Q4 2023 R1 RCM Inc Earnings Call & Bussiness Update Call

Operator: Good day, my name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the R1 RCM Incorporated conference call. All lines have been placed only to prevent any background noise.

Good day my name is <unk> and now will be your conference operator for today at this time I would like to welcome everyone to the or one of Xi'an incorporated conference call. All lines have been placed on mute to prevent any background noise. After this.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by number one on your telephone keypad. If you'd like to withdraw your question, press star and number one again. Thank you. Evan Smith, you may now begin.

Speakers remarks, there will be a question and answer session if you'd like to ask a question. During this time simply press the star followed by number one on your telephone keypad.

I'd like to withdraw your question press Star and number one again. Thank you Evan Smith, you may now begin to contract.

Evan Smith: Thank you, operator, and good morning. 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, including statements about our strategic and cost savings 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, intend, design, may, plan, project, would, and similar expressions or variations.

Evan Smith: Thank you operator and good morning.

Evan Smith: 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, including statements about our strategic and cost savings initiatives, our liquidity position our growth opportunities.

Evan Smith: <unk> and our future financial performance are forward looking statements.

Evan Smith: These statements are often identified by the use of words, such as anticipate believe estimate.

Evan Smith: And design May plan project would and similar expressions or variations 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.

Evan Smith: Investors are cautioned not to place undue reliance on these forward-looking statements. All forward-looking statements made on today's call involve risks and uncertainty. 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 results and our outcomes may differ materially from those included in these forward-looking statements as a result of various factors, including but not limited to economic downturns and market conditions beyond our control, including high inflation, the quality of global financial markets, or the ability to timely and successfully achieve the anticipated benefits of potential synergies of the acquisitions of CloudMed and Clara, our ability to retain existing customers or acquire new customers, the development of markets for our revenue cycle Certain results that will be referenced on this call may be rounded to the nearest whole number.

Evan Smith: Stepped to the extent required by applicable law.

Evan Smith: Our results and outcomes may differ materially from those included in these forward looking statements and as a result of various factors, including but not limited to economic downturns and market conditions beyond our control, including high inflation, the quality of global financial markets or the ability to timely and successfully achieve the anticipated benefits of potential <unk>.

Evan Smith: The acquisitions of cloud Madame Clara, our ability to retain existing customers or acquire new customers. The development of markets for our revenue cycle management offering the variability and lead time of prospective customers competition within the market and factors discussed under the heading risk factors in our most recent annual report on form 10.

Evan Smith: Okay.

Evan Smith: Certain results that will be referenced on this call may be rounded to the nearest whole number we will also be referencing non-GAAP metrics on this call for a reconciliation of non-GAAP metrics to the most closely comparable GAAP metrics. Please refer to our press release.

Evan Smith: We will also be referencing non-GAP metrics on this call. For reconciliation of non-GAP metrics to the most closely comparable GAP metrics, please refer to our press release. Lee

Lee: Thank you, Evan, and good morning, everyone. As I reflect on the last year, I want to share some of my learnings and why I believe we are in the strongest position in the company's history. I spent a great deal of time with current and prospective customers, learning about their strategies, their needs, and the dynamics of the provider market. Increasing challenges faced by providers have heightened their need for partners that can be flexible in how they deliver value over time. The conversation is centered around needing a partner who has a wide breadth of capabilities, with the scale and technology to ensure they realize value quickly, while also being confident in future cost, quality, and revenue yield improvements over time. Customers want a partner who has the ability to apply AI and automation to an otherwise labor-intensive process, along with domain expertise, to help them anticipate regulatory, labor, and technology challenges over time. They want a partner that can evolve with them and their patients' needs to improve the overall patient experience.

Evan Smith: Lee.

Lee: Thank you Ivan and good morning, everyone.

Lee: As I reflect on the last year I wanted to share some of my learnings and why I believe we are the strongest position in the company's history.

Lee: I spent a great deal of time with current and prospective customers learning about their strategies their needs and evolving provider market dynamics.

Lee: The increasing challenges faced by providers had tightened their need for partners that can be flexible in how they deliver value over time.

Lee: The conversations are centered around needing a partner who has a wide breadth of capabilities with the scale and technology to ensure they realize value quickly.

Lee: While also being confident in future cost quality and revenue yield improvements over time.

Lee: Customers want a partner who has the ability to apply AI and automation to an otherwise labor intensive process.

Lee: Along with domain expertise.

Lee: Help them anticipate regulatory.

Lee: Labor and.

Lee: And technology challenges over time.

Lee: They want a partner that can evolve with them and their patients' needs to improve the overall patient experience.

Lee: We believe R1 fits this role with our ability to leverage structured and unstructured data from almost half of the acute and physician market, global scale, and a technology platform that is accelerating the application of Gen-AI and leveraging our data sets to build large language models and automation into the revenue cycle. I also spent time with our global operations team to support the continued execution and deployment of our end-to-end and modular solutions, including the recent onboarding of our largest new end-to-end cloud, whether a customer wants an end-to-end solution with comprehensive support, a functional partnership across a targeted revenue cycle area, or modular solutions to accelerate, optimize, and navigate revenue recovery. R1 has cross-functional teams that are highly focused on performance management and capable of expanding with customers over time.

Lee: We believe our one fits this role with our ability to leverage structured and unstructured data from almost half of the acute and physician market global scale and a technology platform that is accelerating the application of journey II and leveraging our datasets to build large language models and automation into the revenue cycle.

I also spent time with our global operations team to support the continued execution and deployment of our and then and module solutions, including the recent onboarding of our largest new end to end customer well.

Lee: Whether a customer wants an end to end solution with comprehensive support.

Lee: Both shell partnership across a targeted revenue cycle area.

Lee: Or module solutions to accelerate optimize the navigate revenue recovery.

Lee: Or one has cross functional teams that are highly focused on performance management and capable of expanding with customers over time.

Lee: We have the flexibility to enter into more managed services deals with functional and modular capabilities that address near-term pain points for a broader set of customers. This also brings the potential for higher blended margins while establishing embedded opportunities to expand into an end-to-end partnership in the future. I would also point out that our modular solutions, which drive higher margins and are a significant portion of our adjusted EBITDA, are already deployed successfully with more than 500 customers. We believe this is a great anchor for cross-sell and expansion opportunities. As a team, we have also spent time focused on our core operations.

Lee: We have the flexibility to enter into more managed services deals with functional and modular capabilities that address near term pain points for a broader set of customers.

Lee: It also brings the potential for higher blended margins, while establishing embedded opportunities to expand into and then partnership in the future.

I would also point out that our modular solutions, which drive higher margins and are a significant portion of our adjusted EBITDA are already deployed successfully with more than 500 customers.

Lee: We believe this is a great anchor for cross sell and expansion opportunities.

Lee: As a team we have also spent time focused on our core operations stable.

Lee: Stabilizing key metrics for several customers, aligning our global resources to deliver functional solutions at scale, and continuing to advance our technology leadership. We believe these efforts will create new opportunities to deliver increased value to our customers, further reduce our operating costs, and enhance our growth. It has been a productive year and one where I believe we have made significant progress and have built a solid foundation for sustainable growth and strong financial performance over the coming year. Our full 2023 results demonstrate our commitment to delivering value for our customers. We deliver $2.25 billion in revenue and a strong Adjusted EBITDA of approximately $614 million, with adjusted EBITDA margins of 27%.

Lee: Stabilizing key metrics for several customers.

Lee: Aligning our global resources to deliver functional solutions at scale.

Lee: And continuing to advance our technology leadership and.

Lee: <unk> initiatives.

Lee: We believe these efforts will create new opportunities to deliver increased value to our customers.

Lee: Further reduce our operating costs and enhance our growth.

Lee: It has been a productive year and one where I believe we have made significant progress and has built a solid foundation for sustainable growth and strong financial performance over the coming years.

Lee: Our full 2023 results demonstrate our commitment to delivering value for our customers we.

Lee: We delivered 225 billion in revenue.

Lee: Strong adjusted EBITDA of approximately $614 million.

Lee: With adjusted EBITDA margins of 27%.

Lee: We deliver double-digit growth, driven by the full ramp of new end-to-end customers and continued strong performance in our modular solution. This growth highlights the market demand for our solutions and our ability to effectively leverage our global operating As we consider 2024, we expect revenue of $2.625 billion to $2.675 billion and adjusted EBITDA in the range of $650 to $670 million, including contributions from both the Aclara Acquisition and Providence Commercial Contract.

Lee: We delivered double digit growth driven by the full ramp of new end to end customers and continued strong performance in our modular solutions.

Lee: This growth highlights the market demand for our solutions and our ability to effectively leverage our global operating scale.

Lee: As we consider 2024, we expect revenue of 262 5 billion.

Lee: The $2 $6 75 billion.

Lee: And adjusted EBITDA in the range of $650 million to $670 million.

Lee: Including contributions from both the Aclara acquisition and Providence commercial contract.

Lee: As we outlined in our earnings release, our 2024 outlook reflects continued underlying growth across R1's businesses, including low single-digit growth in our existing end-to-end customer base, offset by customer facility divestitures and previously disclosed customer attrition, as well as continued double-digit growth in our modular revenue. We enter the year with more than 90% of our modular and other revenue target already booked or occurring in 2023. And last, we expect that the ECLRA acquisition and Providence contract will provide incremental growth in 2024 and more than $625 million in revenue and $185 million in adjusted EBITDA by year five. Jennifer will cover the fourth quarter and full year 2023 financial results and our 2024 financial outlook in more detail. And first, I would like to give a quick business update on our 2023 achievements and 2024 focus. First, demand for R1 solutions remains strong as the industry continues to face financial pressure, regulatory complexity, and labor challenges.

Lee: As we outlined in our earnings release, our 2024 outlook reflects continued underlying growth across our one's business <unk>.

Lee: Including low single digit growth in our existing <unk> customer base.

Lee: Offset by customer facility divestitures, and previously disclosed customer attrition.

Lee: As well as continued double digit growth in our modular revenue.

We entered the year with more than 90% of our modular and other revenue target already booked or occurring from 2023.

Lee: And last we expect that the <unk> acquisition, and Providence contract will provide incremental growth in 2024 and more than $625 million in revenue.

Lee: And $185 million and adjusted EBITDA by year five.

Lee: Jennifer will cover the fourth quarter and full year 2023 financial results and our 2024 financial outlook in more detail.

Lee: But first I would like to give a quick business update on our 2023 achievements in 2024 focus areas.

Lee: First demand for our solutions remained strong as the industry continues to face financial pressure regulatory complexity and labor challenges.

Lee: Continued strength in our modular bookings, combined with the acquisition of Eclera and the Providence end-to-end deal, demonstrates our continued ability to drive growth, as well as increased diversification within our. The acquisition of Aclara and resulting 10-year partnership with Providence represents a significant growth opportunity and marks the first cross-sell of an operating partner relationship into the CloudMed base. This was a key investment thesis of the Klabman Acquisition.

Lee: Continued strength in our modular bookings combined with the acquisition of the Calera and the Providence end to end deal demonstrates our continued ability to drive growth.

Lee: As well as increased diversification within our business.

Lee: The acquisition of Clara and resulting 10 year partnership with Providence represents a significant growth opportunity.

Lee: In March the first cross sell of an operating partner relationship into the client base.

This was a key investment thesis of the climate acquisition.

