R1 RCM (RCM) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section details unaudited consolidated financial statements, management's analysis, market risks, and internal controls Item 1. Financial Statements This section presents R1 RCM Inc.'s unaudited consolidated financial statements for Q1 2024 and 2023, with notes Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific dates | Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | Change (in millions) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------ | :------------------- | :------- | | Total assets | $5,795.2 | $4,960.2 | $835.0 | 16.8% | | Total liabilities | $2,971.6 | $2,208.8 | $762.8 | 34.5% | | Total stockholders' equity | $2,823.6 | $2,751.4 | $72.2 | 2.6% | - Total assets increased by $835.0 million, primarily driven by increases in intangible assets ($315.8 million) and goodwill ($420.0 million), largely due to the Acclara acquisition[11][36] - Total liabilities increased by $762.8 million, mainly due to a significant increase in long-term debt by $619.1 million, reflecting financing for the Acclara acquisition[11][60][61] Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) This section presents the company's unaudited financial performance, detailing revenue, expenses, and net income/loss | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :------------------- | :------- | | Net services revenue | $603.9 | $545.6 | $58.3 | 10.7% | | Total operating expenses | $595.9 | $511.9 | $84.0 | 16.4% | | Income from operations | $8.0 | $33.7 | $(25.7) | (76.3)% | | Net interest expense | $41.3 | $30.7 | $10.6 | 34.5% | | Net income (loss) | $(35.1) | $1.6 | $(36.7) | n.m. | | Basic net income (loss) per common share | $(0.08) | $— | $(0.08) | n.m. | | Diluted net income (loss) per common share | $(0.08) | $— | $(0.08) | n.m. | - Net services revenue increased by $58.3 million (10.7%) year-over-year, primarily driven by the Acclara acquisition[13][32] - The company reported a net loss of $35.1 million for Q1 2024, a significant decline from a net income of $1.6 million in Q1 2023, largely due to increased operating expenses and net interest expense[13] Consolidated Statements of Stockholders' Equity (Unaudited) This section details changes in stockholders' equity, including common stock, paid-in capital, and deficit | Metric | Balance at December 31, 2023 (in millions) | Balance at March 31, 2024 (in millions) | Change (in millions) | | :------------------------------------ | :--------------------------------------- | :------------------------------------ | :------------------- | | Common Stock (Amount) | $4.5 | $4.5 | $0.0 | | Additional Paid-In Capital | $3,197.4 | $3,306.6 | $109.2 | | Accumulated Deficit | $(136.7) | $(171.8) | $(35.1) | | Accumulated Other Comprehensive Loss | $(5.9) | $(5.2) | $0.7 | | Treasury Stock (Amount) | $(307.9) | $(310.5) | $(2.6) | | Total Stockholders' Equity | $2,751.4 | $2,823.6 | $72.2 | - Total stockholders' equity increased by $72.2 million, primarily driven by increases in additional paid-in capital ($109.2 million) from share-based compensation, warrant issuance, and refund of inducement dividend, partially offset by a net loss of $35.1 million[16] Consolidated Statements of Cash Flows (Unaudited) This section presents the company's cash flows from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :------------------- | | Net cash provided by operating activities | $46.7 | $54.7 | $(8.0) | | Net cash used in investing activities | $(698.4) | $(25.6) | $(672.8) | | Net cash provided by (used in) financing activities | $656.1 | $(35.4) | $691.5 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $4.4 | $(5.9) | $10.3 | - Cash provided by operating activities decreased by $8.0 million, mainly due to larger cash bonus payouts and Acclara acquisition expenses in 2024[149] - Cash used in investing activities significantly increased by $672.8 million, primarily due to the $661.9 million cash consideration for the Acclara acquisition[151] - Cash provided by financing activities increased by $691.5 million, driven by $575.0 million in Incremental Term B Loans and $80.0 million in Senior Revolver borrowings to fund the Acclara acquisition[153] Notes to Consolidated Financial Statements (Unaudited) This section provides detailed notes to the unaudited consolidated financial statements, covering business, acquisitions, accounting policies, and financial disclosures 1. Business Description and Basis of Presentation This section outlines the company's business, recent acquisitions, and the basis for financial statement presentation - R1 RCM Inc. is a leading provider of technology-driven solutions that enhance financial performance and