Q1 2023 R1 RCM Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the R1RCM first quarter 2023 earnings call.
Speaker 1: I would now like to turn the call over to Ahtis Rehim.
Speaker 1: Head of Investor Relations. Please go ahead.
Speaker 2: Good morning everyone and welcome to the call. Certain statements made during this call may be 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 are not considered framework for Fish safely and publicly and "...
Speaker 2: including statements about our strategic and cost-saving initiatives, our liquidity position, our growth opportunities and our future financial performance are forward-looking statements. 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.
Speaker 2: Investors are cautioned not to place undue reliance on such forward-looking statements. All 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. Our actual results and outcomes may differ materially from those included in these forward-looking statements as a result of various factors.
Speaker 2: gap metrics on this call. For a reconciliation of the non-gap amounts mentioned to their equivalent gap amounts, please refer to a press release. Now, I'll turn the call over to my colleague, Dr Ro Agarwal.. You can feel thisÖand everyone knew you were pretty much
Speaker 3: Thank you, Atif. Good morning, everyone, and thank you for joining us.
Speaker 3: I am pleased to report a strong start to 2023 with revenue of $545.6 million and adjusted EBITDA of $142.2 million for the first quarter.
Speaker 3: Adjustment EBITDA was ahead of expectations due to solid operating performance and lower corporate costs. The chart studies provided in anek love.
Speaker 3: We are pleased with our results and are well positioned to deliver our 2023 guidance.
Speaker 3: Let me cover three key topics, then we'll hand it over to Jennifer to cover our financials. First, operational performance and trends we are seeing in the business.
Speaker 3: Second, our progress in technology and automation.
Speaker 3: And third, commercial activity.
Speaker 3: We are making good progress across our operation. We are making progress in an environment that is showing steady improvement, but still requires people and technology to proactively manage the impact of pair dynamics.
Speaker 3: Our value proposition is clear. First, we have deep experience in managing the revenue cycle with end-to-end customers representing over $55 billion of NPR.
Speaker 3: Second, we have a global model which allows our customers to achieve high quality results.
Speaker 3: reduces their costs, and focuses on what they do best, care for patients.
Speaker 3: Third, we continue to deploy technology automation as we are deeply embedded in our customers' workflow.
Speaker 3: This will allow us to reduce the dependency on labor over time.
Speaker 3: And last, with our CloudMed acquisition, we have 500 plus customers and data on over 500 million patient interactions annually, which allow us to drive more predictability in our customers' operation.
Speaker 3: Now let me get in some detail on our operating metrics in the first quarter. We continue to see modest improvement in our operating metrics relative to the second half of last year.
Speaker 3: our internal efforts, as well as engagement with payers both directly and via our customers.
Speaker 3: are yielding positive results.
Speaker 3: One area particularly note is pair reimbursement turnaround times.
Speaker 3: While we have seen improvement in the last few months, as evidenced in days payable improving on the payer side, we continue to work down a backlog of accounts receivable, which in many cases requires increased resources to ensure conversion to cash for providers.
Speaker 3: Our focus on execution resonates well with our customers.
Speaker 3: I have had an opportunity to meet almost all of our end to end and many of our modular customers in person since I stepped into the CEO role at the start of the year.
Speaker 3: The feedback has been positive regarding the actions we've taken to address longer pay around turnaround times.
Speaker 3: Our customers have found it helpful to deconstruct our performance by explaining environmental dynamics versus what's in our ones control.
Speaker 3: For example, our customers are highly appreciative of our work when presented with data on pay or trends within their geographies.
Speaker 3: We will continue to refine these analytics to benchmark our performance versus broader trends in the market.
Speaker 3: We are in a unique position to provide these analytics, given our scale, and the data available to us via the 900 billion of NPR and 500 million of patient encounters we touch annually. This will be part of our customer engagement strategy going forward.
Speaker 3: While we are seeing some improvements with paridynamics in the industry and within our own operating metrics, our customers and the overall industry continue to be under incredible financial pressures.
Speaker 3: AR days are improving, but providers' costs are up year over year and still driving significant impact to their financials.
Speaker 3: Our customers understand that our revenue cycle capabilities are not easily accessible independently, and certainly not close to the unit economics of R1 given the combination of our global model and investments in technology.
Speaker 3: We believe we are very well positioned to address the challenges providers face through our operational capabilities, our industry expertise, our technology, and our scaled automation platform.
Speaker 3: Now I'd like to talk about our technology, automation, and data.
Speaker 3: In Q1, we continue to invest in automation and integrating the legacy cloud-man automation capabilities into the R1 ecosystem.
Speaker 3: We expanded our net new automation use cases in several areas, including authorizations, rebuilding, and small balance they are, while scaling existing use cases across the business.
Speaker 3: and start optimal workflow initiative in the first quarter. As a reminder, this initiative is focused on efficiency for work that cannot be fully automated by leveraging our deep revenue cycle expertise, rules, and algorithms to allow automated and human-centric workflows to operate seamlessly together. Our specialists have the information they need at their fingertips to suggest necessary corrections leading to an accurate reimbursement.