Lee: While all the opportunities may not be at this scale, the Providence relationship demonstrates the significant potential within the current customer base. In addition, R1 has already seen initial traction for a go-to-market activity, leveraging our flexible model, which we believe will add new opportunities in the near term with solid embedded growth potential over time. As an example, late in the fourth quarter, we signed a smaller NPR customer who was initially interested in our end-to-end solution.

Lee: While all of the opportunities may not be at that scale. The Providence relationship demonstrates the significant potential within our current customer base.

Lee: In addition, our one has already seen initial traction for our go to market activity leveraging our flexible model, which we believe will add new opportunities in the near term with solid embedded growth potential over time.

Lee: As an example late in the fourth quarter, we signed a smaller NPR customer who was initially interested in our end to end solution working closely with their leadership the <unk> team assess their financial needs as well as their operational setup and determine the best path forward for both parties want to enter into a managed services and modular offering pardon.

Lee: Working closely with their leadership, the R1 team assessed their financial needs as well as their operational setup and determined the best path forward for both parties was to enter into a managed services and modular offering program. The deal includes full outsourcing of their back office, and we anticipate adding at least four additional modular solutions by the end of the year. Second, R1 continues to apply technology to the revenue cycle to help our customers drive down costs and increase revenue. We expect to continue to invest, develop, and deploy new technology solutions, enhance processes, and leverage our global scale to address critical issues for our customers. With more than 500 customers now representing over 1 trillion covered NPR, we have a growing structured and unstructured data set based on over 500 million patient encounters annually.

Lee: Our ship.

Lee: The deal includes full outsourcing of their back office, and we anticipate adding at least four additional module solutions by the end of the year.

Lee: Second our one continues to apply technology to the revenue cycle to help our customers drive down costs and increase revenue yield.

Lee: We expect to continue to invest develop and deploy new technology solutions enhanced processes and leverage our global scale to address critical issues for the customer base.

Lee: With more than 500 customers now representing over one trillion of covered NPR, we have a growing structured and unstructured data set.

Lee: Based on over 500 million patient encounters annually.

Lee: We believe our global footprint, including approximately 30,000 employees across the U.S., India, and Philippines, along with access to this real-time performance data, will enable our GenAI and automation initiatives to deliver optimized revenue yield at a lower cost more quickly. We believe GenAI, and more specifically, large-language models, will power incremental automation throughout many parts of our business and the provider revenue cycle. Our initial focus areas are in denials automation, next action prediction for AR management, Coding Automation, and Revenue Intelligence Rules Improvement, which represent some of our largest areas of operational. In the most recent quarter, we rolled out several new models, one of which is available to thousands of our AR follow-up staff. When one of our operators opens an account to work, oftentimes that account has been worked on before, perhaps multiple times, and frequently, the operator begins by reading the account history to understand those details.

Lee: We believe our global footprint, including approximately 30000 employees across the U S, India and Philippines.

Lee: Along with access to this real time performance data will enable our gen AI and automation initiatives to deliver optimized revenue yields at a lower cost more quickly.

Lee: We believe that AI and more specifically large languished models willpower incremental automation throughout many parts of our business and the provider revenue cycle.

Lee: Our initial focus areas are in denials automation next action predictions for our management teams.

Lee: Coating automation and.

And revenue intelligence rules improvement, which represent some of our largest areas of operational status.

Lee: And the most recent quarter, we rolled out several new models, one of which is available to thousands of our follow up staff numbers.

Lee: When one of our operators opens an account to work oftentimes that account has been worked before perhaps multiple times and frequently the operator begin by reading the accounts history to understand those details.

Lee: With this new feature of the operators immediately presented with a summary of the relevant details and current state of that accounts.

Lee: With this new feature, the operator is immediately presented with a summary of the relevant details and current state of that account. This is the foundation for predicting what the appropriate next action should be and then automating that action when possible. Third, as I mentioned, legacy CloudMed solutions have been and will continue to be a key driver for the company's growth and profitability, accelerating our technology roadmap and enhancing our opportunity with a larger potential customer base. In addition, the synergy realization from the climate integration is progressing very well.

Lee: This is a foundation for predicting what the appropriate next action should be and then automating that action when possible.

Lee: Third as I mentioned legacy climate solutions have been and will continue to be a key driver for the company's growth and profitability.

Lee: Accelerating our technology roadmap and enhancing our opportunity with the larger potential customer base.

In addition, the synergy realization from the club and integration is progressing very well.

Lee: We delivered approximately $30 million in synergies in 2023, and anticipate an additional $20 million from climate synergies in 2024.

Lee: We believe this success provides additional confidence in our ability to meet or exceed our synergy targets for the of Clara deal.

Lee: We delivered approximately $30 million in synergies in 2023 and anticipate an additional $20 million from CloudMed Synergies in 2024. We believe this success provides additional confidence in our ability to meet or exceed our synergy targets for the ECLARA deal. Finally, we have executed several initiatives to strengthen our operations and customer service. We believe these initiatives will create a strong foundation for embedded and sustainable growth and revenue, adjusted EBITDA, and free cash. In summary, as I said at the beginning of last year, 2023 was a year of execution, and we delivered on several priorities.

Lee: Finally, we have executed several initiatives to strengthen our operations and customer service.

We believe these initiatives will create a strong foundation for embedded and sustainable growth in revenue adjusted EBITDA and free cash flow.

Lee: In summary, as I said at the beginning of last year 2023 was a year of execution and we delivered on several priorities.

Lee: We stabilized our customer metrics.

Lee: Realized synergies ahead of our targets.

Lee: Strengthened and diversified our customer base.

Lee: Including signing Providence, which positions the company to create a solid growth outlook for at least the next several years.

Lee: We accomplished all of this while addressing several challenges in the base business, which are reflected in our 2020 for outlook.

We are leveraging the full scale of our global capabilities and deploying both functional model and managed services, which will better leverage our platform and provide greater flexibility to address each customer's specific needs. We believe this better aligns resources objectives their responsibilities.

Lee: We stabilized our customer metrics, realized synergies ahead of our target, strengthened and diversified our customer base, including signing Providence, which positions the company to create a solid growth outlook for at least the next several years. We accomplished all this while addressing several challenges in the base business, which are reflected in our 2024 outline. We are leveraging the full scale of our global capabilities and deploying both functional models and managed services, which will better leverage our platform and provide greater flexibility to address each customer's specific needs. We believe this better aligns resources, objectives, and responsibilities. In 2024, our team will continue to expand upon these focus areas by, one, ensuring our go-to-market strategy aligns with our customers' needs in order to meet them wherever they are in their revenue cycle journey, to continue to deliver excellent results to our customers who have recently onboarded or who have longstanding relationships with R1. 3.

Lee: In 2024, our team will continue to expand upon these focus areas by one ensuring our go to market strategy aligns with our customers' needs in order to meet them wherever they are in their revenue cycle journey.

Two continuing to deliver excellent results to our customers who have recently on boarded.

With long standing relationships with our one.

Lee: Three executing against our technology roadmap to drive measurable results.

Lee: And for focusing on operational excellence to drive improved financial performance, which in turn will deliver improved shareholder value.

Lee: Now, let me turn it over to Jennifer discuss financials.

Thank you Lee and good morning, everyone.

Jennifer: We are very pleased with our financial results for both the fourth quarter and for the full year 2023, as well as the forward progress we are making as a business.

Lee: Executing Against Our Technology Roadmap to Drive Measurable Results And four, focusing on operational excellence to drive improved financial performance, which in turn will deliver improved shareholder value. Now, I turn it over to Jennifer to discuss. Thank you, Lee, and good morning, everyone.

Jennifer: In 2023, we were focused on three key financial objectives.

Jennifer: One continued revenue growth.

Jennifer: To operational execution and cost discipline to drive margin expansion.

Jennifer: And three improved cash generation and pay down of outstanding debt.

Jennifer: We are very pleased with our financial results for both the fourth quarter and for the full year of 2023, as well as the forward progress we are making as a business. In 2023, we were focused on three key financial objectives.

Jennifer: We made significant progress across all three objectives, despite some headwinds to the overall business.

Jennifer: These results would not be possible without the contributions across our team.

Speaker Change: I would like to thank all 30000 plus of our global associates for their continued efforts to deliver results for our customers and our shareholders.

Jennifer: Continued revenue growth. 2. Operational execution and cost discipline to drive margin expansion, and three, improved cash generation and pay down of outstanding debt. We made significant progress across all three objectives, despite some headwinds to the overall business. These results would not be possible without the contributions across our team.

Speaker Change: This morning, I would like to walk you through our fourth quarter 2023 financial results.

Speaker Change: Our full year results.

Speaker Change: And then spend some time on our 2020 for outlook.

Speaker Change: We delivered solid results in the fourth quarter with revenue of $575 1 million and adjusted EBITDA of $167 7 million demonstrating continued strength across our business and the ability to manage cost effectively to drive operating leverage.

Jennifer: I would like to thank all 30,000 plus of our Global Associates for their continued efforts to deliver results for our customers and our shareholders. This morning, I would like to walk you through our fourth quarter 2023 financial results. We delivered solid results in the fourth quarter with revenue of $575.1 million and adjusted EBITDA of $167.7 million, demonstrating continued strength across our business and the ability to manage cost effectively to drive operating leverage. Revenue in the quarter grew almost 8% year over year. Let me provide a little more detail on the revenue driver. Our net operating fees of $369 million increased 7% year-over-year.

Speaker Change: <unk>.

Speaker Change: Revenue in the quarter grew almost 8% year over year.

Speaker Change: Let me provide a little more detail on the revenue drivers.

Speaker Change: Our net operating fees of $369 million.

Increased 7% year over year.

Speaker Change: Growth was driven by the Onboarding of new business that annualized in the fourth quarter as well as continued low single digit growth in cash collections from our existing end to end customer base.

Speaker Change: Our incentive fees were $24 million and in line with our expectations.

Speaker Change: Our modular and other revenue posted another strong quarter with revenue of $182 million.

Speaker Change: Double digit revenue growth year over year was primarily driven by cross selling solutions to our existing customers.

Jennifer: Growth was driven by the onboarding of new business that annualized in the fourth quarter, as well as continued low single-digit growth in cash collection from our existing end-to-end customer base. Our incentive fees were $24 million and in line with our expectations. Our modular and other revenue posted another strong quarter with revenue of $182 million. Double-digit revenue growth year-over-year was primarily driven by cross-selling solutions to our existing customers. Turning to expenses for the quarter, the non-GAAP cost of services in Q4 was approximately $358 million, down $6.8 million year-over-year and down nearly $7 million from the prior quarter. The year-over-year decrease was primarily driven by margin maturity across customers onboarded in 2022, combined with Synergy Realization from CloudMed. Non-GAAP SG&A expenses were nearly $50 million, up 15% from the prior year. The fourth quarter included a provision for credit losses of $10.5 million related to receivables.

Speaker Change: Turning to expenses for the quarter.

Speaker Change: non-GAAP cost of services in Q4 was approximately $358 million down.

Speaker Change: Down $6 8 million year over year and down nearly $7 million from the prior quarter.

Speaker Change: The year over year decrease was primarily driven by margin maturity across customers onboard in 2022 <unk>.

Speaker Change: Combined with synergy realization from the cloud Med acquisition.

Speaker Change: non-GAAP SG&A expenses were nearly $50 million.

Up 15% from the prior year.

Speaker Change: The fourth quarter included a provision for credit losses of $10 5 million related to our receivables.

Speaker Change: In particular, two customers account for the majority of the charge due to specific factors in their business and the current macroeconomic environment.

Speaker Change: Excluding the impact of the provision.

Speaker Change: SG&A expenses were down 7% year over year, driven by synergy realization.

