Atif Rahim - Senior Vice President, Investor Relations and Business Development Emad Rizk - President and Chief Executive Officer Peter Csapo - Chief Financial Officer and Treasurer Joe Flanagan - Chief Operating Officer.

Jeff Garro - William Blair & Company Matthew Gillmor - Robert Baird Charles Rhyee - Cowen & Company.

Good day, ladies and gentlemen and welcome to the Accretive Health's Third Quarter 2015 Earnings Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I'd like to introduce your host for today's call, Head of Investor Relations, Mr. Atif Rahim. Sir, please begin..

Hello everyone and welcome to the call. With us today, we have Emad Rizk, Accretive Health’s President and CEO and Peter Csapo, CFO and Treasurer. We’ll start with prepared remarks from Emad and Peter and turn it over to Q&A.

We'll also Joe Flanagan, our Chief Operating Officer and Dave Mason, our Chief Strategy Officer available to answer your questions. As a reminder, certain statements contained in this conference call may be considered forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

In particular, any statements made about Accretive Health’s strategic review process and its ability to improve results, grow the business in a scalable manner, reduce the cost of revenue cycle operations, maximize appropriate fee-for-service revenue, prepare for value based payments and improve patient engagement are forward-looking statements.

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.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the factors set forth under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on June 23, 2015 and our quarterly report on Form 10-Q for the quarterly period ended September 30, 2015 filed with the SEC on November 09, 2015.

The forward-looking statements made on today’s call are based on Accretive Health’s expectations and projections of our future events as of today, November 09, 2015 only, and should not be relied upon as representing the company’s views as of any subsequent date.

While the company may elect to update these forward-looking statements at some point in the future, Accretive Health specifically disclaims any obligation to do so to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. Now, I’d like to turn the call over to Emad..

Thank you, Atif and good afternoon everyone. I’d like to thank all of you for joining us on the call today. Our third quarter results reflect the continued progress in turning the corner on some of the headwinds we have faced. We generated $55.4 million in gross cash and $3.7 million in net cash from customers contacting activity.

Third quarter results posted sequential improvement relative to the second quarter and we expect further improvement in the fourth quarter due to our earnings being second half loaded as previously discussed. Peter will review with you the details behind the numbers in a few minutes.

Our most important highlight during the quarter was the signing of our first revenue cycle customer in over two years. This is a new win, not an expansion of an existing customer footprint.

The core hospitals and health system was close to $700 million in net patient revenue and I am pleased to say we have already begun implementation and deployment of our RCM capabilities and services in this customer. This was a competitive process and our differentiated software and services model was key to winning this customer.

This win also underscores the traction we are building in the market. In addition to the RCM deal we also signed a health system with $2 billion in net patient revenue for physician advisory services.

After several quarters of a declining trend from the implementation of the Two-Midnight Rule regulatory change we are starting to see stability in the PAS business and we are gaining market traction in this segment of the market. We believe the market for our RCM services continues to remain robust as I have discussed on previous calls.

Our selling cycle is relatively long at six to 18 months, but the overall selling environment for our solutions is gradually improving as health systems recognize our value propositions and our prior challenges as a company fade in the rearview mirror. The sales cycle of the recently signed new RCM customer was nine months in length.

The dynamics in the healthcare industry continue to place pressure on hospital revenue cycle operations creating increased demand for our services. Complexity in the revenue cycle process continues to increase. The recent transition to ICD-10 is one example of the increased administrative burden being placed on providers.

In addition, the ongoing shift from fee-for-service to value based payment models also increases administrative costs for our customers. Health systems are becoming larger due to ongoing M&A activities and there is a growing need for services and capabilities that can manage the revenue cycle across the entire continuum of care.

These market dynamics create significant opportunity for us. We have experience working with some of the largest integrated delivery networks in the country. As we continue to rigorously pursue opportunities to expand our business, both with existing and new customers, we have an active sales effort and we continue to grow our pipeline.