patient experience for healthcare systems, hospitals, and physician groups[23] - On January 17, 2024, the Company completed the acquisition of Acclara, the revenue cycle management business of Providence Health & Services, and entered into a 10-year partnership with Providence[24][25] - The Company prospectively adopted ASU 2022-03 (Fair Value Measurement) effective January 1, 2024, which clarifies that contractual sale restrictions on equity securities should not be considered in fair value measurement[29] 2. Acquisitions This section details the company's acquisition activities, including the Acclara acquisition and its financial impact - The Company acquired Acclara on January 17, 2024, for a total purchase price of $786.0 million, consisting of $726.2 million in cash and $59.8 million from the issuance of a warrant to Providence[33] Preliminary Fair Value of Acquired Assets and Assumed Liabilities | Asset/Liability | Preliminary Fair Value (in millions) | | :---------------------------------- | :--------------------------------- | | Cash and cash equivalents | $64.3 | | Accounts receivable | $48.1 | | Intangible assets | $374.0 | | Goodwill | $420.0 | | Deferred income tax liabilities | $(84.6) | | Net assets acquired | $786.0 | - The acquisition resulted in $420.0 million in goodwill, primarily attributable to expected synergies, and $374.0 million in customer relationships intangible assets with a 12-year useful life[36] Pro Forma Results | Pro Forma Results (Three Months Ended March 31) | 2024 (in millions) | 2023 (in millions) | | :---------------------------------------------- | :----------------- | :----------------- | | Net services revenue | $615.7 | $621.7 | | Net loss | $(20.3) | $(37.1) | 3. Intangible Assets This section provides a breakdown of the company's intangible assets, including changes due to acquisitions and amortization expense Intangible Asset Net Book Value | Intangible Asset Class | March 31, 2024 Net Book Value (in millions) | December 31, 2023 Net Book Value (in millions) | | :--------------------- | :------------------------------------------ | :--------------------------------------------- | | Customer relationships | $718.8 | $357.4 | | Technology | $897.2 | $939.3 | | Trade name | $10.5 | $14.0 | | Total intangible assets | $1,626.5 | $1,310.7 | - Total intangible assets, net, increased by $315.8 million from December 31, 2023, to March 31, 2024, primarily due to the Acclara acquisition, which added $374.0 million in customer relationships[42][36] - Intangible asset amortization expense increased to $58.2 million for the three months ended March 31, 2024, from $50.1 million in the prior year period[43] 4. Revenue Recognition This section details the company's revenue sources and contract balances, highlighting changes in net services revenue Net Services Revenue by Source | Revenue Source | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :----------------- | :---------------------------------------------- | :---------------------------------------------- | | Net operating fees | $381.5 | $361.0 | | Incentive fees | $15.6 | $23.6 | | Modular and other fees | $206.8 | $161.0 | | Net services revenue | $603.9 | $545.6 | - Net services revenue increased by $58.3 million (10.7%) year-over-year, with modular and other fees showing the largest growth ($45.8 million), while incentive fees decreased by $8.0 million[47][132] Contract Balances | Contract Balance | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :--------------------- | :----------------------------- | :------------------------------ | | Total contract assets, net | $137.7 | $132.1 | | Total contract liabilities | $22.7 | $23.6 | 5. Accounts Receivable and Allowance for Credit Losses This section provides details on accounts receivable and the allowance for credit losses, including changes over the period Accounts Receivable Components | Accounts Receivable Component | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :---------------------------- | :----------------------------- | :------------------------------ | | Billed receivables | $265.9 | $218.5 | | Unbilled receivables | $98.8 | $99.2 | | Allowance for credit losses | $(46.8) | $(48.3) | | Total accounts receivable, net | $317.9 | $269.4 | - Total accounts receivable, net, increased by $48.5 million from December 31, 2023, to March 31, 2024, primarily due to an increase in billed receivables[57] Allowance for Credit Losses Activity | Allowance for Credit Losses | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Beginning balance | $48.3 | $15.2 | | Provision (recoveries) | $(0.5) | $1.1 | | Write-offs | $(1.0) | $(0.2) | | Ending balance | $46.8 | $16.1 | 6. Debt This section