Atif Rahim - Senior Vice President of Investor Relations Emad Rizk - Chief Executive Officer Joseph Flanagan - President and Chief Operating Officer Christopher Ricaurte - Chief Financial Officer, and Treasurer David Mason - Chief Commercial Officer.

Charles Rhyee - Cowen & Company Robert Manning - William Blair & Company.

Good day ladies and gentlemen and welcome to the Accretive Health's First Quarter 2016 Conference Call.

At this time, all participant lines are in a listen-only mode to prevent background noise, but later we will be holding a question-and-answer session after the prepared remarks and instructions will follow at that time [Operator Instructions] As a reminder, today's program is being recorded.

I would now like to introduce you first speaker for today Atif Rahim, Head of Investor Relations. You have the floor sir..

Hello everyone and welcome to the call. With us today, we have Emad Rizk, Accretive Health’s CEO; Joe Flanagan, President and COO; and Chris Ricaurte, CFO and Treasurer. We’ll start with prepared remarks and turn it over to Q&A. We'll also Dave Mason, our Chief Commercial Officer available to answer your questions.

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 about the benefits, expectations, and financial impact of the strategic relationship and renewed MPSA with the assumption and our future growth, plans and performance 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 and outcomes could differ materially from those anticipated in these forward-looking statements as a result of various factors including the factors set forth in our annual report and Form 10-K for the year ended December 31, 2015 under the heading risk factors.

The forward-looking statements made on today’s call are based on Accretive Health’s expectations and projections, although our future events as of today 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 would like to turn the call over to Emad..

Thank you, Asif and good afternoon everyone and thank you for joining us today. Over the last couple of years, we have executed very well on all of our initiatives and made significant progress on many fronts. Last year, we accelerated our investments in R&D, analytics and IT infrastructure.

We also deployed a standardized operating model across the entire organization and rolled out a talent development program for our employees. As I mentioned on our last call, we have three priorities for 2016.

First, continue to execute on our operational excellence goals and product development plan; second, on-board the new and existing Ascension business successfully and seamlessly; and third diversify our customer base by growing our non-Ascension footprint.

The management team has alignment we announced earlier this month will help us better execute on these priorities. Joe and his expanded role of President and COO will be taking on more responsibility for our day-to-day operations.

This will allow me to focus on our strategy, growth, business development and position us as a leader in the revenue cycle managements industry. Diversifying our customer base is crucial and my goal is to add a meaningful number of new customers each year.

In addition, Chris’ operations and finance experience including his 2.5 years as Head of our Shared Services Operations positions him well to run our finance organization. His experience provide him with a unique perspective in his new role as our CFO, which ensures that key business and performance indicators are aligned with financial goals.

Chris will provide more details on our financial in a few minutes. But as seen from our first quarter results, 2016 is shaping up to be a challenging year.

The two main reasons are, first, we lost customers in late 2015 and also though NPR associated with these customers was relatively small, they are having a disproportionate affect on 2016, because they were mature customers. Our business models is such that customer contract generally have higher margins as our contracts mature.

Some of these customer losses were due to M&A activity among providers. Second, the fully outsourced nature of the new attention contract requires upfront investments and deployment cost. And we do not anticipate generating meaningful incremental revenue from the contract until late in the year.

We will right size our cost structure to ensure we are organized in a way that aligns with our current revenue and also prepare for the on-boarding of Ascension business. Once we have completed this initiative, we will be in a better position to provide you with our full-year views and guidance for 2016.

I understand the customer attrition we have experienced is disappointing. However, we are rationalizing our cost structure and re-launching our sales efforts. The long-term relationship and 10-year contract with Ascension is the first step in the Company’s repositioning.

The three-year on-boarding schedule and $8 billion plus of new NPR provides long-term stability to our Company. As we transition to a fully outsource model, we will have more control over the cost of revenue cycle operations and therefore to be able to further reduce cost over the life of the contract.

This is an important transition from our legacy models, because our customer needs are shifting more towards aggressive control of the cost of revenue cycle operations in addition to revenue yield improvement. This is driven by the reduced reimbursements in future service business and the accelerated shift to value based payment model.

The complexity of payment model has increased the cost of revenue cycle operations, and has become a greatest pain point for health systems around the country. We are adapting to this evolving customer need by continuing to integrate and standardize our process.

This will include adjusting our infused management footprint further automating manual process fees and breaking down traditional side loads and expanding our shared services capability.

