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R1 RCM Inc. (NASDAQ:RCM)
Q4 2019 Earnings Call
Feb 20, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the R1 RCM Q4 2019 earnings conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Atif Rahim, head of investor relations. Please go ahead, sir.

Atif Rahim -- Head of Investor Relations

Good morning, everyone, and welcome to the call. Certain statements made during this call may be considered forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In particular, any statements about our future growth, plans and performance, including statements about the proposed acquisition of SCI and the expected timing of the proposed acquisition of SCI, are forward-looking statements. These statements are often identified by the use of words such as anticipate, believe, estimate, expect, intend, design, may, plan, project, would or similar expressions or variations.

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. While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Our actual results and outcomes could differ materially from those included in these forward-looking statements as a result of various factors, including, but not limited to, the factors discussed under the heading Risk Factors in our annual report on our latest Form 10-K.

Now I'd like to turn the call over to Joe.

Joe Flanagan -- President and Chief Executive Officer

Thanks, Atif. Good morning, everyone, and thank you for joining us. 2019 was another year of strong performance by R1 with operating results, new business signings and earnings ahead of the goals we had set at the start of the year. Overall, the team did a superb job of delivering on our customer commitments.

Our disciplined deployment model, along with the strong operational execution across our customer base helped drive faster margin progression relative to our model targets for customers in the margin ramp phase. This, in turn, enabled us to raise adjusted EBITDA guidance twice over the course of 2019. We were also pleased with our progress on the commercial front. 2019 was a breakthrough year.

We signed $4.1 billion in net patient revenue from new customers on an end-to-end basis, the highest level in eight years. More importantly, our new footprint was across a diverse base. With Quorum Health, we entered the for-profit arena via an operating partner model. For-profit health systems face the same challenges as many other systems in the country, increasing financial pressure, growing revenue cycle complexity, scarcity of capital to invest in the latest technology and evolving demands from patients and physicians.

We are confident that our operating partner model can deliver significant value to this segment of the market and in fact, the Quorum win has opened up conversations with other prospective customers in the for-profit space. In the third quarter, we signed an operating partner agreement with a large physician group aggregator with close to $700 million in NPR. M&A activity within the physician market remained strong, with large groups, as well as specialty-focused physician groups, such as emergency and anesthesia continuing to consolidate. We can bring revenue cycle scale advantages to these groups via our built-for-purpose platform, which delivers a comprehensive suite of technology, global delivery infrastructure and a best-in-class operating system to drive performance.

We view the physician space as a highly attractive opportunity, and I'll discuss this in more detail shortly. Lastly, on the commercial front, we signed Rush University Health System in December on our co-managed model. Rush is our first foray into the academic space, which has its own unique set of needs, balancing leading edge care against growing cost and the desire to improve the overall patient experience. Additionally, RUSH is an epic install site, demonstrating the EHR agnostic nature of our offering.

In addition to these end-to-end wins, we signed 91 modular agreements with some notable customers, including BJC HealthCare, District Medical, Trinity Health and Virginia Mason. The diverse nature of these wins is a validation of our value proposition and ability to deliver results across healthcare settings and host systems. We have a highly scalable platform to manage healthcare providers' revenue cycle operations, underpinned by a standardized operating system, robust human capital, global delivery centers and proprietary technology. Technology is a critical element of our value proposition.

While we have the broadest portfolio of proprietary technology among our end-to-end peers, we continue to invest heavily to extend our competitive advantage. Last June, we opened a state-of-the-art technology innovation center in Salt Lake City to accelerate our pace of innovation and development capability. Given our end-to-end lens across the revenue cycle and a continuous improvement approach, we see tremendous opportunity to further advance our technological capabilities. And with operational control over the processes, we can prioritize IT investments based on actual challenges we are seeing on the ground.

For example, the investments we've made in Robotic Process Automation or RPA and our Patient Experience or PX platform are born out of this approach. It's a powerful feedback loop that continuously increases the intensity of innovation in our technology-enabled services platform and gives us significant scale advantage which we can, in turn, pass along to our customers. In 2019, we invested heavily in our RPA and Patient Experience capabilities as part of our Digital Transformation Office or DTO. We've automated the equivalent of 1,000 digital workers and expect further progress as we finalize the first phase in the DTO effort in the coming months.

