MultiPlan Corporation

Thank you for standing by, and welcome to the Multi-Plan Corporation Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the 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, Ms. Gaskett. Please go ahead.

Thank you. Good morning and welcome to Multiplan's second quarter 2021 earnings call. Joining me today is Mark Tabak, Chairman and Chief Executive Officer, Dale White, President and Chief Operating Officer, and David Redman, Chief Financial Officer. This call is being webcast and can be accessed through 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 second quarter and 2021 earnings press release issued earlier this morning. We will refer to the supplemental slide deck during our discussion 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 annual report on Form 10-K for the fiscal year ended December 31, 2020, and our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2021, and other documents to be filed or to be filed with the SEC. Any such forward-looking statements represent management's expectations, beliefs, and forecasts based on assumptions and information available 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 in 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, to the extent available without unreasonable effort, is available in the earnings press release and in the slides included in the investor relations portion of our company's website. I would now like to turn the call over to our Chief Executive Officer, Mark Tabak. Mark?

Thank you, Shawna. Good morning, everyone. Let me join in welcoming you to our second quarter 2021 earnings call. I'd like to thank our stockholders for their continued support. I'm pleased to say Multiplan is reporting its fourth consecutive quarter of strong performance in our first year as a public company, continuing on a track record of consistent, substantial returns for six groups of private equity investors. The second quarter, our operating results exceeded the guidance that we set out earlier this year and are characterized by strong sequential and year-over-year organic growth in both revenues and adjusted EBITDA. Importantly, we had growth across all of our businesses and across all customer groups. As shown on page 5 of our supplemental slide deck, in the second quarter, total revenues were $277 million, presenting an increase of 33.5% over the prior second quarter and an increase of 8.4% from Q1-21. And on page 6, due to the impact of the COVID pandemic, which receded in the quarter, and the contributions from our recent acquisitions, organic growth in revenues was 6.9% versus the prior year second quarter, and 2.6% versus the first quarter of this year. Adjusted EBITDA for the second quarter was 205.3 million, an increase of 37.1% from Q2 2020, and an increase of 7.5% from Q1 of 2021. In the effects of COVID, contributions from our newly acquired businesses and the incremental public company costs, organic growth in adjusted EBITDA was 13.9% versus the prior second quarter, 3.4% versus the first quarter of this year. We continue to be laser focused on operational excellence and expense control. Keep it on margins in Q2 21 with 74.3% up from 72.4% in Q2 of 2020 and down slightly from 75% in Q1 of 21. Our business continues to exhibit strong free cash flow conversion, 56% in Q2 21 and 73% year to date. Our confidence in our business remains strong. We continue to enhance our services and continue to provide exceptional customer service, which has led to strong customer retention and growth. While we expect COVID-19 to continue to affect our business through the back half of this year, sequential improvement from the first and second quarter suggested that the effects of the pandemic may be starting to normalize in some markets. Rather, based on the strength of our first half results and on our pipeline of new business, our outlook for 21 has improved. As a result, we are raising our financial guidance for the year. Dave will detail that momentarily. Before I turn it over to Dale to discuss the business and Dave to discuss the financials, I'd like to say a few comments addressing the recent volatility in our share price. As most of you know, multi-plan stock again came under pressure, this time from speculation regarding a coverage policy change in one of our customers, a change that based on our understanding and economic analysis will have no material impact on our business. speculation resurfaced a number of narratives about Multiplan's ability to retain customers and revenue, which continue to insufficiently appreciate the value proposition we offer to our customers, the competitive attributes and operating strengths of our company, and the dynamic nuances of the markets in which we operate. Let me once again try to set the record straight. The fact is Multiplan continues to increase the scope of what we do for our core customers. because these customers operate in a complex and dynamic environment and they continuously seek our help adapting to change that they confront. Requirement to reconfigure workflows to comply with the specifications of the No Surprise Act is only the most recent case point. While it's conceivable that with enough time and investment our customers could develop processes to comply with the No Surprise Act without our help, they are turning to us for help because we have the speed, we have the flexibility, We have the agility to customize solutions that meet their needs. Dale will talk about some of these efforts momentarily. What Multiplan does for its customers is neither easy nor easily replicated. Over the span of four decades, we have invested heavily in intellectual and technological capital. The result of our unique path is a set of differentiated operating assets that will be difficult, if not nearly impossible, for any competitor or customer to reproduce. These assets include a national network of 1.2 million providers. They include a database of over 1 billion claims and over 3 petabytes of structured claims data from across 700 payer customers. They include proprietary processing algorithms that are deeply integrated into the claim management IT processes of our core customers. Our embeddedness in our customer workflow means the cost, time, and effort to change vendors can be very high for our customers. But our customers don't stay with us because switching is time-consuming or costly. They stay with us because we have the scale to provide the services they need more cost-effectively and the expertise to perform these services more efficiently, resulting in higher cost savings and less work and churn. We add substantial value to our customers, and our set of differentiated and difficult-to-replicate services give us confidence in our cash flow stability and growth. assertions that a Medicare reference pricing cost-managed solution is intended to displace multi-plans demonstrates an insufficient grasp of the diversity in plan designs and preferences across the health plan sponsor universe. While employers and other health plan sponsors prefer a cost-management