As we look to the future, attrition of customers on our legacy model provides us with an opportunity to rebuild the Company with a more vibrant and robust mix of contracts, priced at a cost reduction type environment. In the interim, the Ascension contract provides us with stability while we execute on building and closing our pipeline opportunities.

I’m optimistic on our long-term prospects given our strong balance sheet, scalable infrastructure, healthcare domain knowledge and our operating capabilities. I’m confident we are well positioned to deliver a competitive cost structure when it comes to running our customers revenue cycle operations, and we can do so at a satisfactory margin.

RCM outsourcing remains a growing market and our 10-year plus experience positions us well to capture share in this growing market. We will continue to invest in the Company and technology in particular is crucial for us.

In addition to improving stability and customer experience, we are also deepening the functionality of our technology products suite.

And as the industry transitions through value based reimbursement we are also enhancing our revenue cycle capabilities in the physician as well as the post acute care environment and beginning to strengthen our patient engagement tool.

This is crucial, because in a value based system, the reimbursement touch points between patients, providers, across the continuum of care and payers, are no longer simply linear. They will need to be connected in a meaningful way with data and significant coordination of all the different settings where patients receive care.

Before I turn it over to Joe and Chris, I would like to comment on our relisting process. I know this is an important topic and many of you have asked about it in recent weeks. At this time, our Board is actively engaged in the process of evaluating the timing of our relisting.

We expect the Board to make a decision soon and we will intern convey the information promptly to all of you. And now, I would like to turn the call over to Joe. Joe..

Thank you, Emad. What I would like to do today and on future earnings call is to provide you with additional color from an operational standpoint. One of the important differentiating factors about Accretive is that our ongoing operating performance with our customers is what drives value for them.

Our model to drive performance is a function of people on the growth, technology we deploy and the operating processes we have developed. I believe our operating performance will be our single largest competitive advantage over the long-term.

As Emad has commented on in prior calls, one of the first things our team embarked on was to distill the numerous processes, methods and technology configurations historically used by the Company into a standard operating system.

To ensure the highest focus was placed on those areas that were most correlated to our customers revenue cycle performance in a consistent matter. This was important for three reasons.

First, to clearly communicate what our value proposition was; second, to remove the variation in our results; and third, to create a stable foundation with which we could scale effectively. As a result, we now have what we could refer to as our operating system, comprised of five modules deploy consistently across all of our customer sites.

These modules cover key areas such as human capital, methods, technology deployment and our operating system.

To provide some context on the specificity of the operating system, we have over 100 discrete methods more than 70 in-process measures and 20 output measures, 30 standard technology configurations, four curriculums of course work with more than 40 discreet courses for certifying our operators and a comprehensive daily and weekly accountability framework for driving performance that is backstopped by a dedicated performance monitoring organization.

To-date we have assessed 100% of our client sites relative to our standard model and in an aggregate, our RCM business has achieved 96% standardization to our operating system. As a result of the standardization, since implementation, we've seen double-digit percent improvement in many of the 20 core output measures we track.

These measures have not directly correlated to our financial performance in all situations, because of the varied contract structures we currently have under management. This variation is largely the result of the transition off our legacy based hospital models, which largely occurred at the mid-term of contract life.

As part of this transition, a number of customers have preferred to switch to a fixed fee or modular market based agreements with SLA. This dynamic combined with customer attrition has reduced the historical correlation between our improvement in our customers RCM operations and our financial performance.

As I move into my expanded role of President, I will be focusing on three main areas for opportunities. The first area of focus will be driving cross functional efficiencies between operations, HR and IT with an overall objective of making our scaling capability a competitive advantage.

This should result in the organization's ability to respond quickly to increase demand and drive cost leverage with growth.

The second area focus will be looking to capitalize on the fact that we have operators on-site at our customers every day and our ability to rapidly translate the operational findings from our teams in the field into technology functionality will be an important element to continue to create value for our customers.

The final focus area will be on creating a clear and unified cultural identity for the Company.

This is a critical area of focus as it will allow for the successful transition and integration of new employees, which is a critical component of our Ascension contract as well as a critical capability to enable us successful outsourcing of revenue cycle operations.

The ability to unify the organization on a common culture and a set of associated behaviors will be a key factor in delivering superior financial performance overtime. Next, I would like to discuss the progress we're making with the renewed and expanded relationship with Ascension.