Turning to operations, our Southfield, Michigan shared service center is now fully operational. I'm pleased to say we onboarded new business from an existing customer during the quarter into the new shared service center.

We have also consolidated our geographic footprint from our other shared service centers into Southfield which is a showcase facility and will also function as a training hub for our employees. On previous calls I have emphasized our focus on operational excellence and our focus on improving our operating rigor as an organization.

We have maintained our momentum in this area with a focus on performance excellence in order to deliver predictable and consistent results for our customers. We have spent an extensive amount of time this year deploying a standardized and disciplined operating cadence across the entire organization.

We continue to standardize our capabilities across fourth dimensions; process and methods, technology deployment, analytics and talent development and training.

Standardization across our customer base yields efficiencies and benefits to both us and our customers and allows us to grow the business in a scalable manner and we are achieving cost leverage while improving operating metrics. I am very pleased with the results of our centralized operating organization.

Of the 21 core operating metrics we measure, all achieved significant improvement in the third quarter with 17 of the 21 demonstrating double-digit improvement. We are diving deeper into our analytical and measurement capabilities for metrics which directly correlate to a hospital's financial performance.

For example, we have deployed a further set of 144 in-process metrics geared to evaluate moot causes of variation and defects in our workforce. I believe that both strategically and operationally we are achieving good progress in preparing the company for scalable growth.

We have maintained our focus on executing against the four main drivers of our value proposition which are reduce the cost of revenue cycle operations, maximize appropriate fee-for-service revenue, prepare for value-based payments and improve patient engagements.

Our goal is to continue to improve our operating rigor and execution and I would like to thank all of our employees for their continued focus on our customers and dedication to our business. Lastly, let me say a few things about the strategic process we announced in July. The process is ongoing.

It is very thorough and we will update you as soon as practically possible. We are working closely with our financial and legal advisors as we move through the process.

As a reminder, there is no set timeline for completions and we cannot give any assurances that the process will result in the completion of any transaction or other alternative and so while I appreciate that you may have many questions about the process, I hope you can understand that we cannot make any further comments on today's call and would like to keep our focus during the Q&A session on the operations and financial results of our business.

With that, I would like to turn the call over to Peter for a discussion of our financials.

Peter?.

Thanks Emad and good afternoon everyone. As I walk you through our third quarter 2015 results, please note I will be referencing non-GAAP measures.

I would like to remind you that a reconciliation of our non-GAAP measure to the most comparable GAAP measures is included in this afternoon's press release and in the appendix of the presentation accompanying this call. We use the following non-GAAP measures to supplement our GAAP results and to provide a better view of our operations.

The first measure we use is gross cash generated from customer contracting activities which is our reported GAAP revenue plus the change in the deferred customer billings.

The second measure is net cash generated from customer contracting activities which is our reported net income before interest, taxes, depreciation, amortization, share based compensation, restatement related expenses, reorganization related expenses and certain nonrecurring items as well as a change in deferred customer billings.

Effectively it is our adjust EBITDA plus the change in deferred customer billings. These two measures are primarily how we internally measure our financial performance and we believe it is important for investors to look at our results on this non-GAAP basis as well.

The reason we use these non-GAAP measures is that our business model generally entails entering into three to five-year contracts with our customers with GAAP revenue recognition typically deferred until substantially later than when we deliver services, bill and collect cash from our customers. Now turning to our third quarter results.

Gross cash generated in the third quarter was $55.4 million a decline of 6% or $3.5 million year-over-year. Approximately half the decline was attributed to compression in the past business while a portion of the remainder was attributed to customer attrition in our RCM business.

As Emad mentioned, we are seeing some stability in the PAS business after eight quarters of declining trends. Despite the year-over-year decline, gross cash generated in the third quarter increased sequentially to $8.2 million, an increase of 17.3% relative to the second quarter primarily due to improvements in net operating fees.

In our RCM business our incentive fees in the quarter were negatively impacted by delays in cash receipts primarily from our largest customer. Since then in the third quarter we have collected $3.7 million in incentive fees which we had anticipated receiving by the end of third quarter will now benefit our fourth quarter.