solution that leverages our provider network, data eyesight, negotiation services, a Medicare reference pricing solution, some combination of those approaches depends on many, many considerations. These include the incidence and volume of added network spend, the prioritization of cost savings relative to the design, degree of member of choice, acceptable level of provider abrasion, desire for member support, and the risk tolerance of the plan sponsor. The fact that no single solution is right for every health plan is reflected in the large number of configurations sold by our payer customers to their clients. Many of these configurations include one or more multi-plan services and we are unique in offering an end-to-end of solutions and services that can serve the full spectrum of health plan designs, encompassing a wide range of desired member benefits, provider reimbursement baselines, and cost management approaches. It's true some plan sponsors are highly focused on steering your members to stay in-network to manage their own costs. To that end, some of these sponsors will elect a Medicare reference pricing approach to an in-network cost management approach and permit more balanced billing to reinforce member behavior. So others may elect to use Medicare reference pricing as part of their network. The demand for solutions that prioritize cost management, particularly in the downstream TPA, regional health plan, and direct to retail market was a key driver behind our decision to acquire and invest in HST, which we believe represents the next generation of reference-based pricing solutions. We call these solutions value-driven health plans health plans. We call these solutions value-driven health plan services because they extend beyond the typical program that offer pricing with back-end advocacy. HST offers innovative pre-care tools and help consumers make decisions around cost, quality, and selection of providers. Rather, it seamlessly pairs with Multiplan's professional provider network. We believe HST has a highly differentiated and effective approach for managing member-provider abrasion and providing both pre- and post-care consumer advocacy. We think HST is one of the most compelling Medicare reference pricing solutions available. We are well positioned in the marketplace today. At the same time, Medicare reference pricing approaches have been around for a long time. Against that backdrop, the use of data eyesight, the pricing engine at the core of our analytics-based service business has continued to grow. Today, it is our biggest single revenue-generating service across all of our largest payers. They rely on Data ISA because it represents a state-of-the-art and cost-based pricing methodology. This methodology achieves an attractive balance between cost savings and provider-member abrasion. It outperforms on cost savings relative to reasonable and customary pricing approaches that overweight provider bill charges. And it outperforms on reducing member-provider abrasion relative to less flexible pricing reference-based pricing methodologies like Medicare. It derives objective market-based prices that yield provider acceptance rates in excess of 95%, driving fewer claim resubmissions and less reliance on subsequent negotiations. It is enabled by our vast database, our proprietary algorithms, and a technology platform that is uniquely situated in our customers' EDI gateways and that delivers straight-through processing with over 95% same-day turnarounds. In short, it is an attractive and durable value proposition, and we believe it would be extremely difficult for anyone else to develop a solution that could compete with its technology, its scale, and its independence. To be clear, Multiplanet encounters a number of competitors and rival solutions in the marketplace across many services. We are required to prove our value day in and day out by competing to provide services on the basis of savings effectiveness and provider acceptance. That has been the case throughout the entire life of this company, and it's why we've always focused tirelessly on operational excellence. This means capturing and repricing work claims and charges, managing operational expenses while delivering excellent service with minimal churn, adjustments and rework, and identifying and pursuing every entrepreneurial opportunity. We've always believed that if we take care of the business and our customers, our share price would take care of itself. We continue to believe that we will That will be the case over the long haul. This management team has overseen six accretive transactions as a private company and has now reported four consecutive quarters of strong performance as a first-year public company. The key to our longevity extends beyond our unique resources. What has differentiated Multiplan is our agility in reconfiguring those resources and acquiring new resources to meet the ever challenges and opportunities that our payer customers and the plan sponsors and members for those customers serve. The recent rhetoric from some quarters in the investment community that we would have you believe that change is a negative for multi-plans. In contrast, we see change as an opportunity to adapt and capture new opportunities to serve our customers. There's no better example of our dynamic capabilities than the investments we've been making in machine learning and artificial intelligence, where our vast proprietary data sets and the large volume of claims we process position us to leverage these new technologies to identify more clinical aberrations that generate incremental cost savings for healthcare payers. Relative to in-network, we are continuing to capture opportunities in our provider network as payers move into and expand their presence in Medicare Advantage. Meanwhile, the No Surprise Act presents opportunities to collaborate with our customers and requires significant modification of business and processing logic and rerouted workflows to comply with these new rules. And in payment and revenue integrity services, Now greatly enhanced by the acquisition of Discovery Health Partners, we have created new and meaningful opportunities to address Medicare Advantage and in-network claims, market segments we have historically underpenetrated. We continue to strategically engage with our core customers. We are managing dozens of projects with each of them to plan and implement service offerings. Already this year, we have deployed some two dozen service enhancements to increase identified savings, We have a number of machine learning initiatives in flight and underway to increase savings and enhance operational effectiveness. In summary, the second quarter marks our fourth.

Hello? Hello?

efficient, and fair. As always, I'd like to express my gratitude to our customers for their enduring trust and partnership and to our more than 2,200 outstanding Multiplane colleagues whose tireless effort made this success possible. For that, I'd like to turn things over to our President, Dale White, who will provide a business update. Dale?

