MultiPlan Corporation

Hello, everyone. The Multiplan Corporation second quarter 2023 earnings conference call will begin in one minute's time to allow all participants to get connected. If you would like to ask a question, please press star followed by one on your telephone keypad. Thank you for your patience. Hello, everyone, and welcome to the Multiplan Corporation second quarter 2023 earnings conference call. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question, please press star followed by one on your telephone keypad. Please note, we will take one question and one follow-up per person. I would now like to hand the conference over to Luke Montgomery, SVP, Finance and Investor Relations to begin. Thank you. Please go ahead.

Thank you, Nadia. Good morning and welcome to Multiplan's second quarter 2023 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 second quarter 2023 earnings press release issued earlier this morning. Before we begin, a couple of reminders. Our remarks and responses to questions today may include forward-looking statements. These forward-looking statements represent management's beliefs and expectations only of the date of this call. Actual results may differ materially from these 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 on Form 10-K and other documents we filed with the SEC. We will be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Multiplan's underlying operating results. An explanation of these non-GAAP measures and reconciliations to their comparable GAAP measure can be found in the earnings press release in the supplemental slide deck. With that, I would now like to turn the call over to our Chief Executive Officer, Dale White.

Thank you, Luke. Good morning, everyone, and welcome to the call. As many of you heard at our investor day on June 28th, Multiplan is in the midst of a transformation. This transformation began with our strategy review late last year, which resulted in our refreshed growth plan and led to the steps we have taken to reset the business in 2023. and it is continuing with the execution of that plan, which pivots our business through a number of actions. First, we are capitalizing on the strength of our platform and our deep payer relationships. Second, we are enhancing our core business by becoming a product-centric organization and investing in new services and solutions. Third, we have created a new data and decision science service line, and partnered with Echo Health to offer B2B payments, both to further our footprint in network and government market segments. And finally, we are focused on using our cash flow to improve our capital structure. All of this, we firmly believe, helps unlock the enormous potential value of our franchise to the benefit of our shareholders. I am pleased to say that during the second quarter, we have made significant strides towards realizing our transformations. In our view, the second quarter marked an inflection point for the company in terms of both the results we delivered and the execution of our strategy. Let me take each of these points in turn. Beginning with our Q2 results as shown on page 4 of the supplemental deck, we reported revenues of $238 million and adjusted EBITDA of $152.7 million. Excluding the contribution from our newly acquired data science company, Benefits Science Technologies, or BST, revenues of $235.9 million were above the high end of our guidance range and effectively flat from the prior quarter. Adjusted EBITDA, which was not materially impacted by BST, was near the top end of our guidance range and down about 2% from the prior quarter. Our adjusted EBITDA margin was 64.2% versus 66% the prior quarter, which was in line with our expectations, including a modest drag from the addition of BST's results. Through the first half of the year, results played out as we forecasted, validating our view that our results are stabilizing. We have absorbed the impact of the contract renewals discussed on previous calls, which are now fully reflected in the quarterly run rate. That impact has been partially offset by the combination of underlying organic growth in our core revenues and a normalizing volume environment. As many of you are aware, there are a number of indications that healthcare utilization has been picking up. You saw it in the earnings commentary from some of the hospitals, medical suppliers, and payers, and we have seen it in our first half savings volumes and revenues. As shown on page six, during the second quarter, identified potential savings for our commercial health category increased 2% sequentially, following a 3% increase in Q1. As shown on page seven, Identified potential savings from our percentage of savings revenue model were flattish sequentially, effectively maintaining the step up in volumes in Q1 when identified potential savings increased 4% sequentially. Underneath the headline volume trends, we saw a positive mixed shift in our identified savings, which helped our revenue yield. Specifically during the second quarter, Growth and utilization was strongest in facility services, which includes surgery, radiology, and lab services. These dynamics are reflected in the revenue yield of our percentage of savings revenue model, which declined just one basis point, despite previously anticipated incremental pressure in Q2 related to the aforementioned contract renewals with larger customers. At the beginning of 2023, our guidance incorporated a modest lift from a recovery in volumes, and we were uncertain as to how quickly we would see it. The lift occurred a bit earlier in the year than we anticipated, which in part explains why revenues in each of the first two quarters of 2023 were at the higher end of our guidance range. Looking forward, we continue to believe the second quarter will be the low point for the year for revenues and adjusted EBITDA, and we continue to expect results for the second half of 2023 to be higher than the first half. Given these considerations, we are narrowing the range of our fiscal year 2023 guidance with a slight increase at the midpoint before the contribution from BST. driven largely by our year-to-date results and reflecting our continued expectation for modest growth in the second half of the year. Jim will share the details with you momentarily. As I mentioned, we have been busy executing on our transformations since late 2022. As shown on page 8, during the second quarter, we advanced several critical initiatives within our growth plan. These included establishing our new data and decision science service line with the acquisition of BST and