Cost of services declined 6.8% year-over-year or $2.9 million to $39.7 million primarily due to reduced volumes in the PAS business.

Despite the 17.3% sequential improvement in gross cash generated, cost of services remained flat sequentially to the second quarter due to improved leverage and infused management costs in RCM and improved cost leverage in the PAS business.

SG&A expenses declined 7.4% or $1 million year-over-year to $12 million, again primarily driven by reduced support costs for the PAS business. We also achieved reductions in certain corporate expenses from cost reduction initiatives from prior years.

SG&A expenses declined $2.1 million sequentially from the second quarter due to reduction in administrative expenses while increasing spending in our sales, marketing and strategy area. Net cash generated was $3.7 million or $300,000 above the prior year driven by lower cost of services and SG&A expenses as previously mentioned.

Net cash generated improved $10.3 million sequentially from the second quarter from increased gross cash generated and cost improvement also as previously mentioned. Our business demonstrated sequential improvement in financial metrics this quarter which provides the necessary momentum heading into the fourth quarter.

Our cash balance at the end of September was $137.7 million up from $121.9 million at the end of June, driven by cash collections per net operating fees. At the end of the second quarter is a seasonally low point for our cash balance. Our balance sheet continues to be debt-free.

Our current full-year guidance remains unchanged at $230 million to $240 million for gross cash generated and we continue to expect net cash generated to be at the lower end of our $30 million to $40 million guidance range.

Additionally, as discussed on our prior calls, we expect gross and net cash generated to be higher in the second half of the year due to the seasonality of incentive fees collections and improvements in net operating fees.

We expect one-time cost of $5 million to $7 million excluding costs related to the ongoing strategic review process which we expect to be inline with customary costs incurred in such a process. In the third quarter we incurred $1.3 million of cost related to evaluation of our strategic alternatives. The bulk of these costs were legal in nature.

And now I’d like to turn the call over to the operator for Q&A.

Operator?.

Thank you. [Operator Instructions] Our first question is from Jeff Garro of William Blair and Company. Your line is open sir..

Yes, good afternoon guys and thanks for taking the question.

I wanted to ask a little bit more about the new customer that was added, may be you could a little bit more about the competitive process, what other types of vendors or consulting firms or other types of fruition providers were bidding for that business and we what you really thought was the differentiating factor for you guys in the end?.

Thanks Jeff and good afternoon to you also. It was a very competitive process as I said in my comments earlier. It took nine months. We competed against, I would say across the entire gamut which is technology organizations, revenue cycle outsourcing organizations and also consulting organizations.

It was a two-phase process that basically was wide that included multiple vendors and then it was narrowed down to three and then eventually because of our services and our software we are able to have the winning response, so we are very happy with that..

Great and also for this new customer what was the primary driver looking where that was few in there look to outsource their revenue cycle, any type of financial distress or was it the ICD-10 deadline or any other kind of internal or external factor?.

Again a good question, it is the same as across the entire market right now Jeff. It is mostly around cost and revenue enhancement.

As we look across the industry and the complexity of the reimbursement that’s occurring its increasing a great deal of their cost to collect and so many of our customers are feeling to pressure especially this year and will be for the next couple of years. So we are seeing a continuing trend to outsource.

So the two drivers were number one, drive down the cost, in terms of cost to collect and also have an enhanced revenue collection process..

Got it very helpful and last one for me, maybe you could discuss your pipeline a little bit further, whether you are seeing more activity there and whether there were any customers in the pipeline there were kind of waiting to see if you guys would sign a first customer for I think you said the first time in two years is there any possibilities that this sign is going to kind of open up the floodgates for additional new customer wins?.

We continued to have significant discussions with prospective customers. I would say that some have elected to delay their decision until they have further clarity to our strategic process and others do feel that they could continue on with discussions with us. So we get combination of both.

On the PAS side we are not seeing the strategic process really impact our funnel in PAS..