Thank you, Mark, and good morning, everyone. Mark is spot on in his description of the relationships we enjoy with our customers and how the value we deliver is critical to our ability to preserve and grow them. Indeed, our unique position in the industry has been on full display as we help our customers work through the results of the rulemaking for the No Surprises Act, as I'll touch on shortly. First, let me spend a few minutes on trends we are seeing in claims and healthcare utilizations. As Mark noted, we generated nearly 7% organic revenue growth in Q2 2021 versus the same quarter last year, normalizing for COVID and our two recent acquisitions. Underneath that, overall claims volume, process charges, and identified savings have continued to grow nicely. As shown on page 9 of the supplemental slide deck, claim charges processed were up nearly 7% sequentially, and up about 32% over the depressed prior year quarter, while identified savings increased about 3% sequentially and about 20% over the prior year. Within these trends, there are a few cross-currents worth noting. First, while process charges continue to reflect elevated volumes of COVID testing and vaccine claims, These COVID-related charges declined by about 24% from the prior quarter. At the same time, we've seen an encouraging increase in non-COVID-related charges of nearly 19% versus the prior quarter, and non-COVID-related charges are now tracking over 90% of our pre-pandemic levels, up from about 80% during Q2 2020. These volume trends clearly suggest that the COVID related impact on our business has begun to normalize, but we have not yet returned to normal. We are closely watching the Delta variant caseload, which poses some risk of prolonging the COVID related effects on our claim mix and our revenues. We also note that average charges remain somewhat depressed. The average charge on non-COVID professional claims, was 8.6% lower sequentially and 7% lower than Q2 2020. Average facility claim charges were down 3% versus Q1 2021 and down 1% versus Q2 2020. Deeper analysis suggests two key drivers. First, while demand is starting to return in higher charge categories like orthopedic surgeries, In Q2, we saw lower average acuity. Secondly, volume in Q2 rose dramatically for lower-cost elective services, such as cosmetic skin procedures. These dynamics reduced the average claim charge, but also encouragingly suggest that consumers are increasingly willing to seek non-critical services. We continue to execute on the growth of our core business through our enhance and extend strategies and with sales initiatives. We've had some nice client wins that we expect to drive revenue and cash flow growth in future quarters. Just among these, we are awarded primary care network business with a national payer, which is set to deploy in January and will add access for about 1 million lives. We have nine new payment and revenue integrity service deals committed for an estimated $1.4 million in new annual revenues. Data eyesight usage is exceeding expectations with our larger payers, and we are in discussions with several payers to expand its use. We now have eight machine learning initiatives underway, one active in production, four awaiting approval for production, and three as active projects. These initiatives span across multi-plan solution categories and will deliver both increased savings and operational efficiencies. We are also concepting 10 to 15 additional initiatives. We're tailoring price strategies for several customers, including one which enables compliance with select state surprise billing regulations and are now promoting this service to other payers. In Q2, we grew covered lives for our value-driven health plan services by about 50%. We have another 100,000 lives in potential covered lives from an active pipeline opportunities with employers. Speaking of the pipeline, we're about 90 days into a new coverage model for our sales and relationship management that we put in place, and the team is starting to hit its stride. We've added over 470 new deals to the pipeline under the new model, of which about 35% have already progressed. We have closed 60 deals totaling about 5.7 million that are in backlog. This is great progress for a process that's in its early stages, particularly since we have been simultaneously integrating the sales pipelines of our acquired businesses and have been busy cross-training our team, our newly reshaped and augmented sales team. Regarding our progress on our extend strategy, we are particularly delighted with the market reception for value-driven health plan services, as Mark said, which were introduced with the acquisition of HST and which accelerated Multiplan's ability to to enable its customers to offer flexibility in health plan design. Multi-plan legacy services have long resonated with employers ranging from midsize to very large, including those that incorporate reference-based pricing as part or of all of its out-of-network cost management strategies. Now with HST's value-driven health plan services, we have filled an important gap in our functionality, That allows us to better target small and mid-sized employers who often prioritize cost over other plan features and who typically view Medicare-based reference pricing as the most feasible approach for achieving their cost objectives. As Mark mentioned earlier, Medicare reference-based pricing programs have historically caused greater member and provider abrasion. Our value-driven health plan approach is different. providing member education and tools to help plan members identify and select the most cost and quality effective providers. Importantly, our approach includes similar education and tools for providers. The result is a plan design that offers many of the provider mindful benefits of a network while delivering deeper savings for the plan sponsor and maintaining value for its plan members. HST was a differentiated solution before we acquired it, and we believe it is even more differentiated when combined with Multiplant's legacy capabilities, including our provider network and our payment integrity services. On that score, we believe we offer the only Medicare reference-based pricing solution that can seamlessly integrate partial network access on a national scale. providing even greater potential for minimizing and managing the member-provider abrasion typical of Medicare reference-based pricing plan designs. Continuing on, I'd like to offer a few thoughts about the No Surprises Act, including the recently released first interim final rule. Referring to page 11 of the supplemental slide deck, while the requirements are very detailed and very technical, At a high level, the first interim rule was broadly in line with our expectations and supported our continued view that the NSA is likely to have a material negative or positive impact on the company's operating results. That view is supported by the basic observation that although members cannot be balanced billed for certain out-of-network charges under the No Surprises Act, the legislation established no payment standard for those out-of-network claims. As such, providers and payers will still need to negotiate the reimbursement of these claims, and therefore Multiplan believes it will continue to see claims related to procedures covered by the NSA, and we believe our network, negotiation, and pricing services will continue to have application to processing those claims. This includes and especially pertains to helping payers calculate the qualifying payment amount, determine an initial payment to the provider, negotiate settlements with providers, and support payers in the arbitration process. The highly technical specifications outlined in the first interim final rule underscore the complexity and burden of administering the requirements, and we believe only heighten our customers' interest in working with Multiplan since we have the expertise and agility to help them quickly and effectively achieve compliance. During the quarter, we continued to spend a great deal of time working with our customers to explain the No Surprises Act and how they can best adapt existing programs or build new programs to comply with the new requirements. Since April, we have had discussions with over 100 customers, some with one or more follow-up sessions. We participated on a couple of industry panels, and last week we held a webinar to discuss the first interim final rule, which attracted over 400 customer registrants. As noted, the No Surprises Act establishes requirements that are squarely in Multiplan's wheelhouse. They call for extensive claims data and analytics, connected claims processes, effective provider relationships, intelligent pricing, and strategic negotiation capabilities, tools we use to reduce charges on hundreds of thousands of claims every day. We are optimizing these capabilities to leverage their use under the new requirements. For example, we are building on our robust provider matching capabilities to create a service that identifies a claim as a surprise bill. This will be an automatic step in the repricing process when we are the customer's primary provider network, but we can also perform this function for other customers as needed. Our sophisticated healthcare economics team is driving development of a QPA calculation service, which again will be an automatic step in our primary network pricing and one we can offer to other customers on an outsourced full-time or an ad hoc business process. We are focusing payment integrity factor development on emergency and other surprise bill-related services. And we are enhancing our extensive pricing, prepayment, and post-payment negotiation services to capture and leverage the QPA to minimize dispute resolution costs and risk for both payers and providers. We expect to receive the second interim final rule in the next several weeks, which will focus on the independent dispute resolution process and put to rest an important debate taking place over the weighting of factors listed in the legislation as required considerations during arbitration. Before I turn it over to Dave, I want to elaborate on recent expansions in our leadership talent. As we previously mentioned, Andrew Cohen joined us as our Chief Revenue Officer from Optum in January. Over a short time, he has made impressive strides in reorganizing our sales function and implementing new sales processes to accelerate the creation and consummation of deals. I am also pleased to announce the creation of a new position, Senior Vice President of Products, filled by Naveen McGarrett. In this role, Naveen will spearhead initiatives under our Expand Growth Strategy, He comes to Multiplan from McKenzie's healthcare practice, where he focused on incubating and building new healthcare IT and digital health businesses inside large enterprises. He has built four high-tech companies over two decades, most recently as CEO of DNN, a content management company. He grew DNN from five employees to a profitable enterprise with over 1,500 customers in 25 countries. Naveen will usher in a new product-centric focus that will be instrumental to our expand growth initiatives as surprise billing and other industry changes create opportunities for Multiplant to transform the nature of our value to payers and providers. Andrew and Naveen are just two examples of how our expansion and development of leadership has introduced new perspectives and tools and augmented a leadership bench that is already deep in subject matter expertise and creativity and commitment to operational excellence. In summary, our leadership team is capable and expanding. Our business and our customer relationships are healthy, and we continue to execute against our growth initiatives, all of which give us considerable confidence in our future. With that, I will now turn it over to Dave, who will talk about the financials. Dave?