details the company's debt structure, including changes due to financing activities and compliance with covenants Debt Components | Debt Component | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :----------------------------- | :----------------------------- | :------------------------------ | | Senior Revolver | $80.0 | $— | | Term A Loans | $1,162.5 | $1,162.5 | | Term B Loans | $1,068.8 | $493.8 | | Total debt | $2,280.6 | $1,637.5 | | Total long-term debt | $2,189.6 | $1,570.5 | - Total debt increased by $643.1 million to $2,280.6 million as of March 31, 2024, primarily due to $575.0 million in Incremental Term B Loans and $80.0 million in Senior Revolver borrowings to finance the Acclara acquisition[60][61] Scheduled Debt Maturities | Scheduled Maturities | Amount (in millions) | | :------------------- | :------------------- | | Remainder of 2024 | $72.8 | | 2025 | $72.8 | | 2026 | $704.1 | | 2027 | $436.1 | | 2028 | $10.8 | | 2029 | $1,014.7 | | Total | $2,311.3 | - The Company was in compliance with all financial and non-financial covenants under the Second A&R Credit Agreement as of March 31, 2024[63] 7. Derivative Financial Instruments This section describes the company's use of derivative financial instruments to manage currency and interest rate risks - The Company uses cash flow hedges to manage currency risk (total notional value of $106.0 million as of March 31, 2024) and interest rate risk (total notional value of $500.0 million as of March 31, 2024)[65][67][68][70] - As of March 31, 2024, the Company had $0.3 million in unrealized gains related to foreign currency hedges and $11.1 million in unrealized gains related to interest rate swaps, recorded in accumulated other comprehensive loss[65][68] Fair Value of Derivative Instruments | Derivative Type | March 31, 2024 Fair Value (in millions) | December 31, 2023 Fair Value (in millions) | | :-------------------------- | :-------------------------------------- | :----------------------------------------- | | Foreign currency forward contracts | $0.1 | $0.5 | | Interest rate swaps | $11.1 | $9.6 | 8. Share-Based Compensation This section details the company's share-based compensation expense and related equity grants Share-Based Compensation Expense Allocation | Share-Based Compensation Expense Allocation | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Cost of services | $18.8 | $6.9 | | Selling, general and administrative | $13.2 | $5.4 | | Total share-based compensation expense | $32.0 | $12.3 | - Total share-based compensation expense increased by $19.7 million (160%) to $32.0 million for the three months ended March 31, 2024, compared to $12.3 million in the prior year, with significant increases in both cost of services and SG&A[74][129] - RSUs granted during Q1 2024 include 1,983,791 RSUs issued upon the Acclara Acquisition to replace outstanding unvested options of Acclara[78] 9. Other Expenses This section provides a breakdown of other expenses, including business acquisition costs, integration costs, and technology transformation Other Expense Categories | Other Expense Category | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :----------------------- | :---------------------------------------------- | :---------------------------------------------- | | Business acquisition costs | $15.7 | $0.1 | | Integration costs | $8.7 | $15.8 | | Technology transformation | $6.8 | $3.6 | | Strategic initiatives | $0.8 | $4.4 | | Facility-related charges | $1.3 | $1.2 | | Other | $0.6 | $5.1 | | Total other expenses | $33.9 | $30.2 | - Total other expenses increased by $3.7 million (12%) to $33.9 million, primarily driven by a significant increase in business acquisition costs ($15.7 million in 2024 vs. $0.1 million in 2023) related to the Acclara acquisition[82][135] - Integration costs decreased from $15.8 million in Q1 2023 to $8.7 million in Q1 2024, while technology transformation costs increased from $3.6 million to $6.8 million[82] 10. Income Taxes This section discusses the company's income tax provision and effective tax rate, including deferred tax assets - The income tax provision increased by $0.4 million to $1.8 million for the three months ended March 31, 2024[136] - The effective tax rate was approximately (5%) for Q1 2024, lower than the statutory federal tax rate due to tax benefits for pre-tax loss, offset by discrete tax expenses[136] - The Company had gross deferred tax assets of $137.9 million at December 31, 2023, including $23.7 million related to net operating loss (NOL) carryforwards, which are expected to be utilized[92] 11. Earnings (Loss) Per Share This section presents the company's basic and diluted earnings (loss) per share calculations