Speaker 3: This standard leads to higher accuracy, fewer denials, faster payment turnaround times, and ultimately increased revenue for our customers. We enhance our tools to accelerate new higher onboarding, increased team productivity, and interoperability between systems.
Speaker 3: Lastly, on the data and analytics front, we deployed new machine learning-based models to better prioritize work and automatically map customer terms to R1 standards to uncover more missing charges.
Speaker 3: Collectively, these investments enhance our competitive advantage by enabling us to find more revenue for our customers.
Speaker 3: Next, I would like to discuss commercial activity. We operate in a $115 billion end-market, growing it roughly 10% annually, and where over 70% of providers still manage the revenue cycle processes in-house.
Speaker 3: of the top 100 systems to our customers.
Speaker 3: to man for AR and denial solutions.
Speaker 3: Cross-sell activity is also starting to pick up. We're seeing interest from end-to-end customers and modular solutions that meet our customers where they are in their revenue cycle journey. We have also seen an uptick in the legacy R1 modular
Speaker 3: particularly for physician advisory services in Q1.
Speaker 3: Inclosing, our team is optimistic about our business. We have a great mission managing a highly complex part of our customer's operation.
Speaker 3: We have a large market opportunity ahead of us. A strong value proposition.
Speaker 3: It highly differentiated offering and most importantly, I highly dedicated team to grow the company.
Speaker 3: health care providers need our services more than ever before, and we believe we have the best offering to serve them.
Speaker 4: Now I'd like to turn the call over to Jennifer to review the financials. Thank you, Lee, and good morning, everyone. We are pleased to report solid first quarter results with revenue of $545.6 million, up 41% year every year, and adjusted to EBITDA of $142.2 million.
Speaker 4: 59% you're over year.
Speaker 4: Cloud Med Revenue in the quarter was 125.8 million.
Speaker 4: Organically, R1 revenue grew almost 9% year-over-year and cloud met revenue grew 25%.
Speaker 4: Adjusted to EBITDA was ahead of expectations we outlined on our last earnings call due to operational cost discipline and timing of some of our costs for benefits, which I will provide more color on shortly.
Speaker 4: Starting first with detail on revenue growth.
Speaker 4: over year. On a sequential basis, revenue was up 16.6 million.
Speaker 4: Onboarding of Sutter Health, which transitioned mid to fourth last year, was the primary driver combined with low single digit growth year over year as expected at other end to end and physician customers.
Speaker 4: Incentive fees in Q1 totaled $23.6 million, down $6.6 million compared to Q1 of last year, and down $2.3 million compared to Q4.
Speaker 4: The year-over-year decline is driven by longer payer timelines we've discussed on prior calls.
Speaker 4: While modest, we are very encouraged by the recent improvements and pay or reimbursement timelines in the last few months.
Speaker 4: However, age day R for our customers continues to be higher than historical trends.
Speaker 4: This, along with the normal reset of certain KPI metrics at the start of the year, resulted in a decline in the consent fees relative to Q4 of 2022.
Speaker 4: Nonetheless, we continue to expect incentives for the balance of the year to ramp to 30 million per quarter by the end of 23. Modular and other revenue was 161 million and Q1, which is up 128.3 million year over year.
Speaker 4: CloudMed contributed 125.8 million in revenue for the first quarter, which means the legacy are one business grew low single digits.
Speaker 4: Demand for our denials, AR and DRGV offerings drove growth for cloud med, while growth of the legacy R1 solutions was driven by our physician advisory services.
Speaker 4: Turning to expenses for the quarter.
Speaker 4: Non-GaF cost of services in Q1 was 362.2 million, up 88.6 million year-over-year.
Speaker 4: This increase was driven by Cloud Med.
Speaker 4: costs related to onboarding of our new customers, and net operational investments to support our new growth.
Speaker 4: Savings from automation, vendor rationalization, and global workforce transitions partially offset these increases. On a sequential basis, non-gap cost of services declined 2.3 million due to three reasons.
Speaker 4: Number one, cost discipline and our operational functions.
Speaker 4: Number two, realization of cost energy. And finally, number three, timing of certain costs for healthcare benefits and paid time off accruals.
Speaker 4: Approximately half of the expense favorability compared to expectations in Q1 is timing related. We expect to incur these costs in year. Therefore, we do not expect the favorability will continue at the same rate in future quarters.
Speaker 4: non-GAAP SG&A expenses of $41.2 million were up $18.4 million year-over-year, primarily due to Cloud Med. business passwords on OkVID were sold with 20% discount value and 1.7% discount in all
Speaker 4: Compared to last quarter, non-GAAP SG&A expenses were down 5% or $2.1 million.
Speaker 4: Cost synergies in our corporate functions and real estate savings is part of integration efforts to throw these reductions.
Speaker 4: Adjusted EBITDA for the quarter was 142.2 million, up 52.9 million year-over-year, primarily due to the contribution from CloudBed, which was offset in part by investments to implement new customers.