Given current labor market conditions, our DTO investment is highly strategic and guarding against potential inflationary pressure is simultaneously expected to deliver $15 million to $20 million to our bottom line in 2020. Our customers also benefit via improved yield and faster conversion of AR to cash. And perhaps most importantly, patient satisfaction has soared as our PX platform has been implemented with net promoter scores consistently above 70% and concurrent improvement in yield-oriented key performance indicators. As we rolled out the PX platform to our customer sites in 2019, it became clear to us very quickly that the opportunities to create value by digitally transforming the patient and provider journeys far exceeded our original stretch targets.

In particular, the pain points experienced in the ordering, scheduling and authorization processes today and the value to be created by solving them, emerged as priorities that deserved a new level of organizational focus. This was the primary driving factor behind the SCI acquisition, which we announced last month. With this acquisition, we will have a robust digital front door capability, digitizing orders, scheduling and authorizations. SCI has deep and highly differentiated IP in these areas.

Let me provide a few examples. Revenue leakage and patient no shows are major pain points for providers. SCI's order-to-appointment conversion rate is 86%, well above industry averages. SCI's ability to aggregate all inbound demand, whether faxed, called in, submitted online or otherwise, and to systematically match that demand with convenient access to supply, again, across a multitude of channels is second to none in the industry.

The convenient user experience across these workflows drives higher conversion rates, which translates to significant market share advantage for SCI clients. Scheduling is a highly complex process beyond the initial primary care visit and frequently cited as the No. 1 pre-service pain point by providers. There are numerous vendors that provide scheduling into primary care providers which SCI does as well.

However, the field is sparse when you look at complex scheduling, the ability to refer, schedule and manage interactions between the referring provider, the patient and the rendering provider which could be a specialist, diagnostic imaging lab, etc. This is important as several of these ancillary service lines are particularly critical to high-quality care. SCI is the only platform that digitizes the referral scheduling and authorization process in complex settings of care, agnostic to the underlying EHR. SCI's intake analytics offering is another critical capability.

Since much of the referral and scheduling process is managed manually today, health systems struggle to obtain timely and accurate metrics, such as demand by geography and modality, lead times to schedule and capacity utilization. With the processes now digitized, we can present this information to health system leaders to enable them to make better planning decisions which we believe can drive material improvement in profitability over time. We're very excited about the capabilities SCI adds to our portfolio. With our PX platform deployed at over 150 locations, we have strong proof points on the value it can deliver to us, our customers and their patients.

In summary, 2019 was a very productive year for R1. We grew adjusted EBITDA by $111 million, driven by a continued focus on superb operational execution. We added $4.1 billion in NPR across a diverse customer base and primed our physician offering to capture the market opportunity ahead of us. We were also pleased with the progress made by our DTO effort, which in addition to the expected $15 million to $20 million bottom line benefit in 2020 gave us the confidence to pursue the SCI acquisition with a high degree of conviction.

We entered 2020 with good momentum across the business. We have four major priorities for the year. First and foremost, new end-to-end business wins. Market dynamics remained favorable, and our pipeline continues to grow.

We see continued progression of deals that were in our late-stage pipeline exiting 2019. While the timing of contract signing is difficult to predict with precision, we are encouraged by the quality of ongoing discussions with prospective customers and have a goal of signing $3 billion in NPR on an end-to-end basis over the course of 2020. Earlier this year, we refreshed our brand marketing to better reflect who we are as a company today. With the investments we've made in the business and the performance proof points we've generated we've updated our messaging to better communicate our value proposition and our focus on the Patient Experience, which is what matters most to our customers.

Feedback from customers and prospects has been positive, and our intended messaging is resonating well in the industry. Second, we want to successfully integrate SCI into our workflow and commercialize the PX platform. We've partnered with SCI since 2017. So we're very familiar with the technology.

Our first goal after the closing of the acquisition is to integrate SCI's digital patient interface and referral and scheduling technology with R1's registration engine R1 Access and R1's contract model based price calculation engine R1 Insight. This will allow us to drive yield improvement and efficiency across the scheduling and registration processes which today are highly manual. It also speeds up the time to present patients with accurate cost estimates, which is increasingly important as price transparency gains prominence. We've mapped out in detail the sources of efficiency on our end, which gives us a high degree of confidence in our cost synergy targets.

Additionally, we want to commercialize the PX platform and sell it on a modular basis. We've already seen positive receptivity to the combined solution based on activity in our pipeline. We believe the $10 million in revenue synergies built into our projection model is a modest target. Third, we want to ramp up our physician channel.