We now have a dedicated deployment organization in place, which is fully resourced and functioning. We have designed this deployment office as a strategic function able to scale and support simultaneous implementations across multiple customers.

Since the signing of the MPSA in February, the deployment office has established four focused areas or pillars under a joint accountability framework with Ascension. The four pillars are organized as follows. Operational deployment, employee transition, contract administration and finally internal readiness.

Each pillar represents a defined outcome, which is then broken down into major work streams with a detailed plan. That plan includes coordination across all aspects of the Accretive and customer organizations.

Stepping back from the details, at a high level, I see the task at hand is twofold; the first is to successfully on-board Ascension; and second, perhaps more importantly, is to build on the organizational competency around deployment and on-boarding that will be important to support our future growth.

As you will hear from Chris, he and I will work together to help you translate the effect of our operational metrics on our financial metrics. I understand that is an area we need to provide you more information on and plan to do so in the future. With that, I’d like to turn the call over to Chris..

Thanks Joe. Let me give a brief introduction of my background. I’ve spent 30 plus years of my career in financial roles and about 20-years in executive finance role including four CFO roles in large multinational companies such as GE, Nortel and Applied Materials.

My strength is playing the role with strong operating partner the executive team to drive value in the business. The uniqueness of this opportunity is that I have 2.5 years of experience running the largest operation in Accretive and I have a strong foundation of the business model.

Consequently, I expect to hit the ground running and be able to partner with Emad and Joe immediately to develop our go forward plans and execute them. I’m excited about the future of this business.

The signing of the 10-year MPSA with Ascension provides a great foundation on which [indiscernible] business coming from a position of running the shared services operations, I’m confident that we are well positioned to deliver cost competitive solutions to superior results. Our blended store model with U.S.

centers and a strong India footprint has gone seamlessly and is unique in our industry. In the third quarter of last year, we opened a new shared service center in Southfield, Michigan. I expect the capabilities of this model will deliver value well beyond the Ascension contract.

Before I get into the financials, I want to talk a moment about my initial priorities in the role. I think it is critical we develop operating metrics and key performance indicators that are truly indicative of the performance of this business and easily understood by management and our investment community.

We would like to possibly move away from NPR under management as the key indicator because as we modulize our service offerings the NPR of different clients will deliver different economic value to Accretive depending upon the offering and type of contract they have with us. I expect to talk about this in more detail on future calls.

Before I walk through a discussion of our financials, I would like to remind you that we will be referencing non-GAAP numbers and a reconciliation to the most comparable GAAP measures is included in this afternoon’s press release. We use two non-GAAP measures to supplement our GAAP results and to provide 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 deferred customer billing.

The second measure is net cash generated from customer contracting activities, which is our reported net income before interest, taxes, depreciation and amortization, shareholders based compensation, restatements related expenses, reorganization related expenses, and certain non-recurring items, as well as the change in deferred customer billing.

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

The reason we use these non-GAAP measures is GAAP revenue recognition for our customer contract is typically deferred still substantially later than when we deliver services, bill and collect cash from our customers. Now I would like to discuss our first quarter results.

Gross cash generated from customer contracting activities was $40.8 million compared to $54.9 million for the first quarter of 2015. This decrease was largely a result of M&A related customer attrition we experienced last year, which accounted for $7.5 million of the year-over-year decline.

Our contracts typically generate the highest margin rate at maturity, so while the attrition was marginal from an NPR standpoint, it had a large effect on our bottom line. This was compounded further by the fact that these contracts had higher margin rate than the rest of our book of business.

We’re also impacted $6.9 million due to a pending contract renewal transition of a customer through a fixed fee arrangement and a reduction in scope to add another customer. The non-RCM business declined $1.2 million year-over-year partly due to the PAS business.

However, as noted on prior calls, the PAS business started to stabilize in the third quarter of 2015. Cost of services increased $1.7 million over the prior year to $41 million due to higher shared services costs resulting from the transition to ICD-10 and expanded services provided by our shared service centers.

SG&A expenses were down $900,000 relative to the prior year to $12.5 million. Net cash generated from our customer contracting activity was negative $12.6 million in the first quarter, compared to a positive $2.3 million in the year ago quarter driven by the decline in gross cash generated and the increase in cost of services as I just covered.

One-time cost and other costs amounted to $11 million and were largely related to closing the transaction with Ascension and TowerBrook. Our cash position at the end of March inclusive of short-term investments and restricted cash was $283.5 million, up from $106 million at the end of December.