Thank you, Dale, and good morning, everyone. As Mark and Dale mentioned, Q2 2021 marked another quarter of significant momentum for Multiplant. As Mark noted earlier, Q2 2021 revenues increased 33.5% over Q2 2020 and increased 8.4% over Q1 2021, exceeding our earlier expectations and the guidance we communicated back in May 2021. Organic growth was strong, excluding the revenue contributions from HST and Discovery and normalizing for the decline in the impact of COVID-19 during the quarter. Revenues in Q2 2021 were up approximately $8 million or 6.9% over Q2 2020 and up about $7 million or 2.6% sequentially. We estimate the COVID-related revenue impact in Q2 was approximately $9 to $11 million, about $10 million lower than the COVID-related revenues impact in Q1 2021, and approximately $40 million lower than the COVID-related revenues impact in Q2 2020. Of the $9 to $11 million in Q2 2021, we estimate approximately $3.5 to $4 million of the impact was related to our network-based revenues with similar dynamics impacting our workers' comp and auto business as we saw in Q1 2021. We estimate approximately $3 to $3.5 million of the COVID impact was related to our analytic service line revenues, driven predominantly by mix and volume changes in the healthcare delivery. And finally, we estimate approximately 2.5 to 3.5 million of the impact is related to our payment and revenue integrity service line revenues, driven also by a lower mix and volumes of surgical emergency department and anesthesia claims. Total estimated impact of $9 to $11 million for Q2 2021 primarily reflects trends we are seeing in our claims receipts and does not include indirect costs of COVID on business conditions, such as delayed implementation or longer sales cycle due to limited in-person interactions. Second quarter adjusted EBITDA expenses were $70.9 million and included operating expenses for the full quarter of HST and discovery of approximately $10 million or $5 million greater than their expenses in Q1 2021. The increase of $14 million over Q2 2020 was predominantly 5 million of additional public company costs and 10 million of growth initiatives, net of some reductions in overhead, including approximately 10 million associated with HST and Discovery. Our annual run rate of public company costs runs at approximately $20 million. The combination of increased revenues and controlled expenses resulted in adjusted EBITDA of $205.3 million in Q2 2021 or 37.1% higher than Q2 2020 of $149.8 million and 7.5% higher than Q1 2021 of $191.1 million. Excluding the EBITDA contribution from HST and Discovery and normalizing the decline of the impact of the COVID pandemic during the quarter, EBITDA for Q2 2021 were up 26 million or 13.9% over Q2 2020 at about 7 million or 3.4% sequentially. Adjusted EBITDA margin was 74.3% in Q2 2021. The decline from Q221 was primarily driven by lower incremental margins from the acquired businesses as discovery and HST have naturally lower margins and the impact of both of those entities was factored into Q2. They have continued to invest to drive product development and growth, but will probably have lower margins than we historically have had. Moving to our 2021 guidance as noted in our press release this morning, And on page 12 of the supplemental slide deck, we are raising guidance for the full year 2021. We now expect revenues to be approximately $1.09 billion to $1.13 billion. This includes revenues in 2021 of approximately $50 million in total from the recent acquisitions of Discovery and HST. Our revenue guidance assumes a smaller impact of approximately $18 to $22 million or $9 to $11 million per quarter for the third and fourth quarters of 2021 from COVID in the second half of 2021. This compares to approximately $30 million for the first half of 2021. We have methodically worked through a variety of assumptions, including emerging risks from the Delta variant, to drive these estimates, and we have incorporated these into the guidance range I mentioned a few minutes ago. As I've said previously, given the nature of Multiplan's business, forecasting the COVID impact is at best in estimation. As we look out to the back of the year, we are optimistic the effects of COVID on our results will further subside, but we also believe the impact will continue to be meaningful in Q3 and Q4, especially with the emergence of the Delta variant, and believe that some caution is warranted given recent caseload increases associated with the Delta variant. Moving to adjusted EBITDA as shown on page 12, we expect adjusted EBITDA for 2021 of approximately $810 to $835 million. As previously communicated, our adjusted EBITDA expectations incorporate approximately 10 to 12 million of additional investments in the business in 2021, primarily around our IT spend, including machine learning and artificial intelligence, expansion of our sales force, and other minor initiatives. We expect these investments to evolve our solutions portfolio and deliver incremental savings and functionality to our customers, and believe that they will yield meaningful returns to Multiplan over time, but will not generate material revenues in 2021. Our full year 2021 adjusted EBITDA guidance reflects an estimated quarterly COVID impact of $7 to $9 million per quarter for the back half of 2021. The combination of our revenue and adjusted EBITDA guidance imply an adjusted EBITDA margin in the 73% to 75% range for full year 2021 and then the 73% to 74% range for both Q3 and Q4. These ranges are a few percentage points lower than we had achieved historically, reflecting the increased public company costs, investments in the businesses acquired, and the lower incremental margins from the acquired businesses, as I previously mentioned. For 2021, we are now expecting operating cash flow of approximately $410 million to $440 million. As a reminder, due to interest and payment timing, Q1 and Q3 tend to be our high cash flow quarters as we have interest payments both on the convertible debentures and the bonds in Q2 and Q4. Our adjusted unlevered free cash flow conversion remains strong at 56% in Q2 2021 and 73% year-to-date. Additionally, we now expect depreciation of approximately $65 to $70 million per and amortization of intangible assets of approximately $335 to $345 million for 2021. As outlined on page 13 of the supplemental slide deck and in the press release this morning, for Q3 2021, we anticipate revenues of $280 to $295 million and adjusted EBITDA of $205 to $215 million, which again includes a COVID impact of $9 to $11 million. of revenues in Q3 2021, similar to what we experienced in Q2 2020. Lastly, we thought it would be helpful to walk through a comparison of our full year 2021 guidance outlined a few moments ago to the 2021 forecast used by Churchill in their analysis of Multiplan and included in the 2020 proxy statement filed with the SEC late last summer. Shown on slide 14 of the supplemental slide deck, including the estimated potential impact of the COVID pandemic and contributions from acquired businesses, the company's fiscal year 2021 guidance implies a range of revenues of $1,085,000,000 to $1,135,000,000, compared to a range of revenues of $1,085,000,000 to $1,125,000,000 for the fiscal year 2021 forecast provided in that proxy statement filed with the SEC late last summer. Excluding the estimated potential impact of the COVID-19 pandemic, contributions from acquired businesses, and public company costs, the company's guidance implies a range of adjusted EBITDA of $848 to $883 million compared to a range of adjusted EBITDA of $845 to $875 million for the fiscal year 2021 forecast that was, as I mentioned earlier, provided in the 2020 proxy statement filed late last year. The fiscal year 2021 forecast in the 2020 proxy statement were based on numerous variables and assumptions known to the company at the time of preparation, which was very early in 2020. And these assumptions and variables did not include any estimated potential impact from the COVID-19 pandemic, acquisitions, or public company costs. With that, I will turn it back to Mark for his closing remarks. Mark?