We have a comprehensive, differentiated offering for physician groups, underpinned by our robust technology architecture, a dedicated team within our deployment function and a performance-driven contracting framework. Last month, we formally launched this offering as R1 Professional, targeted at large independent practices and hospital-owned medical groups. We already have a large non-acute footprint with over $7 billion in NPR under management across more than 27,000 providers and 80 specialties. Even with this presence, our market share in our target markets is less than 3%.

We strongly believe we can grow our share meaningfully over time. The vendor base serving these providers is highly fragmented with limited scale leverage. As a result, both patients and providers are underserved by current solutions. Despite the weak set of competitor solutions in the market, large independent physician groups generally have a higher propensity to use external providers for revenue cycle services compared to health systems.

R1 Professional delivers a purpose-built technology platform, automation at scale, a digital patient financial experience aligned with consumer expectations and proven performance improvement capabilities that empower financial visibility across large healthcare organizations. We're excited to launch this solution and expect to keep you updated on our traction. Last but not least, we remain focused on operational excellence to meet and exceed our commitments to our customers. We continue to perform well on our contracted book of business.

As I mentioned in my opening remarks, we were able to raise our EBITDA guidance last year on the back of strong execution, specifically, our customers in the margin ramp phase. In 2020, we have over $16 billion of NPR in the margin ramp phase which is the primary driver of our approximately $100 million projected increase in adjusted EBITDA. We also expect DTO to contribute $15 million to $20 million to adjusted EBITDA. We are intently focused on implementing the original pipeline of DTO opportunities by the end of Q1, and we continue to uncover new opportunities to capture incremental value.

Our fully dedicated automation center of excellence is designed to ensure an ongoing effort to prioritize and develop automation routines with high-value to the business and our customers. Lastly, for the three new end-to-end customers signed in 2019, we are fully mobilized with respect to our deployment efforts. This includes RUSH, where detailed operational planning, technology implementation and all other aspects of onboarding are under way. In closing, we are very excited about the journey ahead of us.

With $35 billion in NPR under management, we have a highly scaled platform to manage providers' revenue cycle operations. This contracted book of business and our pace of execution gives us a high degree of visibility to our $260 million to $275 million in adjusted EBITDA guidance for 2020. Importantly, we expect $15 billion of contracted NPR to be in the margin ramp phase in 2021, which gives us visibility to our 2021 adjusted EBITDA guidance of $320 million to $340 million. Market demand for our offerings continues to grow.

And the investments we are making in expanding our functionality and capabilities continue to improve our competitive position and extend our lead in the market. Most importantly, our customers and their patients are direct beneficiaries of these investments. In summary, as a direct result of our differentiated value proposition, we look forward to continued growth given the sizable market opportunity ahead of us. Now I'd like to turn the call over to Rick to review our financial results in more detail.

Rick Evans -- Chief Financial Officer

Thank you, Joe, and thank you all for joining us. I'd like to remind everyone that we will be referencing non-GAAP metrics on today's call. The adjusted cost of services and adjusted SG&A numbers excludes stock-based compensation and depreciation and amortization expense. Adjusted EBITDA excludes stock-based compensation expense, strategic initiatives, a portion of DTO related expenses, severance, loss on debt extinguishment and certain other costs.

A reconciliation of GAAP to non-GAAP financials is available on today's earnings press release. Now turning to our Q4 and 2019 results. Revenue for the quarter was $314 million, up $51.1 million or 19% year over year, driven by a $45.8 million increase in net operating fees from new customers onboarded over the course of 2019, as well as organic growth across our customer base. Relative to Q3 2019, revenue was up $12.8 million, driven primarily by the onboarding of the Quorum Health contract.

For the full year, revenue was up $317.6 million or 36.6%, driven by the onboarding of the meet and presence earlier in the year, a full year of Intermedix contribution, continued onboarding of Ascension Medical Group and Quorum in the fourth quarter. From a cost standpoint, adjusted cost of services in Q4 was $246.3 million, compared to $227.7 million last quarter and $211.3 million a year ago. The sequential and year-over-year increases were driven by the onboarding of new customers, offset in part by productivity improvement in the delivery of our services. For the full year, adjusted cost of services increased to $930 million from $731.7 million in 2018, driven by the same factors I just mentioned.