Earnings (Loss) Per Share Data | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(35.1) million | $1.6 million | | Basic weighted-average common shares | 420,427,136 | 417,346,840 | | Diluted weighted average common shares | 420,427,136 | 452,925,789 | | Net income (loss) per common share (basic) | $(0.08) | $— | | Net income (loss) per common share (diluted) | $(0.08) | $— | - Basic and diluted net loss per common share was $(0.08) for the three months ended March 31, 2024, compared to $— (basic) and $— (diluted) in the prior year[95] - 19,030,415 common share equivalents (stock options, PBRSUs, RSUs) and warrants to acquire 54.2 million shares were excluded from the diluted EPS calculation for Q1 2024 due to their anti-dilutive effect[96] 12. Commitments and Contingencies This section outlines the company's legal commitments and contingencies, including ongoing litigation and settlements - The 'In re R1 RCM Inc. Stockholders Litigation' was settled on January 15, 2024, with TCP-ASC, Ascension, TowerBrook, Cloudmed stockholders, and Company directors contributing to a $45.5 million settlement[99] - The Company received $16.4 million from the settlement for derivative claims, recorded as a refund of an inducement dividend to Additional paid-in capital[99] - The 'Graziosi v R1 RCM Inc.' False Claims Act case, filed in 2013, is ongoing with additional dispositive motions expected through 2024 and a potential trial in 2025; the Company believes it has meritorious defenses[100] 13. Related Party Transactions This section describes transactions with related parties, particularly Ascension, a significant customer - Transactions with Ascension and its affiliates are significant, with Ascension being the Company's largest customer[101][102] - New Mountain Capital, L.L.C. became a related party following the Cloudmed acquisition, but there were no material transactions with them subsequent to the acquisition[101] 14. Segments and Customer Concentrations This section clarifies the company's operating segment and highlights significant customer concentrations - The Company operates as a single operating segment, providing revenue cycle management services to U.S.-based healthcare providers[103] Customer Concentration of Net Services Revenue | Customer Name | % of Net Services Revenue (Q1 2024) | % of Net Services Revenue (Q1 2023) | | :------------------ | :---------------------------------- | :---------------------------------- | | Ascension and its affiliates | 36% | 40% | | Intermountain Healthcare | 10% | 11% | - Ascension represented 8% of accounts receivable as of March 31, 2024, down from 10% at December 31, 2023, indicating a concentration of credit risk[105] 15. Supplemental Financial Information This section provides supplemental financial details, including depreciation, amortization, and lease-related cash flows Depreciation and Amortization Expense Allocation | Expense Allocation | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Cost of services (Depreciation & Amortization) | $19.3 | $15.5 | | Selling, general and administrative (Depreciation & Amortization) | $0.3 | $0.4 | | Total depreciation and amortization | $19.6 | $15.9 | Lease-Related Cash Flows | Lease-Related Cash Flows | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :---------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Operating cash flows for operating leases | $7.3 | $6.2 | | Right-of-use assets obtained in exchange for operating lease obligations | $13.6 | $3.1 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operations, non-GAAP measures, and liquidity, focusing on Acclara acquisition and Change Healthcare cyberattack impacts Overview This section provides an overview of the company's business, strategic developments, and market conditions - R1 RCM Inc. is a leading provider of technology-driven solutions for healthcare systems, hospitals, and physician groups, aiming to improve financial performance and patient experience[112] - The Board of Directors formed a special committee on March 11, 2024, to evaluate all strategic alternatives in response to Schedule 13D/A filings by New Mountain Capital and TCP-ASC[115] - The Change Healthcare cyberattack on February 21, 2024, caused significant delays in payments and disruptions, impacting the Company's Q1 2024 revenue by approximately $9.5 million due to lower incentive and modular fees[116] - The Company proactively borrowed $75.0 million under the Senior Revolver on April 3, 2024, to mitigate potential working capital impacts from the cyberattack[116] - The U.S. revenue cycle management market is projected to grow at a compounded annual growth rate of 10.3% through 2030, driven by increasing