Speaker 4: On a sequential basis, adjusted EBITDA was up $17.2 million, driven by incremental revenue and lower cost.
Speaker 4: Lastly, we incurred $30.2 million in other expenses. These expenses were primarily related to the integration of cloud bed.
Speaker 4: As I mentioned on our last earnings call, we are still on track to achieve cost energies towards the high end of the $15 to $30 million range in 2023.
Speaker 4: Turning to the balance sheet, cash and cash equivalents at the end of March were $104.2 million compared to $110.1 million at the end of 2022.
Speaker 4: We generated $54.7 million in cash from operations in the quarter.
Speaker 4: We used $23 million for CAPEX, $22 million for debt pay down, and $13 million for cash taxes related to vesting of employee equity awards.
Speaker 4: We also voluntarily repaid 10 million of our revolver in Q1.
Speaker 4: Net debt at the end of the quarter was $1.68 billion with net leverage improving in line with our expectations.
Speaker 4: We expect that debt leverage to continue to decline over the course of the year.
Speaker 4: We also continue to maintain ample liquidity, with approximately $613 million available at the end of March, both from cash and cash equivalents and availability on our revolver.
Speaker 4: And now, turning to our financial outlook.
Speaker 4: We remain on track to generate revenue of 2.28 to 2.33 billion in 2023 and adjusted EBITDA of 595 to 630 million.
Speaker 4: For the second quarter, we expect our cost structure to increase slightly due to the timing of the favorable healthcare benefits from Q1 and annual merit increases awarded in April .
Speaker 4: Overall, we expect Q2-adjusted EBITDA to be roughly in line with current consensus. In closing, we are very pleased with our Q1 results.
Speaker 4: I will leave you with three comments. Number one, we are encouraged with the progress we are making in operational execution.
Speaker 4: Two, we're cautiously optimistic and the trends we're seeing in the industry and in our business.
Speaker 1: And three, we remain confident in our ability to execute on our plan for the remainder of the year. I look forward to updating you on our progress in future calls. Now, I'll turn the call over to the operator for Q&A. Operator? The floor is now open for your questions. To ask a question this time, please press star 1 on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star 1 again. We ask that you limit yourself to one question.
Speaker 1: For a further follow-up question, you may raise your hand up and queue again. We'll now take a moment to compile our roster.
Speaker 1: Our first question comes from the line of Charles Rhee from TD Cowan. Please proceed.
Speaker 5: Yeah, thanks for taking the questions and congrats on the quarter guys. Just wanted to start just maybe Lee and Jennifer, if you could help us walk through a little bit. I think there's a little bit of confusion on sort of what we're seeing in the markets in terms of strong claims growth versus some of the results that you post. My understanding is that your operating fees are working off of a lag.
Speaker 5: timing, right? You're really looking at last quarter's claims that's kind of showing up into this course revenues. If you can kind of just walk through some of the mechanics there, both for base operating fees and what drives that, where the recognition comes from for that as well as the incentives, that'd be helpful to start. And then secondly, when would we, you know, because we've obviously seen very strong.
Speaker 5: claims rebound and claims growth in sort of
Speaker 5: industry wide here. How would we see that in your results moving forward and then maybe lastly just on the A's they are issue is there any can you walk through the damage where that might keep you from earning incentive these things?
Speaker 4: Great. Thanks, Charles. As far as our base fee goes, you're right. So the way our base fee works is that it's based on cash collection, and the cash collections are a quarter and a rear.
Speaker 4: So our Q1 base fee, those net operating fees, are based on cash from Q4. So it is a bit of a lag. On the KPIs, it's in-quarter performance. So it's metrics, depending on if it's balance sheet or income statement, those are metrics.
Speaker 4: for the first quarter. Some of those metrics are cumulative and so they reset at the beginning of the year. Obviously income statement metrics reset at the beginning of the year, so that's why we typically see a dip just in normal seasonality of KPIs at the beginning of the year. But we're comfortable with where they are. They were in line with our expectations for the quarter.
Speaker 4: As far as claims go, the volumes that, you know, we're seeing for some of the public providers that have released the volumes for Q1, we would expect to see those as those claims are paid and cash comes in, which would result in our really our second half.
Speaker 4: cash or base fees for our revenue. So that's the way that the claims would flow through. But remember, it's not just volumes for us, it's ultimately cash, which means it's a combination of volume growth and claims, but also a queue de and then any kind of payer mix dynamics. And then as far as age day argos,
Speaker 4: We're seeing improvement in our overall AR days and those timelines, but our aged AR is still higher than historical and it's not come down as much as overall aged AR has. So that's just something we're continuing to watch. Typically, those are more complex.
Speaker 4: items that we're working through anyway. So, you know, that is one metric that is still higher than historical.
Speaker 5: trends and something that we're continuing to watch. Is this current level already baked into the guidance that you're given to get still to the 30 million year end in Senafi? So in other words, if something improves on the A's they are, that would be upside.
Speaker 6: Yeah. Okay, great. Thanks.
