R1 RCM Inc Up 120% From March Lows, Climbs on Strong Q2 Results

R1 RCM Stock Hits New 52-Week High

R1 RCM Inc (NASDAQ:RCM) is one of those great under-the-radar tech stocks that have been quietly rewarding buy-and-hold investors for years.

Chances are good that you haven’t heard of R1 RCM stock though because, until recently, it was a penny stock. Note that, for the sake of inflation, the term “penny stock” refers to any stock trading under $10.00.

Since hitting March lows of $7.12, R1 RCM stock has been on a tear. On August 4, it hit a new 52-week high of $15.73, for a four-month gain of 120%.

Investors sent R1 RCM stock higher after the company reported solid second-quarter financial results and provided strong guidance for fiscal 2020.

R1 RCM Stock Overview

R1 RCM is one of the country’s fastest-growing healthcare companies. The Chicago-based company provides revenue cycle management and physician advisory services to hospitals, healthcare systems, and physician groups. (Source: “About Us,” R1 RCM Inc, last accessed August 5, 2020.)

The company’s revenue cycle management software helps doctors and hospitals manage and navigate the medical billing process. R1 RCM has more than 750 clients across the U.S. and serves more than 27,000 healthcare providers, processing more than 30 million patient/clinical engagements each year.

While the COVID-19 pandemic resulted in many businesses taking a step back to save capital, R1 RCM was busy ramping up its operations with the launch of new products and strategic acquisitions.

In April, the company completed the acquisition of SCI Solutions, Inc., a leading provider of software as a service (SaaS)-based scheduling and patient access technology. (Source: “R1 Completes Acquisition of SCI Solutions,” R1 RCM Inc, April 1, 2002.)

SCI’s patient access and care coordination solutions support more than 94,000 healthcare providers and 1,200 sites of care, comprising $225.0 billion of potential net patient revenue in the United States. (Source: “R1 Announces Agreement to Acquire SCI Solutions, a Leading Provider of Digital Patient Engagement Solutions,” GlobeNewsWire, January 13, 2020.)

In early August, R1 RCM announced that it had completed the acquisition of Cerner RevWorks. The acquisition is expected to enhance R1 RCM’s revenue cycle management capabilities and expertise. (Source: “R1 Completes Acquisition of RevWorks,” R1 RCM Inc, August 3, 2020.)

Chart courtesy of StockCharts.com

Q2 Revenue Up 6.7%, Swings to Profitability

On August 4, R1 RCM announced that its revenue for the second quarter, which ended June 30, increased 6.7% year-over-year to $314.7 million. (Source: “R1 RCM Reports Second Quarter 2020 Results,” R1 RCM Inc, August 4, 2020.)

The company reported second-quarter net income of $15.1 million, or $0.03 per diluted share. In the second quarter of 2019, R1 RCM reported a net loss of $5.2 million, or $0.09 per share.

Second-quarter adjusted earnings before tax, depreciation, and amortization (EBITDA) was $65.3 million, a 61% increase over the adjusted EBITDA in the same prior-year period.

Revenue for the first six months of 2020 was up 11.3% year-over-year at $635.2 million. Net income for the first six months came in at $33.3 million, or $0.08 per diluted share, versus a net loss of $5.0 million, or $0.14 per diluted share, in the same period last year.

R1 RCM Inc’s adjusted EBITDA for the first half of 2020 was $126.9 million, a 71% increase over the adjusted EBITDA in the first half of 2019.

“From enabling contactless check-in to enhancing collections, R1 has been at the forefront of helping customers navigate the current crisis, and I am incredibly proud of the team,” said Joe Flanagan, President and CEO.

“We continue to be prepared for a variety of scenarios in the back half of the year while ensuring R1 is positioned for sustained long-term growth.”

Rachel Wilson, CFO and Treasurer said, “Our second quarter results demonstrate our team’s commitment to successfully navigate the challenges presented by COVID-19 through disciplined overhead cost reduction while supporting growth.”

She added, “With the recovery in patient volumes experienced to date and the visibility in our business model, we are pleased to re-introduce 2020 financial guidance.”

For 2020, R1 RCM expects to report total revenue between $1.22 and $1.25 billion, up from $1.18 billion in full-year 2019, and adjusted EBITDA of $230.0 to $240.0 million, up from $168.0 million in 2019. (Sources: Ibid. and “R1 RCM Reports Fourth Quarter and Full Year 2019 Results,” R1 RCM Inc, February 20, 2020.)

Analyst Take

R1 RCM stock has been on an impressive run since the start of 2017, advancing more than 550% in that period. Thanks to solid second-quarter financial results, R1 RCM Inc’s share price has erased all of its losses associated with the March meltdown.

Despite strong year-to-date gains of 90%, R1 RCM’s outlook remains robust, which should provide the company’s stock with room to run.