complexity in reimbursement, industry consolidation, and labor shortages[118][119] - On January 17, 2024, the Company completed the acquisition of Acclara for $786.0 million, funded by cash on hand, Senior Revolver borrowings, and Incremental Term B Loans[123] CONSOLIDATED RESULTS OF OPERATIONS This section presents a summary of the company's consolidated financial performance for the periods presented | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :------------------- | :------- | | Net operating fees | $381.5 | $361.0 | $20.5 | 6% | | Incentive fees | $15.6 | $23.6 | $(8.0) | (34)% | | Modular and other fees | $206.8 | $161.0 | $45.8 | 28% | | Total net services revenue | $603.9 | $545.6 | $58.3 | 11% | | Income from operations | $8.0 | $33.7 | $(25.7) | (76)% | | Net income (loss) | $(35.1) | $1.6 | $(36.7) | n.m. | | Adjusted EBITDA | $152.2 | $142.2 | $10.0 | 7% | Use of Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures, specifically Adjusted EBITDA, and its reconciliation - Adjusted EBITDA is a non-GAAP financial measure used by management for planning, forecasting, and evaluating performance, including executive incentive compensation programs[126] - Adjusted EBITDA is defined as net income (loss) before net interest income/expense, income tax provision/benefit, depreciation and amortization, share-based compensation, CoyCo 2 share-based compensation, strategic initiatives costs, and other expenses[127] Reconciliation of Net Income (Loss) to Adjusted EBITDA (non-GAAP) | Reconciliation Item | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | % Change | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :------------------- | :------- | | Net income (loss) | $(35.1) | $1.6 | $(36.7) | n.m. | | Net interest expense | $41.3 | $30.7 | $10.6 | 35% | | Income tax provision | $1.8 | $1.4 | $0.4 | 29% | | Depreciation and amortization expense | $78.3 | $66.0 | $12.3 | 19% | | Share-based compensation expense | $30.2 | $10.5 | $19.7 | 188% | | CoyCo 2 share-based compensation expense | $1.8 | $1.8 | $0.0 | 0% | | Other expenses | $33.9 | $30.2 | $3.7 | 12% | | Adjusted EBITDA (non-GAAP) | $152.2 | $142.2 | $10.0 | 7% | Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023 This section provides a detailed comparison of the company's financial performance between Q1 2024 and Q1 2023 - Net services revenue increased by $58.3 million (11%) to $603.9 million, primarily driven by $57.1 million from the Acclara acquisition[132] - Cost of services increased by $62.9 million (14%) to $497.6 million, with Acclara contributing approximately $52.9 million, and increases in share-based compensation and depreciation/amortization[133] - Selling, general and administrative expenses rose by $17.4 million (37%) to $64.4 million, mainly due to $7.1 million from Acclara and $7.8 million in increased share-based compensation[134] - Other expenses increased by $3.7 million (12%) to $33.9 million, largely due to higher business acquisition costs related to Acclara[135] - The income tax provision increased by $0.4 million to $1.8 million, with the effective tax rate at (5%) for Q1 2024 due to tax benefits for pre-tax loss[136] CRITICAL ACCOUNTING ESTIMATES This section confirms no material changes to the company's critical accounting estimates from the prior fiscal year - There have been no material changes to the critical accounting estimates disclosed in the Company's 2023 Form 10-K[137] NEW ACCOUNTING PRONOUNCEMENTS This section outlines recently adopted and upcoming accounting pronouncements and their potential impact - The Company prospectively adopted ASU 2022-03 (Fair Value Measurement) effective January 1, 2024[29][138] - The Company is currently assessing the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[30][31] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's liquidity sources, capital resources, and material cash requirements - Primary sources of liquidity include cash flows from operations and borrowings under the Second A&R Credit Agreement[139] Total Available Liquidity | Liquidity Metric | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :----------------------- | :----------------------------- | :------------------------------ | | Total available liquidity | $696.8 | $772.4 | - The Company expects cash and cash equivalents, operating cash flows, and Senior Revolver availability to be sufficient for operating activities and cash commitments for the next 12 months and beyond[142] - Material cash requirements include $2.3 billion in outstanding debt (with $91.0 million due within 12 months), $134.6 million in fixed future lease payments ($28.7 million within 12 months), and $196.2 million in software purchase and