MultiPlan Corporation

Ladies and gentlemen, welcome to Multi-Plan Corporation Fourth Quarter 2022 Earnings Conference Call. My name is Glen and I will be the moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star 1 on a telephone keypad. I would now like to hand the conference over to Shara Gazilk, AVP of Investor Relations. Thank you. Please go ahead.

Thank you. Good morning and welcome to Multiplan's fourth quarter 2022 earnings call. Joining me today is Dale White, Chief Executive Officer and Jim Head, Chief Financial Officer. The call is being webcast and can be accessed 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 fourth quarter 2022 earnings press release issued earlier this morning. Before we begin, a couple reminders. Our remarks and responses to questions today may include forward-looking statements. These forward-looking statements represent management's beliefs and expectations only as of the date of this call. Actual results may differ materially from those forward-looking statements due to a number of risks. A summary of these risks can be found on the second page of the supplemental slide deck and a more complete description on our annual report and Form 10-K and other documents we file with the SEC. We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Multi-Plan's underlying operating results. An explanation of these non-GAAP measures and reconciliation to the most comparable GAAP measure can be found in the earnings press release and in the supplemental slide deck. With that, I would now like to turn the call over to our Chief Executive Officer, Dale White. Dale?

Thank you, Shawna. Good morning, everyone, and welcome to the call. As we close 2022 and reflect on the past year, I'm proud of the progress we have made as an organization. While we have endured a period of softness in the second half and recent performance of the business has fallen short of your expectations and ours, we have taken tangible steps to improve the position of the company and have now reset to a stable base from which we can invest in the business and resume growth. We have made meaningful strides throughout the year. Once again, we demonstrated the critical value we provide to the healthcare ecosystem, processing $155.2 billion of medical charges and identifying $22.3 billion of potential medical cost savings in 2022. We implemented our new No Surprise Act services, taking advantage of our domain knowledge and considerable investment, and turning what many viewed as a threat into a real strength of the company. We executed a holistic review of our growth strategy to prioritize our most strategic opportunities for growth, and we reinforced our case for investing in our business. And we continued to execute on a variety of fronts by selling new business, continuing to drive strong enrollment growth in our HST services, building our sales pipeline, investing in our people and solutions, and managing our costs, all while continuing to deliver high levels of value and service to our customers. During the fourth quarter, we made further headway with actions we have been taking to strengthen the company's positions. Since our last earnings call, we renewed a multiyear contract with another of our larger customers. We have now signed multiyear contract renewals with two of our larger customers in the last six months, increasing the stability and visibility of our business for the next several years. Also, we made progress on reducing our debt by repurchasing $136 million of base value of our 5.75 percent unsecured bonds in the open market at a greater than 25 percent discount to par. And even after that repurchase, still ended the quarter with over $300 million of cash that we can use for further debt reduction, accretive M&A, or opportunistic share repurchases. And importantly, we enacted a new growth plan, which includes concrete initiatives to expand and diversify our products and our service lines, and to reposition our business for growth and success in the coming years. Turning to our fourth quarter results as shown on page three of the supplemental deck, revenues of $241.1 million were at the midpoint of our guidance range and declined about $8 million from the prior quarter. Adjusted EBITDA of $161.5 million was also at the midpoint of our guidance range and declined about $11 million from the prior quarter. Our adjusted EBITDA margin was 67 percent in the quarter, down slightly from 68.7 percent for the prior quarter. While the external environment remains sluggish for the fourth quarter overall, we are encouraged that healthcare utilization may be normalizing, as December was our strongest month for identified potential savings since May of 2022. For full year 2022, revenues were $1.079 billion, down about 3% from the prior year, and adjusted EBITDA was 768.7 million, down about 8% from the prior year. Adjusted EBITDA margin was 71.2% for fiscal year 2022 versus 75% in 2021. We generated over $370 million of operating cash flow in 2022. and our levered free cash flow was over $280 million. We ended the year and the fourth quarter with $334 million of cash on the balance sheet, even after the considerable cash we used to repurchase our debt. As a result, we maintained significant flexibility to invest in our growth plan and also allocate our capital opportunistically. I'd like to spend a few minutes discussing our new growth plan, which I and the entire management team am tremendously excited about. Over the last several months, we have embarked on a collaborative, extensive, and forward-looking review of our service line and product positioning. We engaged our leadership to take stock of our existing offerings, our untapped or underutilized capabilities, and the gaps we need to fill and we arrayed all of that against the evolving needs of our customers and our markets. As a result of this effort, we identified numerous tangible opportunities to invest in our business to increase the value we provide to our customers by expanding our core service lines and adding new service lines. To give you an idea of what this means, in 2023, alone, we expect to launch four new products or products enhancements within our core service lines and to add a new exciting service line. As shown on page nine of the supplemental deck, these four core expansions include a next generation of out-of-network claim processing product that leverages machine learning and data science. It also