Great, thanks again for taking the questions..

Thank you..

Thank you. Our next question is from Matthew Gillmor of Robert Baird. Your line is open..

Hi, good afternoon. Thanks for taking the question. I just had a few numbers questions and a quick clarification on the new RCM win.

Was the customer base stable outside of that new win? And I guess what I’m looking at is last quarter you reported 79 hospitals with $16.5 billion of NPR and now you are reporting 83 with 7.2, I just wanted to confirm that there wasn’t any other change in the customer base besides adding this new customer?.

The customer base thus continued to stable. We’d had some M&A activity that will – that basically sometimes we transition customers off to an M&A activity, but currently our customer base is stable..

Okay, great and then maybe one for Peter you are expecting a pretty meaningful increase in the gross cash generated in the year end, can you just sort of remind us what the factors are that contribute to that sequential step up and then going forward should we expect sort of a similar sequencing on a quarterly basis next year or will the contracting changes sort of smooth that out?.

Yes, so in terms of the sequential increase from the third quarter, fourth quarter obviously it is quite a big pick up from the previous quarters. But we also saw that this past quarter give up from Q2 to Q3 as you heard in my comments, we improved the net cash by a little bit over $10 million.

We’ve got another big jump as we head into the fourth quarter. A lot of it is tied to delayed collection of incentive fees as you’re aware we are on a cash base of accounting for incentive fees and a lot of that has shifted into the latter part of the year as we have had various kind of commercial related discussions with our customers.

And then we also had various net operating fee enhancements that we expect to garner in the fourth quarter from various initiatives that we’ve been driving at from the beginning of the year and really will yield benefits in the fourth quarter. So that is the primary drivers that we have as we think about the fourth quarter and the pick up there.

Our teams are out in the field working all these various things on a daily basis. So, we know we have got a good plan around it in terms of bringing it in and not dissimilar from the plan we put in place in terms of driving the third quarter results..

Okay. And then maybe last question from me on the notable increase sequentially in the amount of CapEx, I think the presentation referenced some investments in software.

Can you maybe frame up where those investments were and maybe what the priorities are in terms of internal investments for the company?.

So a big portion of that, there were two primary things driving it as we indicated in our prepared comments. One was a large software purchase that relates to our analytics capabilities and the other one was the CapEx related to opening up our new shared service center in outside of the Detroit market.

We also had some internal developed software that was capitalized. We've since last year put in place to appropriate level of rigor necessary to be able to capitalize software, so we have done a little bit of that. But there are two primary things were at the shared service center and the analytics software purchase we made.

As it relates to - sort of one additional note, as it relates to the shared service center, so we did have a sizable tenant improvement allowance that we received back from the landlord; however, that does not go as a CapEx offset goes on to our balance sheet and gets amortized down over the life for the term of the lease..

Okay, thanks very much for taking the questions..

Sure..

[Operator Instructions] Our next question is from Charles Rhyee of Cowen and Company. Your line is open..

Yes, thanks guys for taking the question here.

Maybe going back to the pipeline question a little quicker and you might have answered it forgive me if I missed this, what you say is, how would you look at the quality of your pipeline right now, you are saying the new deal that you just signed took nine months to get across the finish line, maybe ask a different way, will you just say you are mixing your pipeline it looks like that is similar to this kind of deal where you feel that can get across the finish line in a relatively short period of time versus others that you think are still kind of stuck in sort of a holding pattern?.

Thanks Charles, this is Emad. I would categorize our pipeline as probably being the most robust since I have been here.

The number of discussions that we are having with customers, the quality of the discussions in terms of where the discussions are taking place mostly at the C-Suite level, I would say that it cuts across small hospital systems like this one and also larger ones.

And as I mentioned in my previous calls some academic medical centers, so we are seeing a relatively strong pick up in our pipeline interestingly. So, the strategic process as I said earlier it did impact a little bit but some others are not, but it is robust and we are having some deeper discussions.

