R1 RCM Inc. Common Stock

Item 1A.Risk Factors

The risk factors disclosed in Part I, Item 1A of our 2023 Form 10-K, in addition to the other information set forth in this Quarterly Report on Form 10-Q, could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, and/or operating results.

Risks Related to the Merger

Uncertainties associated with the Merger could adversely affect our business, operating results, financial condition and the trading price of our common stock.

On July 31, 2024, we entered into the Merger Agreement pursuant to which, if all of the conditions to closing are satisfied or waived, we will become a wholly owned subsidiary of Parent, and our common stock will be delisted from tThe Nasdaq Global Select Market and we will cease to be a reporting company. On September 13, 2024, the waiting period applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired. The consummation of the Merger iremains subject to customary conditions as set forth in the Merger Agreement, including, but not limited to, the: (i) affirmative vote of the holders of a majority of all of the outstanding shares of our common stock to adopt the Merger Agreement; (ii) expiration or termination of any waiting periods applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and approval as required by other specified antitrust laws; and and (iii) the absence of any law or order restraining, enjoining or otherwise prohibiting the Merger. In addition, the obligation of each party to consummate the Merger is conditioned upon the other partys representations and warranties being true and correct (subject to certain customary materiality exceptions) and the other party having performed in all material respects its covenants, obligations and conditions under the Merger Agreement. The obligation of the buyer parties to consummate the Merger is also subject to the absence of a Company Material Adverse Effect (as defined in the Merger Agreement). Many of the conditions to completion of the Merger are not within our control, and we cannot predict when or if these conditions will be satisfied (or waived, if permitted by the Merger Agreement and applicable law). In addition, the Merger may fail to close for other reasons.

The pending Merger, and the announcement thereof, a as well as any delays in the expected timeframe, could cause disruption in and create uncertainties, which could have an adverse effect on our business, operating results, financial condition and trading price of our common stock, regardless of whether the Merger is completed, and could cause us not to realize some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected timeframe. These risks include, but are not limited to:

the completion of the Transaction on anticipated terms and timing or at all, including obtaining required stockholder and regulatory approvals, and the satisfaction of other conditions to the completion of the Transaction;

potential llitigation relating to the Transaction that could be instituted against parties involved in the Merger or their respective directors, managers or officers, including the effects of any outcomes related thereto;

disruptions from the Transaction, including the diversion of managements attention from our ongoing business operations will harm our businand the previously disclosed expected Chief Executive Officer success, including current plans and operationsion in connection with the closing of the Merger;

our ability to retain and hire key personnel in light of the Transaction;

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potential adverse reactions or changes to business relationships with our vendors, customers and employees resulting from the announcement or completion of the Transaction, including if our customers, vendors, employees or others attempt to negotiate changes in existing business relationships, consider entering into business relationships with parties other than us, delay or defer decisions concerning their business with us, or terminate their existing business relationships with us while the Merger is pending;

significant transaction costs, including the possibility that the tTransaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events, and the requirement that we pay a termination fee of $250.0 million if the Merger Agreement is terminated under certain circumstances;

the occurrence of any event, change or other circumstance that could give rise to the termination of the tTransaction, including in circumstances requiring us to pay a termination fee or other expenses;

competitive responses to the tTransaction, including the possibility that competing offers or acquisition proposals for us will be made;

being subject to certain restrictions on the conduct of our business, resulting in possibly foregoing certain business opportunities that we might otherwise pursue absent the Merger;

impacts on the price of our common stock; and

developments beyond our control, including, but not limited to, developments in macro-economic and industry conditions that may affect the timing or success of the Merger.

Even if successfully completed, there are certain risks to our stockholders from the Merger, including:

the per share consideration is fixed and will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or operating results or in the event of any change in the market price of, analyst estimates of, or projections relating to, our common stock;

the fact that receipt of the all-cash per share consideration under the Merger Agreement is taxable to stockholders that are treated as U.S. holders for U.S. federal income tax purposes; and

the fact that, if the Merger is completed, our stockholders (other than those stockholders that will contribute their shares of common stock pursuant to the Rollover Agreements , if any (as defined in the Merger Agreement)) will not participate in any future growth potential or benefit from any future increase in the value of our company.

