R1 RCM INC. Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to "R1," "the Company," "we," "our," and "us" meanR1 RCM Inc. , and its subsidiaries. The following discussion and analysis is an integral part of understanding our financial results and is provided as an addition to, and should be read in connection with, our consolidated financial statements and the accompanying notes. This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws, that involve substantial risks and uncertainties. These statements are often identified by the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "designed," "may," "plan," "predict," "project," "would," and similar expressions or variations. These forward-looking statements include, among other things, statements about the potential impacts of the COVID-19 pandemic, our strategic initiatives, our capital plans, our costs, our ability to successfully deliver on our commitments to our customers, our ability to deploy new business as planned, our ability to successfully implement new technologies, our future financial performance, and our liquidity. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, the severity, magnitude, and duration of the COVID-19 pandemic; responses to the pandemic by the government and healthcare providers and the direct and indirect impacts of the pandemic on our customers and personnel; the disruption of national, state, and local economies as a result of the pandemic; the impact of the pandemic on our financial results, including possible lost revenue and increased expenses; as well as those discussed elsewhere in this Report, and those set forth in Part I, Item 1A of the 2020 Form 10-K and our other filings with theSEC . The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Subsequent events and developments may cause our views to change. 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. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. Overview Our Business We are a leading provider of technology-driven solutions that transform the patient experience and financial performance of healthcare providers. Our services help healthcare providers generate sustainable improvements in their operating margins and cash flows while also enhancing patient, physician, and staff satisfaction for our customers. We achieve these results for our customers by managing healthcare providers' revenue cycle operations, which encompass processes including patient registration, insurance and benefit verification, medical treatment documentation and coding, bill preparation, and collections from patients and payers. We do so by deploying a unique operating model that leverages our extensive healthcare site experience, innovative technology, and process excellence. We assist our revenue cycle management ("RCM") customers in managing their revenue cycle operating costs while simultaneously increasing the portion of the maximum potential services revenue they receive. Together, these benefits can generate significant and sustainable improvements in operating margins and cash flows for our customers. 27 -------------------------------------------------------------------------------- Our primary service offering consists of end-to-end RCM services for health systems, hospitals, and physician groups, which we deploy through an operating partner relationship or a co-managed relationship. Under an operating partner relationship, we provide comprehensive revenue cycle infrastructure to providers, including all revenue cycle personnel, technology solutions, and process workflow. Under a co-managed relationship, we leverage our customers' existing RCM staff and processes, and supplement them with our infused management, subject matter specialists, proprietary technology solutions, and other resources. Under the operating partner model, we record higher revenue and expenses due to the fact that almost all of the revenue cycle personnel are our employees and more third-party vendor contracts are controlled by us. Under the co-managed model, the majority of the revenue cycle personnel and more third-party vendor contracts remain with the customer and those costs are netted against our co-managed revenue. For the six months endedJune 30, 2021 and 2020, substantially all of our net operating and incentive fees from end-to-end RCM services were generated under the operating partner model. We also offer modular services, allowing customers to engage us for only specific components of our end-to-end RCM service offering, such as physician advisory services ("PAS"), practice management ("PM"), revenue integrity solutions ("RIS"), patient experience ("PX"), coding management, and business office services. Our PAS offering assists healthcare organizations in complying with payer requirements regarding whether to classify a hospital visit as an in-patient or an out-patient observation case for billing purposes. Our PM services offer administrative and operational support to allow healthcare providers to focus on delivering high quality patient care and outsource non-core functions to us. Our RIS offering includes charge capture, charge description master ("CDM") maintenance, and pricing services that help providers ensure they are capturing the maximum net compliant revenue for services delivered. Our PX offering helps patients manage their data in one easy-to-use environment, enabling eligibility validation and insurance plan attribution, demographic accuracy, meeting authorization and referral requirements, medical necessity validation, and patient out-of-pocket cost estimation. Our coding management offering drives performance, quality, and consistent results via business intelligence and analysis, human capital management, an accountability framework, and a quality management program. Our business office services can help providers with the entire billing function or to specifically recoup revenue that may otherwise be lost by focusing skilled resources in lower priority areas with significant revenue potential. Once implemented, our technology solutions, processes, and services are deeply embedded in our customers' day-to-day revenue cycle operations. We believe our service offerings are adaptable to meet an evolving healthcare regulatory environment, technology standards, and market trends. We operate our business as a single segment configured with our significant operations and offerings organized around the business of providing revenue cycle operations for healthcare providers.SCI Solutions, Inc. Acquisition OnApril 1, 2020 , we completed the acquisition ofscheduling.com , Inc. d/b/aSCI Solutions, Inc. ("SCI") pursuant to a stock purchase agreement dated as ofJanuary 9, 2020 (the "Stock Purchase Agreement"), by and among the Company,Clearsight Intermediate Holdings, Inc. ("Clearsight Holdings ") andClearsight Group Holdings, LLC (the "Seller") (the "SCI Acquisition"). At the closing of the transaction, we purchased from the Seller all of the issued and outstanding equity interests ofClearsight Holdings , which owns all of the issued and outstanding equity interests of SCI. SCI is a leading provider of software-as-a-service ("SaaS")-based scheduling and patient access solutions. SCI's platform streamlines the patient and provider experience, creating efficient care networks where health systems' capacity is digitally and conveniently accessible to all market constituents. The combination of R1 and SCI is expected to deliver enhanced value for healthcare providers by enabling them to expand digital front door strategies for their patients, improve operating efficiency, and increase capacity utilization, among other benefits. The aggregate purchase price consisted of$190.0 million in cash, adjusted pursuant to the Stock Purchase Agreement for cash and working capital. The agreement also contained an earn-out of$10.0 million for meeting certain financial and operational targets. The earn-out was paid out in full in the second quarter of 2021. 28 --------------------------------------------------------------------------------
RevWorks Acquisition
OnAugust 3, 2020 , we completed the acquisition of the RevWorks services business pursuant to an asset purchase agreement dated as ofJune 2, 2020 (the "RevWorks Purchase Agreement") by and among the Company and Cerner Corporation (the "RevWorks Acquisition"). At the closing of the transaction, we purchased certain assets relating to the RevWorks services business, as specified in the RevWorks Purchase Agreement. The combination of R1 and RevWorks is expected to provide enhanced revenue cycle capabilities and expertise to RevWorks clients, helping drive sustainable financial improvements for providers while improving their patients' overall experience.