Jennifer: In particular, two customers account for the majority of the charge due to specific factors in their business and the current macroeconomic environment, excluding the impact of the provision. SG&A expenses were down 7% year-over-year driven by synergy realization, offset by investments we are making in technology. Our adjusted EBITDA in the fourth quarter was $167.7 million, with growth of 33.5% year-over-year and margins of $29.8 million. Revenue growth combined with continued cost discipline and execution of our integration priorities drove these results. Lastly, in Q4, we incurred almost $29 million in other expenses related to CloudMed technology and integration efforts, as well as facility-related charges. Other expenses also include roughly $5 million of transaction costs for the Eclair acquisition we announced in early December.

Speaker Change: Offset by investments, we are making in technology.

Speaker Change: Our adjusted EBITDA in the fourth quarter was 167 7 million with growth of 33, 5% year over year and margins of 29%.

Revenue growth combined with continued cost discipline and execution of our integration priorities drove these results.

Speaker Change: Lastly, in Q4, we incurred almost $29 million in other expenses.

Speaker Change: Related to cloud med technology, and integration efforts as well as facility related charges.

Speaker Change: Other expenses also includes roughly $5 million of transaction costs for the <unk> acquisition, we announced in early December.

Speaker Change: Other expenses decreased by almost $19 million or 39% year over year as our teams progressed through the integration.

Jennifer: Other expenses decreased by almost 19 million or 39 percent year over year as our teams progressed through the integration. And as Lee mentioned earlier, we realized more than 30 million in cost synergies from the CloudMed acquisition this year. Our fourth quarter results bring our full year revenue to $2.25 billion and adjusted EBITDA to approximately $614 million. Our full year margin was 27%, up nearly 380 basis points, driven by our revenue growth and the mix of revenue across our solutions. Continued Operating Discipline and Synergy Realization Now, let me provide a couple of comments on cash flow and the balance. As I previously mentioned, cash generation has been a focus over the last year, and we've seen a significant improvement in cash flow in 2023. Cash and cash equivalents at the end of December were $173.6 million compared to $164.9 million at the end of September.

Speaker Change: And as Lee mentioned earlier, we realized more than $30 million of cost synergies from the cloud med acquisition in year.

Speaker Change: Our fourth quarter results bring our full year revenue to 2.25 billion and adjusted EBITDA to approximately $614 million.

Speaker Change: Our full year margin was 27%.

Speaker Change: Nearly 380 basis points drip.

Speaker Change: Driven by our revenue growth.

Speaker Change: Mix of revenue across our solutions.

Speaker Change: Continued operating discipline and synergy realization.

Speaker Change: Now, let me provide a couple of comments on cash flow and the balance sheet.

Speaker Change: As I previously mentioned cash generation has been our focus over the last year and we've seen a significant improvement in cash flow in 2023.

Speaker Change: Cash and cash equivalents at the end of December were $173 6 million compared to $164 9 million at the end of September.

Jennifer: For the full year, we generated $340 million in cash from operations, and we are very pleased with our execution in this area. We also fully paid down our outstanding balance of the revolver, totaling $60 million in the fourth quarter and $100 million across the full year. As a result, net debt at the end of December was $1.48 billion with a net leverage ratio of 2.25 times.

Speaker Change: For the full year, we generated $340 million in cash from operations.

Speaker Change: And we are very pleased with our execution in this area.

Speaker Change: We also fully paid down our outstanding balance of the revolver totaling $60 million in the fourth quarter and $100 million across the full year.

Speaker Change: As a result net debt at the end of December was 148 billion with a net leverage ratio at 225 times.

Jennifer: Our liquidity also remained strong, with approximately $772 million at the end of December, both from cash on our balance and Availability on our recall. As we announced last month, we completed the acquisition of Aclara in January for $675 million in cash and a warrant to acquire up to 12.2 million shares of Common Stock. The company funded the cash consideration and related fees and expenses with cash on hand.

Speaker Change: Our liquidity also remained strong with approximately $772 million at the end of December based from cash on our balance sheet and availability on our revolver.

Speaker Change: As we announced last month, we completed the acquisition of Aclara in January for $675 million of cash.

Speaker Change: And a warrant to acquire up to $12 2 million shares of common stock.

The company funded the cash consideration and related fees and expenses with cash on hand.

Jennifer: Additional borrowings of $575 million in Term B loans and an $80 million draw on the Senior Revolving Credit Facility. Now, let me move to our 2024 outlook. For 2024, we expect revenue of $2.625 to $2.675 billion, growing 16 to 19 percent year over year, gap operating income of $105 to $135 million, and adjusted EBITDA of $650-$670 million, with growth of 6-9% year-over-year. These expectations reflect the 2024 impact of both the contribution of ACLARA and the new contract with Providence. Our guidance also assumes low single-digit year-over-year growth for our base net operating fee, driven by Improved Cash Collection. In the fourth quarter, our base customers were generally at their go-forward run rate of $369 million.

Speaker Change: Additional borrowings of $575 million and term b loans.

Speaker Change: And then $80 million draw on our senior revolving credit facility.

Speaker Change: Now, let me move to our 2020 for outlook.

Speaker Change: For 2024, we expect revenue of 2.625 to $2 675 billion.

Speaker Change: Growing 16% to 19% year over year.

Speaker Change: GAAP operating income of $105 million to $135 million.

Speaker Change: And adjusted EBITDA of $650 million to $670 million with growth of 6% to 9% year over year.

Speaker Change: These expectations reflect the 2020 for impact of <unk>.

Speaker Change: Both the contribution of Clara and the new contract with Providence.

Speaker Change: Our guidance also assumes low single digit year over year growth for our base net operating fees driven by improved cash collections.

Speaker Change: In the fourth quarter, our base customers were generally at their go forward run rate of $369 million.

Jennifer: Adjustments to this run rate include normal seasonality and the impact of attrition, which is related to APP and pediatrics, as well as the impact of facility divestitures we expect for two customers, including several Ameda Health hospitals which were part of the Ascension and Advent Health JV dissolution, as announced in 2022. In addition, we expect Providence to contribute net operating fees of approximately $45 to $50 million for the year, beginning in the second half of 2024, while we continue to have constructive conversations with Sutter leadership on scope and timing. We have excluded any contribution from Setter Phase 2 in our 2024 Outlook.

Speaker Change: Adjustments to this run rate include normal seasonality.

Speaker Change: And the impact of attrition and facility divestitures, we expect to occur in 2024.

Speaker Change: Customer attrition is related to ATP and pediatrics as.

Speaker Change: As well as the impact of facility divestitures, we expect for two customers.

Speaker Change: Including several immediate help hospitals, which were part of the Ascension and advent health JV dissolution.

Speaker Change: As announced in 2022.

Speaker Change: In addition.

Speaker Change: We expect Providence to contribute net operating fees of approximately $45 million to $50 million for the year beginning in the second half of 2024.

Speaker Change: While we continue to have constructive conversations with federal leadership on scope and timing we have excluded any contribution from center phase II and our 2024 outlets.

Jennifer: We expect modular and other revenue, excluding the impact of ECLARA, to grow in low double digits. This includes the following assumptions. Mid-teens growth for Legacy Cloudbed Solutions and low single-digit growth in the legacy R1 modular. And finally, we expect ECLRA to contribute approximately $290 to $295 million in revenue. We are in the process of determining the classification of clear revenue between net operating fees and modular and other revenues, and we'll provide more detail when we report our first quarter results. We expect adjusted EBITDA to be in the range of $650 to $670 million.

Speaker Change: We expect modular and other revenue excluding the impact of a clearer to grow low double digits.

Speaker Change: This includes the following assumptions.

Speaker Change: Mid teens growth for legacy cloud that solutions and low single digit growth in the legacy are one modular business.

Speaker Change: And finally, we expect to declare it to contribute approximately $290 million to $295 million in revenue.

Speaker Change: We are in the process of determining the classification of a clear revenue.

Speaker Change: <unk> net operating fees and modular in other revenue and will provide more detail when we report our first quarter results.

Speaker Change: We expect adjusted EBITDA to be in the range of $650 million to $670 million.

Jennifer: Within this outlook, we expect ECLARA to contribute approximately $25 million to adjusted EBITDA. And based on the upfront investment for the ramp of the Providence New Business, we expect the Providence contract to have a negative impact on adjusted EBITDA of approximately $45 million in 2024, excluding the impact of Eclaira and Providence. Poor adjusted EBITDA margins are expected to increase approximately 200 basis points.

Speaker Change: Within this outlook, we expect a clearer to contribute approximately $25 million to adjusted EBITDA.

Speaker Change: And based on the upfront investment for the ramp of the Providence, New business, we expect the Providence contract to have a negative impact on adjusted EBITDA of approximately $45 million in 2024.

Speaker Change: Excluding the impact of a Clara in Providence.

Speaker Change: Our adjusted EBITDA margins are expected to increase approximately 200 basis points.

Jennifer: We also expect significant improvement in 2025 adjusted EBITDA margins through synergy realization and the maturation of the Providence contract in 2025. This outlook also includes capital expenditures of approximately 5% of revenue. Other expenses, $105 to $125 million, including ECLAIR transaction and related expenses. Interest expense in the range of $160 million to $165 million, which includes the impact of the incremental $575 million in Term D loans and the $80 million draw on the revolver related to the acquisition of Clara, depreciation and amortization expense of $330 to $350 million.

Speaker Change: We also expect significant improvement in 2025, adjusted EBITDA margins through synergy realization and the maturation of the Providence contract in 2025.

Speaker Change: This outlook also assumes capital expenditures of approximately 5% of revenue.

Speaker Change: Other expenses of $105 million to $125 million, including a clear transaction and integrated related expenses.

Speaker Change: Interest expense in the range of $160 million to $165 million, which includes the impact of the incremental $575 million and term b loans and $80 million draw on the revolver are related to the acquisition of a clear.

Speaker Change: Depreciation and amortization expense of $330 million to $350 million.

Jennifer: We will update depreciation and amortization guidance in future quarters once the Clara Acquisition Purchase Price Allocation has been completed. As Lee stated, we believe we have established a solid foundation for future growth and performance. We remain focused on the opportunities ahead of us in four key areas. Number one, delivering value for our existing customers. 2. Expanding our market position with new customers, including Providence and other new modular wins.

Speaker Change: We will update depreciation and amortization guidance in future quarters. Once the <unk> acquisition purchase price allocation has been completed.

Speaker Change: As we stated we believe we have established a solid foundation for future growth and performance.

Speaker Change: We remain focused on the opportunities ahead of us in four key areas.

Speaker Change: Number one delivering value for our existing customers.

Speaker Change: Two expanding our market position with new customers, including Providence, and other new modular wins.

Speaker Change: Three operating discipline and execution.

Jennifer: Operating Discipline and Execution, and 4, Automation Through Technology. We are optimistic that our focus in these areas will allow us to deliver sustainable revenue growth, operating profit, and free cash flow in 2024 and beyond. Operator, I will now turn it back over to you.

Speaker Change: And for automation through technology.

Speaker Change: We are optimistic that our focus in these areas will allow us to deliver sustainable revenue growth operating profit and free cash flow in 2024 and beyond.

Speaker Change: Operator, I will now turn it back over to you.

Operator: R1 RCM Inc. At this time, I would like to remind everyone in order to ask a question, press star and then the number one on your telephone keypad. Please limit your questions so we can accommodate others in the audience. Our first question comes from Craig Hettenbach from Morgan Stanley. Your line is now open.