Adjusted SG&A expenses in Q4 were $22.6 million, down $2 million sequentially, primarily due to the timing of certain corporate expenses. For the full year, SG&A expenses increased $8.3 million as a result of investments in corporate IT and human resources infrastructure, as well as sales and marketing expenses related to increased efforts to pursue new business. Adjusted EBITDA for the fourth quarter was $45.1 million, compared to $48.9 million in the third quarter, primarily due to the ramp-up and onboarding costs of Quorum Health and higher incentive compensation related to the over attainment of new end-to-end NPR contracts signed in 2019, which came in at $4.1 billion versus our $3 billion goal. For the full year, adjusted EBITDA was $168 million, compared to $57 million in 2018, driven by continued progression of operating partner customers along the profitability curve, offset partly by onboarding costs for new customers.

Lastly, we incurred $9.3 million in other costs in Q4, up from $7.4 million in Q3, primarily due to costs associated with our strategic initiatives. For the full year, we incurred $36.2 million in other costs, primarily related to strategic initiatives and the ramping up of our DTO efforts. Turning to the balance sheet. Net debt at the end of 2019, inclusive of restricted cash, was $254.4 million, down from $313.6 million at the end of 2018.

Over The course of 2019, we repaid $20 million on our revolver and $8 million on our term loan A. Net interest expense in the fourth quarter was $4 million, down from $5 million in Q3, driven by favorable borrowing rates and a repayment of a portion of our debt. Following the refinancing of our debt last June, quarterly interest expense declined to the $4 million to $5 million range, compared to approximately $10 million per quarter prior to the refinancing. We generated $70.6 million in cash from operating activities in Q4, driven by working capital changes, primarily the timing of employee compensation and customer receivables.

Capex in the quarter was $18 million related to capitalized software and purchases of software licenses and computer equipment. For the full year, we generated $113.9 million in cash from operations, compared to $18.3 million in 2018. The primary driver was improved profitability from continued operational execution across our customer base. Capex for the full year was $61 million, up from $33.5 million in 2018 and due to continued IT investments to support growth, as well as capex associated with our DTO effort.

Turning to our financial outlook. Earlier this year, we provided guidance for 2020, which calls for revenue of $1.3 billion to $1.4 billion and adjusted EBITDA of $260 million to $275 million. Our guidance contemplates closing the SCI acquisition in the second quarter, and we remain on track to do so. In terms of quarterly progression, we expect revenue to be up slightly sequentially, and we expect adjusted EBITDA in the first half to mirror the ramp we saw in 2019, which implies Q1 should account for just under 20% of full-year adjusted EBITDA.

In closing, I'm proud of our achievements in 2019. We executed well across the board, and are excited to enter 2020 with strong momentum. Now I'll turn the call over to the operator for Q&A. Operator?

Questions & Answers:


Operator

Thank you. [Operator instructions] And our first question comes from the line of Charles Rhyee from Cowen. Your line is open.

Charles Rhyee -- Cowen and Company -- Analyst

Yeah. Good morning. Thanks for taking my questions. I guess the question is if we think about the model here on the fourth quarter, obviously, the onboarding costs related to Quorum was for the sequential step down.

As we think about the full year on '20, and we kind of put those onboarding costs into reference along with DTO, how should we think about the ramp? If we think about the fourth quarter, $45 million is sort of the jumping off point. Should we expect sort of a linear ramp as we go through the course of the year, starting from 4Q? Or because of the benefits of DTO as we start to realize them, we might have a bigger step-up in 1Q and maybe a more even progression of EBITDA? Thanks.

Joe Flanagan -- President and Chief Executive Officer

Yeah, I would say -- Charles, this is Joe. The way we should think about the progression of EBITDA from a phasing standpoint or from a ramp standpoint over the year is generally in line with the ratios that we saw in prior years. Now what underpins kind of that progression? One is seasonality on cash collections. And so one thing, as we've talked about in prior discussions, that seasonality is pretty predictable and pretty consistent.

The second thing that comes into play, and we see that very similar to prior years, is just the progression of our maturity on our contracted book of business quarter to quarter over the year. And then the third thing, which has some variability in the quarter to quarter is just the onboarding costs, given timing of contracts. But if you look at those three factors, the first two I mentioned are the primary drivers. And that's really what gives us visibility, and modeling that progression would be similar to the progression we saw in 2019.