Thank you, David. Thank you, Dale. As you can see from Dale's business update and Dave's detailed financial report, MultiPoint is making and continues to make great progress. Our relationship with our major customers remains as strong as ever. We have a large number of initiatives underway. We're executing against our growth strategy, and we have built a lot of momentum to carry us into the back half of this year and beyond. Before we go into Q&A, I'd like to discuss the transition planning announced in the press release this morning. Multiplan has long focused on leadership continuity and development and expansion. I believe now is the right time to begin the transition to a new generation of leaders. I'm pleased to announce an important step in that transition is the appointment of Dale White as our President and Chief Operating Officer. Dale has long propelled the company's success and growth through his tireless commitment to serving our customers, most recently in his roles as President of the Payer Markets and before that as Chief Revenue Officer. His promotion to President and COO is recognition of his exceptional leadership and his outstanding track record in execution. Also, I noted in the press release with Dale's promotion to COO and president, the early succession by the board of directors plans to promote Dale to CEO early in 22. Dale and I have been working together for many years to prepare him to succeed me. Since he joined us 17 years ago, he has increasingly expanded the scope of his responsibilities in roles touching every aspect of the business, He has expansive knowledge of our business, brings a customer and growth mindset, and has earned deep respect of Multiplan's colleagues. I could not be more confident that he is the right person at the right time to lead our journey forward. I want to assure our shareholders that I'm not going anywhere. I look forward to continuing to steer the strategy and growth of the company as chairman of the board. As noted in the press release, Dave has informed the board of his plans to retire at the end of the year. We are working to quickly identify his successor and engage an executive recruiting firm to conduct a national search. We are confident the transition will be smooth with Dale's assistance in giving the strength of our finance functions. On that note, I want to reemphasize our efforts to continue to expand and develop leadership talent here. As Dale already mentioned, we have recently expanded our sales and marketing and product development capabilities. We've also brought in new leaders in critical areas across the company, including hires in accounting, financial controls, and investor relations, meet our expanding needs as a public company, and as recently announced, a new chief information security officer has been named to the company as well as we operate in a digital world. These hires add to the deep talent among our multi-plan colleagues and further position the company in our pursuit for operational excellence and growth. In short, I could not be more excited about the future of the company. Operator, I'd now like to open up for questions and answers.