Speaker Change: At this time I would like to remind everyone in order to ask.

Speaker Change: Ask a question sorry, and then the number one on your telephone keypad. Please limit two questions. So we can accommodate others in the queue. Our first question comes from Craig Hudson back from Morgan Stanley. Your line is now open.

Craig Hettenbach: Yes, thank you. Just starting with CloudMed, any additional color on the next phase of synergies for 20 million this year? What's key to driving that?

Craig Hudson: Yes. Thank you just starting with Quad med any additional color on the next phase of synergies of $20 million. This year, what's key to driving that and then also there's been some concerns about slowing of moderating growth in cloud med, but mid teens growth looks good for 2024. So just wanted to get some more color.

Lee: And then also, you know, there's been some concerns about slowing or moderating growth in CloudMed, but you know, mid-teens growth looks good. www.salesforce-county.com www.salesforce-county.com Thanks, Craig. Let me start at the highest level with CloudMed. So, as you and others know, this is a business that helps providers identify sources of revenue leakage through broad data, technology, and AI-driven platform that cuts across many use cases and has 500-plus customers, 95 of the top 100 systems in NPR, and has grown really strongly in the last couple years. I'll answer your question in a few ways. One, the business had very strong bookings last year, which is our proxy for ARR, which gives us confidence in what Jennifer highlighted in the growth rate this year. The growth comes from all our solutions, with particular focus on some of our denials and reinsurance solutions, which deploy a technology platform to help providers in that area, in a place where we've seen some increases post-COVID. And the market has been very, customers have been very receptive to our strategy, which is essentially to land and expand crop cell solutions into the base.

Craig Hudson: In terms of visibility you mentioned and key drivers that could help sustain that mid teens growth in club med.

Speaker Change: Thanks, Craig Let me, let me start at the highest level with cloud, Matt. So as you and others know this is a business that helps providers identify sources of revenue leakage through <unk>.

Speaker Change: Broad data.

Speaker Change: Technology, and AI driven platform that cuts across many use cases and has 500 plus customers 95 of the top 100 assistance of MTR and has grown really strongly in the last couple of years.

Speaker Change: Ill answer your question a few ways one the business had very strong bookings last year, which is our proxy for <unk>, which gives us confidence and what Jennifer highlighted in a growth rate this year.

Speaker Change: The growth comes from all our solutions with particular focus on some of our denials and <unk> solutions, which deploy a technology platform to help providers in that area in a place where we've seen some increases post COVID-19.

Speaker Change: And the market has been very or the customers have been very receptive to our strategy, which is essentially the land and expand cross sell solutions into the base.

Lee: So we feel very confident coming into the year on the growth rate. We expect to have another strong year of bookings and feel really good about how we're progressing with that. You know, over the long run, we haven't given guidance on 25, 26, but we expect continued strong growth. But obviously, over the long run, as the business gets bigger, you could see growth rates changing a bit. On the Synergy side, just to back up, we feel, you know, I'm very proud of the teams for what they've accomplished on behalf of the business, our customers. We've achieved our Synergy targets in the first two years, largely through solid execution and the experience the business has in integrating. And by the way, it also gives us a lot of confidence in execution related to Eclera, just a playbook that has worked across multiple dimensions. So this year, the $20 million, we also feel good about this.

Speaker Change: So we feel very confident coming into the year on the growth rate, we expect to have another strong year of bookings and feel really good about how we're progressing that business.

Speaker Change: Over the long run well, we haven't given guidance on 'twenty five 'twenty six.

Speaker Change: But we expect continued strong growth, but obviously over the long run as the business gets bigger you could see growth rates changing event.

Speaker Change: On the synergy side just to back up we feel very proud of the teams on what they've accomplished on behalf of the business our customers we've achieved our synergy targets in the first two years.

Speaker Change: Largely through solid execution the experienced the business has an integrating and by the way also gives us a lot of confidence on execution related to of Clara just a playbook that has worked across multiple dimensions. So this year the $20 million. We also feel good about this the biggest opportunity for US is continued.

Lee: The biggest opportunity for us is continued automation, continued deployment of rules and analytics to drive down costs and identify Synergy opportunities and move resources, really, as we incrementally hire resources, doing more of that hiring in our global facilities. That's the main driver of the $20 million, as well as a few other areas we can go into detail later. But overall, I feel very good about both the quality of the business, the receptiveness of the marketing customers for those solutions, and our Synergy targets. Anything to add, Jennifer?

Automation continued deployment of rules and analytics to drive down costs, and identify synergy opportunities and moving resources or really as we incrementally higher resources doing more of that hiring in our global facilities. That's the main driver of the $20 million as well as a few others.

Speaker Change: Areas, we can go into detail later, but overall feel very good about both the quality of the business. The receptiveness of the marketing customers for those solutions and our synergy targets anything that Jennifer.

Jennifer: Now, 2020, the only thing I would add is that in 2023, most of the synergies were driven by GNA functions, integration of all the back office systems, and more of the corporate teams, facility rationalization, etc. So, as Lee indicated, in 2024, most of the synergies realization will come from the operational integration, primarily related to the global transition. That's helpful.

Speaker Change: <unk> 2020, the only thing I would add is in 2023.

Speaker Change: Most of the synergies were driven by G&A functions integration of all of the back office.

Speaker Change:

And the.

Speaker Change: More of the corporate team facility rationalization et cetera, So as Lee indicated in 2020 for most of the synergy realization will come from the operational integration primarily related to the global transition.

Speaker Change: That's helpful. And then just a quick follow up Leila will touch on just how the strategy has evolved under your leadership and are seeing a more balanced approach between growth focus on margins and cash flow and if you can just touch on.

Lee: And then just a quick follow-up, Lee. I want to touch on just how the strategy has evolved under your leadership, kind of seeing a more balanced approach between growth, focus on margins, and cash flow. And if you can just touch on how that shapes your priorities for this year and beyond. Yeah, so great, great, great question. So, let me just step back and say, look, we on the team feel very good about the fundamental growth prospects for the entire business. Okay.

Leila: How that shapes kind of your priorities for this year and beyond.

Speaker Change: Yeah. So great great. Great question. So let me let me just step back and say look we the team feel very good about the fundamental growth prospects for the entire business.

Lee: That said, we talked a lot in my first year as CEO about the end-to-end business, and today we have a much more diversified business, right? A lot less customer concentration. The CloudMed business plus the legacy modular business is a much more substantial part of our business. So, when I say flexible, you've heard me use that word a couple of times. That means meeting providers wherever they are. You heard the example I gave.

Speaker Change: That said, we have talked a lot in my first year as CEO about the end to end business and today, we have a much more diversified business right a lot less customer concentration the cloud med business plus the legacy modular business is a much more substantial part of our business.

Speaker Change: So when I say flexible you'll hear me use that word a couple of times.

Speaker Change: That means meeting providers wherever they are you heard. The example, I gave there are situations, where we cut a prospective customer may say look the initial thought is and then engagement and we may say just like the example, I gave that what is better for that customer given their financial situation given the.

Lee: There are situations where we, a prospective customer, may say, look, the initial thought is an end-to-end engagement. And we may say, just like the example I gave, that what is better for that customer, given their financial situation, given the dynamics, maybe it's the fragmented nature of their technologies and processes, that we should do more of a managed services. Use our coding resources, use our follow-up resources, our technology, our global scale, and you all, the customer, manage that. And then accelerate the adoption of CloudMed, right, which is a very powerful solution that delivers significant revenue yield or what a customer would know as revenue integrity, identifying sources of revenue they would not otherwise see due to leakage for many reasons. So that's the main change in strategy.

Speaker Change: Maybe it's a fragmented nature of their technologies and processes that we should do more of a managed services use our coding resources use our IR follow up resources, our technology, our global scale and you all the customer manage that.

Speaker Change: And then accelerate the adoption of cloud, Matt right, which is a very powerful solution that delivers significant revenue yield or what a customer would know as revenue integrity identifying sources of revenue they would not otherwise see due to leakage for many reasons. So that's the main change in strategy. The other thing I would say is look the.

Lee: The other thing I would say is, look, the cloud-led business has a lot of experience, a lot of capabilities around data platform, analytics, and the deployment of AI. So you'll hear me and the team talk about a continuation of the strategy of deploying automation, AI, and technology. Just to give you a little bit of color there, we have a significant right to win in the space of AI and large language models because we are embedded in the customer workflow. So just think of any end-to-end, could be front, middle, back, where you have access to EMRs, the host systems, billing systems, all the data structured and unstructured. The example I gave is, you know, in the denial space. Because we see the denials, we know what successful claims look like, we can deploy AI models to respond to those denials, as an example. And I'll give you 10 other examples.

Speaker Change: The cloud business has a lot of experience a lot of capabilities around data platform analytics deployment of AI. So youll hear me and the team talk about a continuation of the strategy of deploying automation AI and technology and just to give you a little bit of color there.

Speaker Change: Have a.

Speaker Change: Significant right to win in the space of AI and large language models, because we are embedded in the customer workflow. So as you think of any end to end could be front middle back way of access to EMR as the host systems billing systems, all of the data structured and unstructured.

Speaker Change: The example, I gave is in the denial space because we see the denials. We know what successful claims looks like we can deploy AI models to respond to those denials as an example, I can give you 10 other examples but youll see Youll hear me and Jennifer talk more and more about the adoption of <unk>.

Lee: But you'll see, you'll hear me and Jennifer talk more and more about the adoption of AI, which in turn drives greater revenue yield, lower costs, and just generally increases customer satisfaction and confidence in our growth rates and margin expansion. Thank you. The next question comes from Jailendra Singh from TruViz Securities. Your line is now open.

Speaker Change: AI, which in turn drives forget revenue yield.

Speaker Change: Our cost and just generally increased customer satisfaction and confidence in our growth rates and margin expansion.

Speaker Change: Thank you.

Jailendra P. Singh: Next question comes from <unk> Singh from <unk> Securities. Your line is now open.

Jailendra P. Singh: Good morning, and thanks for taking my questions. My first question is about customer health. You guys had another 10.5 million allowance for losses in 4Q. You called out two customers representing a big portion of that. Can you share how much of your total NPR or revenues these customers represent? And how are you thinking about the contribution from these two customers in 24? Are you assuming any reversal of this allowance or even an increase? And Lee, beyond those two contracts, if you can comment on your customer health in general. Okay, Jailendra, let me start with the last part of your question, then I'll hand it over to Jennifer.

Jailendra P. Singh: Good morning, and thanks for taking my questions. My first question is on customer held you guys had under the $10 5 million allowance for losses in the Q you called out to customers representing a big portion of that can you share how much of your total NPR revenues. These customers represent and how are you thinking about contribution from these two customers in 24.

Jailendra P. Singh: How are you guys, assuming any reversal of this alliance or even increase.

Jailendra P. Singh: And Lee beyond those two contracts if you can comment on generally your customer health in particular.

Okay, Jill Andrew let me start with the last part of your question, then I'll hand over to Jennifer.

Lee: We made a lot of progress in 2023, okay? So just to give you a high level on, you know, metrics, post-COVID: clearly, there's been more payer pressure, changes in timelines on payments. We've actually seen increases in certain areas, denials.

Speaker Change: We made a lot of progress in 2023.

Lee: Just to give you the high level.

Lee: Metrics.

Jennifer: Post Covid clearly theres been more payer pressure changes in timelines on payments, we've actually seen increases in certain areas denials, but broadly we have done what we set out to do in 'twenty, three which is stabilized core metrics.