Emergency Medical Services Disposition
OnOctober 30, 2020 , we disposed of the emergency medical services ("EMS") business, including EMS Revenue Cycle Management and ElectronicPatient Care Reporting, for$140.0 million , inclusive of a$5.0 million hold-back amount subject to the completion of certain transition services, to be paid approximately one year from the date of the disposition. We recognized a gain on the sale of$55.7 million , which was subject to customary working capital adjustments.
VisitPay Acquisition
OnJuly 1, 2021 , we completed the acquisition of iVinciPartners, LLC d/b/a VisitPay ("VisitPay") pursuant to an Agreement and Plan of Merger dated as ofMay 3, 2021 by and among the Company, iVinciPartners, LLC ,Vine Merger Sub, LLC ,Flare Capital Partners I, L.P. ,Flare Capital Partners Investment Company , andVine Sellers' Representative, LLC (the "VisitPay Acquisition"). We acquired VisitPay for approximately$298.0 million in cash, subject to customary adjustments for working capital, cash, and debt. The Company funded the VisitPay Acquisition and related fees and expenses with the proceeds from additional borrowings and cash on hand. In conjunction with the closing, we entered into an amended and restated senior credit agreement (the "A&R Credit Agreement") withBank of America, N.A ., as administrative agent, and the lenders named therein, governing the Company's amended and restated senior secured credit facilities, consisting of a$700.0 million senior secured term loan and a$450.0 million senior secured revolving credit facility. Upon closing, the aggregate borrowings incurred under the senior secured revolving credit facility were$120.0 million .The proceeds from the A&R Credit Agreement were used, in addition to cash on hand, (1) to refinance, in full, all existing indebtedness under the Credit Agreement, and amend and restate all commitments thereunder (the "Refinancing"), (2) to pay certain fees and expenses incurred in connection with the entry into the A&R Credit Agreement and the Refinancing, and (3) to fund the VisitPay Acquisition, and to pay the fees, premiums, expenses and other transaction costs incurred in connection therewith; and in the future, will be used to finance working capital needs of the Company and its subsidiaries for general corporate purposes.
Coronavirus Pandemic
OnJanuary 31, 2020 , the Secretary ofHealth and Human Services ("HHS") announced a determination that a Public Health Emergency existed in theU.S. as a result of the 2019 Novel Coronavirus (hereafter, "COVID-19"). Since that time, HHS has repeatedly renewed its determination of the Public Health Emergency, most recently as ofJuly 19, 2021 . Further, inMarch 2020 , theWorld Health Organization characterized COVID-19 as a pandemic and that characterization remains in place. In turn, and based on continuously updated international, federal, state, and local guidelines, certain restrictions on businesses and travel remain in place, varying by locality, and cannot be reasonably predicted. 29 -------------------------------------------------------------------------------- Given the ongoing challenges associated with efforts to contain the spread of COVID-19 and related business impact for our customers, we initiated a number of actions in 2020 that have continued in 2021 to ensure (1) the health, safety, and well-being of our workforce; (2) uninterrupted and, in many respects, expanded support for our customers and the patients and communities they serve; and (3) business and operational continuity. Among our specific actions to support our workforce, we have maintained our work-from-home model for more than 15,000 global employees, offered zero out-of-pocket cost for COVID-19 testing and telemedicine visits, offered mental wellness programming, and recently launched the R1 Cares vaccination support program for ourIndia workforce. In addition, we have continued to deliver customer support that includes: our PX mobile patient registration technology which reduces risk of patient and R1 staff exposure and preserves the use of critical personal protective equipment for clinical staff; reporting to allow for detailed COVID-19 order tracking, scheduling, and follow-up; in-depth regulatory resource guidance and content to aid our customers in navigating a rapidly developing and changing series of healthcare regulations during the public health emergency; and providing operational best practices for implementation and revenue cycle management of telehealth services. We continue to track new COVID-19 variants and monitor and assess the current situation and guidance both locally and globally, and may adjust the above efforts as needed based on our ongoing assessment. Due to the impact of the pandemic, there continues to be decreased patient volumes for our customers. Corresponding to the decreased volume, we anticipate that our second half 2021 revenues on average will be modestly below pre-COVID amounts. Given the continued uncertainty of the pandemic, we cannot reasonably predict when volumes will return to their pre-COVID levels. The impact of the COVID-19 pandemic is fluid and continues to evolve. We cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted. However, we continue to assess its impact on our business and continue to actively manage our response. For further details on the potential impact of COVID-19 on our business, refer to "Risk Factors," in Part II, Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . CONSOLIDATED RESULTS OF OPERATIONS The following table provides consolidated operating results and other operating data for the periods indicated: 2021 vs. 2020 2021 vs. 2020 Three Months Ended June 30, Change Six Months Ended June 30, Change 2021 2020 Amount % 2021 2020 Amount % (In millions except percentages)
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