MultiPlan Q1 2023 Earnings Call Transcript

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May 4, 2023

Key Takeaways

  • Financial performance: Q1 revenue of $236.6 M and adjusted EBITDA of $156.3 M landed in the top half of guidance, and 2023 guidance was reaffirmed.
  • Contract renewals: Completed a multiyear renewal with a large customer in Q1, marking three renewals since last fall, which materially improves revenue visibility and stabilization.
  • Growth initiatives: On track to launch new products and enhancements, plus a data & decision science service line with the first price-transparency solution slated for Q3, aimed at expanding into in-network and Medicare Advantage markets.
  • Capital flexibility: Repurchased $137.8 M of senior notes and $5.7 M of shares, ending Q1 with $266 M in unrestricted cash and prioritizing debt reduction, M&A and strategic investments.
  • Q2 outlook: Projected Q2 revenues of $220 M–$235 M and adjusted EBITDA of $140 M–$155 M reflect slight declines from Q1 due to seasonality and contract adjustments, while full-year guidance remains intact.
AI Generated. May Contain Errors.
Earnings Conference Call
MultiPlan Q1 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Hello, and welcome to today's MultiPlan Corporation First Quarter 2023 Earnings Conference. My name is Bailey, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to hand the conference over to Shawna Gassik, AVP of Investor Relations. Thank you.

Operator

Please go ahead.

Speaker 1

Thank you, Bailey. Good morning, and welcome to MultiPlan's 1st Quarter 2023 Earnings Call. Joining me today is Dale White, Chief Executive Officer and Jim Head, Chief Financial Officer. The call is being webcast and can be accessed The Investor Relations section of our website at www.multiplan.com. During our call, we will refer to the supplemental slide deck That is available on the Investor Relations portion of our website along with the Q1 2023 earnings press release issued earlier this morning.

Speaker 1

Before we begin, a couple of reminders. Our remarks and responses to questions today may include forward looking statements. These forward looking statements represent Management's beliefs and expectations only as of the date of this call. Actual results may differ materially from those forward looking statements due to a number of risks. A summary of these risks can be found on the 2nd page of the supplemental slide deck and a more complete description on our annual report on Form 10 ks and other documents we with the SEC.

Speaker 1

We will also be referring to several non GAAP measures, which we believe provide investors with a more The understanding of MultiPlan's underlying operating results. An explanation of these non GAAP measures and reconciliations to their most comparable GAAP measure can be found in the earnings press release and in the supplemental slide deck. With that, I would now like to turn the call over to our Chief Executive Officer, Dale White. Dale?

Speaker 2

Thank you, Shauna. Good morning, everyone, and welcome to the call. I am excited to share with you today the meaningful progress we are making on a variety of fronts. It's an understatement to say we've been busy this quarter. So let me give you an update on our business results and progress against our guidance, Our most recent contract renewals and most importantly, our growth plan.

Speaker 2

First, we delivered results Toward the higher ends of our revenue and adjusted EBITDA guidance ranges for the quarter. We will review the details of the quarter in a moment, But I wanted to underscore that the first half is playing out as we expected, and we are reaffirming our 2023 guidance. 2nd, on our Q4 earnings call, we indicated we would renew another multiyear contract with a larger customer in the first half Of this year, I'm pleased to announce that we have completed this renewal in Q1. We now have renewed multiyear contracts With 3 of our larger customers since the Q3 of last year. As a result, our visibility in our business has materially improved, And we are increasingly confident that our revenues are stabilizing and poised for growth over the next several years.

Speaker 2

As we communicated last quarter, The cumulative impact of contract renewals with these larger customers, including this latest renewal, is already incorporated in our 2023 guidance. 3rd, we are executing on our growth plan. We are on pace to launch several new products and enhancements within our I am also pleased with the significant progress we have made forming our new data and decision science service line, Which will be instrumental in expanding our footprint beyond our out of network claims processing And deepening our penetration in larger and growing markets like in network, commercial health and Medicare Advantage. In fact, We will soon be launching the first solution in this service line, which I will describe shortly. Finally, we continue to demonstrate our capital flexibility.