As a reminder, to ask a question, you need to press star 1 on your telephone. To withdraw your question, press the pound key. Your first question comes from Joshua Raskin at Joshua Raskin.

Good morning. This is Marco on for Josh. Thanks for taking the question. The slides show that the analytics segment was one of the major drivers of revenue growth in the second quarter, even though that segment was actually a slight drag in the first quarter. So I was just wondering what caused the growth in that segment to pick up, and what types of clients drove that growth.

Thank you. That growth was really across all of our customers. Most of that pickup was a result of more elective surgeries being performed in the period that would generate our revenues in Q2. I think if you remember, we estimated the impact of COVID in Q2 Q1 of around $9 to $10 million for that segment, and it came down by probably $6 to $7 million. Most of it was just more volume coming through our analytic services, and a lot of that was anesthesia-type, ER-type claims that we've historically had in that segment. Dale?

No, I agree, Dave. I think it's two factors that are driving that. One is the changing, as I said in my comments, the increase in claims charges, too. We began to see a different mix of claims with a reduction in the lower COVID related claims charges and starting to see an increase in volume across elective related procedures and higher cost procedures like orthopedic surgeries and others. So I think as the You know, as customer confidence, well, patient confidence continued in the delivery system and they started seeking care, we saw that reflected in our case mix and our volumes across all of our customers.

A return to normalization of utilization.

Great, thanks. And then if I could just ask one follow-up. It looks like you increased the 2021 EBITDA guidance more than the revenue guidance. While we understand the fixed cost leverage of the model, it would be helpful to know what is driving the incremental savings on the cost side there.

I think as we looked at our forecast for the year and kind of did our mid-year review of operating expenses, we believe that our operating expenses for the year will come down a little bit. And as a result of that, most of the flow-through of any revenue increase, plus a little from reduced operating expenses, will drive EBITDA.

Great. Thank you.

And your next question, Daniel Grosslight with Citi.

Thanks for taking the question, guys, and congrats on a strong quarter. I wanted to go back to surprise billing for a bit. Last year you noted around 80% of your claims are non-surprise bill related and that more punitive legislation would likely lead to at most $100 million decline in revenue. Now that we have more details around the bill and rulesmaking, can you quantify the assumed impact of surprise bill legislation in 2022? And does that 80% number still hold? And, you know, not to get too technical, but there was some language in the rulesmaking that third parties would have to be considered independent to be used in determining the QPA. You're obviously 100% paid by payers right now, but it sounds like you think you will be considered independent and you will be able to be used in determining that QPA. Is that right?

Dave, you want to answer the first part of the question, and Dale, you take the second part?

Why don't I let Dale lead off, and then I'll fill in the blanks.

