Change Healthcare Inc.

Good morning. Thank you for standing by, and welcome to the Change Healthcare's earnings call for the first quarter of fiscal year 2023. I would now like to hand the conference over to your host today, David Elliott, Change Healthcare, Inc.' 's Vice President, Enterprise Strategy and Investor Relations. Please go ahead.

Good morning, and welcome to Change Healthcare's earnings call for the first quarter of fiscal 2023, which ended on June 30th, 2022. I'm joined today by Neil DiCrescenzo, Change Healthcare's President and CEO, and Frederick Eliasson, Change Healthcare's Executive Vice President and Chief Financial Officer. First, Neil will provide a business update, and then Frederick will review the financial results for the quarter, followed by closing remarks from Neil. Given the pending transaction with UnitedHealth Group, we will not be taking questions or providing financial guidance. Before we begin, I would like to remind you that the comments included in today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by the comments for several reasons which are discussed in more detail in the company's SEC filings. Except as required by law, Change Healthcare assumes no obligation to update any forward-looking statements or information. Please also note that where appropriate, we will refer to non-GAAP financial measures to evaluate our business. Reconciliations for non-GAAP financial measures to GAAP financial measures are included in our earnings release in the appendix to the supplemental slides accompanying this presentation. I want to remind everyone that copies of our earnings release and the supplemental slides accompanying this conference call are available in the investor relations section of our website at www.ChangeHealthCare.com. With that, I'll turn the call over to Neil. Neil?

