MultiPlan Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Multi-Plan Corporation Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Shawna Gassick. Thank you. Please go ahead, madam.

Good morning. Thank you for joining us today for Multiplan's third quarter 2020 earnings call. Today our speakers will be Mark Tabak, Chief Executive Officer, Dale White, President of Payer Markets, and David Redman, Chief Financial Officer. Paul Gallant, President of New Markets, will be available for the Q&A session. During the call, we will refer to the slide deck you will see during the webcast, or which is available on the investor relations portion of our website, along with the third quarter earnings press release issued earlier this morning. Before we begin, I'd like to remind you that our remarks and responses to questions may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business, which are discussed in the risk factors included in our registration statement on Form S-1 and other SEC filings. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, please note that we assume no obligation to do so. Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures help investors gain a more helpful and complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure calculated and presented in accordance with GAAP to the extent available without unreasonable effort is available in the earnings press release and in the presentation slides included in the investor relations portion of our website at www.multiplan.us. I would now like to turn the call over to our Chief Executive Officer, Mark Tabak.

Thank you, Shauna. We'll start on slide number three. Welcome, everyone, to Multiplan's third quarter earnings call. My team and I are very excited about this important next chapter of growth for our industry-leading company following our recent debut on October 8th. I've been at the helm of Multiplan for almost three decades, and have never been more enthusiastic about our future. To start us off, I will give a few remarks and hand the presentation over to Dale to talk about our business and the progress on our three-part growth strategy, and to Dave to talk about financials. Next, please. From a financial perspective, we delivered a strong third quarter. With revenues of $224 million and adjusted EBITDA of $166 million, we performed significantly better than we anticipated initially projected at the start of the pandemic, and also better than the updated projections that we gave you at our August 18th Analyst Day. The year-over-year decline is due to COVID, which impacted us less in Q3 than in Q2, but did cause a drop in realized customer savings that drive a big part of our economics. Dave will give you some more detail on that later. Now, based on where we sit today, we believe that we will deliver a strong fourth quarter with revenues in the range of $238 to $253 million and adjusted EBITDA in the range of $180 to $194 million. At the midpoint of that range, this represents a revenue growth rate of 9.8% quarter-over-quarter and minus 0.4% year-over-year. In adjusted EBITDA, the growth rate is 12.3% quarter-over-quarter and 0.3% year-over-year. During the time since our August 18th Analyst Day, our team has continued to execute our enhanced, extend, and expand three-part growth strategy we call Multiplan 3.0. As you will see in Dale and Dave's presentations, our third quarter financial performance is not only driven by a lower than initially projected U3 COVID impact, but also, more importantly, from executing our growth initiatives. Growth initiatives include new customer contracts, and new products that play a meaningful role in building our business. We continue our customer extension to both highly penetrated and under-penetrated segments. We are in the process of adding new sales, more business development, and product management talent. Let me share some concrete accomplishments that the team delivered since our analyst day. Our large and successful refinancing has enabled us to increase the duration of our debt, reduced leverage, increased our revolver, reduce our annual interest expense by approximately $70 million. We were also pleased that Moody's upgraded our credit rating to B2. We made progress on several of our 16 strategic initiatives that support our enhance, extend, and expand growth strategy, delivering annual revenue impact of $15 to $20 million. And I'm happy to announce that we completed the acquisition of HST earlier this week. It gives us a new product capability in support of our enhanced strategy deepens penetration in adjacent markets that we are targeting with our extend strategy. Dale will go into details of the acquisition, which we believe helps to de-risk our execution and accelerates our growth. Equally important, this acquisition was executed at an attractive price and will be accretive to Multiplan. We will continue to pursue these types of acquisitions with discipline and support of our growth strategy. Next. It's important that I set the record straight on some narratives from someone attempting to run a short campaign against Multiplan. Multiplan has been in business for more than three decades. We serve all the major insurers in the US. We serve more than 60 million people and work with 1.2 million providers. We are a real and extraordinary business that has made money for every investor that has ever invested in Multiplan. The management that runs this business built it and helped build an industry. It is offensive to have anyone suggest anything