adding a B2B healthcare payment service through our new partnership with Echo Health. These actions, along with further progress we have made toward the launch of several new products to enhance our core business and position us for growth in 2024 and beyond. As many of you heard at our recent investor day, we could not be more excited about the acquisition of BST and the formation of our new data and decision science service line. We believe this is an absolute game changer for Multiplan. It is the key element in our plan to expand our footprint beyond out-of-network claim processing, deepening our penetration in large and faster growing markets like in-network commercial and Medicare Advantage. Founded in 2012 by data scientists and benefits experts from MIT, BST's mission aligns perfectly with ours, which is to improve health outcomes and reduce the total cost of care. This acquisition is consistent with the strategic priorities and the acquisition criteria we have communicated over the last several quarters. By combining BST's cutting-edge technology solutions with Multiplan's core strengths, namely our strong payer relationships and our expansive and growing claims flows, we will efficiently deliver enriched and actionable data and insights into our customers' hands with decision analytics and software tools that allow our customers to manage the health risk of a population, benchmark important network contracts, assess their plan's financial performance, and use machine learning and AI to achieve other important business imperatives. Our data and decision science service line will deliver what we believe are clear market-leading value propositions versus our competition. The combination of BST's industry-leading products and enormous power of Multiplant's platform addresses some of the most pressing challenges facing our customers across the wide and expanding range of channels we serve. As I have said, demand for these solutions is already high, and we expect it to increase as we continue to introduce our customers to the new capabilities we offer. As a result, we expect the financial impact to be significant. We believe our new data and decision science service line could become a $100 million business, perhaps even larger over the next several years, generating significant value for our customers and significant returns for Multiplan shareholders. And we are confident we can capture this revenue because so much of the opportunity is simply about unleashing the enormous potential of what is already within our walls. As we noted a few weeks ago, we have $400 billion of incremental charge volume already on our platform that we can now begin monetizing with the products that BST added to our platform. We are also very excited about our new partnership with Echo Health. Echo helps us deliver a B2B healthcare payment service that will streamline provider reimbursements and drive further efficiencies in the end-to-end claims adjudication process. We believe this offering enhances the value we provide across our solution set and strengthens our competitive position in the key channels we are focused on, including the third party administrator and regional health plan channels. As we outlined at our investor day in June, we expect to generate between $50 million and $75 million of incremental annual revenue from this new service within the next several years. As we have discussed, we have identified a deep pipeline of products and product enhancements to accelerate our growth in our core out-of-network payment and revenue integrity, and HST businesses. As shown on page eight of the supplemental deck, we remain on track with all of the initiatives slated for 2023, and I am pleased to announce that our new balance bill protection service for HST's platform already has 11,000 lives contracted. This new service provides health plans and members with an additional layer of protection from the increased medical costs that result when providers balance bill. Specifically, it helps alleviate the stress, the wasted time, and the administrative burdens that balance bills create for all parties involved by working through the provider settlement process from start to finish on the member's behalf. The launch of our balance bill protection service marks the achievement of an important milestone within our growth plan. The market reception has been highly enthusiastic. Their early returns from this initiative are included in our second half forecast, and while it will not have a material impact in 2023, we expect it to be one of the springboards for our growth in 2024. Further, this new service is one of several new features we have planned to evolve HST's platform and advance our vision to create an employer healthcare solution in a box. The market opportunity for this turnkey solution is large and is growing as employers and other plan sponsors of all sizes are increasingly shifting to self-insured plan arrangements in an effort to more actively manage medical cost pressures. Despite the appeal of self-insuring, many plan sponsors continue to struggle with the hurdles to adopting this plan structure. Our expansion of the features on our HST platform, including the balance bill protection service, is aimed at removing many of these hurdles. Balance bill protection is but one example of how we are pivoting to a product-centric organization. We are hard at work on our other 2023 core business initiatives, and we have high expectations for the contribution of these products to our growth. In total, We expect our 2023 core business initiatives to generate incremental annual revenues of $50 million to $100 million in the coming years. And as we've discussed, we aren't stopping there. We are already making progress against new core business products scheduled for launch in 2024, and we have a pipeline that stretches out several years. It's all part of our plan to leverage our embedded position in the commercial health ecosystem continue to expand what is already the broad set product suite amongst our competitors, and grow our core business. Stepping back, our opportunities are significant and within our reach. All told, we are targeting $200 million to $275 million of incremental annual revenue within the next several years from these initiatives. As we move forward, it's all about the execution of our transformation. As the second quarter attests, we have already begun to deliver, and we will continue to do so. I look forward to updating you in the coming quarters as we further progress along our journey. With that, I'd like to turn it over to Jim. Jim?