Speaker 1: Our next question comes from a line of Sean Dodge from RBC Capital Markets. Please proceed.
Speaker 1: Yeah, thanks. Good morning and I'll add my congratulations on the progress in the quarter. I guess maybe Lee or Jennifer, the added resources you all put in place to help address the payer timelines and these client issues that began to kind of ramp in earnest in Q3 of last year.
Speaker 1: As these issues are fixed and in these timeline, you know, we you mentioned kind of look to be normalizing. The head count you added there can that begin to be removed or they're an opportunity to allocate those individuals somewhere else in the organization. Maybe just help us kind of size.
Speaker 1: how much incremental spin you had to help or add to help with those and then once those begin to to kind of taper off what happens to those costs.
Speaker 3: John , I could take a Jennifer Yavinique color. We would expect over time to need less headcount, however, what I'd say just building off a generous point and specifically addressing a few customers where we have added incremental headcount. We expect...
Speaker 3: to continue to work down the HDR, for example, continue to onboard the clients we have in onboarding phase through at least the next several months. So I would see the next six months or so as continued investment in those customers. And then after that, the combination of our teams, getting more efficient, the combination of automation being applied.
Speaker 3: And the last thing is super important, we probably don't talk about it enough, but part of onboarding is not just.
Speaker 3: You are a global scale, but it's the application of technology and that takes a little longer in the course of our first year or two Once we get our technology embedded that's where we really drive a lot more efficiency Sean
Speaker 4: And Sean, one point to add there is that our guidance assumed that we would start to take down resources as those metrics stabilized.
Speaker 1: So that's embedded in our 23 guidance and part of what's driving, you know, EBITDA growth quarter over quarter. Okay, then anything you can kind of offer to help us size the.
Speaker 4: You know, the actual resources you've added there? I mean, we haven't given a number as far as investment there, but it's in the hundreds of resources that we've added to help stabilize.
Speaker 4: the actual resources you've added there? I mean, we haven't given a number as far as investment there, but it's in the hundreds of resources that we've added to help stabilize. OK. All right. Great. Thanks again.
Speaker 1: Our next question comes from the line of Michael Cherney from Bank of America. Please proceed. Good morning and thanks for taking the question. I appreciate the color too on on the timing and flow relative to where you see utilization. Maybe to ask a similar type question.
Speaker 7: but in terms of what you're seeing from the modest improvement in payer turnaround times. As you see, it was improved. How much visibility does that give you on the incentive fee side in particular? And any changes in terms of what you've seen so far in terms of what's embedded in the revenue guidance for incentive fees specifically? No, you don't.
Speaker 4: Sure, so the in our 23 guidance we assumed that we would have quarter over quarter improvement and Pay or timelines which drives a lot of our metrics
Speaker 4: aged AR, obviously, cash, AR days, depending on the customer, they all have a little bit different metrics, but they're all somewhat interrelated to this combination of AR and cash. So we expect that the AR days will come down slowly. We don't believe that there's gonna.
Speaker 4: quarter such that we get to that $30 million per quarter level by the end of the year.
Speaker 1: Great, thanks. Our next question comes from the line of Stephanie Davis from SBB Securities. Please proceed.
Speaker 8: Okay folks, thanks for taking my question. Lee, you've touched on some tacking measurements in the comparative marks. I was hoping you'd go a little bit more in depth. Is this going to remain a outsourced automation project? Do you see an opportunity for this to come more in-house? Just give them the...
Speaker 8: the number of engineers out in the market now. And do you still want to kind of focus on this as an RTA project, or do you want to leapfrog this, as maybe a more sophisticated AI function or something else?
Speaker 3: Yes, Stephanie, thanks for the question. Let me just step back and just talk through.
Speaker 3: our framework on our tech investments and where we're going. This is, you know, if you, when I laid out the priorities at the highest level, it was operational improvement, make sure we deliver on customer metrics. It was tech technology to make sure we deliver on the integrated platform and I'll come back to that.
Speaker 3: It was commercial progress to make sure we advance our pipeline, integrate the teams, both on the end-to-end and on the modular side. And then it was ensure realization of our synergies. So those are the 4 things I'd laid out. I've laid out for the team in my 1st, 4 months. So, let me go deeper and attack the main components. Of our plan this year.
Speaker 3: Cloud Med integration. So this is integrating what is already a purpose build revenue cycle platform through Cloud Med that we spent the last five
Speaker 3: It's intelligent automation and I'll go through the details of that and and it's
Speaker 3: The overriding theme is preventing problems before they occur. So the way to think about this is any process that has people and manual touch points embedded in our customers host system, so let's just pick the EMR. If there is a way to...
Speaker 3: Apply routines for repeatable processes through technology. That's exactly what we're doing. The other point I'd highlight before I just dive in and tell you an automation and answer your question around AI application is the patient experience is at the forefront of our technology agenda. So you'll hear me and the team talk more and more about entry pay.
Speaker 3: which is a way that is super visible to our customers to apply technology to reduce the need for labor when it comes to the front end, i.e. registration, scheduling and patient intake. So those are big kind of themes around technology. Let me touch on...