else. There were four assertions that we have heard that I have listed on this slide, all of which are completely false. In addition, I added up this topic, which I will cover as well. The first assertion made by the short seller is that UnitedHealthcare is planning to exit the relationship with Multiplan, and in effect, in-source what we've been doing and what we've been using, and they plan to use a reference pricing tool with a consumer advocacy service called NaviCard. That is absolutely false. Our business with UnitedHealthcare continues to grow every quarter. Second, MultiPlan's relationship with large payers is deteriorating, leading to a reduction of our pricing by 50% over the last four years. This, again, is absolutely false. Our business is growing with our top customers. Third, that Multiplan used financial engineering to prop up its earnings to show better financial performance in 2018. Again, this is absolutely false. Revenue reserves at Multiplan are small, and changes to those reserves had completely immaterial impact on our 2018 revenues. Fourth, that Hellman and Friedman gutted the company and couldn't find a buyer until Churchill came along. This, again, is absolutely false. Multiplan was executing its standalone private market strategy, and the merger with Churchill was done to reduce leverage, infuse additional operating talent, and pursue a more aggressive plan to grow both organically and through mergers and acquisitions. And finally, something that did not appear on the short-seller manifesto but has been a point of concern for some investors is they fear that Multiplan is vulnerable to potential federal legislation surrounding added network claims that can generate surprise bills. As we've communicated in prior calls and meetings, we believe only a small portion of our business is at risk from these types of legislation, and we've put together much more analysis to hopefully help investors better understand how these types of laws, which are already present in 30 states, impact our business. Next, please. Let me drill down into United Navigard. There is so much wrong with what the short seller manifesto has said that I candidly don't know where to start. First, United is not leaving Multiplan. This has been an extraordinary customer, partner, and industry leader. They have worked with us continuously since 1994 and are continuing to grow their business with us. Even in a tough year like 2020 with COVID, United has expanded the business that we do with that they do with us to include more programs and more initiatives, all of which leads to more savings opportunities. They do this because we deliver extraordinary service, value, and quality. We enable customers like United to reduce medical costs and to generate revenue by leveraging multi-plan solutions for both self-insured and fully insured employers. By the way, we have a multi-year contract with United that has been renewed numerous times over the course of our 25-year-plus relationship. Think about it. Why would a payer leave us when we provide an independent cost-managed solution that saves them and their employer customers billions of dollars in medical costs, not to mention administrative costs, every year at a bargain cost to them? The answer is they don't leave us, and instead they give us more business and partner with us to find better and better ways serving their end customers and members. Now, let me address NaviGuard. Let me be clear. NaviGuard is a helpful service and in no way is a replacement for the sophisticated suite of products that Multiplan provides. NaviGuard addresses a particular niche, which Multiplan is a broad-based and comprehensive cost-managed solution with a 1.2 million provider network used by 700 payers that processed $106 billion in claims in 2019 and identified more than $19 billion in potential savings opportunities for our customers. Reference-based pricing services determine a reimbursement to be paid by the plan for added network claims using a reference point such as Medicare. And then if the provider sends a balance bill, that solution can offer online tools and perhaps consulting services help the patient negotiate the balance bill directly with their doctor. Multi-Plan enthusiastically supports UnitedHealthcare and the work they are doing to help their customers and their plan members when a balance bill is received. While reference pricing services can do much to help the member, we do not agree with the assertion that these services protect members completely from balance billing. The only way a member is fully protected from a balance bill is through a contract or other agreement with the provider to accept the plan's reimbursement as payment in full. We also don't agree with the assertion that United or any major payer is likely to shift all of its business to reference-based pricing services like Navigard. The choice of an employer to adopt reference-based pricing depends on the employer's objectives for its health plan. Employers seeking to minimize plan costs will favor reference-based pricing, while those seeking to protect employees will stay with a more traditional benefit plan design. In reality, interest in aggressiveness versus generous health plan approaches will always ebb and flow, as the economy does. As you can see on this slide, we have attempted to show the comparison between what reference-based pricing services do and what Multiplan does. They are apples and oranges. Multiplan supports a wide variety of benefit plan design, including