I think in answer to the second part of your question, Daniel, the answer is we believe we can. In instances where the payer needs assistance in helping them to calculate their QPA, we're in a position to do that. They can either calculate their QPA and then give it to us, and then we will apply it through the claims process. Or two, they can give us the data that they have because, as you know, QPA for the most part is the payer's median contracted rate. And in that case, they can give us the data that they have, the rate data that they have, and then we can take that in-house, digest it, and then work with the payer to determine their median contracted rates if they don't have the capacity to do that. So from that perspective, in either case, we're prepared to do that. As you know, we own our own provider network, so we will do that on our own network for clients that use us as a primary network, but we are also building the technology and the capability to do that on behalf of payer clients who can't do it themselves.

Okay, and the 80%.

And, Daniel, I think back probably almost over two years ago, we talked about a worst-case scenario when we had four different versions of surprise billing in the House and a couple different ones in the Senate. And we talked at that time. We were not a public company, so we talked to our bondholders. and said on a worst case scenario to look at the worst aspect of all the plans that we thought that it could have an impact of $100 million of revenue if you took a worst case basis. Obviously, as we've updated that and the legislation has come through, that number is significantly declined. to an amount where basically Dale and Mark and I have looked at the analysis and we did not think it will have a meaningful impact. We'll continue to see the claims. We'll continue to get revenue from those claims, and we'll work with our customers on how they comply with surprise billing. So the $100 million was, you know, kind of worst case two years ago, and based on more knowledge, more understanding, and obviously the law and the first set of regs out of HHS, we believe that the impact will be immaterial. on our financial statements.

Not to be lost in detail is that the provisions of the No Surprise Act really connect very well with the company's historic strengths. The requirement calls for extensive claims data and analytics from point of multi-plan. We're integrated into the customer's IT claim platform so we receive those claims. It deals with the provider relationships. Again, we have our own provider relationships and network, as Dale indicated. It talks about successful negotiation. Again, another tool that we have. So the tools we use to reduce hundreds and thousands of claims every day on non-surprise bills will be applicable to the surprise billing outlined in the regulations today.

Got it. That's helpful. And maybe just a quick one on the management transition. You know, 2022 is going to be a pivotal year for you guys. You have surprise billing rolling out. You have the potential for United really pushing its Navigard on its ASO clients. So, you know, I was curious if you could just give us a little more detail. on the decision around timing of the management transition, having a CEO and CFO kind of step back from the day-to-day activities ahead of such a pivotal year could be a little bit concerning to folks. So just wanted to get your thoughts on timing here and what drove the transition this year.

Dale and I have worked together as partners for nearly 18 years. We work together both on operational issues, day-to-day running of the company, as well as looking at transformative opportunities in the preparation of strategy, M&A activities, and continue to fuel growth through our three-part strategy of enhance, extend, and expand. And what we do, we'll continue to do that, and it gives us the additional opportunity and bandwidth to do that coupled with the additional hires we've brought into the organization. It's a very efficient, effective way of focusing on the next challenges and defining events in the company as we continue to expand multi-plan over the coming years.

Okay. Thank you.

Our next question will line up Andrew DeCiva with B Raleigh Securities. Yes.

Good morning. Thanks for taking my questions, and congrats on the progress. Just a few quick ones for me. To start, I was just curious, was there any change in customer concentration during the quarter? And then do you believe the second quarter fairly reflects gross margin and operating expenses that are tied to the recent acquisitions of HSD and BHP?

Dave, do you want to share the analytics, and then Dale and I can supplement that?

Yeah, Q2 reflects the gross margins, you know, I think of, you know, what is 74.3 that we think is realistic going forward. Obviously, they're slightly down from Q1 because of DHP and HST as we look at our margins going out into the future quarters. As I said in my comments, we thought they'd be 73% to 74%, which I think is consistent when you just incorporate those two entities. We're a company, which you know all too well, that a significant portion of our revenues come from what we call the big four, and then obviously our top 10 customers. So we cannot grow revenue organically, sequentially. or anything else without having, you know, meaningful growth among those customers. And our revenue mix of our top customers is pretty consistent with what it has been in the past, and we expect that to be similar revenue mix moving forward.

And no material change in the concentration there, and our margins in Q2 were up. They were 74.3%, up from 72, 72.4%. the prior year and just slightly down from Q1.

Perfect. Perfect. Very useful. And was growth in payment and revenue integrity just tied to the acquisition of DHB? Actually, what was the revenue benefit tied to DHB and HSP during the quarter, if you can provide that?

Just one second. The total revenues for DHP and HST for the quarter were about $11.5 million. And in Q1, they were about 7.2. Obviously, Q2 reflected a full quarter of DHP and a full quarter of HST, whereas Q1 reflected a full quarter of HST, but only about a half a quarter of DHB.

Two points I would make with Dave's timing comment, number one. And number two, recognize part of the rationale for doing those acquisitions is to integrate them into our business. So you'll see that HST – which is the, you know, HST, which is an analytical business, is being blended into our analytical vertical. And Discovery Health Partners will go into our premium and payment integrity business, integrate those services, and sell them as bundled products to the marketplace, networks, analytics, and payment integrity. Once we capture that claim, then can apply our solutions to generate savings for the customer, payer, savings for their customers, and ultimately savings for the consumer, providing that real value proposition of affordability, efficiency, and with a fair reimbursement wrapped around it.

