April 24, 2017 - 1:46pm EST by
2017 2018
Price: 3.70 EPS 0 0
Shares Out. (in M): 108 P/E 0 0
Market Cap (in $M): 400 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 400 TEV/EBIT 0 0

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  • Built in growth
  • Compounder
  • Misunderstood Business Model
  • Free cash flow cow
  • Complex cap structure
  • CEO is a STUD
  • Multi-bagger



This story begins over a decade ago with the formation of Accretive Health.



Accretive is a provider of revenue cycle services to many health care providers.


A simple way of looking at this- it handles almost all front and back office


needs of health organizations. This hospital servicing company ran into some


problems when unencrypted laptops of patient data were stolen from the company.



Federal Trade Commission in 2013 then stepped in and the company entered into a


twenty year settlement over data security measures.


The Minnesota Attorney General, following an investigation


into the company’s debt collecting practices, fined them $2.5 million in a


settlement while Company admitted no wrongdoing. Following these issues in early


2013, the CEO and Chairman were replaced with several new managers. The FTC


and Minnesota Attorney General investigations resulted in delayed and missed


filings and restatements. The financial restatements resulted in a New York Stock


Exchange delisting. By June 2014, all filings were completed and were then


current. That then was a Cliff notes history of what crunched the company.



RCM is a revenue cycle services and physician services company. It handles


patient registration, insurance and benefits verification, medical treatment


documentation and coding, bill preparation and collections for patients and


payers. The company focuses on gathering individual patient data and validating


insurance eligibility and monitors this data thru the full lifecycle.



Additionally, it provides patient care billing classification reviews.


In the first quarter of 2016, Accretive, renamed as R1-RCM, closed a strategic


transaction with Ascension, the second largest  hospital system in the country


(141 hospitals) which injected $200 million of cash into the company, acquiring


along with Towerbrook Capital Partners a 40% position in RCM and made RCM the


exclusive revenue cycle partner for a 10-year term.




Subsequently it started adding revenues from the Ascension hospitals onboarding



the revenues and is continuing with an assured revenue stream over subsequent


quarters and feels that it can save the hospital from 10 to 30% in customer costs


to collect. Obviously in a world of low- to mid-single digits operating margins,


such numbers are quite meaningful. RCN has posted a corporate presentation on its


website which indicates that they expect to generate $700-$900 million revenues


with mid- to high teens net cash margins by 2020. It should be noted


management further stated that 90% of the low end of revenues are currently






The full onboarding of contracted business suggests an annualized EBIDTA of over


$100 million or over $0.55. According to one observer, the closest peer is


Athenahealth(ATHN) which is certainly larger but trades at a 15 times EBIDTA.


A recent Needham conference presentation indicated the company plans to greatly


expand their sales efforts to add others customers. Since guidance assumes no


such sales, any new accounts would be additive. Additionally, with money on the


balance sheet, management further disclosed they are looking for acquisition


candidates- all of which suggests possible new investment banking and brokerage


coverage. Company has no current analyst reports- William Blair, Robert Baird


and Cowan analysts were on the recent conference call. Long-term debt was zero


while just over 108 million shares were outstanding. Warrants from the


Ascension/Towerbrook to acquire 60 million shares @$3.50 are on the books.




The long term macro trends also favor RCM. The new increasingly complex


regulations for healthcare providers and reimbursements as well as HIPPA


rules all offer strong tailwinds.




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


1.Newly relisted on Nasdaq.

2.New presentations on company site

3.Expected new broker coverage

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