includes a product focused on improving member protections against balance bills on non-NSA-related claims, an enhanced NSA product that improves our customers' ability to tailor their approach to better fit their business goals, and an expansion of the features and functionality of our itemized bill review product. We believe these 2023 core expansions alone have the potential to generate $50 to $100 million of incremental revenue within the next few years with very affordable investments in operating and capital expenditures. Also in 2023, we plan to launch a new data and analytics service line, which we believe holds transformative potential for Multiplan. We have already identified a number of use cases that enable healthcare payers to benchmark their performance, better understand their risk, and optimize their benefit plan designs, among others. The data and analytics service line will help us deliver a broader set of products and services to address the significant claims and charge volume already flowing through our platform from over 700 payers And it will help us expand beyond our commercial health out-of-network footprint by enabling us to address new flows of in-network commercial and Medicare Advantage charge volumes and claims, which we anticipate to increase significantly for Multiplan by year end 2023. And importantly, The 2023 launches represent only what is at the front of our pipeline, as our growth strategy review surfaced several additional expansion opportunities across all of our core service lines and within the new data and analytics service line that we intend to execute over the next few years. We are also working this year to advance the potential of an additional service line to be introduced in 2024. We look forward to discussing this and our other growth initiatives with all of you in greater detail at our investor day later in the second quarter. Before I leave the topic of our growth plan and move on to our guidance, let me spend a few minutes on NSA services. During the inaugural year of these products, we priced over 1.75 million surprise bill claims and processed about 150,000 requests from providers to negotiate a settlement, closing 124,000 of them at only 6% over the QPA. We also received requests to arbitrate over 57,000 claims, closing over 11,000 of them. Needless to say, there has been a sharp increase in IDR volumes as providers sought to test the process given the flux in the regulations. We are very pleased with the value we have delivered thus far in helping our customers navigate this highly complex new set of requirements. Our NSA products have leveraged every core competency from fee schedule creation and management to claim routing, to pricing, to provider negotiation, data analytics, and data science. We believe we offer the industry's most sophisticated and flexible offering, and with the expansion initiatives in our growth plan for 2023, this will become even more apparent. We have focused in three areas. One, an advanced product that uses our proprietary patient severity score and machine learning to determine the most effective approach to navigating each surprise bill through the process based on the customer's experience. Two, a portal that gives our customers progress and performance reporting, analytic tools and insights across the entire claim process in near real time. And three, continued data science enabled models and tools to improve our success in negotiation and arbitration. Another thing we learned from our NSA implementation effort is the importance of being nimble. It's been a turbulent first year for the legislation with four lawsuits from the provider community challenging various aspects of the regulations and a much higher than anticipated volume of claims taken through arbitration. Two of those four lawsuits have now had rulings in favor of the plaintiffs. We've benefited from the decision we made early on to provide flexibility to incorporate all of the arbitration considerations allowed in the law But both rulings call for even greater sophistication in how arbitration offers are formulated and defended. And we are well equipped to pivot as needed. Moving on to our guidance. I'm sure by now many of you have had an opportunity to review our outlook for 2023 presented in our press release and the supplemental deck. Jim will review the full details with you momentarily, but let me provide some overarching context. As discussed on previous earnings calls, we have been anticipating that a multiyear contract renewal with one of our larger customers would mute our 2023 revenue growth, all things being equal. As I mentioned previously, during the last few months, we also renewed a multi-year contract with another one of our larger customers. In aggregate, we expect the impact of these contract renewals and other renewals with larger customers anticipated this year to pose a headwind against growth in 2023, which is fully reflected in our guidance. Additionally, as we discussed last quarter, we began encountering volume softness during the second half of 2022. And while we are encouraged by the early signs of improvement in healthcare utilization that I mentioned earlier, at this time we are not banking on any material recovery as our 2023 guidance assumes the volume run rate we experienced in the fourth quarter and through January with only a modest uptick throughout the course of the year. Partially offsetting these headwinds in 2023, we expect growth contribution from the combination of net new sales, medical inflation, and early gains from the growth plan initiatives. In total, we expect our 2023 top line to decline about 10 to 14% from fiscal year 2022 and be flat to down 4% from the annualized Q4 2022 revenue run rate of $964 million. While we understand our guidance falls short of expectations, we believe 2023 will be a pivotal year for our company as the steps we are taking to reposition the business will help us land on solid footing with greater visibility and re-groom our growth in the coming years. More specifically, we expect 2023 to be a low point for revenues and EBITDA as the contract renewals with our largest customers stabilize our core business over the next several years, as healthcare utilization eventually recovers, and as our new growth plan lifts our results and allows us to resume our growth in 2024 and beyond. I'd like now to turn the call over to our Chief Financial Officer, Jim Head. Jim?