibility that comes with.
With that Sutter contract.
I hope it means more epic wins the com.
Lee.
And I just thought that there was a lot in March I went through the quarter. So I was curious.
That is a par for the course with the cloud Med team member should expect more wins in this case.
Or b.
You swung that given that.
It looks like you hear that.
Spring day ever since joining.
Yeah.
Yes, So let me just frame, how we think about.
Our commercial model and and wins so far this year. So the answer to your question is we feel very good about that.
The 14 modular wins and what we've done first half start.
Stephanie just backing up into how we approach the market I've mentioned this in our first call.
We have.
A very high end commercial model that is the more classic solution selling approach.
Geographic.
We call them Grumping with subject matter experts that third component of the platform I mentioned revenue in house expertise those experts in the field engaging directly with customers and our strategy is to approach our current customer base, which is really less than 50% penetrated with our.
Our kind of eight plus solution and engaged with those cars and and help them solve problems across revenue integrity and we've had a lot of success I won't give.
Specific booking numbers Budd.
You think about the business as we've outlined we're over 20% growth a lot of that growth is coming from current customers, but we're also seeing a lot of success with net new customers to 50% of health systems that we don't touch today plus physician groups.
Outside of the health system area. So we feel very good about what's happening.
Just to answer your question bookings have been strong so far this year. The other thing I would add as related to our one is we feel very good about solutions that are one already has on the modular side, so things I would highlight Stephanie that.
It's only been a couple of weeks since close, but we've had a little bit of a head start to say, there's clearly opportunities to sell our physician advisory services into our into our base.
Clearly opportunities to sell the patient experience solution into our base. These are things that we've started to have discussions with our customers, where we feel very good about the future prospects. This year and into next year about those are one modular solution.
Thank you Bob.
Thank you Stephanie.
Your next question comes from Anne Samuel from Jpmorgan. Please go ahead.
Hi, Thanks for taking the question I was hoping maybe you could talk about.
The opportunity to automate more <unk> to drive some of these expense synergies and how we should be thinking about the cadence and timing of that.
Yes, so and this is Lee let me just touch on automation a bit so at the highest level.
This applies to <unk>, we believe there's a huge opportunity to apply the technology platform and automation.
<unk> are one in climate customers. So let me just give you a few examples.
Hospitals struggle with process management and revenue cycle, and just I don't want to go into too much detail, but is as an example, there are many repetitive tasks such as retrieving our claim retrieving a medical record dealing with the nuances of prior authorization that a repetitive pattern.
Whereby you can apply technology.
So our one has already invested you've heard Joe say over the last couple of years significantly into automating current customer processes.
Interestingly so has cloud met over the last five years. So the first thing I'd say is automation and that is both applying a platform approach. So collecting ingesting analyzing data across our customer base, that's kind of how I define the broad scale platform plus RPI automation helps automate.
Across our one.
The other thing I would say, it's more specifically department I can speak to this because I have a first.
While history here, we think there is an opportunity to help our customers not just on an end to end basis, but also on what we would call a modular basis in cases, where they say they are not ready to move to an end to end approach, we've been able to help our customers with what we call automation as a service and this is directly.
Dressing specific use cases that customers have are having problems such as the ones I mentioned and specifically tackling those on behalf of our customers. So we see a huge opportunity here and it's very consistent with what Joe has said over the last couple of years to apply automation what club and brings to the table is a tech.
Allergy platform plus additional incremental automation use cases.
Great. Thank you.
Your next question comes from Steven Valiquette from Barclays. Please go ahead.
Hi, This is Stephanie on for Steve Thanks for taking the question.
As already mentioned earlier that kind of levels of activity in the sales type is warranty continued investments in expanding capacity I think over the past couple of years in the 'twenty two exit rate each property increase that's been by about $2 billion in NPR could you give us an idea. If you expect expansion to sort of continue at this meeting moving forward is that.
The potential for maybe some degree of inefficiency is increasing the rate of expansion in out years.
Yes, yes, I think without a doubt we expect to get.
Efficiency on the cost of increase in capacity looking forward, we saw that in the most recent capacity adds and we would expect that to continue its a combination of just just process improvement.
On the human capital part of that investment.
Then.
Increasingly using technology.
To cover that capacity. So we would we would for sure expect that.
Trend to continue.
That's consistent of our guidance yes.
Okay, Great and then kind of on the same topic I was wondering if you could maybe talk to strategies, you're implementing to just speed up the overall onboarding timeline.
Are you seeing any maybe check variability in comments onboarding technology to ICF to potentially.