Speaker 3: chat GBT, that is for sure at the forefront of some of our thinking, the application of large-linked language models. So RPA has historically been the primary piece, which is apply robotic process automation to reduce the need for incremental labor. That is still a major, major part of our agenda. The machine learning piece is...
Speaker 3: also been part of the R1 priority technology priorities for a while, accelerated with the application of the Cloudment platform. So the way to think about this is, when we have, as I said in the early comments, access to Cloud
Speaker 3: one priority, technology priorities for a while, accelerated with the application of the Cloud Med platform. So the way to think about this is, when we have, as I've said in the early comments, access to 500 plus customers, and we have access to 500 plus customers,
Speaker 3: That means we have access to data on all 50 states, all payer types, all care settings, and we mentioned the volume of patient interactions. We're then able to see data sets across the U.S. and be able to predict with more accuracy and build models that allow us to predict where there might be errors in claims.
Speaker 3: where there might be root cause issues and denials, for example, and then accelerate, that helps us accelerate cash conversion. The last thing I'd point out is, you know, a question you asked on the last call around the application of the newest technologies, and there's obviously a lot of discussion around large language models, so let me just close on that.
Speaker 3: We think that's a huge opportunity for our business to apply those tools. And the reason is there's a couple components or a couple themes across our business that make this application very powerful potentially for internal operators and for our customers.
Speaker 3: One is, in order to apply those models, you need data access. We at R1 across our end-to-end and across modular are embedded in our customers workflow and have access to data.
Speaker 3: The second is in healthcare, you know, different from some of the things you hear with more consumer facing applications. There is a high, high bar for quality and accuracy. Just think about clinical codes and then you're actually there or anything related to an electronic medical record. The third thing I'd say is privacy is key.
Speaker 3: There is EuroRoom for Air and Healthcare. So all these components make our team's view is this is a huge opportunity for our business to drive even more technology through our customers' work flow. So let me stop there, Stephanie. I hope that answers your questions.
Speaker 8: So let's tie that down to the guidance. You have this massive EBITDA beat. It sounds like the margin expectation is in line for 2Q. Is the read through that you're taking some of these extra dollars to accelerate some of these tech investments.
Speaker 8: Or is there more of a de-risking of the year in this REIT?
Speaker 4: No, we're not assuming that we're going to accelerate or spend incrementally in tech compared to our original guidance. Part of the Q1 beat was timing of some of the just primarily health care and timing of PTO. So that was about half of the favorability.
the first quarter and you know we're it's early in the year you know we're quarter in we feel really good about the first quarter results.
We feel good about the trends and we're cautiously optimistic. So we'll continue to monitor the volumes that we're seeing in claims and the providers our customers are seeing in claim volume increases that will and should, assuming payer timeline.
They say, well, I'm continuing to stabilize and improve that it will turn into increased cash and will continue to monitor it and update throughout the year.
stable and continue to stabilize and improve that it will turn into increased cash and we'll continue to monitor it and you know update throughout the year. Thank you.
Our next question comes from the line of Jack Wallace from Guggenheim Securities. Please proceed.
Hey, thanks for the question in your great quarter. You just wanted to talk a little bit about pipeline visibility specifically for the deals that were anticipated in guidance for the back half of this year. And then if you could comment on the activity as it pertains to potential deals for next year and beyond, just what that activity is.
opportunity for a business and then let me just get into specifics on the pipeline.
So as we've talked about, we operate with a $115 billion opportunity that is growing roughly 10% with
70% of providers still handling the revenue cycle in-house. So that's the backdrop. And Jack, I'd love to not just talk end to end, but also talk about modular. So I'll touch on both. On the end-10 side, the pipeline is strong, and we have clear visibility into what we've articulated the last few months around the 4 billion of end to end NPR back half this year. So let me give you a couple themes of what we're seeing.
So a couple things, the conversations I, you know, we and the team are having with providers, specifically CEOs, CFOs, heads of revenue cycle are the same across the board. Continued financial pressure.
continued cost pressure, continued complexity and reimbursement that is putting pressure on their revenue cycle, and the, you know, not so surprising but having been in the end-to-end business, you know, for really the last year or so and before that, you know, running the cloud med business on the revenue integrity side, the need for integrated technology has been a key theme.
So providers today often purchase point solutions that may not be integrated with each other and with each component. This is the front, middle, and back end, and there's a real theme around the need for integrated technology across their operation.
So those are the themes which kind of build right into the R1 value proposition, which is a global scaled model that allows us to deliver the same quality or higher at a lower cost. Our historic and continued investment in technology that allows allows us to embed technology with our customers.
and a team of revenue cycle experts that can go toe-to-toe with anyone in the industry and certainly with our providers that have the experience in any number of host systems through our experience of all sizes of end-end clients and all care settings. Thanks. So.
Visibility is strong. The pipeline is balanced. We're seeing a lot of activity in the 4 to 5 billion NPR range and feel very good about achieving our target back after this year. I also want to talk about modular and just highlight a key theme that we've talked about, but I have even more conviction in.
the opportunity to cross sell across our business.