Failure to complete the Merger could adversely affect our business and the trading price of our common stock.

The closing of the Merger may not occur on the expected timeline or at all. The Merger Agreement contains customary termination provisions for both us and Parent, and provides that, in connection with the termination of the Merger Agreement under specified circumstances, including termination by us to accept and enter into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement), we will pay Parent a termination fee of $250.0 million. If we are required to pay this termination fee, such fee, together with costs incurred to execute the Merger Agreement and pursue the Merger, would have a material adverse effect on our operating results and financial condition.

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If the Merger Agreement is terminated and the Merger is not consummated, investor confidence could decline; stockholder litigation could be brought against us, our directors and officers; relationships with existing and prospective customers, vendors, investors, lenders and other business partners may be adversely impacted; we may be unable to attract or retain key personnel; our employees could be distracted and their productivity could decline; and profitability may be adversely impacted due to costs incurred in connection with the Merger. We may also experience negative reactions from the financial markets, including a decline in the trading price of our common stock and you may not recover your investment or receive a price for your shares similar to what has been offered pursuant to the Merger. In addition, the trading price of our common stock has in the past and may continue to fluctuate substantially in the event that the Merger is not consummated. Factors affecting the trading price of our common stock may include: fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us; changes in estimates of our financial results or recommendations by securities analysts, if any, who cover our common stock, or failure to meet expectations of such securities analysts; the loss of service agreements with customers; lawsuits filed against us by governmental authorities or stockholders; unfavorable publicity concerning our operations or business practices; investors general perception of us; changes in local, regional or national economic conditions; changes in demographic trends; increased labor costs, including healthcare, unemployment insurance, and minimum wage requirements; the entry into, or termination of, material agreements; changes in general economic, industry, regulatory, and market conditions not related to us or our business; the availability of experienced management and hourly-paid employees; issues in operating the company; future sales of our securities, including sales by our significant stockholders; and other potentially negative financial announcements, including delisting of our common stock from The Nasdaq Global Select Market, changes in accounting treatment or restatement of previously reported financial results, delays in our filings with the SEC or failure to maintain effective internal control over financial reporting.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected, and continue to affect, the market prices of equity securities of many companies. In the past, stockholders have instituted securities class action litigation or launched activist campaigns following periods of market volatility. If we were involved in securities litigation or an activist campaign, we could incur substantial costs, and our resources and the attention of management could be diverted from our business.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Merger.

Under the Merger Agreement, we are restricted from soliciting alternative acquisition proposals from third parties and providing information to, or participating in discussions or engaging in negotiations with, third parties regarding any alternative acquisition proposals, subject to a customary fiduciary out provision. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of our business from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher value than the value of the consideration in the Merger.

We are subject to certain restrictions on the conduct of our business under the terms of the Merger Agreement.

Under the terms of the Merger Agreement, we have agreed to certain restrictions on the operations of our business. We have agreed to limit the conduct of our business to those actions undertaken in the ordinary course of business and to refrain from engaging in certain activities, including but not limited to: amending organizational documents; issuing, selling or delivering securities; incurring debt; mortgaging or pledging assets; entering into, adopting, amending, modifying or terminating any employee plans; settling certain pending or threatened legal proceedings; changing our methods, procedures, principles or practices of financial accounting; resolving, settling, compromising, or abandoning any material tax action; and incurring certain capital expenditures. Because of these restrictions, we may be prevented from undertaking certain actions with respect to the conduct of our business that we might otherwise have taken if not for the Merger Agreement. Such restrictions could prevent us from pursuing certain business opportunities that arise prior to the effective time of the Merger and are outside the ordinary course of business, and could otherwise adversely affect our business and operations prior to completion of the Merger.

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Lawsuits may be filed against us and the members of our Board of Directors arising out of the Merger, which  may delay or prevent the Merger.