Charles Rhyee -- Cowen and Company -- Analyst

So I guess is the better way than to do it is to think about, if we think about presence in AMITA, early in the year that have started onboarding, as now we get into maybe the third or fourth quarter for those contracts compared to Quorum. Is it possible then that kind of as those onboarding cost structures fall off, that will offset more of what the onboarding costs relative to Quorum was? So that we could -- I guess, we're just trying to make sure that we're going to have some big -- we're all ending up modeling some big step-up, where in fact, we should be thinking about more of it will get in the back half, I guess, the question?

Joe Flanagan -- President and Chief Executive Officer

Yeah. You're definitely going to see, just on a quarterly basis, the quarterly contribution stepping up as a percent of total EBITDA guidance over the course of the year. And the two primary drivers on that modeling is one, seasonality of cash flows. We see higher cash flows just as a general matter, industrywide as we progress through the year.

And the second thing which far outweighs the variability in the onboarding costs is just the progression of maturing our contracted book of business. And so that's really what gives us the visibility that that progression will be generally in line from a quarterly contribution standpoint to the prior year.

Charles Rhyee -- Cowen and Company -- Analyst

OK. That's helpful. And my last question would be, when you guys acquired Intermedix, you had talked about the assumptions for growth there being sort of flat. Now that you kind of integrated, you've launched it, signed a new client at the end of last year, what are you building in specifically for Intermedix in the guidance? How should we think about the growth profile for that business sort of separate from the core business?

Joe Flanagan -- President and Chief Executive Officer

Yeah. We still have very modest growth assumptions on Intermedix. I would characterize that, Charles, as a conservative bias in our estimates. With Vijay joining and now mobilizing and preparing our broader physician offering for growth, as we look medium term, I wouldn't even characterize this as long term, but as we look medium term, what we see an opportunity is, if you if you don't think about Intermedix stand-alone, and you think about our physician business today, as referenced in my comments, having roughly $7 billion of NPR under management, we see an opportunity to grow that base at a higher rate.

Again, it'll take us some time, but at a higher rate than the core business. So solidly north of double-digit growth rates. And a proxy for that, which has been a big priority for Vijay and for Gary, Gary Long, our Chief Commercial Officer, is to drive the focus of our efforts on the more scaled independent physician groups and the medical groups of the integrated delivery systems. And so just over the past six months, for those two target markets, which are our priorities, we've seen average deal size in the pipeline and up more than 50%.

And that's just in the past two quarters, Q3 and Q4. As I look at Q1 activity, that's solidly up again. And so I'm generally very encouraged that Vijay and Gary are doing a really nice job to orient that platform to a more strategic end market than Intermedix historically operated on. The final point I would say is we feel like we've got the operations ready to compete.

Our performance indicators on cost, our performance indicators on various revenue quality metrics into this end market are very, very strong right now and markedly different than where they were when Intermedix on a stand-alone basis was running the business. From a scale standpoint, we've got significant capacity we've put in place really to support that end market. And then as you know, Charles, it's a strategic end market, it's a growing setting of care, and we're encouraged that we feel well about our competitive position there.

Charles Rhyee -- Cowen and Company -- Analyst

Thanks. And just to clarify a little bit. When you talked about the deals in the pipeline. Should we look at this new -- the physician group you signed last year, $700 million NPR.

Is that sort of the average size of these type of deals? And is there sort of a TAM that you can give around what this kind of opportunity in the scale sort of physician groups is in aggregate?

Joe Flanagan -- President and Chief Executive Officer

Yeah. I don't want to characterize your average deal size in the physician group, as we sit today at $700 million NPR. But what I would say is there's more deals like APP than there ever has been, and we would only expect that to continue. The second thing I would say, Charles, when you think about $7 billion, we see $1 billion-plus potential of net new NPR that over time, we would expect that to be additive to kind of this $3 billion proxy that we have running in 2020.

It's not going to happen in 2020. That's why I characterized it as medium term. But it's well within a medium-range planning horizon from our standpoint.

Charles Rhyee -- Cowen and Company -- Analyst

Great. Thank you.

Operator

[Operator instructions] Our next question comes from the line of Matthew Gillmor from Baird. Your line is open.

Matthew Gillmor -- Robert W. Baird and Company -- Analyst

Hey, good morning. Thanks for taking the question. The first one I have was just on the pipeline, I was hoping, Joe, or maybe Gary, could sort of give us some color on the makeup of the current pipeline. Does it look more or less like the $4.1 billion you signed during 2019? And then if you had any comments you could offer with respect to -- you said that the pipeline continues to grow and there's more late stage opportunities, but if you could kind of characterize the increase to those buckets, that would be great?