Lee: But broadly, we have done what we set out to do in 23, which is stabilize core metrics, looked across our scorecards, and you've kind of heard what Jennifer said about our incentives, you know, remaining flat or moderate growth. So overall, we made a lot of progress. Now that said... the Take One Metric, Jailendra, HDR, which is a challenge across the industry. You can look at a lot of data points post-COVID, on days payable, et cetera. While we've seen those stabilize, they're still elevated post-COVID, right?

Jennifer: Looked across our scorecards and you've kind of heard what Jennifer said about our incentives.

Jennifer: Remaining flat or moderate growth. So overall, we made a lot of progress now that said.

Jennifer: Take take one metric <unk>, which is a challenge across the industry. You can look at a lot of data points post COVID-19 on days payable et cetera, while we've seen those stabilize theres still elevated post COVID-19 right. So depending on the individual customer we've seen some variance across customers. So what I would say to a lender is.

Lee: So depending on, you know, an individual customer, we've seen some variance across customers. So what I would say, Jailendra, is we are not done performing for our customers. We have more work to do to continue to improve with some of our newly onboarded customers in 21 and 22, where we need to continue to accelerate automation, adoption of technology, and integration of the customer's technologies and processes to drive progress in some areas where there are hotspots at some of our newly onboarded customers. Large customers, Jailendra, we feel very good about phase one of Sutter. We're performing well for the largest, most mature customers. So lots and lots of good things around metrics.

Jennifer: We are not done on performing for our customers. We have more work to do to continue to improve with some some of our newly on boarded customers in 'twenty, one and 'twenty, two where we need to continue to accelerate automation adoption of technology integrating the customers technologies and processes to drive.

<unk> progress in some areas, where there's hotspots at some of our our newly on boarded customers large customers you'll address we feel very good about the phase one of Sutter were performing well for the largest most mature customers. So lots and lots of good things around metrics I would also say on the custom.

Lee: I would also say on the customer engagement side, we are doing a couple things there. One is deploying our CloudMed solutions as much as possible, which is a highly-rated set of solutions. And we're also just changing our approach to how we engage with customers. I can go in more detail there, Jailendra, but just really thinking about how we can, in our end-to-end business, be even more customer-centric as we continue to scale the business, adopt new technologies, and deploy automation and AI through the enterprise. So that's at a high level. What I would say is a lot of progress in 23, still more work to do in 24. Jennifer?

Jennifer: Our engagement side.

Jennifer: We are doing a couple of things there one is deploying our <unk> solution as much as possible, which is a high class rated set of solutions and we're also just changing our approach on how we engage with customers I can go in more detail there Jill Andre, but just really thinking about how can we.

Jennifer: <unk> business be even more customer centric as we continue to scale the business adopt new technologies deploy automation and AI through the enterprise. So that's at the high level, what I would say is a lot of progress in 'twenty. Three is still more work to do in 'twenty for Jennifer sure on the allowance specifically in the <unk>.

Jennifer: Sure. On the allowance, specifically, and the size of the customer, I would say one is... small, and another is mid-size. It is one end-to-end customer and one modular customer. And as far as continuing to do business with them and what the outlook or the guidance assumes, we do expect that we'll continue to do business with them in 2024. However, both of the businesses are doing a bit of restructuring in their businesses, and so that's factored into our guidance. Okay, and then that's helpful.

Jennifer: Size of the customer I would say one is small in other is mid size.

Jennifer: It is one end to end customer and one modular customer and as far as continuing to do business with them and what the outlook or the guidance assumes we do expect that we will continue to still.

Jennifer: <unk> do business with them in 2024, however, they both of the businesses are doing a bit of restructuring and their business and so that's factored into our guidance.

Speaker Change: Okay and then.

Jailendra P. Singh: And then my follow up, and I completely understand you guys might not be willing to comment on the new mountain filing. But Lee and Jennifer, you have experience of successfully running a private company. Now you're running a public company. Just curious about your general views on executing on the R1 strategy and approach and creating long-term shareholder value as an independent public company versus contemplating other options to create near-term shareholder value. Yeah, what I'd say, Jailendra, you're right.

Speaker Change: It's helpful and then my follow up completely.

Speaker Change: Completely understand you guys might not be willing to comment on the new mountain filing, but Lee and Jennifer you had experience of successfully running a private company and now Youre running a public company is just curious about your general views on executing an odd one strategy and approach and creating long term shareholder shareholder value as an independent public company was contemplating at all.

Speaker Change: Since to create near term shareholder value.

Speaker Change: Yeah, what I would say, it's a lender you're right I can't comment on a lot of specifics here's what I would say look we are very confident as a team.

Lee: I can't comment on a lot of the specifics, but here's what I'd say. Look, we are very confident as a team about the prospects of the business. There is a high level of end-market demand for both end-to-end managed services and CloudMed, macro growth across the industry, and needs, especially for providers who may be struggling with financial pressure, high labor, you know, inconsistent adoption of technology, payer pressure, etc. So, I and the team feel very confident about running this business in any context. Okay?

Speaker Change: The prospects of the business there is a high level of end market demand in both end to end managed services and cloud med macro growth across the industry and needs, especially for providers, who may be struggling with financial pressure high labor.

Inconsistent adoption of technology payer pressure et cetera. So.

And the teams are very confident of running this business in any context.

Lee: So, I would respond specifically to the question on the letter that came. You know, our board received the letter and is reviewing the request. We will evaluate that letter, the proposal, and we would, as any public company, work with our advisors to determine the course of action that is most beneficial to our shareholders, customers, and employees. Great, thanks a lot. Our next question comes from Stephanie Davis from Barclays. Your line is now open. Hey guys.

Speaker Change: So what I would respond specifically to the question on the letter that came in our board received a letter is reviewing the request we will evaluate that letter the proposal and we would as any public company work with our advisors to determine to determine the course of action that is most beneficial to our <unk>.

Speaker Change: Our holders customers and employees.

Speaker Change: Great. Thanks, a lot.

Speaker Change: Our next question comes from Stephanie Davis from Barclays. Your line is now open.

Stephanie J. Demko: Thanks for taking the question. I have a, You know what? Let me start with an AI question because Lee, I feel like you really want to talk about that. And I'll get to some questions on Twitter. But um, could you tell us a little bit more about what your cost structure could look like as you kind of build out your AI solution and how much of it is going to be more near-term investments on the engineering side or the LLM investment side versus cross fields you can get as you don't have to have as much hiring to build out? Yeah, so let me start with the strategy and then, Jennifer, if you have any questions on the cost structure add-on. Look, the reason I am excited, Stephanie, and the team is very excited is we see a massive value unlock for our customers and shareholders by deploying large language models into our systems, tools, and technologies. The examples I gave are all exciting, and they barely scratch the surface, Stephanie.

Stephanie J. Demko: Hey, guys. Thanks for taking the questions I have.

Stephanie J. Demko: You know what let me start with an AI question Kenneth Lee I feel like you really wanted to talk about that and I'll get this I'm glad you've done better.

Stephanie J. Demko: Could you tell us a little bit more about what your cost structure could look like as you kind of build out your AI solutions and how much of that is going to be more near term investment on the engineering side or the.

Kenneth Lee: Investment side versus the kind of cost deals you can get as you don't have to have as much hiring to build out.

Speaker Change: Yes, So let me start with the strategy and then Jennifer you have any questions on cost structure at and look the reason I am excited Stephanie and the team is very excited.

Speaker Change: As we see a massive value unlock for our customers and shareholders on deploying large language models into our systems tools and technology.

Speaker Change: The examples I gave are all exciting and they barely scratched the surface surface, Stephanie So denials automating appeals running the first half reducing the need for additional auditing and follow up that has immediate implications to your own cost structure.

Lee: So denials, automating appeals, running the first pass, reducing the need for additional auditing and follow-up, that has immediate implications on our own cost structure. Automating summary charts and deploying that in our coding business has immediate value to customers for accelerating cash collections and value related to our cost structure. AR follow-up sounds benign, Stephanie, but these are thousands of workers we have that are following up on claims, and having the ability to summarize a claim through a large language model on claims we see from that payer in that setting, in that geography, reduces the work time for any individual AR follow-up person in our systems, and that leads directly to increased cash collection revenue, speed to revenue, and obviously our overall cost structure.

Speaker Change: Automating summarizing charts and deploying that in our coating business has immediate value to customers on accelerating cash collections and value related to our cost structure.

Speaker Change: A follow up sounds benign Stephanie but these are thousands of workers. We have that are following up on claims and having the ability to summarize the claim through a large language model on claims we see from that payer in that setting and that geography reduces the work time for any.

Speaker Change: It will air a follow up follow up person in our system and that leads directly to increased cash collection revenue speed to revenue and obviously, our overall cost structure.

Lee: A couple other things, we've partnered with Microsoft. We feel very good about that partnership. We have a robust roadmap. This has become at the top of our roadmap, along with automation, along with the deployment of data and analytics from our CloudMed business, and continued net new product innovation that we haven't spent that much time talking about, Stephanie, but this area gives us a lot of confidence in more rapid deployment of products, shipping new products to our customers, into our operating systems, and it's just something we're very excited about. Jennifer, any thoughts on the cost structure?

Speaker Change: Couple of other things we've partnered with Microsoft we feel very good about that partnership.

Speaker Change: We have a robust roadmap this has become the at the top of our roadmap.

Speaker Change: Along with automation, along with deployment of data and analytics from our <unk> business and continued net new product innovation that we haven't spent that much time talking about Stephanie but this is this is this area. It gives us a lot of confidence or more rapid deployment of products shipping new products to our customers.

Speaker Change: Into our operating systems and it's just something we're very excited about Jennifer and any thoughts on cost structure as far as the early investment Stephanie Youre right its going to be in two areas.

Jennifer: As far as the early investment, Stephanie, you're right. It's going to be in two areas: investments in data to make sure that we can consolidate the data and we have clean data to be able to deploy in the models, and then engineering to build those large language models and make sure that they're operating and we're getting the benefits out of them. Longer term, as Lee mentioned, some of the specific use cases are where we have the largest number of people in coding and auditing, and then on the back end in follow-up, where we have thousands of people that are doing coding and audit in some capacity, whether it could be responding to denials, follow-up with payers, and as we deploy these models and we see opportunities to be able to automate that, we'll be able That's helpful. And then on Sutter Health.

Speaker Change: <unk> and data to make sure that we can consolidate that data and we have clean data to be able to deploy in the models and then engineering Ted build days large language models and make sure that they're operating and we're getting the benefits out of it longer term.

Speaker Change: We mentioned some of the specific use cases is where we have the largest number of people.

Speaker Change: Coding and auditing and then on the back.

Speaker Change: Backend and follow up where we have thousands of people that are doing a follow up and some capacity weather could be responding the denials follow up with Payors.

Speaker Change: As we deploy these models and we see opportunities to be able to automate that.

Speaker Change: Yes, we will be able to grow and the incremental margin on that will be much higher we're still in the early days. So we're monitoring it very closely but we feel very good about the opportunity there.

Speaker Change: That's helpful and then on the the Sutter health side, there's a lot that makes their phase two deployment, a little bit more unique right theyre an epic system.

Lee: There's a lot that makes, www.youtube.com is there, any potential they would want to keep their front. Yeah, Stephanie, let me just talk about this. This is a great topic. Let me start with the first phase, which is a fulsome phase that looks not too dissimilar to the Providence engagement. So the entirety of the middle and back.

Speaker Change: We have had a management changeover could you give us a little color on kind of what the timeline for that and with some of the biggest holdup Saar.

Speaker Change: And.