Speaker 2

For the 2nd consecutive quarter, We allocated $100,000,000 of our cash balance towards the reduction of our debt. In Q1, we repurchased 137 point $8,000,000 of face value of our 5.75 senior unsecured notes in the open market. We also took advantage of our reinstated share buyback authorization to repurchase $5,700,000 of our shares during the quarter. With $266,000,000 of unrestricted cash at quarter end, we still have ample flexibility to pursue our capital priorities. Turning to our Q1 results.

Speaker 2

As shown on Page 4 of the supplemental deck, Revenues of $236,600,000 and adjusted EBITDA of $156,300,000 We're both in the top half of our guidance range our guidance ranges for the quarter. Revenues and adjusted EBITDA each declined about $5,000,000 Sequentially, the external environment and the impact of the COVID-nineteen pandemic, we

Speaker 3

expect to be in

Speaker 2

the range of $1,000,000,000 to $1,000,000,000 to $1,000,000,000 to $1,000,000,000 Showing modest sequential growth, helping us absorb some of the anticipated headwinds related to our contract renewals with our larger customers. Our adjusted EBITDA margin was 66%, down slightly from 67% in the prior quarter, But in line with our expectations, let me provide a few business highlights from the quarter. We had one of the best quarters to date in our regional payer and TPA customer segments with strong performance across our service lines, Including network based services and the payment and revenue integrity services that we acquired through Discovery Health Partners. We also had very strong revenues in the quarter in our Blues customer segment, and we added Another Blue Cross Blue Shield plan. Our penetration in this segment is now over 55% of the Blues Association's 34 companies with significant room to expand both within signing up another 181 employer groups Comprising over 42,000 lives and bringing our total membership to 1,200,000 lives.

Speaker 2

We expect HST's second half outlook to be very strong with new customers and one of a number of new add on products About to launch. I'd like to turn to the progress we are making on our growth plan as detailed on Page 8 of our deck. As we announced last quarter, we are introducing 4 new organic products and enhancements in 2023, Which we estimate will generate $50,000,000 to $100,000,000 of incremental revenue over the next few years. The first of those, a balance bill protection service, will launch as scheduled in June for customers of HST's Value Driven Health Plan Service. This new product manages a planned member's exposure to balance billing to the benefit of the member, The plan and the provider.

Speaker 2

It also removes a common barrier to adoption of reference based pricing solutions for employers With less tolerance for the risk of balance billing and the potential friction it creates between providers and members. Also on target to launch before year end are machine learning enhancements to both our NSA compliant services And our next generation of out of network pricing services, both will now enable greater flexibility And managing out of network medical costs. These enhancements capitalize on our unique access to extensive provider, Pricing and claims data to optimally align our solutions with a payer specific benefit plan and business objectives. And next quarter, we are adding a data mining component to our itemized bill review service, which Leverages our expansive payment integrity analytics to help our customers find and address more billing errors And there are complex high dollars claims prior to payment. This brings us to our Exciting new data and decision science service line.

Speaker 2

This new service line will deliver decision analytics and software tools To allow our customers to manage the health risk of a population, benchmark important network contracts, Assess their plan's financial performance and use data, machine learning and AI to achieve other important business imperatives. We've had numerous conversations with our existing customer base and know that this is an area where there is need the need is high And there are few available solutions. Our provider network, our connected technology platform And expansive claims flows position us uniquely to deliver enriched and actionable data to our customers through market leading products. The first of these products in our data and decision science service line scheduled for launch in the Q3 of 2023 It's a price transparency service that leverages the machine readable payer and provider pricing data Now required by regulation to be made public. We are thrilled by how differentiated our solution will be in the market.

Speaker 2

Not only will we aggregate this vast contracted rate information, but more importantly, we will enrich it in ways that no other Company can. By leveraging MultiPlan's extensive demographic and affiliate data on 1,300,000 contracted providers, By leveraging our pricing technology that enables comparison to Medicare, Median and other financial benchmarks And with our deep clinical billing expertise, which enables normalization across varying rate structures. With this data enrichment, we will drive value well beyond simply having access to publicly available, Somewhat Nessie dataset. Our road map includes sophisticated and strategic use cases that help our customers improve There are competitive positions such as benchmarking plan performance, driving network contracting strategies And innovating network design. Our data and decision science service line will open up significant opportunities And is a critical part of our plan to expand our footprint beyond our out of network claim processing and deepen our penetration In large and growing markets like in network commercial and Medicare Advantage.