Joe Flanagan -- President and Chief Executive Officer

Thanks, Matt. This is Joe. So as we noted in prior communications, coming out of Q4, we're encouraged by the number of late-stage opportunities we have. And the way I'll characterize late-stage opportunities is they're past and impact assessment.

So an impact assessment where we've gone in and spent time with the customer, looking at data, looking at processes and conveying a specific value proposition based on that body of work. So the good thing is, we're excited to announce RUSh, but maybe equally, if not more important, we're very excited that there's a fairly sizable activity that's developed that we carry into Q4. The second thing I would say, staying on the topic of end-to-end pursuits, we've seen a nice addition in the first six weeks of this quarter of opportunities that have progressed and are in impact assessment mode. So in general, we carried into the quarter a developed activity, and we see that that increasing six weeks into the quarter.

A bit more color on that I would say we're seeing more RFP activity. I think part of that is just driven by my comments on the team orient themselves and looking at a much, much larger physician pursuits. But we generally view structured RFP activity as favorable, and it's something that we've monitored closely, and we're encouraged that we're seeing that. And the reason we characterize that as favorable, it generally indicates to us that among the decision-makers in the provider organization, there's general alignment on the course they want to take.

Sometimes, when the pursuit originates from a point-to-point discussion with an individual on the C-suite, we still have to work through an assessment, is that perspective an n-of-1? Or is that a shared perspective from all the decision-makers or stakeholders that are going to influence that? And we've demonstrated, and Gary has done a tremendous job in those point-to-point discussions to understand how to thoughtfully evolve them and convert them. The RFP activity we're seeing, again, we see generally encouraging because it does mean that there is some consensus and some conviction. And all of our pursuits are competitive in one way shape or form, and we feel good about competing in RFP processes. Final comment, Matt.

We generally see the same makeup. And that's kind of the modeling assumption we have in the $3 billion, 50% roughly in an operating partner construct, 50%, roughly in a co-managed construct. And I would say if you look at our later-stage end-to-end pursuits, we see that mix playing through. And then the final thing, not so much just staying on pipeline but shifting to the modular reference in my comments in the prepared remarks, we did sign 91 modular deals over the course of 2019.

And whether that be the historical offerings or be the PX offering, we're seeing very nice progression of that activity, and we feel good about our capability to serve that model at scale. So that is a very nice incubator of relationships that we would expect over time to evolve into a more structural, broader partnership with those respective organizations. And similar to my comments on the physician business, Gary has been very focused on making sure those modular pursuits or modular opportunities are with strategic end customers that we have an opportunity to do more with and support their strategies. And we're generally encouraged about the profile of that side of our business.

Matthew Gillmor -- Robert W. Baird and Company -- Analyst

Got it. That's helpful. And one on the SCI acquisition and that opportunity. I was hoping you could conceptualize this a little bit for us? So it generally had something like scheduling kind of work at a traditional health system? And then what does SCI bring to bear? How is that automated? And then within your existing client base, what portion is already using these tools? And does the cost synergies that you're talking about reflect sort of deployment of that into your current client base?

Joe Flanagan -- President and Chief Executive Officer

Great. So let me start at the highest level. When we think about what is in scope, as you define the revenue cycle, we solidly include the scheduling portion and the order referral portion at the start of that process. And so with that point of view, we've consciously, in the majority of our end-to-end contracts, contracted the scheduling process and scheduling infrastructure as in scope.

And the reason we've done that is because we know there is a significant amount of inefficiency in that process, there's a significant amount of friction that is borne by the provider rendering provider or excuse me, referring provider or by the patient in dealing with that process. And there's a lot of strategic data elements that should be used by health systems to make decisions born out of that process. It is, in essence, the demand signal and the order for services that are going to be delivered. That area has not been an area we've made money on.

So we've contracted it. We've run it as best we can. It's highly, highly manual. So our thesis on SCI, and we're very confident in this thesis, is that by deploying technology and first and foremost, integrating that scheduling technology with the registration technology, we are in a great position to drive transformational efficiency on this process.

We're in a great position to improve the accuracy of the input to the health system. That accuracy of input allows us to present a much more accurate residual price estimate, very, very important right now for our customers. It allows us to actually comprehensively automate the authorization process, very, very important enabler and differentiator for our customers. And then it also, by integrating the scheduling process and the registration process, it allows us to significantly reduce the administrative burden of coordinating care by the provider and the patient.