Speaker Change: If there is any potential they would want to keep the front end in house.

Speaker Change: Yes, Stephanie let me just talk about.

Speaker Change: This is a great topic, let me let me start with the first phase is a fulsome phase that looks not too dissimilar to the Providence engagement. So the entirety of the middle and back Okay. So just and that's the first thing I want to remind everyone. This is a very comprehensive engage.

Lee: Okay, so just, and that's the first thing I just want to remind everyone, this is a very comprehensive engagement. You'll notice, Stephanie, that as we articulated how we're moving forward with Providence, we did not phase it on purpose. We have a lot of learnings on how to contract, how to deploy, and integrate with a net new customer. You'll hear us do that going forward.

Speaker Change: <unk>.

Speaker Change: You'll notice Stephanie that as we articulated how we're we're moving forward with Providence, we did not face. It on purpose, we have a lot of learnings on how to contract how to deploy integrate with a net new customer you'll hear me Youll hear us do that going forward. The second thing I'd say is we there's always room.

Lee: The second thing I'd say is there's always room to improve, but Phase I, from an operational metric standpoint, has progressed very well. A couple advantages, if you will, of that deployment are that it was a centralized revenue cycle, strong executive leadership and support, and we already have, in particular through our CloudMed business, experience with Epic. So regarding phase two, what I'd say, and just as simply as possible, is we continue to dialogue with the executives, the most senior executives at Sutter. We have not assumed anything in our 24 numbers, and we'll keep you updated each quarter, Stephanie. But there's no new news, but overall, I look at this as an opportunity in our customer base, just as there are opportunities with all of our other end-to-end customers. Thank you. The next question comes from Charles Rhyee from TD Cullen. Your line is now open.

Speaker Change: To improve but phase one from an operational metric standpoint as has progressed very well a couple of advantages. If you will of that deployment is it.

Speaker Change: As a centralized revenue cycle.

Speaker Change: Strong executive leadership and support.

Speaker Change: And we already have in particular through our cloud my business experience with epic.

Speaker Change: Regarding phase two what I would say and just as simply as possible as we continue to dialogue with the executives the most senior executives at Sutter.

Speaker Change: We have not assumed anything and our 24 numbers and we'll keep you updated each quarter, Stephanie, but there's no new news, but overall kind of I look at this as an opportunity in our customer base just as there are opportunities with all of our other end to end customers.

Stephanie J. Demko: Awesome. Thank you Paul.

Stephanie J. Demko: Our next question comes from Charles <unk> from.

Charles: TD Cowen Your line is now open.

Charles Rhyee: Yeah, hey, thanks for taking the questions. Jennifer, maybe we just wanted to dive into the guidance then for this year. Obviously, a lot of moving parts here. Customers coming in and out and some pause here on the Sutter side. But, you know.

Charles: Yeah, Hey, thanks for taking the questions.

Charles: Jennifer maybe and we just wanted to dive into the guidance for this year, obviously, a lot of moving parts here.

Charles: With customers coming in and out in some.

Speaker Change: Pause here.

Speaker Change: Sutter side.

Speaker Change: But.

Speaker Change: No.

Lee: Assuming nothing changes from here, and you know, how should we think about what underlying, Fundamentally, without growth for this business is it because, you know, I would think, particularly with all your comments around the opportunity with gen AI, we should see continued margin expansion. I would imagine, you know, a lot of that discussion happened when you guys were talking about long-term margin targets. You know, maybe, can you give us a sense, you know? I think Jennifer, you said at one point, is at least a 15% plus, www.thevenusproject.com. Why don't I start, Charles, and then Jennifer? Just the way I'd frame it is the following, okay?

Speaker Change: Assuming nothing changes from here.

Speaker Change: And how should we think about what underlying sort of fundamental EBITDA growth for this businesses, because I would think particularly Lee with all your comments around the opportunity with <unk>, we should see continued margin expansion.

Speaker Change: I would imagine a lot of that discussion happens.

Speaker Change: Post when you guys were talking about long term margin targets.

Speaker Change: Maybe can you give us a sense I think Jennifer you said at one point. So this is at least a 15% plus EBITDA growth kind of business is that still sort of in your mind framework, particularly with Jedi could we could we expect to see actually faster growth over time.

Speaker Change: But why don't I start Charles and then Jennifer you Bill just the way I'd frame it as the following so you're right Charles Youre hearing me be very optimistic about the long term prospects of the business across all areas end to end.

Lee: So you're right, Charles, you're hearing me be very optimistic about the long-term prospects of the business across all areas, end-to-end, managed services, and CloudMed. The way I think about it is, and you've heard us say this before, but just to frame it, it's base business maturity. You heard, Jennifer, what you said about the end-to-base business and the addition of CloudMed and other modular services, which is incremental to EBITDA and growth. And then you get into this kind of, the topic we just talked about with Stephanie is the adoption and continued adoption of technology, which is a significant unlock of value for our customers and additional margin. Then we have synergies, continued CloudMed synergies, and that's the other factor. And then last, it's declared in Providence.

Speaker Change: Managed services and cloud met the way I'd think about it is and you've heard US say this before but just to frame it space business maturity and you heard Jennifer what you said about the.

Business.

Speaker Change: The addition of cloud med and other modular services, which is incremental to EBITDA growth.

Speaker Change: And then you get into this kind of the topic, we just talked about what Stephanie is the adoption continued adoption of technology, which is a significant unlock further value for our customers and additional margin than we have synergies continued cloud med synergies and that's the other factor than last is declared.

Lee: So the combination of onboarding both the acute and physician business, the assumptions we made this year, the potential for us to do even better there in 24, but certainly confidence in 25. And then synergy realization for Aclara, which is really, as you know from what we've said, not a ton in 24, but high confidence in 25 and 26. So those are the pieces and parts. Overall, we feel very good about what we've said and guidance and have a lot of confidence in the business. But Jennifer, any specifics?

Speaker Change: Providence, So the combination of Onboarding, both the acute and physician business the assumptions we made this year.

Speaker Change: Retention for us to do even better there in 'twenty, four but certainly confidence in 'twenty five and then synergy realization for our Clara which is really as you know from what we said not a ton in 'twenty four but a high confidence in 'twenty five and 26. So those are the pieces and parts overall, we feel very good about what.

Speaker Change: We said in guidance and have a lot of confidence in the business, but Jennifer any specifics specific to EBITDA growth.

Jennifer: Specific to EBITDA growth, if you look at the 2024 guidance, the core margins for R1 are improving, and I think that's indicative of the margin maturity, continued growth on the modular side with higher margins, and synergy realization, as Lee indicated. And then the drivers on the other side where we're doing a bit of investment are the Providence, new business, where there's a significant investment in the next year, and the Clara business, which is admittedly operating today at a lower margin than what our core business is. And we expect significant synergy realization over the next couple of years. As far as AI is concerned, we're making a lot of investments in the business right now, and a lot of those investments will begin to pay back in 2025. So there's not a lot of contribution from AI, a significant contribution from those AI investments that we're making in 24.

Speaker Change: Look at the 2024 guidance the core margins for <unk> are improving.

Jennifer: And I think thats indicative of margin maturity continued growth on the modular side with higher margins and synergy realization as Lee indicated and then the drivers on the other side, where we're doing a bit of investment.

Jennifer: Is on the Providence.

Jennifer: New business, where there is a significant investment in the air and Claire business, which is admittedly operating today at a lower margin than what our core business is and we expect significant synergy realization over the next couple of years.

Jennifer: As far as the AI.

Jennifer: Making a lot of investment in the business right now a lot of those investments will begin to pay back in 2025. So there's not a lot of contribution from AI significant contribution from those AI investments that we're making in 'twenty four most of that will come in 2025 and beyond.

Charles Rhyee: Most of that will come in 2025 and beyond, which is part of the reason that we feel good and are very confident in long-term growth. And if I could follow up, so if we think, you know, not to jump too far ahead, but if we think out the next year, right, we're going to get back, sort of, the tailwind from, you know, no onboarding costs related to Providence, and we're going to get another half year of net operating fee contribution. Synergies related to Clara.

Jennifer: Which is part of the reason that we feel good and very confident in the long term growth.

Speaker Change: And if I could follow up so if we think not to jump too far ahead, but if we think after next year right, we're going to get back.

Speaker Change: The tailwind from no onboarding costs related to Providence.

Speaker Change: We're going to get another half year of net operating fee contribution.

Speaker Change: March to that.

Speaker Change: Synergies related to a clearer.

Jennifer: Is it hard not to think that we're going to have a significant, We haven't given longer-term guidance on 25. But that's the way we're thinking about the business generally; there will be a lot of growth coming from the maturity of the Providence contract as we annualize some of the investments we're making this year and then start to see some of the benefits, incremental benefits for AI, and some of the automation, and the teacher. Our next question comes from Daniel Grossbeck from Citi. Your line is now open.

Speaker Change: As a hard not to think that we're going to have a significant uplift in growth.

If we get through this sort of kind of re basing here.

Speaker Change: Well, we haven't given longer term guidance on 'twenty five, but that's the way we're thinking about the business and generally there will be a lot of growth coming from maturity at the provenance contract as we annualize some of the investments we're making this year and then start to see some of the benefits incremental bid.

Speaker Change: That's at four at AI and some of the automation.

Speaker Change: In the future.

Speaker Change: Great I appreciate it thanks.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Our next question comes from Daniel grasp I can see.

Daniel: Your line is now open.

Daniel Grossbeck: Hi, thanks for taking the question. I'd like to focus on Providence revenue recognition and investment this year, really the pace. How should we think about that as the year progresses? And then do you have any visibility at this point on the cadence of pediatric attrition? So, let me start with Providence, just the kind of high-level, Henry or Jennifer, then I'll also cover pediatrics, and if Jennifer has anything to add.

Daniel: Hi, Thanks for taking the question.

Daniel: I could focus on on Providence.

Daniel: Revenue recognition and investment so you really the cadence how should we think about that as the as.

Daniel: As the year progresses, and then do you have any visibility at this point on the cadence of the pediatrics attrition.

Speaker Change: Yes, So let me let me start with <unk>.

Speaker Change: Providence, just the kind of high level I had ever Jennifer then.

I'll also cover pediatrics in its share price I mean AD. So just to remind everyone. This was a flagship win.

Lee: So, just to remind everyone, this was a flagship win, you know, a very sophisticated buyer, a very strong, experienced executive team, and a commercial contract that closed in January. For the acute and physician business, $14 billion of NPR, not including the Swedish business. Comprehensive engagement for the entirety of the middle and back.

Sophisticated buyer very strong experienced executive team.

Speaker Change: And a commercial contract that closed in January for the acute and physician business 14 billion of NPR, not including the Swedish business Capri.

Speaker Change: Comprehensive engagement for the entirety of the middle and back.

Lee: We are very much on track with regard to onboarding. We are applying lessons learned from the last large EPIC onboarding, which was Sutter. The teams are working very well.

Speaker Change: We are very much on track with regard to Onboarding. We are applying lessons learned from other the last large epic Onboarding, which was sutter. The teams are working very well we are meeting daily.

Lee: We are meeting daily, you know, and have a lot of operational checkpoints on making sure that onboarding goes really well, and, you know, all the data we have points to a high level of confidence on meeting our timing goals. Guidance assumes revenue in the second half. Jennifer, any additional comments on timing?

Speaker Change: I have a lot of just operational checkpoints on on making sure that Onboarding goes really well and all the data we have.

Speaker Change: <unk> to a high level of confidence on meeting our timing goals guide.

