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.