Putative stockholder complaints, including stockholder class action complaints, and other complaints may be filed against us, our Board of Directors, parties involved in the Merger and others in connection with the transactions contemplated by the Merger Agreement. The outcome of litigation is uncertain may delay or prevent the Merger. We have received demand letters from several purported stockholders relating to books and records requests pursuant to Section 220 of the Delaware General Corporation Law, and we may not be successful in defending lleged disclosure deficiencies in the proxy statement related to the Merger, or appraisal pursuant to Section 262 of the Delaware General Corporation Law, and a complaint filed in New York state court alleging negligence against any such future claims. Lawsuits thatR1, R1s directors, and other parties to the Merger. It is possible that additional demands, complaints, or both, may be filed against us, our Boardchallenging the Merger. The outcome of Directors, parties involved inany such demands and complaints or any litigation is uncertain, and we may not be successful in defending against the Mergese claims or any such future claims. Whether or others not any claims are successful, this type of litigation could delay or prevent the Merger, divert the attention of our management and employees from our day-to-day business, and otherwise adversely affect our business, results of operations, and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, then that injunction may delay or prevent the Merger from being completed, which may exacerbate the other risks described herein and adversely affect our business, operating results and financial condition.

Risks Related to Our Cybersecurity and Technology

Disruptions in service, including failure of business continuity plans, or damage to our global business services centers, third-party operated data centers or other services provided by other third-parties, could adversely affect our business.

Our global business services centers and third-party operated data centers are essential to our business. Our operations depend on the availability of our global business service centers and their operating effectiveness in maintaining and protecting our applications, which are located in data centers that are operated and controlled by third parties. In addition, our information technologies and systems, as well as our data centers and global business services centers, are vulnerable to damage or interruption from various causes, including natural disasters, war, acts of terrorism, public health events (including pandemics), power losses, computer systems failures, internet and telecommunications or data network failures, operator error, loss or corruption of data, and other events. We have a global business resiliency program and maintain insurance against fires, floods, other natural disasters, and general business interruptions to mitigate the adverse effects of a disruption, relocation, or change in operating environment at one of our data centers or global business services centers, but the situations we plan for and the amount of insurance coverage we maintain may not be adequate in every case. In addition, the occurrence of any of these events could result in interruptions, delays, or cessations in service to our customers, or in the direct connections we establish between our customers and payers. Any of these events could impair or inhibit our ability to provide our services, reduce the attractiveness of our services to current or potential customers, and adversely affect our financial condition and operating results.

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In addition, despite the implementation of security measures, our infrastructure, data centers, global business services centers, or systems that we interface with, including the internet and related systems, may be vulnerable to intrusion, improper employee or contractor access, programming errors, computer viruses, malicious code, phishing attacks, denial-of-service attacks, or other cyber attacks and information security threats by third parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. Any such attack could cause system failure, including network, software, or hardware failure, and could result in service disruptions. Further, our network, information systems, and other services and systems are subject to various risks related to third parties and other parties we may not fully control. We use encryption and authentication technology licensed from third parties to provide secure transmission of confidential information, including our business data and customer information. In addition, we rely on employees in our data centers and global business services centers to follow our procedures when handling sensitive information. While we select our employees and third-party business partners carefully, we do not control their actions, which could expose us and them to cybersecurity and other risks. As a result, we may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.

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Recent cyberattacks affecting our third-party vendors have harmed our business. On February 21, 2024, Change Healthcare, a subsidiary of UnitedHealth Group, was the target of a cyberattack that required it to take offline its computer systems that handle electronic payments and insurance claims. Change Healthcare is the largest clearinghouse for medical claims in the U.S. and this event has caused significant delays and disruptions in payments to hospitals, physicians, pharmacists, and other health care providers across the country. In response to the cyberattack, we transitioned customers who were impacted to alternative clearinghouses to submit, edit, and release claims to payers to address the backlog. We approved reestablished connections while continuing to monitor the cyber threat environment.

On May 8, 2024, Ascension Health was the target of a cyberattack that disrupted their clinical operations and affected their electronic health records systems as well as processes used to order certain tests, procedures, and medications. In response, we immediately disconnected from Ascension systems and reviewed our systems. We have not found any evidence that our systems or data were compromised, and we will continue to monitor.

For the three and sixnine months ended JuneSeptember 30, 2024, we incurred costs and earned lower base fee and incentive fee revenue due to the effect on key performance metrics and lower modular and other fees revenue from these cyberattacks. The expected cash flow impacts to our customers may affect their ability to pay our invoices in a timely manner. Additional costs and revenue impacts are expected to affect our overall performance in 2024.

See Part II, Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations.

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