Speaker Change: <unk> assumes revenue second half Jennifer any additional comments on timing as far as the phasing from a revenue perspective, we do expect that revenue will ramp second half of the year of $45 million to $50 million of net operating fees in the second half.

Jennifer: Yeah, as far as the phasing, from a revenue perspective, we do expect that revenue will ramp up in the second half of the year, $45 to $50 million of net operating fees in the second half. And as far as the investments that we are making, we are starting to make investments right out of the gate. We are starting to ramp resources so that we can deploy and be ready for the transitions that we expect to happen midyear. So those investments will start in Q1. As far as ECLRA is concerned, obviously, that revenue will begin to be recognized at the time of closure as an existing business.

Speaker Change: And as far as the investments that we're making we're starting to make investments right out of the gate, we're starting to ramp resources. So that we can deploy and be ready for that transition that we expect to happen mid year. So those investments will start in Q1 as far as a clear obviously that Rev.

Speaker Change: The new App.

Speaker Change: We will begin to be recognized at the time of close that's an existing business. So that 290 to 295 of revenue will begin mid January and we've adjusted for that the timing of close and that 290 to 295 estimate for the year and.

Jennifer: So, the $290 to $295 of revenue will begin mid-January, and we have adjusted for the timing of closure in that $290 to $295 estimate for the year. And, you know, there is not a ton of seasonality there.

Speaker Change: There's not a ton of seasonality there. So you can say that.

Speaker Change: Across the year.

Jennifer: So, you know, you can phase that across the year. I was just going to say, as far as pediatrics and the transition, our guidance assumes a mid-year transition. The reality is there may be some things that transition earlier in the year but go a little longer, so I don't think it's going to be everything that transitions at the end of Q2. I think there will be some things that will begin to transition in Q2 but will go into the second half of the year as well. Can you remind us how many employees you have now in the Philippines and how much more juice there is left to squeeze at a margin by further shifting folks to the Philippines in 2024? Yeah, so look, this is an area that we don't get to talk about that much, Daniel, so I'm glad you brought up the question, but this is a very valuable global center for us that helps diversify outside of India. We have just over 2,000 people in the facility, historically mostly focused on customer service, the front end, patient registration, and so on.

Speaker Change: As far as in can you remind us im sorry, guys.

Speaker Change: I was just going to say as far as pediatrics in the transition.

Speaker Change: Our guidance assumes a midyear transition the reality is there may be some things that transitioned.

Speaker Change: Earlier in the year, but go a little longer so I don't think it's going to be.

Speaker Change: Everything transitioned at the end of Q2, I think there'll be some things that will begin to transition in Q2, but we'll go into the second half of the year as well.

Speaker Change: Okay got it okay. Okay can you remind us how many employees you have now in the Philippines, and how much more juice. There is left to squeeze out a margin by further shifting folks to the Philippines and in 'twenty four.

Speaker Change: Yes, so look.

<unk> is an area that we don't get to talk about that much data. So I'm glad you.

Speaker Change: Brought the question, but this is a very valuable global center for us that helps diversify outside of India. We have just over 2000 people in the facility historically, mostly focused on customer service front end patient registration and so on we've actually had.

Lee: We've actually had some really good successes with some of our large customers deploying technology and leveraging that facility. So this is for sure an area we will continue to expand and will deliver opportunities for a lot of value to our customers that deploy not just front end but also customer service. And we're also diversifying outside of other areas. So we are realizing the value of that facility as it matures, just like India did 10 plus years ago. As it matures, that facility is able to take on more and diversified parts of customer workflow. So overall, I feel really good about the strategy there. I got it.

Speaker Change: Some really good successes with some of our large customers deploy.

Speaker Change: Deploying technology leveraging that facility. So this is for sure an area. We will continue to expand and we will deliver opportunities for a lot of value to our customers that deploy not just front end, but also customer service and were also diversifying outside of other areas. So we are realizing that.

Speaker Change: Value of that facility as it matures just like India did 10, plus years ago as it matures that facility is able to take on more than diversified parts of customer workflow. So overall feel really good about the strategy there.

Sean Dodge: Thank you. Our next question comes from Sean Dodge from... Capital Markets. Your line is now open. Yeah, thanks.

Speaker Change: Got it thank you.

Speaker Change: Our next question comes from Sean Dodge from RBC capital markets. Your line is now open.

Sean Dodge: Yes. Thanks.

Jennifer: So your earlier comments on EBITDA growth, if we bridge that into cash flow, Jennifer, you mentioned stronger performance in 2023. And then for 24, you laid out the EBITDA guide and gave much more detail on CapEx and other items. I guess if we bake all of this in, how should we be thinking about free cash flow trajectory both into this year and then any updates to how we should expect that to unfold over the next couple of years and maybe what the big drivers of that should be? On the cash flow front, we said last year that we expected cash flow for the core R1 business before Providence and Eclaira to be in the mid-30% from a cash flow conversion as a percentage of And that's still the expectation.

Sean Dodge: So your earlier comments on EBITDA growth, because if we bridge that into cash flow, Jennifer you mentioned stronger performance in 2023.

Sean Dodge: And then through 'twenty four you've laid out the EBITDA guidance can give much more detail on capex and other items I guess, if we bake all of this and how should we be thinking about free cash flow trajectory both into this year.

Sean Dodge: And then any update to how we should expect that to unfold over the next couple of years and maybe what the big drivers of.

Sean Dodge: That should be.

Sean Dodge: On the cash flow front.

Sean Dodge: We said last year that we expect cash flow for the core <unk> business before Providence and are clear to be in the mid 30% from a cash flow conversion as a percentage of EBITDA and that's still the expectation we had very strong cash flow. The second half of this year. So we feel very confident.

Jennifer: We had very strong cash flow in the second half of this year, so we feel very confident in that. There are some investments, as we indicated, in the Providence new business that will bring down that cash flow conversion in 2024 for Providence as we invest early on in that revenue contract. And then Eclaira, with the integration, we expect that it will be a drag on free cash flow in 2024 as we have transaction costs in the first half of the year.

Sean Dodge: That there are some investments as we indicated.

Sean Dodge: On the Providence, new business that will bring down that cash flow conversion in 2024 for Provident says, we invest early on and that revenue contract.

Sean Dodge: And then a clearer with the integration we expect that it will be a drag on free cash flow in 2024, as we have transaction costs in the first half of the year, we have higher interest expense associated with the debt.

Jennifer: We have higher interest expense associated with the debt, and we're going to be integrating the business and realizing costs associated with synergies as we begin to execute on that. So the cash flow in 2024 is in the 2020 percent plus range for 2024. But as we move into 2025 and beyond, we would expect that we continue to improve on what we would look at as that core free cash flow conversion of the mid-30s, and we've said that that cash flow conversion target is in the 50% plus range. So we still don't think that there's any reason why we wouldn't be able to get to those cash flow conversion rates. Okay, great.

Sean Dodge: And we're going to be integrating the business and realizing cost associated with synergies as we began to execute on that so the cash flow in 2024 is in the.

Sean Dodge: 20 <unk>.

Sean Dodge: Percent plus range for 2024, but as we move into 2025 and beyond we would expect that we.

Sean Dodge: Continue to improve on what we would look at it is that core free cash flow conversion at the mid 30% to continue to increase that and we've said that that cash flow conversion target is in the 50% plus range. So we still don't think that there's any reason why we wouldn't be able to get today's cash flow conversion rate.

Speaker Change: Okay, Great and then.

Sean Dodge: And then for this year's guidance and 2024 guidance, can you share what you've assumed or baked in there in terms of credit allowances? There's a lot of noise there in 2023. Should 2024 be more normal? And then what does normal look like now, you think going forward?

Speaker Change: This year's guidance 2024 guidance can you share what you've assumed.

Speaker Change: In there in terms of credit allowances Theres a lot of noise. There in 2023 should 2024 being more normal and then which what is known will look like and how you think going forward.

Jennifer: It will be improved. Our guidance assumes that it will be improved off of 2023. But I do think it will still be a bit elevated from a historical number.

Speaker Change: It will be improved our guidance assumes that we will be improved also 2023.

But I do think it will still be a bit elevated from.

Speaker Change: Historical.

Speaker Change: Number one what new normal looks like is <unk>.

Jennifer: What the new normal looks like is probably in the range of $10 million a year in that range, and that's what's assumed in the 2024 guidance. So some improvement coming off of 2024, but still higher than historical, or 2023, but higher than historical. Great. Thank you again.

Speaker Change: Probably in the range of $10 million a year.

Speaker Change: And that range and that's what's assumed in the 2024 guidance. So some improvement coming off of 2024, but still higher than historical our 2023, Okay historical.

Speaker Change: Great. Thank you guys.

Speaker Change: Okay.

Elizabeth Anderson: This question comes from Evercore. Your line is now open. Hi, it's Elizabeth Anderson.

Evercore partners: Question comes from Evercore partners.

Evercore partners: Your line is now open.

Hi, its Elizabeth Anderson, so thanks for the question guys.

Lee: So, thanks for the question, guys. One question I had: can you talk, Lee, maybe about that customer approach change you referenced in your other question? It'd be helpful to hear a little bit more details about that. Yes, Elizabeth, it's simple.

Elizabeth Anderson: One question I had can you talk maybe about that customer approach change you referenced in your other question. It would be helpful to hear a little bit more details about that.

Speaker Change: Yes Elizabeth.

Lee: One is just from a go-to-market standpoint, being a lot more flexible in how we meet the needs of customers. Two is continuing to leverage the CloudMed customer position and market position to expand into managed services, expand into end-to-end. Three is flexible contracting. So Elizabeth, this is, you know, kind of think about providence, right?

Speaker Change: The simple one is just from a go to market standpoint, being a lot more flexible on how we need to meet the needs for our customers too is continuing to leverage the cloud med customer position position market position to expand into managed services expand into and then three is flexible contracting.

Speaker Change: So Elizabeth this is kind of think about Providence, Brian could we have pushed harder on the front end because we have pushed harder on some expansion opportunities for sure, but it's being flexible on what the customer wanted to do and not facing anything and just leaving some of the expansion opportunities for later.

Lee: Could we have pushed harder on the front end? Could we have pushed harder on some expansion opportunities? For sure.

Lee: But it's being flexible on what the customer wanted to do and not phasing anything and just leaving some of the expansion opportunities for later. The thing I specifically mentioned is, look, as the business has scaled, from an operations standpoint, really thinking about how we scale to the next phase of NPR, you can imagine our business over time being a lot more than 70 billion NPR, right, with just natural tailwinds at the market level. So how do we continue to scale what has historically been a centralized operation?

Speaker Change: The thing I, specifically mentioned it look as the business has scaled.

Speaker Change: From an operation standpoint, really thinking about how we scale to the next phase of NPR, you can imagine our business over time being a lot more than 70 billion of NPR right just.

Speaker Change: Just natural tailwind.

Speaker Change: The market level. So how do we continue to scale what has historically been a centralized operation and at what level can we be more customer specific on the operational side on the customer facing side. We've also scale. So this means we have to be more aggressive about hiring talent that is customer facing b.

Lee: And at what level can we be more customer-specific on the operational side? On the customer-facing side, we've also scaled. So this means we have to be more aggressive about hiring talent that is customer facing, be a lot more customer-centric in our approach, be more systemic or systematic in how we engage with customers, and the level of executives that engage. And this is about expanding our talent pool, really. And the other thing I would highlight, Elizabeth, is I didn't mention deploying a more data and analytic approach and highlighting to customers this macro dynamic that's happening around payer mix and how that factor is, you know, somewhat in our control with some of the payer escalation processes we have, but to some extent is a macro dynamic that we can help arm our customers to address and paint a picture for them that R1 is best equipped to Got it. That's super helpful.