The increase was driven by the $200 million investment from Ascension and TowerBrook, which was offset by DLTs for a net impact of $178 million. Working capital improvements were offset by cash used $2.3 million for capital expenditures.

Turning to 2016, at this point in time, we are not in a position to provide formal guidance due to the ongoing evaluation of our cost structure, but I did want to provide you with an indication of where some of the moving parts may land. At the top-line, our first quarter results were down about $14 million versus the year.

For the full year, we expect our top-line to be pressured by $40 million to $50 million due to prior customer losses, changes in scope and renewals we are factoring in. Mitigating the downside somewhat is the revenue we begin to generate as we on-board Ascension Ministries.

We expect this to contribute $20 million to $30 million to our 2016 top-line given our current on-boarding plan four Ascension employees.

From a contractual standpoint, we're on-track to on-board the current and new ministries in line with the previous timing we provided, but the formal transitioning for a majority of Ascension employees onto our payroll is now planned for late 2016, early 2017 versus our earlier plans of mid-2015.

This gives us more time to ensure a smooth transition for on-boarding incoming employees. As a result, of this timing change, the cost of Ascension employees will continue to be netted out of our top line for longer than originally anticipated.

Please note that this does not affect our profitability of the gross profit level, but does help us mitigate the associated G&A cost. As we have previously communicated, we continue to anticipate annual revenue in the mid $40 million range for every $1 billion dollars of Ascension NPR when fully transitioned to the outsourced model.

Moving beyond the top-line to cost of services and SG&A, we are actively evaluating what the optimal cost structure should be to the Company given our current book of revenue, while at the same time, keeping in mind the new business we plan to on-board from a Ascension.

Under the new model with Ascension, our model for infused management cost can be lowered from our historical run rate, because we now have the existing hospital team fully trained and deployed to run our operating system and playbook. So there is an opportunity to streamline our infused management cost.

Secondly, we are looking at SG&A cost structure to ensure we are operating at the right levels for accompanying our size. The offsetting factor to these cost savings is that we expect higher HR, payroll, IT infrastructure related costs as we on-board new employees.

In light of these moving parts and the early days in the tenure of my provisions, we need more time before presenting you with a comparable view of our 2016 expectation. I also plan to reevaluate our long-term outlook and expect to have more clarity for you regarding our longer-term outlook on future calls.

In closing, the Company remains solidly position with a 10-year contract with Ascension. My experience from the operations team affords me a deep understanding of the business and I plan to leverage that along with my financial background to execute on our value proposition.

And the most significant customer need we see is an inability to deliver lower cost RCM solutions that deliver superior and consistent results, which we are well-positioned to deliver. Now, I would like to turn the call over the operator for Q&A. Operator..

[Operator Instructions] Our first question comes from the line of Charles Rhyee from Cowen. Your line is open..

Thanks for taking the question. Hey guys.

So obviously we're taking a hit here on the loss customers, should we expect a further hit for existing - I guess let me ask this way, for exiting customer, are we going to transition them to the modular approach of product?.

Hi, Charles its Emad.

Can you just rephrase what do you mean existing customers moving down to the modular?.

Okay so you're talking about we are going to have five modules going forward and so we wanted to get away from NPR, because future customers may or may not be using all the services from us.

Right, so it's not thinking about what we're going got be generating in terms of contribution but our existing customers let’s say the Ascension aside, everything that wasn’t Ascension prior.

My understanding is they were through the full outsourced service the base fee and incentive payments, will those guys transition to using all the modules and liability to indiscernible] will take three or five modules going forward?.

Sure. Let me clarify about the module. I believe that you are thinking about the modules, which are the operating modules that Joe’s spoke about. So those are how we execute in our operating system. We do not go to market with those modules that is the entire operating system.

So to answer your question moving away from the modules, we’re differentiated in the marketplace that we can exist in two different types of model.

The infused management model which is infused management on site, it's not a fully outsourced, we use our technology and we use our folks, our healthcare expertise on the ground, that’s one model that we’ve had for multiple years. The Ascension model is a fully outsourced model that deploy our shared services, also our employee and our technology.

Our preference is to usually call to the fully outsourced end-to-end model. So if we do have the opportunity to move our customers from the infused management model to the fully outsourced model that would be a preference, but some customers will want to exist in that infused management model with technology wrapper and shared services.