Thank you, David. Good morning, everyone, and thank you for joining us. Our first quarter results demonstrate the underlying strength and momentum of our business. We were faced with difficult year-over-year comparables in the quarter, created by elevated COVID-related activities last year and customer attrition related to the extended UHG merger process. Despite these headwinds, we grew revenue in the quarter and positioned ourselves well to deliver on our 2% to 4% revenue growth expectations for the year. We continue to invest in innovative solutions to create value for our payer, provider, and consumer customers. Along with our customers and partners, we remain focused on lowering costs, enhancing access, and improving outcomes for the benefit of everyone in the healthcare system. Now, let me provide you with some financial highlights for the quarter and insights into our continued success advancing our solutions to deliver increased value for all healthcare stakeholders. Solutions revenue, adjusted EBITDA, and free cash flow were $831 million, $280 million, and $4 million, respectively, in the first quarter. This represents year-over-year solutions revenue growth of 1.8% and an adjusted EBITDA decline of 0.9%. Our performance reflects continued new bookings momentum, existing customers expanding their business with Change Healthcare, new product introductions and new business initiatives partially offset by lower revenue from COVID-related activities, customer attrition related to the extended UHG merger process, and our continued investments to support business initiatives. As the combined year-over-year challenges from COVID-related volumes and the UHG merger-related attrition start to subside in the third quarter, we expect significantly stronger growth starting in the fourth quarter and throughout our next fiscal year starting in April 2023 our fiscal year 24. Frederick will provide more details on our financial performance shortly. With regards to the pending transaction with UnitedHealth Group, we remain firm in our belief in the benefits for U.S. healthcare of change healthcare becoming part of Optum, and we are committed to contesting the legal challenge to this merger. We and UnitedHealth Group are currently detailing the benefits of this combination at a two-week trial that began earlier this week on August 1. If the merger closes, we expect that Change Healthcare shareholders will receive $27.75 in cash, comprised of the $25.75 per share deal price, along with a special cash dividend of $2 per share. These payments will only occur if the merger closes, and the dividend is subject to final approval of Change Healthcare's board at the time of the closing. In the event the merger is unable to be completed due to the court's decision, UnitedHealth Group will pay a $650 million fee to Change Healthcare. Now, let me provide an update on our success across our segments, starting with our software and analytics segments. We continue to see opportunities across this segment as payers, providers, and partners take advantage of our high ROI solutions and realize the benefits of our data, AI models, and workflow capabilities. In payment accuracy, we again closed several multimillion dollar deals, including claims extend secondary editing deals with two BluesPlan customers. These customers both recognize the value that Change Healthcare can provide in quickly developing and deploying new content via secondary editing to provide them significant savings. We also signed a multimillion-dollar prepayment insight and review deal with a high-growth, technology-enabled health plan with over 1 million members. With prepay insight and review, we help customers reduce waste in the payment process by identifying improper payments before they are paid. Our risk adjustment and quality solutions continue to be a strong offering in the market as they help customers close gaps in care more rapidly to improve health outcomes and lower costs. In Q1, we signed a medical record retrieval and clinical review deal worth over $5 million annually with one of the largest managed care organizations in the country. Continuing our innovation in this field, we also introduced Community Connector in Q1, a new service for payers who want to assess their members' social determinants of health needs and refer members to community-based organizations to provide social service program assistance. This product reimagines how whole-person focused services such as home environment, housing, education, access to food, and transportation can work together to improve people's health, well-being, and quality of life. In our RCM technology business, we had a strong bookings quarter for both our clearance and assurance solutions, including a large new deal with a health system in Hawaii. Last quarter, we announced a partnership with Luma Health to develop new patient engagement solutions. We have now launched our patient engagement suite. combining Luma Health's patient success platform solution with Change Healthcare's revenue cycle management solution to give patients and providers a cohesive experience that spans the entire healthcare journey. As evidenced by a large and growing pipeline, the market is excited about this vision to improve the patient and provider experience by keeping patients connected to all aspects of their care and providing communication between staff, providers, and patients. With our clinical decision support solutions, we continue to provide innovative ways for clinicians to leverage real-time, evidence-based guidance as they serve patients. We brought three new customers live on InterQual Auto Review in Q1, representing 25 facilities and 6,500 beds. We've also seen continued momentum with our CareSelect lab decision support product with three new sales in the quarter. Clients are seeing laboratory decision support as a key tool in their expense reduction initiatives. Moving on to our network segment. We've seen continued year-over-year growth in transaction volumes across our core networks, driven by new customers and expansions of our business with existing customers offset by customer attrition and lower COVID-related claims volume. Q1 was a strong new bookings quarter, particularly in our pharmacy network business, where we signed several multimillion-dollar deals, including a deal worth nearly $5 million annually with an innovative technology company focused on reducing wasteful pharmacy and patient spending. We continue to see solid execution in our high-growth strategic priorities like payments, data solutions, and our API marketplace. In Q1, we grew our API-related transaction volume by more than 50% versus Q1 of last year. As of the end of Q1, we had a total of 335 API, software, and hardware products from across our portfolio available in the Change Healthcare marketplace and in multiple online storefronts, including AWS, Azure, Epic App Orchard, and the Salesforce App Exchange. Our leadership in providing microservice-based and API-based solutions to the healthcare industry, along with our payments and data solutions businesses, are fueling the continued growth of our network segment beyond underlying transaction volume growth. Moving to our newly formed enterprise imaging segment. In Q1, we established enterprise imaging as a standalone reporting segment under its own general manager reporting directly to me. We made this change in connection with Chris Joshi's promotion to assume the role of president, software and analytics, in addition to continuing his role as EVP and president for network solutions. Given our market leading cloud native enterprise imaging platform, establishing enterprise imaging as a standalone reporting segment will help our team better address the growing demand and unique market opportunities in imaging, while best positioning the imaging team to grow and deliver for our customers. You can find eight quarters of recast results that reflect these segment changes in the appendix of the slides accompanying this presentation. In the quarter, we again signed several multimillion-dollar imaging contracts, winning competitive deals over some of the largest imaging companies in the world. As EvidenceSpire continued new contract wins, the market is embracing our vision of a cloud-native, AI-driven enterprise imaging platform. Now moving on to our technology-enabled services segment. In TESS, we're continuing our focus on client performance and value creation. We've continued to refine and communicate our value proposition for both payer and provider customers, updating 10 return on investment calculators across tests with our sales and account management teams. We use one of these ROI calculators, along with other customer data analyses, to help a large national physician group understand the value that Change Healthcare could bring to their practices. This helped us sign our largest contract in this market segment in over four years. We've also been successfully expanding our service contracts in other market segments. We recently increased our communications business substantially with a large payer, closing two deals worth several million dollars combined. And as in prior quarters, we remain focused on expanding the underlying margins in the technology-enabled services businesses through automation, and AI to increase our efficiency and drive stronger performance for our customers. Our RCM transformation efforts are on track and remain a top priority alongside navigating the current challenges in the labor market. In closing, our Q1 results demonstrated our team's customer and partner focus, their resilience, and their ever-increasing innovation. we continued our strong execution in attaining our strategic, operational, and financial objectives. Through continued innovation, we are providing greater value by leveraging technology and insights to reduce administrative waste, streamline and accelerate payments, and enhance consumer engagement to better drive experiences and outcomes throughout the patient journey. We remain confident that Change Healthcare which provides best-in-class connectivity, transaction management, insights, and integrated experiences, will continue to play a vital role in helping our customers through the continuing transformation of healthcare. Now, let me turn the call over to Frederick, who will review our financial performance. Frederick?