So a couple examples here. So we have the CloudMed business deploys across all geographies, across 500 customers with at least one solution sold into 95 of the top 100 systems.
That allows that team to get visibility whenever there are opportunities with end-to-end potential clients. So that's the first thing that we're seeing good progress on. The other place is the opportunity to cross-sell legacy R1 modular solutions into the cloud-med base.
is a significant opportunity for our business. And the last is to deploy Cloud Med solutions into the legacy R1 and 10 base. So there's multiple avenues for cross-sell. What we're seeing in the modular business is continued strong fraction in the underlying Cloud Med business, as well as the R1 legacy modular business. Where we're seeing a lot of traction, which would make sense as our customers.
That's really helpful. And then Jennifer, one for you. The base fees were up pretty nicely, quarter over quarter. And one Q had been a ceasily weaker quarter historically for the company. Was there any impact outside of, say, Sutter, Ramping, or some of the other new deals?
ramping, contributing to the base fee growth, thinking just in terms of whether it was, you better have expected, you know, it's called same stores, the NPR or collections that would have, you had an extra benefit sequentially. Thank you.
No, the largest impact quarter-a-requarter for BASE fees was driven by Sutter as it transitioned mid-Q4. So you've got a full quarter of the Sutter BASE-V revenue in Q1. Outside of that, it's low single-digit growth for the Sutter BASE-V revenue.
collectively for our other end-to-end and physician customers.
Thank you. Our next question comes from a line of Craig Hattonbach from Morgan Stanley . Please proceed. Yes, thanks. Good to see that really robust growth in cloud met 25% and 21. 21.
I think you've talked about expectations for 20% for the full year, 2023. So just curious in terms of how you think about the Cated as you go through the year and anything to note on kind of year and year comps. We feel really good about the growth and cloud met in the first quarter and we have given that 20%.
full year growth. You know, we're starting off the year strong. We're certainly excited about the performance that we're seeing in our modular business and we're going to continue to monitor it, but we feel like there's good opportunity there and we're excited about the start of the year for the CloudMed modular business specifically around that growth.
you know, there may be some opportunity for, you know, a little bit higher growth, but we'll continue to monitor it and see what the, you know, remaining quarters look like. We're cautiously optimistic based on the first quarter results, though, and extremely excited about it. The thing, you know, the thing I'd add just to brag, a reminder on the value proposition for
the Cloud Med Solutions. This is a model
that the way we've grown this business as fast as we have is a couple reasons. One is we're solving a very specific and needed problem for providers, which is to drive incremental revenue they would not otherwise have realized.
because of human error, errors in coding, for example, inability to hire resources either in coding or in the back end. And the way we go to market is we're essentially collecting on the first solution sale, we're getting access to all of the data that is applied to cash collections for that customer.
putting in one of our solutions, let's say for example, one of our clinical coding solutions that drives incremental revenue pre or post claim filed, and then that allows us to be able to cross-sell into that customer the next time we go to the customer with any one of our nine total solutions.
implementation is frictionless because we have the data on the first pass solution and can then show the customer where there are additional opportunities across the revenue cycle. So just as a matter of value prop, it is a very strong value prop and I would just add this point I made earlier on technology.
once we see a system in a state with that same payer, we have that data in our data platform that allows us to apply models and then
essentially predict where there are errors and charges in reimbursement in clinical codes across the country, across any level of provider. So it's a very powerful model with extreme network effects that allow us to go to customers and cross those solutions. The last thing I'd say is, you know, our customers talk to each other. There is a
very positive reputational effect of the value of our solutions and another reason why we have such strong growth. Got it. And maybe just a follow-up for Jennifer, I appreciate the color on Q2 expectations for Jussie, but how are you thinking about the back half of the year just kind of tailwinds or headwinds to kind of keep in mind for this.
base fees and margin maturity on new customers. So as you think about cash collections, we have some seasonality in the back half of the year just based on posting days and the amount of cash. So that will drive growth or higher EBITDA on the second half of the year naturally. With the 13 billion of new wins that we won,
we'll see 20% growth in Cloud Med, which will drive as those new bookings and new wins come on board and are implemented, it will drive incremental revenue and therefore EBITDA quarter over quarter. And then the last is synergy realization. So as we...
continue to integrate the business and drive cost energy realization that will drive EBITDA growth quarter over quarter. So it is, you know.
more back half loaded for those reasons. Appreciate it, thank you. Our next question comes from the line of Elizabeth Anderson from Evercore ISI, please proceed.
Hi guys, thanks so much for the question. I guess two questions for me. One is, I think Jennifer you just mentioned in one of your prior questions, you're sort of seeing low single digit growth in the core customer base of already implemented customers. One, should that accelerate sort of as we think about getting the collections from one queue for...
indications of any kind of consumer distress or changes in that area, thanks. Sure, as far as the, maybe I'll take the patient self-pay, we aren't seeing any changes on distress there.
of financial impact. And then as far as the cash collections and the volumes, you know, we're not really seeing any significant impact on the financial impact of financial impact.
impacts there as far as the the utilization and the volume growth quarter over quarter. There are some slight growth just based on seasonality in the back half of the year, but overall we've assumed that single digit volume growth across the quarters.