reference-based pricing. Reference-based pricing services offer only one approach. And furthermore, large insurers serving a variety of self-insured customers will always need to offer a choice in benefit plan designs. Their customer base is not a one-size-fits-all. I should also make it clear that Churchill, like any sophisticated investor, performs significant diligence about Multiplan and its customers, including United Healthcare, and was satisfied that those relationships are rock solid and represent a foundation for Multiplan's continued future growth. On a final note, our relationship with United is as strong as it's ever been, and in fact, it's expanding, not shrinking. We have a number of exciting initiatives that have either deployed this year or are implementing involving several of our key services, spanning several United lines of business and also benefiting a number of of the UnitedHealthcare family companies. Next, please. The second topic to address is our relationship with our top customers and the completely false assertion that they are unhappy with us and are going to leave us in droves. Our relationship with our customers across our market segments are as strong as ever. Our customers' commitment to partner with Multiplan has never been more robust, and our pricing has remained steady the normal give and take between volume and price. As we talked about on our analyst day, Multiplanet is an important value-added partner to all of its payer customers. We play an essential role as a fully independent third party, addressing claims and identifying savings. Independence is a cornerstone of our business model, along with our deep IT and process integrations into the prepayment workflows of our payer customers. These two elements allow us to quickly process claims, reduce costs, and help protect members from potential balance billing. As he said in the past, and the data supports it, our largest customers continue to perform in line with our overall business, which is growing. While 2020 has seen a drop in healthcare utilization resulting from the COVID-19 pandemic, we continue to see strong relative performance among our top payers even in the last two quarters, as they use a variety of multi-plan solutions to contain costs and protect their members. The growth for our top 10 customers, as shown, would have been even stronger if not for the idiosyncratic headwinds we felt in 2019, an issue we've covered numerous times before that was unique to a specific customer group. As we have said all along, our take rate with customers remains steady. We'll note there has been some confusion with the way we've been disclosing savings and revenues, which I can sympathize with. So I've asked Dave to tackle this later in the presentation. In short, while the prices we charge our customers are mostly volume-related and are high single-digit to double-digit percentages of savings, they realize our revenue divided by the savings we identify does not equal our take rate. Our payer customers are the final decision makers of how much of the identified savings that we provide them they actually use. As you can imagine, we prefer to avoid disclosing specific pricing levels for competitive reasons, but the prices we charge and the conversion rates of savings into revenue have not seen anything like the types of headwinds floated out there by these short sellers. We have had a productive year extending contracts signing on new logos, rolling out new programs that will lead to greater revenues for Multiplan and more savings in value for payers and consumers. Let me now turn to the third topic to clear up speculation that Multiplan used aggressive accounting policies to mask performance in 2018. Revenue reserve leases had a $1.1 million impact on revenues in 2018. In fact, we had less benefit in 2018 than in 2017. Our year-over-year reported revenue growth in 2018 was lower as a result of these accounting policies. Revenue reserves are small in the context of our total revenue, not the 10% to 30% type of figures described in the short seller's manifesto. Each year, Multiplan reviews appeals and other changes to the savings we generate to do our best to conservatively reflect our revenues. What is more frustrating about this claim is that in 2020, revenue reserves have actually been a headwind to reported revenue growth. Year to date, we have seen a $14.5 million headwind associated with revenue reserves as reserves have slightly grown since December. I'm proud of our finance and accounting team, led by longtime CFO Dave Redman, We will continue to appropriately and conservatively recognize revenues at Multiplan. The last short seller claim I'd like to address relates to the Churchill merger and Multiplan's prior private equity ownership. Our company was by no means underinvested in and was not at any point for sale by Hellman, Friedman, and our other investors. Multiplan was investing in our capabilities and seeing strong growth in our newest products like data eyesight and payment integrity. To reiterate, our company was not for sale. Churchill unilaterally approached us in the spring with a powerful thesis around unlocking and accelerating growth. That thesis, along with a robust pipeline of opportunities, led to the merger, the leveraging, and public listing of our equity. Multiplan successfully partnered with private equity firms as Multiplan has successfully partnered with private equity firms for two decades as we grew the business through both organic product development and