We are also having some discussions where we are doing some analysis in terms of cost savings and revenue and some modeling. So it is a very robust pipeline on the revenue cycle side. On the PAS side we are actually seeing a slight tick up, as I mentioned in my earlier comments we have seen stabilization up to decline.

We have some active pipeline customers right now that hopefully and potentially can close in the fourth quarter, so I’m pleased with where the pipeline is right now..

So just coming back and I know you kind of touched about it in earlier prior comments around PAS, what is kind of changing the environment here that has kind of evened out I guess and is starting to look, because I thought Two-Midnight Rule is still sort of until next year, did something change that I might have missed?.

I will let Joe, our Chief Operating Officer talk a little bit from his observations on the ground.

I will tell you that, yes the Two-Midnight Rule is still there, but we are also starting to change the structure of our contracts with PAS around volumes and around sort of floor pricing, so we are seeing that and with that I will just turn it over to Joe..

So just complementing Emad’s comments, just one comment or one data point relative to PAS stabilizing, if you look at our current revenue for fiscal 2015 about 20% of that revenue will come from clients that we have signed in 2015, so there has been a healthy remix of the installed base so to speak.

And so, as we look forward, that contributes heavily to the stabilization and uptick that Emad commented on. In addition to that our appeals volumes on a weekly basis, current volumes are 17% above Q2 exit rates, so again another data point on that portion of the business.

As it relates to the Two-Midnight Rule and the regulatory impact that has even with the desire to simplify the status decision that is made by us or by our clients, the cases that are referred to us, we still overturn 40% of the statuses that we get and that gives us confidence that there is still a high need and our customers still have a high need for specialists to complement their internal organizations.

And so that is a pretty high turn conversion rate or opportune rate inside of this regulatory environment. And so as we look at that even with the regulatory changes we still see the demand for these services going forward..

Okay.

And you just mentioned that the appeals volume was up second quarter – third quarter over second quarter by I think you said 17%, is that kind of one-time event or do you think that is still more sustainable kind of rate of improvement?.

No I don’t think it is a one-time event. I think it is structural and it is a weekly basis against a trailing average, so that contributes to my comment on it being structural growth..

Okay, great and then my last question would be around the new contract wins, I know you kind of talked about moving to value based care, talked about have your solutions more kind of geared towards the shifted value, is that in the new contract with this client, when is that going to be around value it will model around value based reimbursement.

Thanks..

Thanks Charles. I was going to add one thing to what Joe said, but let me answer your first, this question first. We are continuing our efforts in value based reimbursement or preparing our customers for value based reimbursements. We are having discussions right now.

Some of them are actually in the late stages and hopefully we can close one in this quarter coming up and we have another very large one that we are also in late stage of discussions. So we are continuing that product line in terms of developing software and services for that.

This particular customer, it was just revenue cycle, it was not value based reimbursement, although we do see that potentially maybe we can up-sell with some of our current customer base, value based reimbursements, I did - now that you mentioned value-based reimbursement around also PAS one of the things that I mentioned I think a couple of quarters ago is the integration of clinical and financial processes.

As you move into value based reimbursement and you start to see denials pick up, those denials are both administrative and clinical. And so, one of the things that we’re also going to leverage our PAS capability is to also help us in value based reimbursement and help us with clinical denials in the middle.

So we are becoming more integrated and more comprehensive as we offer our revenue cycle solutions..

Great, thanks a lot..

Thanks Charles..

Thank you. At this time, I see no other questions in queue. I'd like to turn it back to Mr. Emad Rizk for any closing comments..

Thank you, operator. In closing I just want to say that I’m very pleased with the market wins that we've have had this past quarter and I look forward to our fourth quarter and hopefully getting more traction in our fourth quarter.

But most importantly, I’m very pleased with our operating performance and our continued operating excellence across our book of business. So with that, I would like to thank all of you for joining us on the call today and we look forward for updating you on our development in the future. Thank you all. Have a good afternoon..

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes your program. You may now disconnect. Everyone have a great day..