So, you know, part of it again to your point on, you know, utilization or payer contract, to the extent that those kick-in, it's likely a more of a 24 impact because of the lag and the cash, you know, the cash collections and also the lag and the way our...
it's really pushed out to the beginning of next year.
really pushed out to the beginning of next year. Got it. Thanks so much.
Our next question comes from a line of scots, scornhaws, from Keybank. Please proceed. Highly in-genrefer, congrats on the execution and results.
I wanted to follow up on your modular solutions commentary and cross-selling opportunities. So I think you mentioned in the prepared comments that legacy RCM modular solutions grew low single digits driven by physician advisory services. Did you see this accelerate throughout the quarter and should we expect this growth to accelerate?
we assume the rest of the year. So Scott.
I'm personally very excited about the opportunity.
to cross out legacy R1 modular solutions into the cloud-med base. This is a team of revenue cycle experts that have experience with customers and the point I made before our team has a reputation for delivering high-quality results as evidenced by our class scores in that area.
A couple of the comments we made on Setician Advisory Services applies to several areas of R1 Modular Solutions. So opportunities that our teams are excited about where we see traction in that modular book of pipeline. It's Setician Advisory Services, our ability to help that end market. The other place where
we see an increased level of activity is in our visit pay business, the patient payments piece. The model is we have access to customers, heads of revenue cycle and technology departments. We're talking to them every day about delivering value and essentially introducing them to the teams that are the R1 Legacy modular teams.
So, overall, we see Cloud Med continue to grow at a strong rate, specifically with some of the solutions that are at the forefront of customer needs, i.e., AR and denials business. And then on the R1 legacy side, we're having more and more conversations with
you know, what are essentially net new opportunities for the R1 Legacy Modular business? Jennifer? Sure. As far as growth in the Modular, the Legacy R1 Modular business, we did assume just based on bookings, cross-sell bookings through the year, we did assume some improvement as we go through the year on revenue growth there, but still expected.
around peer reimbursement timelines improving, trying to better understand like how much of this is driven by like macro trends and you talked about peers having labor shortage, your tech initiatives you've been helping your provider clients and provider clients themselves like pushing back MCU's trying to better understand drivers like pass out what is likely permanent what
see steady improvement. You know, we assume hopefully that this gets back to normal by the end of the year, but we see steady improvement. We're still seeing some trends around high dollar claims still being an issue. So, and then Jennifer already mentioned the the HDR. So between HDR and high dollar claims there's still some challenges.
which is why you hear us being, you know, thoughtful and conservative about how we're thinking about the back half of the year. The other point I'd make is we're getting more and more insight from our Cloud Med data sets that has become very useful for providers around what's happening with reimbursement timelines, pair by pair in those geographies. So it's allowing us to deliver.
It's a combination of both. If you look at the large public payers and their days, claims, table, it's coming down slightly. So I think there is some macro trends there that there's some improvement. But as Lee mentioned, some of the efforts we're putting against it from a resource perspective.
are also adding benefits as well. You know, it's the worst behind us, we believe it is, and we assumed in our guidance, and we expect that we'll see a slow and steady improvement through the year. You know, we're one quarter into the year, so we wanna make sure that that trend continues, but we're cautiously optimistic about the trends that we're seeing.
Okay, I want quick clarification question, Jennifer. Earlier you talked about the like 10 million beat in the quarter. Some half was driven by some timing of healthcare benefits and I believe you said like BTU getting pulled forward. Can you clarify about exactly your offering there? And what was the remaining like 5 million beat was just like?
general cost management, just maybe a little bit more color there. Sure. So the timing-related items were primarily just timing of the, you know, PTO cruelled when PTOs take in and how those balances work at the end of each of the quarters when we measure it as well as healthcare claims. So...
We don't expect our overall benefits expense to be favorable for the full year. We just believe it's timing on when those claims are hitting. And so those expenses we expect will come back in year, just later in the year. So that's the timing piece of it. And then on the other.
expenses and the favorability there. It's really around labor and payroll costs are more favorable than what we expected. Some of that is based on initiatives we had expected and we were able to execute sooner than expected.
And so, we were able to get some favorability there, but it's really driven by payroll. Got it, thanks a lot. Our next question comes from the line of Glenn Santagiello from Jefferies, please proceed.