Speaker 2

As you can see, we have been hard at work. We have strong customer demand and significant opportunities to grow our business. We are executing on a concrete plan to capture these opportunities, and the energy and enthusiasm inside the company It's as high as I've ever seen it, but we get it. We have we understand we have to deliver results as we progress through this pivotal year. We are excited to discuss all of this and more at our Investor Day coming up on June 28.

Speaker 2

With that, Let me turn it over to Jim.

Speaker 4

Thanks, Dale, and good morning, everyone. Today, I'll do the usual walk through of our Q1 financial results, Provide some commentary on our Q2 outlook and discuss the state of our progress towards our fiscal 'twenty three guidance. I'll close with some commentary on our balance sheet and provide an update on our capital allocation plans. As shown on Page 4 of the supplemental deck, 1st quarter revenue was $236,600,000 declining 21% from Q1 'twenty two and declining 2% from the prior quarter, But landing in the top half of our range of guidance for the quarter. Turning to revenues by service line.

Speaker 4

As shown on Page 5 of the supplemental deck, Network based and payment and revenue integrity service lines showed strength sequentially. Network based services declined about 17% from the prior year quarter And increased about 5% sequentially. Analytics based services revenues declined about 22% from the prior year quarter and declined about 5% Sequentially. And Payment and Revenue Integrity Services revenues declined about 19% from the prior year quarter and increased about 3% sequentially. And as Dale said, we continue to execute well on the regional player, Blues and TPA customer channels, and we're seeing robust growth Sequential uplift in core volumes, which partially offset a contraction in our revenue as a percentage of savings.

Speaker 4

As detailed on Page 6 of the supplemental deck, medical charges processed increased 2% from Q4 'twenty two To $39,700,000,000 and potential medical cost savings increased 3% from Q4 'twenty two to $5,600,000,000 In the core commercial health Plans category, the sequential increases in medical charges processed and potential medical cost savings identified were also 2% 3% sequentially. This growth in volumes helped absorb some of the anticipated headwinds related to our contract renewals with our larger customers, Which was the main contributor to the 21 basis point decline in our revenue as a percentage of savings as shown on Page 7 of the supplemental deck. Turning to expenses. 4th quarter adjusted EBITDA expenses were $80,300,000 up $7,700,000 from the prior year quarter And up less than $1,000,000 sequentially. Both the year over year and sequential comparisons were driven by structural cost increases and investments in the business, Partially offset by actions we began taking in the Q4 of 2022 to reduce costs in 2023.

Speaker 4

Adjusted EBITDA was $156,300,000 in Q1 'twenty three, down 31% from $225,400,000 in the prior year quarter And down 3% from $161,500,000 in Q4 'twenty two. Our adjusted EBITDA margin was 66 0.0% in Q1 2023 versus 75.6% in Q1 20 22 and 67.0% in the prior quarter. Moving on to our outlook. I'll start with Q2 and then discuss our progress towards our full year 2023 guidance. In Q2, we anticipate revenues of $220,000,000 to $235,000,000 and adjusted EBITDA of $140,000,000 to $155,000,000 As we've been anticipating since the outset of the year, we expect Q2 revenues to be slightly below our Q1 results by a few percent.

Speaker 4

Due to typical Q2 seasonality and some residual run rate effect of contract adjustments that were not fully present in our Q1 results. We are forecasting a steady underlying volume environment in Q2 relative to Q1 before consideration of seasonality. Our Q2 adjusted EBITDA guidance reflects the volume and rate dynamics just mentioned and modestly higher expenses, around $2,000,000 to 3,000,000 Reflecting incremental investments we're making to support our platform and our growth plan as well as merit increases enacted in Q1. As shown on Page 9 of the supplemental deck, we are reaffirming our full year 2023 guidance. Our first half performance is tracking closely to our expectations, And we are encouraged that the vital signs of our business are progressing as planned as we work through the contract adjustments And experience a more normalized volume environment.

