Accretive Health second-quarter net services revenues increase 21% to $151.9 million

Accretive Health, Inc. (NYSE: AH):

“We are very pleased with our results for the second quarter, our continuing top-line growth, our margin expansion and our increasing profitability. These results are driven by the increasing level of value we deliver to our customers through both net revenue yield improvements and operating efficiencies.”

• 27% Projected Contracted Annual Revenue Run Rate Growth Over Second Quarter 2009
• Non-GAAP Adjusted EBITDA of $12.3 million, a 105% Growth Over Second Quarter 2009
• $0.07 Non-GAAP Adjusted Net Income per Diluted Share

Accretive Health, Inc. (NYSE: AH), a leading provider of comprehensive end-to-end healthcare revenue cycle management services, today announced financial results for the quarter ended June 30, 2010.

Key Financial Results - Second Quarter 2010

• Net services revenues for the second quarter of 2010 was $151.9 million, an increase of $26.2 million, or 21% over the second quarter of 2009.
• Operating margin for the second quarter of 2010 was $33.9 million, an increase of $11.2 million, or 49% over the second quarter of 2009.
• Income from operations for the second quarter of 2010 was $7.4 million, an increase of $4.5 million, or 155% over the second quarter of 2009.
• Net income attributable to common shareholders for the second quarter of 2010 was $3.9 million, an increase of $1.3 million, or 48% over the second quarter of 2009.
• Non-GAAP adjusted EBITDA was $12.3 million for the second quarter of 2010, an increase of $6.3 million, or 105% over the second quarter of 2009.
• Non-GAAP adjusted net income per diluted common share was $0.07 for the quarter ended June 30, 2010.
• Diluted earnings per common share was $0.04 for the quarter ended June 30, 2010.
• The Company's projected contracted annual revenue run rate at June 30, 2010 was $614 million to $626 million compared to $483 million to $493 million at June 30, 2009. The midpoint of the range at June 30, 2010 increased by $132 million, or 27%, from the midpoint of the range at June 30, 2009.

Mary Tolan, Accretive Health's Co-Founder and Chief Executive Officer said, "We are very pleased with our results for the second quarter, our continuing top-line growth, our margin expansion and our increasing profitability. These results are driven by the increasing level of value we deliver to our customers through both net revenue yield improvements and operating efficiencies.

We are also pleased with the notable increase we are seeing in our existing customers' interest in adopting our shared services operating model. We are presently in detailed discussions concerning the transition of multiple existing customers' revenue cycle operations into our shared services. We expect these transitions to begin in the coming quarters. These adoptions could increase the use of our shared services model from 33% of our current revenue mix to 52% of our current revenue mix. We do expect that this will lead to a slight reduction of future net base fee revenues as we share with our customers a portion of the incremental cost savings achieved after the transition is complete. However, these upcoming adoptions would represent a positive development as our profit margins improve as customers begin using our shared services operating model."

Net Services Revenue - Second Quarter 2010

Total net services revenue for the second quarter of 2010 grew 21% to $151.9 million from $125.7 million in the second quarter of 2009. Base fee revenues were $128.2 million during the second quarter, a 21% increase over the second quarter of 2009. Incentive payments were $20.1 million during the second quarter, a 21% increase over the second quarter of 2009. Other services revenue was $3.6 million during the second quarter.

The base fee component of net services revenue for the quarter ended June 30, 2010 would have been greater except for the lower than anticipated inflation adjustments in both base fees and the associated hospital employee labor costs. Base fees typically increase annually due to an inflation factor that is highly correlated with the actual payroll increases implemented across our customers' hospitals. The impact to second quarter 2010 revenue of the lower than expected inflation adjustment is estimated at $2.2 million. This trend has virtually no impact on income from operations, net income, and non-GAAP adjusted EBITDA, as base fees and unit labor costs move together.

The company's projected contracted annual run rate of revenue at June 30, 2010 increased by approximately 27% from the June 30, 2009 projection based on the mid-points of the respective ranges. The majority of the increase in the contracted annual revenue run rate reflects the increase in the number of healthcare providers for whom Accretive is providing revenue cycle management services from 53 at June 30, 2009 to 61 at June 30, 2010.

Non-GAAP Adjusted EBITDA and Adjusted Net Income

Increased incentive fee payments in the second quarter of 2010 combined with increasing operating cost efficiency allowed the company to more than double its adjusted EBITDA to $12.3 million for the quarter ended June 30, 2010 from $6.0 million for the quarter ended June 30, 2009. Non-GAAP adjusted net income in the second quarter of 2010 was $6.1 million, an increase of $2.1 million, or 55% over the prior year quarter.

2010 Outlook

Management estimates that the company's projected contracted annual run rate of revenue at the end of 2010 will exceed $710 million, an increase of at least 38% from the $510 million to $519 million (midpoint of $514 million) projected contracted annual revenue run rate at the end of 2009. The company's ability to exceed $710 million in projected contracted annual revenue run rate at December 31, 2010 will depend on the timing and success in closing the current strong pipeline of customer opportunities. Management also expects that full year 2010 non-GAAP adjusted EBITDA will be $43 million to $46 million.