Oh, yeah, thanks for taking my question. Jennifer, I actually wanted to follow up on something you were just talking about, the more favorable labor and payroll costs. And I was just kind of curious about the macro environment. It certainly seems to be stabilizing. And so I'm kind of curious if you guys are seeing any softening in overall outsourcing demand.
you know, there's an interesting dynamic where, you know, why I believe that our pipeline has a good mix, but, you know, our sweet spot, if you will, is the kind of four to five billion dollar system. The large systems with, you know, large-scale purchasing power, if you will, and power of negotiation with payers look very different from some...
not just large systems, it's also physician groups. So that's the other point of why we feel confident in what we're doing back half. And then the other pieces of this, you've got the financial pressure, but also a recognition that what they're doing on the technology side may or may not be working. And in many cases, it's look, we don't have the capacity to be able to invest even if we are making a profit this year.
last several quarters, it seems like those issues are under control and maybe starting to fade into the background a little bit. And while you're comfortable with the pipeline, it seems, have those issues in any way spilled into your discussions with new potential clients? Or do you feel like maybe we on the street maybe make too big of a deal of that? I'm just kind of curious if some of those integration issues.
have impacted your selling efforts really in any way? Glenn, my short answer is generally not, no, it hasn't impacted. But we are very cognizant of making sure we do what's right for those customers, making sure they're happy and that they're saying good things in the market, especially for like customers in those same specialty areas. So.
I would say positive, not any impact, very little chatter, if you will, but we're also very focused on making sure those customers are happy. Okay. Thanks for the comments. Thanks, Ben. Our next question comes from the line of Vikram Kesavatla from Baird. Please proceed. Yeah. Thanks for taking the question. I just wanted to follow up on some of those comments on NPR. So you know, as soon as Arrow Snaps came out, of course, they're clearly about to get someone to vector their hyperbole. Right? Yeah. So that's the perspective of who that user is. But also I know that the myself is giving some emails. So by the time they get off their presentation, if they have to already ring anything theiriperscontrol that happening, I don't think they have super access.
I think you previously talked about adding another 4 billion in NPR in fiscal 23. Is that still your expectation? And at what point in the year do you expect to sign those deals? And then separately, I think your onboarding capacity now is up to about $9 billion. Are you seeing enough activity in the pipeline to justify maintaining that level of capacity going forward? Or do you expect to normalize that at some point? Thanks.
The short answer then Jennifer you can add in on the capacity point is we feel confident on the 4 billion. It's tough and any of these large end-to-end deals to predict timing, but we feel good about that half. And then as far as capacity, so, you know, as we announced and for last year on 2022 wins, we had 13 billion of new NPR 1 and 22 and of that 13 we're currently onboarding 8 of it.
The remaining five is the rest of Sutter and we expect to begin deploying that into 23 into 24. So as you think about onboarding capacity, the remaining five of Sutter plus the four we expect to win in the second half of the year will drive a need for onboarding capacity in that $8.9 billion range into 24.
So we have the capacity, we invested in that last year, and we expect to remain at those levels through 24 based on the current visit, the current wins that we've already won and still need to onboard in addition to what we expect to win based on our visibility into the pipeline. That's one of those that we'll continue to monitor.
Do we need to, you know, ramp and take an additional investment in onboarding? Do we, can we ramp down? So, you know, that's, it's something that will constantly monitor the right level of onboarding capacity we need for the future.
to, you know, ramp and take an additional investment in onboarding? Do we, can we ramp down? So, you know, that's, it's something that will constantly monitor the right level of onboarding capacity we need for the future. Okay, thank you.
Our final question comes from a line of Jeff Garrow from Stevens. Please proceed. Yeah, good morning and thanks for squeezing me in. I want to ask about the progress on the integration of cloud-medicapabilities into our one ecosystem. Just curious to what extent the new capabilities are coming on incrementally versus in batches. Also is any training needed or is it just kind of intuitive for the users? And then lastly, how should we think about the lag between?
deployment of these incremental capabilities and driving customer and R1 financial impact. Thanks. Sure. Jeff, let me just give you the quick framework on how we think about the CloudBend integration. And just as a backdrop, we, Jennifer and I, have a lot of experience integrating businesses. I think you know this. We started working together 12 years ago and were on a pretty similar integration path with the businesses we ran then.
Here's what I'd say based on what we've learned and where we are today. We're very much on track on integration, including realization of synergies. The three big buckets, I would say, are technology operations and commercial. On the technology front, we're well on the path to having a unified data platform based on the pre and purpose build climate platform. But as with any technology integration, these things always take time. You have to be pretty methodical on how you go about that. On the operation side, there is an opportunity over time to apply some of the R1 capabilities in India Philippines to cloud mess.
always pieces like technology, culture, and so on that just are ongoing through time. So we feel very good about the integration in general.
I would now like to turn the call over to Lee Rivas for closing remarks.
Thank you, operator, and thank you everyone for joining us today. Just a few closing comments. First, we feel very good about our ability to deliver on our commitments for 2023. I think you heard that loud and clear from Jennifer and me.
The second point is we're very focused on operational delivery and execution for our customers.
The third theme I think you heard on all the questions around our pipeline on both the end-to-end side and modular side is end market dynamics remain strong. We believe in the significant commercial opportunities, both on the end-to-end and modular side. The other theme today is on technology. We're very focused on advancing our technology agenda to drive cost efficiencies and value to our customers. So thank you all for joining us today. We look forward to updating you on our progress on future calls.