Speaker 4

As we stated in our Q4 call, we expect the results for the second half of twenty twenty three To be higher than the first half, as volume normalizes, as we realize growth from our HST and Discovery Services And as we reap early gains from the growth initiatives we plan to launch this year. Turning to balance sheet and capital management. As Dale mentioned, in the Q1, we repurchased $137,800,000 face value of our 5.75 percent senior unsecured notes Using $100,000,000 of cash from our balance sheet. Separately, we repurchased a modest amount of our shares in the open market, $5,700,000 during the quarter ended March 31 and about $9,000,000 cumulatively through yesterday, May 3. Operating cash flow was $64,200,000 in the Q1 and leverage free cash flow was 41,100,000 Both of these amounts included a $22,000,000 cash payment for the settlement of the Delaware litigation.

Speaker 4

As a reminder, our cash flow tends to be higher in the 1st and third quarters given the timing of our tax and interest payments. As shown on Page 12 of the supplemental deck, we ended the quarter with $266,000,000 of unrestricted cash. Net of cash, Our total and operating leverage ratios were 6.3x and 4.5x, respectively. Our capital allocation priorities remain unchanged. Our highest priority is investing in the business, both organically and through M and A, To drive growth and long term value.

Speaker 4

As we noted on our last earnings call, we have earmarked $20,000,000 to $30,000,000 for incremental investment in 2023 Through the P and L and CapEx to support the core platform and fund our new growth initiatives that Dale mentioned. In terms of M and A, we continue to focus on small to midsized acquisitions, particularly on targets that could accelerate our new data and decision science service line. Next is debt reduction. Consistent with our actions over the past couple of quarters, our goal is to reduce our debt over the next several years, And we expect this to be the largest portion of our capital allocation. Lastly, is share buybacks, which remain a smaller allocation of our capital.

Speaker 4

In our view, there is a disconnect between our security prices and the state of our business as we see it, particularly in light of the growth opportunities we are pursuing. But as Dale said, we also know that we need to deliver results as we work through this pivotal year And that you will measure us on our progress to improve the position of the company and grow the business. That brings me to the end of my comments. I'll turn it back over to Dale. Jim, thanks.

Speaker 2

Let me close with one more comment. We are going to deliver a lot in 2023, But we are not stopping there. We have several additional product and service line expansion opportunities slated for launch in 2024 And are already advancing those initiatives this year. We look forward to expanding on all of this at our Investor Day on June 28. Please join us.

Speaker 2

Operator, will you kindly open up the call for Q and A, please?

Operator

Thank you. Our first question today comes from the line of Joshua Raskin from Nephron Research. Please go ahead. Your line is now open.

Speaker 3

Hi, thanks. Good morning, guys. Can you provide a little bit more color on NSA in I'm just curious how trends are emerging early in the year. I'm also curious there's been sort of A lot of media attention on the long backlog on arbitration cases. I'm curious how that's impacting your business and how you're working with your clients on that?

Speaker 2

Sure, Josh. That's a great question. I think as you know in 2022, we reported That we repriced about 1,750,000 claims through NSA. We processed about 150,000 requests from providers Who asked for who asked to negotiate a settlement and of those 150,000, we closed 124,000 of them And it was only at 6% higher than what the QPA and the QPA is the median contracted rate of the providers. Was that it was just slightly higher than what the original payment And of that, when you get down to end down to the arbitration component of it In Q of last year, all of last year was 57,000 claims And we closed about 11,000 of them.

Speaker 2

Why so little is because, as you said, the arbitration process was in a state of flux. Going into Q1, we see the same kind of activity in terms of volumes. And we're they're on par with what we expected. So in Q1 of 2023, We repriced about 560,000 claims through the NSA process. Of that, so that's the lion's share of the claims.

Speaker 2

Claim comes in, they get repriced, they return to the payer, payer adjudicates it and pays the claim, 557,000 claims. Of that, just a small percentage, about 92,000 of that came to us through negotiations where the provider asked to negotiate. Of that, we settled 74,000 of those claims, right? 74,000 of the 92,000 We're settled through the negotiation process and only 28,000 or 5% of the total NSA volume went to arbitration. Inside of that, when the Feds resumed kept told the arbiters to resume processing cases, we saw about 7,100 claims settled.