Potentially just speed up the overall process.
Yes, the biggest the biggest area of opportunity that I'm excited about it.
Is just continuing to.
Kind of kind of innovative data ingestion.
At least commented a lot about it and without a doubt the cloud data platform.
We're excited for that to play a big role in us.
Accelerating the cycle time to onboard and to get to contract economics, frankly, because it's very we're very tied to the implementation of technology to do that so that's the thing I would highlight along those lines.
Okay, great. Thanks, so much.
Thank you.
Your next question comes from Jack Wallace from Guggenheim Securities. Please go ahead.
Hey, thanks for taking the questions.
Just one kind of zoom out here.
As a refresher or as a reminder.
For investors.
The broader value proposition.
Maybe putting some numbers around that.
You are thinking about when you're going through the contracting process.
Looking at what your customers typically spend as a percentage of NPR.
What is it.
Delta between whats your customer spend before an engagement versus after and then just.
We've talked about the labor issue is being a big driver in cost.
But also just thinking about the changes in the reimbursement environment and just how much more of a cost burden that might be for your potential customers going forward.
Haven't chosen an end to end provider such as our one thank you.
Thanks Jack.
Yes.
What we feel very very comfortable with.
In terms of our value prop is a double digit cost reduction that we can contractually underwrite now I would say as we grow and as technology has a greater impact we only see that.
The cost advantage that we have and we can convey to.
To customers and frankly to the owners of the business.
Spanning we're excited about that.
And then the second thing is revenue lift.
Now.
At the heart of revenue lift is is the cloud med platform. We've commented on that so we are very very excited to be in a position to re rate.
On our value prop revenue lift up as a direct impact of.
Of the revenue intelligence platform and Thats very meaningful now.
So the earlier question Jack one of the things that we're increasingly seeing with health systems as they are changing kind of their pro forma inflationary assumptions on labor.
What that does is that that translates to a greater value prop that we can give to them. So over a 10 year period or even over a five year pro forma plan planning period.
Our accretive their labor expense at a higher rate based on inflation and the ability for us to kind of underwrite execution on that lock that didnt contractually and we are in a position to responsibly do that.
That is manifesting itself in a higher value prop directly related to this macro environment, but but and then the third the third component of the value prop is.
Improving patient experience.
We I think we're unique in the sense that on some of our mature and customers we have been in a position.
To include patient experience improvement as a contractual kpis and Thats. The only recent we're comfortable to do that as a direct result of the technology architecture that we've been investing in.
For some years.
And the last question for today comes from Sean Dodge from RBC capital markets. Please go ahead.
Yes.
Good morning.
Going back to the $10 billion contract, Joe you said no impact of deployment costs, because it's that big but is there anything else regarding the scope of that deal or your commitment to keeping a portion of that labor locally in California that alter the long term economics of the deal or long term expected margins versus what you've laid out historically for your other.
And then partnerships.
No nothing that comes to my mind that I would highlight.
Not uncommon for us to work with the health system.
On local labor dynamics and.
And have a balance there.
Attrition is very high.
And.
We've got some we've got a very big footprint and so there is we're in a unique position, where we have a lot of flexibility and so there is nothing nothing that I would highlight shot along those lines.
Okay, and then the new center in the Philippines.
Is there any quantification you can provide around how much you think that can generate in terms of savings as you scale to 3000 employees.
Maybe anything you can share around.
Maybe something with a cost differential of doing work in that local market versus.
The cost in India, or the U S would be.
Yes.
We have been.
The cost points have been.
Favorable to kind of our business plans when we made that investment now we'll have to see how that it's still early in our journey. There. So we have to see how dynamics play out locally.
But we would see that in line.
With with other global delivery centers that you referenced in terms of.
Cost advantage.
Sean just a quick reminder.
You'll remember when we renewed the ascension contract very important for us for the tenure economics, and we characterize those tenure economics cumulatively as favorable to our prior contract a big driver was that was patient interface and interactions out of global delivery centers.
So that's really.
The anchor.
Mobilization activity in.
We're encouraged with the price points, along along that basis of comparison as well.
And I will now turn the call back over to Joe Flanagan for closing remarks.
First thanks, Julie for all your help today moderating the call and thank you everybody for joining us as we commented we are excited to embark on this next chapter of growth I'm incredibly excited to partner with Lee.
His team and we look forward to updating all of you on progress on our future calls some just thanks again for for participation. This morning, I know, it's very busy.
This concludes today's conference call you may now disconnect.
[music].
Okay.