And so we are very excited to drive that value prop. And the good thing is we are not dependent on going out and contracting or convincing the various stakeholders in the process around that. They intuitively believe it because they included it in the scope of work when we contracted these things. And so we've been working with SCI since 2017.

This acquisition is the culmination of a couple of years of us validating the thesis I just walked through. And so as we think about that, we intend to move with pace, we intend to take advantage of our technology coverage, given that we own the registration engine, we own the scheduling and order referral engine. And as you think about this in terms of financial impact to us, the underlying assumptions we have on a cost synergy is a modest assumption across our contracted book of business. It's mainly what is in scope today at our top two customers.

Now we see applicability of this across a much broader footprint of our $35 billion of revenue under management. And so we feel very good about the cost element, that $20 million that we referenced earlier in the year when we announced the acquisition of synergies, just off that modest assumption of our contracted book of business.

Matthew Gillmor -- Robert W. Baird and Company -- Analyst

Got it. Thanks very much.

Operator

[Operator instructions] We have no further questions at this time. I'll turn the call back over to our CEO, Joe Flanagan for closing remarks. We did have a last-minute question queue up here from Eugene Mannheimer from Dougherty & Company. Your line is open.

Eugene Mannheimer -- Dougherty and Company -- Analyst

Hey, thanks. Good morning. Good finish to the year, guys. Just a follow-up on R1 Professional.

I understand your penetration is low in the market, your competitors solutions are suboptimal, you're seeing an increase in RFPs but are customers looking urgently to replace these systems? Or is there still a fair amount of inertia around replacing the system they've kind of entrenched in? In other words, what are the catalysts, I guess, to get them to replace? Thank you.

Joe Flanagan -- President and Chief Executive Officer

Yeah. I think the great thing about our offering is what we see is as consolidation has occurred with the physicians, those consolidating organizations, really looking for scale leverage. And at the end of the day, that's what we're able to do, building off of our historical approach and our historical value props. So remember, from a technology-coverage standpoint, we're EHR or practice management system agnostic.

And we own all of our delivery infrastructure, meaning we own our offshore infrastructure, we own our onshore infrastructure. And we're very, very comfortable underwriting that scale comment, meaning underwriting our cost to collect and underwriting our revenue and working capital performance. And so that is a unique value prop that we've historically delivered to health systems with an orientation to the acute care side of the health systems. But as you think about the power of that value prop, given the dynamics in the physician end markets, that's really the catalyst we're working off, and we're seeing very strong receptivity to giving those consolidating physician organizations an alternative to doing it themselves to get that scale leverage and offloading some of the execution risk around that in a more partnerial relationship.

And so that's what we're really excited to promote and to compete from looking forward. And we think we have a great platform. If you look at the fact that we cover 80 specialties, the fact that we have $7 billion of NPR, very diverse across many different settings, serving 27,000 providers on our own stand alone, we're one of the largest physician rev cycle companies in the market. And we're just in the process of introducing that, communicating that.

So we think there's a lot of opportunity on the heels of those efforts.

Eugene Mannheimer -- Dougherty and Company -- Analyst

Great. Thank you.

Operator

And we have no further questions at this time. I'll turn the call back over to our CEO, Joe Flanagan for closing remarks.

Joe Flanagan -- President and Chief Executive Officer

Thank you, Lisa, and thank you all for joining the call today. We're pleased to close 2019 on an excellent note with strong operational execution, new business wins ahead of the plan for 2019 and the successful implementation of our DTO offer. We entered 2020 with good momentum. We see continued uptick in demand as I noted, via financial assessments and adding new pursuits, six weeks into the year.

And we're very excited around the innovation and extension of our competitive advantage that we can drive on the heels of the SCI acquisition. In closing, we look forward to updating you in future, and thank you so much for joining the call today.

Operator

[Operator signoff]

Duration: 46 minutes

Call participants:

Atif Rahim -- Head of Investor Relations

Joe Flanagan -- President and Chief Executive Officer

Rick Evans -- Chief Financial Officer

Charles Rhyee -- Cowen and Company -- Analyst

Matthew Gillmor -- Robert W. Baird and Company -- Analyst

Eugene Mannheimer -- Dougherty and Company -- Analyst

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