M&A. But the public listing was the right step for our company. Multiplan's robust margins and free cash flow are a result of our scale and long-term commitment to technology and automation, not the result of our capital structure or ownership. Next slide, please. Let me now discuss proposed federal surprise billing legislation. This is not a new story, but it bears further scrutiny. Surprise billing laws are designed to protect consumers from unexpected medical bills. These laws say that for certain types of providers, primarily emergency rooms, anesthesiologists, radiologists, pathologists, consumers cannot be billed for an out-of-network charge when they unknowingly arrive at an out-of-network ER facility or have an elective procedure at an in-network facility which employs an out-of-network physician. Why? Because in most cases, the consumer was not afforded the opportunity to choose an in-network provider. So, for example, if you go to an in-network ER to have your fractured leg set, the surprise billing law would say that you cannot be hit with a surprise bill for the out-of-network anesthesiologist who assisted with the procedure. All of these laws aim to eliminate unexpected healthcare bills to consumers. which we, of course, support, as it is consistent with our core mission to make healthcare more affordable, efficient, and fair. Multi-Plan has long communicated, as we did again on Analyst Day, that the exposure of a potential federal surprise billing law would be about $90 to $100 million of revenue. I want to give you two points of analysis that suggest the impact could be less than this, one which shows impact from state laws of only 0.9 to 2.7% of identified potential savings on surprise bill-related claims that we don't know the exact mechanism that a potential federal law may employ or when, if ever, it may go into effect or how exactly its impact will resemble the state laws. The first point is what drives this estimated impact in the first place. As you see on page seven of the presentation, about 79% of the $17 billion that Multiplan identified as potential savings for its commercial payer customers in 2019 came from claims that are unrelated to surprise bills. These identified potential savings are in no way impacted by current state and proposed federal surprise billing laws. So, we were talking about the remaining 21 percent or 3.6 billion of the total identified potential savings that came from claims addressed by surprise billing laws. Now, out of the 21 percent of related identified savings, approximately 11 percent was generated through our provider network and negotiation services, both of which, by contract with the providers, eliminate surprise bills and are likely not a headwind to our business. Remaining 10 percent, or $1.7 billion of identified potential savings, come from claims that could be at risk from surprise bills and surprise billing laws. And this is where our history with state surprise billing laws helps to inform our expected impact from a federal surprise billing law. As I will show you in the next two pages, our experience in the states show that very few customers stop sending us surprise bill related claims as a result of state surprise billing laws being enacted. And those that did grow only about 2.2% were 374 million out of our $17 billion in identified potential savings. Next slide, please. There's a lot of detail on this page and Dale White will take you through the process in his section. For now, let me focus us on what happens if a federal surprise bill is passed using the hybrid approach, which is one we believe is most likely to occur. With the hybrid approach, the biggest risk to Multiplan is on claims under $750. Here Multiplan may be asked to provide the reference price and to process the claim, or the payer may choose not to send the claims to us for processing, and we would then not make any revenue on those claims. It's important to note that claims at or below $750 make up only 7.1% of the potential savings that Multiplan identifies from surprise bill-related claims, and only 1.5 percent of the potential identified savings when adding non-surprise bill-related claims. This is another data point supporting the statement I just made that analysis suggests the impact to Multiplan when a federal surprise billing law could be less than expected. So, as you can see, only in a few select cases, that is, in a hybrid approach for claims under 750, does the claim run the potential risk of not being sent by the payer to Multiplan? Again, this is why we believe that the potential passing of a federal surprise billing law would have a fairly limited impact on Multiplan's business. Next slide, please. Lastly, let me share with you our analysis of what we have seen in the 30 states that have already enacted surprise billing laws. There are a few different approaches states take to mandate what should happen if that anesthesiologist that I just mentioned isn't in the health plans provider network or in multi-plans provider network or wasn't successfully negotiated. I've already explained the dispute resolution and hybrid approaches which are deployed in seven states and nine states respectively. Another five states use a payment standard or reference pricing to set prices for these services with no prescribed option for dispute resolution. And nine states prohibit surprise billing but leave it to the payers and providers to figure it out amongst themselves, which often results in a dispute resolution. There are now two major