service obligations ($42.7 million within 12 months)[144][146][147] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, including interest rate and foreign currency, and mitigation through hedging - As of March 31, 2024, $500.0 million of the Company's $2.3 billion floating rate debt is hedged to a fixed rate of 3.01% plus applicable spread, with the remaining $1.8 billion subject to variable rates (7.58% for Term A Loans/Senior Revolver, 8.33% for Term B Loans)[159] - A one percentage point increase or decrease in interest rates would change annual interest expense on the $1.8 billion variable rate debt by approximately $18.1 million[159] - The Company is exposed to foreign currency exchange risk, primarily from the Indian rupee and Philippine peso, as 10% of Q1 2024 expenses were foreign currency denominated. A 10% change in foreign currency spot rates would reduce earnings by $6.5 million[161] - Foreign currency forward contracts are used as cash flow hedges (notional value $106.0 million) and fair value hedges (notional value $27.0 million) to manage currency risk[162][163] Item 4. Controls and Procedures This section confirms effective disclosure controls and procedures and no material changes to internal control over financial reporting in Q1 2024 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024[167] - There have been no changes in internal control over financial reporting during the first quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[168] PART II — OTHER INFORMATION This section covers other information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to Note 12 for legal proceedings, stating no other material litigation or regulatory proceedings are pending or threatened - The Company is not a party to any material litigation or regulatory proceeding, nor is it aware of any pending or threatened litigation that could have a material adverse effect on its business, beyond what is described in Note 12[170] Item 1A. Risk Factors This section highlights key risks, including strategic alternatives review, service disruptions, and Change Healthcare cyberattack impacts - The review of strategic alternatives, initiated on March 11, 2024, poses risks such as stock price fluctuations, management distraction, difficulties in retaining personnel, challenges in customer relationships, and substantial advisory expenses[172] - Disruptions in global business services centers or third-party data centers due to natural disasters, cyberattacks, or other events could adversely affect the Company's ability to provide services and its financial results[174][175] - The Change Healthcare cyberattack caused significant payment delays and disruptions, leading to lower incentive fee revenue, incremental costs, and a proactive $75 million borrowing under the Senior Revolver to manage working capital[176] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered equity sales and details the Company's share repurchase program, noting no repurchases in Q1 2024 - There were no sales of unregistered equity securities during the first quarter of 2024 that were not previously reported[177] Share Repurchase Program Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Dollar Value of Shares that May Yet be Purchased Under Publicly Announced Plans or Programs (in millions) | | :--------------------------------------- | :----------------------------- | :--------------------------- | :------------------------------------------------------------------------------------------------------------------ | | January 1, 2024 through January 31, 2024 | — | $— | $453.2 | | February 1, 2024 through February 29, 2024 | — | — | $453.2 | | March 1, 2024 through March 31, 2024 | — | — | $453.2 | - The Board authorized a share repurchase program up to $500.0 million, but no shares were repurchased during the three months ended March 31, 2024[178] Item 5. Other Information This section states no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2024 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2024[179] Item 6. Exhibits This section lists all exhibits filed or incorporated by reference in this Form 10-Q, including key agreements and certifications - Key exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, the Warrant and Director Nomination Agreement related to Providence Health & Services, and Amendment No. 2 to the Second Amended and Restated Credit Agreement[180] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are also included[180] SIGNATURES This section contains the official signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Lee Rivas, Chief Executive Officer, and Jennifer Williams, Chief Financial Officer and Treasurer, on May 8, 2024[184]