Accretive Health first quarter net services revenue increases 30% to $163.7 million

Accretive Health, Inc. (NYSE: AH), a leading provider of comprehensive end-to-end healthcare revenue cycle management services and population health management services infrastructure, today announced financial results for the quarter ended March 31, 2011.

Financial Results - First Quarter 2011

• Net services revenue for the first quarter of 2011 was $163.7 million, an increase of $37.8 million, or 30%, over the first quarter of 2010.

• Operating margin for the first quarter of 2011 was $34.2 million, an increase of $10.5 million, or 45%, over the first quarter of 2010.

• Non-GAAP adjusted EBITDA was $8.4 million for the first quarter of 2011, an increase of $4.0 million, or 91%, over the first quarter of 2010. Included in these results were $0.9 million of incremental expenses associated with being a public company, $1.5 million of increased investment in the new Quality and Total Cost of Care service offering, and $1.0 million of expenses associated with the company's secondary stock offering completed in March.

• Net income attributable to common shareholders for the first quarter of 2011 was $0.2 million, as compared to the $0.1 million attributable to common shareholders during the first quarter of 2010.

• Diluted net income per common share was $0.00 for the first quarter of 2011, essentially unchanged as compared to $0.00 in the first quarter of 2010.

• Non-GAAP adjusted net income per diluted common share was $0.04 for the first quarter of 2011, an increase of 33% over the first quarter of 2010.

Mary Tolan, Accretive Health's Co-Founder and Chief Executive Officer said, "We had a very productive first quarter and delivered results right in line with our expectations. Despite it being our seasonally slowest quarter, we experienced strong top-line growth, margin expansion and increasing profitability. These results are driven by the high level of value we deliver to our customers through both net revenue yield improvements and operating efficiencies.

We continued to grow our revenue cycle management business by adding new customers and further penetrating our existing customer healthcare systems. We are seeing strong interest from existing customers in our Shared Services offering, further validating the strength of our customer partnerships. We've made solid progress in our Quality and Total Cost of Care service offering. Our results with Fairview Health Services are exceeding our initial expectations and they have been a gracious host for our prospective customers who are exploring this offering. The strong demand we are seeing in our Quality and Total Cost of Care business will allow us to thoughtfully select our customers beyond Fairview. Based on our robust pipeline of opportunities across our business, we are confident that we will exceed $900 million in Projected Contracted Annual Revenue Run Rate at December 31, 2011.

We define our Projected Contracted Annual Revenue Run Rate as the expected total net services revenue for the subsequent twelve (12) months for all our customers under contract. The company's Projected Contracted Annual Revenue Run Rate at May 11, 2011 is $765 million to $781 million compared to $610 million to $623 million at May 11, 2010. The midpoint of the range at May 11, 2011 increased by $156 million, or 25%, from the midpoint of the range at May 11, 2010. In the last six months, we have added $111 million in Projected Contracted Annual Revenue Run Rate, at the midpoint, which represents a 34% annualized growth rate."

Revenues and Operating Results - First Quarter ended March 31, 2011

Total net services revenue for the first quarter of 2011 grew to $163.7 million, a $37.8 million, or 30%, increase over the first quarter of 2010. Net base fee revenue was $141.7 million for the first quarter of 2011, an increase of $30.4 million over the first quarter of 2010. Incentive payments were $17.3 million during the first quarter of 2011, an increase of $5.0 million over the first quarter of 2010. Other services revenue was $4.7 million for the first quarter of 2011, an increase of $2.4 million over the first quarter of 2010.

Non-GAAP adjusted EBITDA for the quarter ended March 31, 2011 was $8.4 million, an increase of $4.0 million, or 91%, over the first quarter of 2010. Included in these results were $0.9 million of incremental expenses associated with being a public company, $1.5 million of increased investment in the new Quality and Total Cost of Care service offering, and $1.0 million of expenses associated with the company's secondary stock offering completed in March.

Net income attributable to common shareholders for the first quarter of 2011 was $0.2 million, as compared to $0.1 million in the first quarter of 2010. Included in these results were non-cash employee stock based compensation expenses of $6.0 million and $2.0 million, respectively. After adjusting for these non-cash expenses on an after tax basis, our Non-GAAP adjusted net income for the first quarter of 2011 was $3.7 million, as compared to $1.3 million in the first quarter of 2010. Non-GAAP adjusted net income per diluted common share was $0.04 for the first quarter of 2011, an increase of 33% over the adjusted net income per diluted common share of $0.03 in first quarter of 2010.

Cash used in operating activities for the three months ended March 31, 2011 totaled $45.3 million as compared to $10.1 million in the three months ended March 31, 2010. This use of cash was primarily due to the regular payment of annual bonuses in the first quarter of 2011, which totaled $10.0 million, and an increase in receivables from customers of $39.8 million. $24.4 million of the customer accounts receivables that became due during the quarter ended March 31, 2011 were collected on April 1, 2011. Cash used in investing activities was $1.1 million for the three months ended March 31, 2011.

2011 Outlook

Based on the status of our current contract negotiations and robust pipeline, we are affirming our guidance issued on March 2, 2011. We are expecting our Projected Contracted Annual Revenue Run Rate at December 31, 2011 to exceed $900 million. For the year ended December 31, 2011, we are expecting net services revenues of $835 million to $850 million and non-GAAP adjusted EBITDA of $80 million to $86 million. The midpoint of our guidance range for 2011 non-GAAP adjusted EBITDA represents an 84% growth over the non-GAAP adjusted EBITDA for 2010. In addition, we are expecting our non-GAAP adjusted net income per diluted common share to be in the range of $0.42 to $0.45.

As a result of the seasonality of our incentive payments and our ongoing investments in our Quality and Total Cost of Care service offering, we anticipate that roughly one third of our 2011 adjusted EBITDA will be recognized in the first half of the year and the other two thirds will be recognized in the second half of the year.