We can also exist into that but we will be having strategic discussions with our current customers about the different models that we can move forward with them.

Does that help?.

Yes thanks. That’s helpful. I guess the question on the other line, other service fees.

How much of an impact are you seeing with the reversal of the two midnight rule? Should we expect that to have a positive impact that we as we move through the course of the year?.

This past quarter we’ve not seen an effect at this point in time, we’re watching it carefully to see whether it will have a positive effect moving forward. But generally speaking our PAS business we continue to close deals we’re getting good traction in the market..

Okay. That’s all I have right now. Thanks. Operator Thank you. Our next question comes from the line of Rob Manning from William Blair. Your line is open..

Alright, hey guys thanks for taking the question.

I’m just wondering when the existing Ascension business flips over to the new MPSA, in addition to the accounting changes are there any operational changes that are important for us to understand?.

Yes, it's a big question. I would like to turn this over to both Joe and Chris. And they will walk you through sort of old contract to our new contracts, our current book of business and our new book of business. Joe..

Sure, so I think the operations changes that come with the conversion of first book of business to the new MPSA really are along the lines of this degree of control and the amounts of outsourcing that is occurring. So as Emad commented in the prior question, the new MPSA as a fully outsourced arrangement.

That means that the employees are transitioning from Ascension’s payroll to Accretive’s payroll. In addition to that, the vendor management for all of the vendors, technology or other services associated with delivering the revenue cycle, will convert over to our control as well.

And so from an operational lands what that affords us is the ability to drive the standards and drive our operating system with a high amount of confidence so to speak and in a simpler change management environment.

And we’re working hand-in-hand with Ascension on the current book of business, current book ministries as we speak, really going through that standardization work.

And that gives us a human capital profile that we didn’t have historically, it also gives us the lens on stand and ability to - whether that would be in-sourced, outsourced decision, whether that be different strategies that comes with that degree of control. Those are all coming as a result of this change in the MPSA.

And they are all related to both the current book as well as the additional book of growth that will be deployed overtime..

And this is Chris Ricaurte. The other thing that enable to do when I referenced on the call is that we will no longer have to net down that cost from the revenue and it will show up in our cost of services. Additionally, what it will afford us to do as Joe referenced is it will enable us to manage that cost structure in a more effective manner..

Okay. Alright, cool thank you guys. And then just maybe one more from me.

Last quarter you talked a little bit about the $200 million investment from TowerBrook being potentially used for tuck-in acquisitions kind of broadly how should we think of tuck-in acquisitions? Is it something that should reduce third-party elements that you guys procure for clients? Or as novel features that would give you a competitive advantage? Thank you..

Well, I think tuck-in probably might have been in sort of an overused term, I would not limit us to just tuck-in. We see ourselves as an end-to-end revenue cycle management organization and that is across the entire continuum with both services and technology. That is what we do.

We have certain areas that we believe will become more important to emphasize moving forward. One of the as we manage across the continuum, the physician component, managing the physician revenue cycle needs to be integrated into the acute-care revenue cycles so that's an area that we need to focus on significantly.

Also moving forward, the patient liability piece with the Affordable Care Act in some of the exchanges that are out there, the patient liability is increasing significantly in some areas and some studies as going to double.

So we are now beginning to see that the patients will become more of an important consumer as they make decisions and navigate the healthcare system. So we will look at improving our interchange with our patients that could be through acquisitions or could be through infusion and technology development.

But the acquisitions would not be limited to tuck-in. They will be mostly around our core offering which is end-to-end the revenue cycle across the entire continuum. And we will leverage and deploy the $200 million or more in a very strategic manner..

The only thing I would add to that a little bit related to your last comment inside of the question in terms of your in-source r vendor consolidation, I think as we look to an operational lens, I don't know that paying a large premium for capacity or any premium for capacity is really in the cards.

We feel like we've got a very good infrastructure and we've got the ability both on the service delivery standpoints or on a technology platform standpoint to grow off that infrastructure. So I think really as Emad commented to fill in gaps and capabilities that we don't have today..

Okay, all right. Thanks a lot guys..

[Operator Instructions] And I see no other questioners in the queue at this time. So I would like to turn the call back over management for closing remarks..

Okay, thank you operator. I would to thank everybody for joining today. I want to emphasize by continued confidence about our competitive position in the market and our continued performance and I look forward to updating you in the future. Have a good afternoon..

Ladies and gentlemen thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines at this time. Everyone have a great day..