federal proposals making their way through the lawmaking process. Both are very similar to the dispute resolution and hybrid mechanisms used at the state level. The main difference between the state laws and the federal is that the federal will affect ERISA regulated plans. ERISA is the federal law that regulates self-insured employers. This is an important distinction because claim charges for self-insured payers account for approximately 78% of all claim charges that Multiplan processes. We operate in all these states, both before and after enactment of these laws, and as you can see on the chart on page nine, the 30 states represent a sizable 87% share of that potential savings identified for both self-insured and fully insured commercial customers. We analyzed the 18 states laws enacted after 2015 looking at fully insured potential savings identified on surprise bill related claims in the year prior and the year following enactment. Let me focus on the states with surprise billing laws that are similar to the two major federal proposals. First, the seven states that employ dispute resolution account for approximately 21% of our total potential savings for customers. In response to the law, multi-plan customers opted to no longer send surprise bill-related claims accounted for only 0.9 tenths of 1% of the pre-enacted potential identified savings from surprise bill claims in those states. Comparing pre-enactment to post-enactment, fully insured potential identified savings from surprise bills, we saw an overall decline of 13.3%. It's critical to note that virtually all of the decline had nothing to do with the surprise billing law enactments. Instead, it was almost entirely due to a payer customer, one of ours having lost a major employer as a customer in one of those states. A small remainder of decline likely came from the impacts of COVID in the last two quarters. Second, the nine states that employ a hybrid mechanism account for approximately 51% of the total identified savings from surprise bills. We lost approximately 3% of our surprise billing-ready claims as a direct result of the law, but the total amount of fully insured potential identified savings from surprise bills grew by over 33%. All told, the loss in surprise billing-ready claims following the enactment of state surprise billing laws came as a result of a small number of customers who made the decision to no longer send surprise billing claims to Multiplan for processing. That loss amounted to only 2.2 percent, 2.2 percent of our total potential identified savings on surprise bill-related claims in the year preceding the enactment of state surprise billing laws. Notably, in the two categories where proposed federal legislation might land, dispute resolution and the hybrid approach, the percentage drop was less than 1 percent, 0.9 tenths of a percent, and 2.7 percent respectively. This 1 to 3 percent range is certainly in the ballpark of what we noted on the prior slides. In full disclosure, this is not a perfect analysis. We don't always know at the claim level whether it is for fully insured or self-insured business or where the plan was underwritten, nor do we know whether the facility where services were rendered was in or out of network, which is important for non-ER services. We've made reasonable assumptions. The analysis shows that we grew identified potential savings from some surprise bill relending claims by 28 percent from the 12-month period before and the 12-month period after these 18 states enacted their surprise billing laws, even accounting for the known loss of 2.2 percent of that business as a direct result of the laws. Look, Multiplan has been in business for nearly 40 years. We have worked with many of our customers and especially the large payers for much of that time. We evolve as the market evolves. We didn't stand still as the states passed these surprise billing laws. We created new approaches to help our customers operationalize and comply with these laws. These actions account for much of the 28% growth in identified potential savings in these states with surprise billing laws. And of course, we continue to add new customers, improve the performance of our services, and add new services such as payment integrity. I'll close on this topic with one final point. Multiplan is in the business of reducing medical spend, and we do this through a variety of technologies and data-driven methodologies that administer claim repricing and settlement. That is at the core of what any federal surprise billing law would require. We are well ahead of the game in being prepared to help payers operationalize a federal bill which we believe is not likely to be enacted and operationalized until 2023 if the bill is passed in the near term. Next slide, please. Let me now hand things over to Dale for a business update. Dale will start off by telling you a bit about our business. He'll hit on three facts. First, we are a data analyst company in the large and growing $3.8 trillion U.S. healthcare system. Second, our customers are commercial healthcare payers. They will talk about our core and also about the adjacent customer base we will address in the future. And third, we provide a mission-critical service. We identify potential savings of more than $19 billion for all of our customers and over $106 billion of medical claims in 2019. In short and without question, without us, healthcare would be far less affordable. So let me now turn things over to Dale to address this in a bit more detail. Dale?