Speaker Change: Lot more customer centric in our approach be more assist systemic or systematic on how we engage with customers the level of executive that engages.

Speaker Change: And this is about expanding our talent pool really and the other thing I would highlight Elizabeth.

Speaker Change: Didn't mention is deploying a more data and analytic approach and highlighting two customers. This macro dynamic that's happening around payer mix and how that factor is somewhat in our control with some of the payer escalation processes, we have but to some extent as a macro dynamic we can help RMR.

Speaker Change: <unk> two to address.

Speaker Change: And paint a picture for them that are one is best equipped to help them through these but there are for sure macro dynamics that are maybe less in our control. So I could go deeper than that Elizabeth, but that's at the high level, what I'm talking about got.

Got it that's super helpful.

Speaker Change: Was wondering if theres any more detail that you can provide in terms of how you feel about the pipeline for incremental new deals as we think about 2024 and potential timing on that I appreciate.

Lee: And I was wondering if there's any more detail that you can provide, how you feel about the pipeline for incremental new deals as we think about 2024 and potential timing on that. Yeah, just in the interest of time, Eliza. Very good. So, good across all fronts, end-to-end, modular, you know, we've learned a lot of lessons from last year about not projecting a deal. But, you know, a couple of pieces of color: the land of large, large deals, 10 plus billion, is becoming less and less. Some of those choose end-to-end partners.

Speaker Change: The additional color on the <unk>.

Speaker Change: Yes, just the interest of time it was a very good so good across all fronts end to end modular there we've learned a lot of lessons from last year about not projecting a deal.

Speaker Change: But a couple of color or pieces of color.

Speaker Change: The land of large large deals 10, plus billion is less and less because some of those choose and then partners.

Lee: I do think the next phase of deals is something in the couple of billion up to five billion range. But we have a healthy pipeline on both the end-to-end side and the R1 modular side. Our next question comes from Vikram. Cassava from Baird, your line is now open.

Speaker Change: Do think the next phase of deal is something in a couple of billion dollars up to $5 billion range.

Speaker Change: But we have a healthy pipeline on both the <unk> side and I expect another strong year of bookings on the cloud met at our one modular side.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Our next question comes from Vikram.

Vikram: Cassava from Baird. Your line is now open.

Vikram Cassava: Great. Thank you for taking the questions. I wanted to ask about the incentive fees. It looks like those stepped down sequentially in the fourth quarter. I was curious if you could talk about the drivers there.

Vikram Cassava: Great. Thank you for taking the questions I wanted to ask about the incentive fees. It looks like those step down sequentially in the fourth quarter. I was curious if you can talk about the drivers there I know you called out some one time factors on the previous conference call, but just wondering if we can get some color on how that ultimately played out relative to your expectations and what the guidance assumes for incentive fees in 2002.

Jennifer: I know you called out some one-time factors on the previous conference call, but just wondering if we can get some color on how that ultimately played out relative to your expectations and what the guidance assumes for incentive fees in 2024. And then, on a related topic, just wondering if you could talk about just what you're observing more broadly in terms of payer reimbursement timelines. I think in the past you've suggested that you're starting to see signs of stabilization. Just curious if that's still the case or if you're seeing any signs of it getting particularly better or worse.

Vikram Cassava: 24, and then on a related topic just wondering if you could talk about just what you are observing more broadly in terms of payer reimbursement timelines I think in the past you've suggested that you're starting to see signs of stabilization. Just curious if that's still the case or if youre seeing any signs of it getting particularly better or worse and I'll leave it there. Thanks.

Jennifer: And I'll leave it there. Sure. On incentive fees, last quarter we had some one-time items that increased our incentive fees in the quarter, and so we had reflected that we knew we would have a decrease quarter over quarter in incentive fees. Incentive fees landed right in line with our expectations, so there was no surprise there. Those one-time fees were really twofold. One was related to an acceleration of some incentive fees for a contract that ended in Q4, and it accelerated, so we had extra, if you will, incentive fees in Q3.

Speaker Change: Sure on incentive fees last quarter, we had some onetime items that increased our incentive fees in the quarter and so we had reflected that we knew we would have a decrease quarter over quarter in incentive fees and incentive fees landed right in line with our expectation.

Speaker Change: And so there was no surprise there that was onetime fees, where its really two fold one was related to <unk> and <unk>.

Speaker Change: Celebration of some incentive fees for a contract that ended in Q4 and.

Speaker Change: It accelerated so we had extra if you will incentive fees in Q3, and then one was where we had a re class based on our contractual change where it's just a re class from out of incentive fees and two net operating fee. So it was just a newsman, but no change.

Jennifer: And then one was where we had a reclass based on a contractual change, where it was just a reclass out of incentive fees and into net operating fees. So it was just a movement, but no change to either total revenue or EBITDA from that perspective. So that's the change.

Speaker Change: Either total revenue or EBITDA from that perspective, so thats the change as we looked at 2024, we do expect that payer reimbursement timelines first of all they stabilized.

Jennifer: As we look to 2024, we do expect that payer reimbursement timelines, first of all, they stabilized in 2023. We saw some very modest improvements, kind of quarter over quarter, or a little bit of puts and takes across the quarter, but very modest improvement year over year. And I would expect the same for 2024. I don't think there's going to be any significant improvement in payer timelines. I would love to be pleasantly surprised there, but that's not what we're assuming.

Speaker Change: And 2023 we saw some very modest improvements kind of quarter over quarter, a little bit of puts and takes across the quarter, but very modest improvement year over year and I would expect the same for 2024, I don't think theres going to be significant improvement in payer timelines.

Speaker Change: Would love to be pleasantly surprised there, but that's not what we're assuming so.

Jennifer: So we expect that those will remain stable to where they were in 2023. And then, as a result, I expect, you know, given our run rate in Q4 for our existing customer base is kind of at a run rate, I would expect that incentive fees are relatively stable and consistent with what we saw in 2023. Okay, thank you. Our next question comes from Bank of America. Your line is now open.

Speaker Change: So we expect that those will remain stable to where they were in 2023 and then as a result I expect.

Speaker Change: Given our run rate in Q4.

Speaker Change: For our existing customer base is kind of at a run rate I would expect that incentive fees are relatively stable.

Speaker Change: And consistent with what we saw in 2023.

Speaker Change: Okay. Thank you.

Speaker Change: Our next question comes from Bank of America. Your line is now open.

Alan Lutz: Good morning, this is Alan Lutz at B of A. One of your largest customers reported really nice revenue growth in the most recent quarter. And it seems like the utilization environment seems to be improving more broadly. How should we think about your guidance for low single-digit growth of core customers that's embedded in the guide? How does that compare with 2023? Look, I'd say the short answer, Alan, is kind of what you're saying. We expect volumes or utilization to be very similar in 2023. However, each provider is unique. We have a different base of business than what you might see at a macro level, especially related to some of the public providers. We have projected low single-digit growth in cash collections, which, as we said before, blends volume, acuity, and mix throughout our customer base. So, low single digits; is there any upside?

Speaker Change: Good morning. This is Allen Lutz at Bofa.

Allen Lutz: One of your largest customers reported really nice revenue growth in the most recent quarter and it seems like the utilization environment seems to be improving more broadly how should we think about your guidance for low single digit growth of core customers. That's embedded in the guide how does that compare with 2023.

Speaker Change: Look I'd say the short answer Allen as kind of what you are saying, we expect volumes or utilization would be very similar to 2023.

Speaker Change: Each providers unique we have a different base of business than what you might see it.

Speaker Change: At a macro level, especially related to some of the public providers.

Speaker Change: We have projected low single digit growth in cash collections, which as we've said before blends volume acuity and mixed throughout our customer base. So low low single digits is there upside we will see but we've been we're pretty confident in our projections just as we were in 2003.

Lee: We'll see, but we're pretty confident in our projections, just as we were in 2023. Great, thank you. And then Lee, on strategy, it seems like there's now a greater focus on managed services and modular. Has that changed the way that Salesforce is speaking with prospects in 2024? Thanks.

Speaker Change: Great. Thank you and then Lee I guess on strategy. It seems like there is now a greater focus on managed services and modular has that changed the way. The sales force is speaking with prospects in 2024.

Lee: Yeah, look, it's changed the way we think about prospective customers. And I think the major change is, and I'm glad you asked the question, Alan, because I haven't articulated this, being very thoughtful about what customers we take on. So being thoughtful, if a customer has highly fragmented technologies, processes, systems, and isn't centralized from a revenue cycle, we are going to be very thoughtful on how we take those on. It doesn't mean we can't handle complexity, but we may project longer onboarding. We may err towards managed services, which is essentially letting the customer keep control but deploy our coding, other resources with global scale and technology, and probably be more aggressive on the deployment of CloudMed, which drives one very important metric around revenue integrity, and that can help them with one of the bigger problem areas around denials in coding. All right, thank you so much. This closes our question and answer session for today. I'd now like to hand the microphone back over to Lee to close the session. Thank you. Thank you, everyone.

Lee: Yes look it's changed the way, we think about prospective customers and I think the major changes and I am glad you asked the question Alan I haven't articulated this is being very thoughtful about what customers we take on.

Lee: Being thoughtful if a customer has highly fragmented technologies processes systems isn't centralized from a revenue cycle.

Lee: That we are going to be very thoughtful on how we take those on it doesn't mean, we can't handle complexity, but we may project long our Onboarding, we may err towards managed services, which is essentially let the customer keep control, but deploy our.

Lee: Coding other resources with global scale, and technology, and probably be more aggressive on deployment of cloud met which drives one very important metric around revenue integrity that can help them with one of the bigger problem areas around denials than they are.

Speaker Change: Alright, thank you so much closer.

Speaker Change: A question and answer session for today.

Speaker Change: Now like to hand back over to Lee to close this session. Thank you.

Lee: Thank you everyone what I want to say in closing is we believe we've established a solid foundation for future growth and performance.

Lee: What I want to say in closing is we believe we've established a solid foundation for future growth and performance. We remain focused on the opportunities ahead of us. As Jennifer articulated, one is delivering value for existing customers. We want to really focus on customer satisfaction, deploying, and continuing to expand our base business with our existing customers. Q is expanding our market position with new customers, including Providence and other new modular wins. Three is operational discipline and execution as we continue to expand our global footprint. And fourth, and this is the part that you'll hear me and Jennifer talk about a lot more, is automation through technology with a specific focus on AI. So we are confident that as we execute on these areas, we will deliver for our customers first and foremost and deliver sustainable growth, EBITDA, and cash flow for our shareholders. Thank you. This concludes today's conference call. You may now all disconnect. Thank you.

Lee: We remain focused on opportunities ahead of us as Jennifer articulated one is delivering value for existing customers. We want to really focus on customer satisfaction, the deploying of continuing to expand our base business with our existing customers.

Lee: Two is expanding our market position with new customers, including Providence, and other new modular when.

Lee: Three is operational discipline and execution as we continue to expand our global footprint and fourth and this is a part of that Youll hear me and Jennifer talk about a lot more is automation through technology with specific focus on AI. So we are confident as we execute on these areas, we will deliver for our customers first and foremost.

Lee: To deliver sustainable growth EBITDA and cash flow for our shareholders. Thank you.

Lee: Yeah.

Speaker Change: This concludes today's conference call you May now all disconnect. Thank you.