Speaker 4

So it is maybe a quick takeaway, Josh, on this. This is Jim here. The Kind of the underlying top of the waves trend is playing out exactly as and we've said it before, it's very it's a pretty steady business because it's nondiscretionary, it's emergent In large part. The what we are seeing is a tick up in the negotiations. And listen, CMS has been putting out The initiating parties and the non initiating parties in terms of where it is and it's we're seeing a lot of the usual suspects Are the ones who are negotiating and initiating arbitrations.

Speaker 4

So it's not completely surprising to us. This makes it more complicated, and that's exactly why we exist.

Speaker 3

Yes, yes. And then of those ones that you closed, The settle to $74,000 this year, is that similar to that sort of the rate coming in, the total payment coming in 6% above the QPA again?

Speaker 2

Yes, it's pretty consistent. Yes, it's pretty consistent, Josh.

Speaker 3

Okay. So no change in that. And then just a second question. Just network based revenues were up sequentially. I know it's not the biggest component, and I know the categories can blend together with some of the customers, but And that was sequentially.

Speaker 3

Is that just the you'd reprice 2 of the big three? Or I'm just curious what led to the sequential increase in network based revenues?

Speaker 4

Well, actually, the 2 bright spots inside the network were primary, which is not really kind of anything with the our bigger customers, With the regional payers and the TPAs, so we had some strength there. We also had strength in our workers' comp business, which was pretty more of them for the last several years. So that was really the 2 big components. It was kind of steadier. And as you know, there's always been a little bit of, call it, a competition between the analytics side of the business and the network side of the business.

Speaker 4

This This is staved off a little bit of that sequentially.

Speaker 3

Okay. All right. That's perfect. All right. Thanks.

Operator

Thanks, Josh. Thank you. The next question today comes from the line of Steven Valiquette From Barclays, please go ahead. Your line is now open.

Speaker 5

Thanks. Good morning, Eric. I got on the call here a couple of minutes late. I apologize if you Provided color on this, but just on the Slide 7, talking about the revenues as a percent of identified savings, that Table is pretty helpful. For the PSAV, just curious any color on how that might trend For the rest of the year, are we the downtick in 2023 versus 20 22 kind of makes sense given some of the Contract renewals, etcetera.

Speaker 5

But is 1Q the trough? Or just directionally, how might that trend for the rest of the year? Thanks.

Speaker 4

Yes. And so listen, I think this data has been helpful for you, the investor, and I think it allows us Bridge some things. So just to kind of give you a sense in Q1, if you think about in our P Safe business, which is the main driver over 90% of our revenues, Volume was up 4.2%. Rate, I'm just I'm not talking about basis point, but our rate was down 6.4% and revenues were Down 2.3%. So it's kind of holding together.

Speaker 4

So that's 6.4%.

Speaker 5

Okay. I appreciate the color. Thanks.

Speaker 2

Thanks.

Operator

Thank you. Our next question today comes from the line of Luizmario Higuera from Citigroup. Please go ahead. Your line is now open. Please do ensure that you are unmuted locally.

Speaker 6

Hey, can you hear me? Sorry. This is Luis for Dana Roselight.

Speaker 3

We can hear you.

Speaker 2

We can hear you.

Speaker 6

Thank you. Providers have been reporting normalized utilization across the board. Just wanted to ask, would you be able to walk us through when MultiClient should benefit from these trends? Thank you.

Speaker 4

Yes. I guess a couple of things. We're definitely seeing because there's 2 aspects. There's the leading indicators hospitals, ASCs, etcetera have shown some real strength in Q1. And then there's our own kind of out of network SKU that is our own circumstances.

Speaker 4

I think it is fair to say that the volume environment has gotten better. We saw a little bit of 3% up in our excuse me, 4% in our PSAE volumes. So it's moving in the right direction. I think what you're hearing from us is, we're just not going to get over our skis on calling a turn, okay? So we're not cautious because we're worried.

Speaker 4

We are just trying to make sure that that Translates into our book because we've got a lag of 8 to 12 weeks. And so our Q2 viewpoint is that we're going to Kind of a stable solid volume environment like we had in Q1. You may argue that there's upside as it rolls through our book, But we're not ready to call that yet. And so we're just we're not going to get ahead of ourselves on the rebound. And as you know, for 2023, we did not predict a massive upswing in volume for our 2023 guidance.

Speaker 6

Thank you. That's helpful.

Operator

Thank you. There are no questions waiting at this time. So that will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.

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