Okay. And are you viewing the integration of the two acquisitions and just the customer reception related to that favorably, and are they tracking to your expectations?

Well down the road, integrating both HST into our analytics, and DHP into our payment integrity. Dale, you want to add some comments to that?

I echo what you said, Mark. From an operational perspective, we're well down the path on both companies, and And it's gone extremely well, and we're pleased where we are. As importantly, we're very excited about the pipeline. You heard my comments around the growth in the sales pipeline and the inclusion of HST and DHP products. particularly DHP, right? DHP's product services widens and deepens our revenue and payment integrity suite of services, which we now can snap onto our multi-plan chassis and drive into our customers and uh hst as well is is has an incredible pipeline and we're taking advantage of our relationships with our third-party administrators to make that service available so we're excited about the opportunity on both and uh the uh in terms of uh helping to fuel our growth in the coming months that that that commitment to integration

large part the rationale why we can deliver straight-through processing with over 95% same-day turnaround with our payer customers and in excess of 95% acceptance by our providers.

Yeah, I think there might have been some reception issues during your prior comments, or I missed that, but that was useful. Thank you. The last question for me, I know you get color around this, but I want to get a little bit more granular. Can you just discuss what you're seeing in the market from a planned pricing sensitivity standpoint? So are you seeing any dynamics changing where – employers are moving towards or away from pricing sensitivity or care around member provider abrasion related data network negotiations basically is interest in maybe internally derive pay or run out-of-network negotiation platform gaining or losing favor, in your opinion. I've just noticed a lot of hiring one of your largest customers related to these initiatives. I'm just trying to understand how that aligns with your expectations, particularly since some of the hiring is around experts in arbitrations.

Dale's been the face of multiplayer into the payer community for nearly 20 years in the marketplace. No one has a better insight into the payer's plans than Dale White. Dale, why don't you comment on that, and I'll back you up.

Sure. And look, I think it's twofold. One is the, I think you made a comment about the arbitration and the arbitration process. I think payers are beginning to gear up and around the compliance process. with the surprise bill, in particular on the IDR process. Now, the interim final rules on the IDR process aren't coming out for several weeks, so we can't take advantage of the technical details associated with that. But I think the payers are recognizing that providers will avail themselves of the opportunity to go to arbitration if they believe the payments made by the payers are unreasonable. And so I think you're seeing that there, too, in terms of the sort of the employer landscape and their approach. I think payers are always focused on or employers are always focused on maximizing employee benefits and doing the best, most they can to give their employees a whole and rich career. comprehensive set of benefits and to take advantage of services like Multiplan to help drive down medical costs, which enable them to continue to provide competitive benefits to their employees. And we see that time and time again. We've seen that through the years, both in a difficult economic environment and in a very competitive environment, economic environment, and one that we have today where we're hopefully coming out of a pandemic. And so payers and employers are always looking forward to ways to maximize employment. their benefits for their employees, and to drive medical cost savings on behalf of their plan.

Look, as Dale noted, just one case study would be the interim rules for the No Surprise Act. I mean, it's an incredibly technically complex piece of legislation, but our experience is that it has heightened our customers, our payers' interest in working directly with Multiplan, because we have that expertise and that agility. And I think clearly it plays to the multi-plan strength, and it builds upon the decade-upon-decade relationship we've had with those payers as a result of our claims and analytic capabilities integrated into their IT management program, our pricing, and our strategic negotiation capabilities, all of which are tools that those payers are going to need our assistance in complying with the No Surprise Act. We see this as an opportunity for multi-plan going forward, and we're awaiting the next set of regulations that will come out on or about October 1st. Okay, useful context.

Sorry, I do have one more quick one. As it relates to the surprise billing draft guidance, have you submitted comments yet and Can you just let us know what are some of the gives and takes that can be beneficial or negative to your business, things that really are yet to be decided or could change as the final rules are released?

Dale?

Yeah, I think the most important parts of surprise billing legislation and the things that came out, as we said, there was very little material changes on the surprise bill component and with the interim final regulations. And, you know, we still feel that it plays, as Mark said, right into our sweet spot and right into our wheelhouse. It's calling for, you know, what are the things of importance? Identifying a surprise bill, calculating a QPA. managing or working with the payer to make an initial payment offer to the provider, managing the post-payment process if the provider is unhappy, and then providing post-payment negotiation services, supporting the payer or working with the payer on managing the arbitration process. All of those inflection points in the surprise bill continuum are squarely in Multiplans' wheelhouse because they all call for extensive claims data analytics, extensive analytics, connected claims processes, effective provider relationships, intelligent pricing, and most importantly, strategic negotiation capabilities. And those are tools we use today, as I said, to reduce charges on hundreds of thousands of claims every day. And we expect to optimize these capabilities and leverage them to support our payers as they work to comply with the surprise billing law.

Great. Thank you. Also, congrats on the promotion. And as a company, congrats on the progress and snapback and best of luck going forward.

This concludes today's conference call. Thank you for participating. You may now disconnect.

I look forward to speaking with you next quarter. Thank you.