MultiPlan Corporation

Hello, everyone, and welcome to the Multiplan Corporation fourth quarter 2023 earnings conference call. My name is Bruno, and I'll be operating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. I will now hand over to your host, Shauna Gassick, AVP of Investor Relations. Shauna, please go ahead.

Thank you, Bruno. Good morning, and welcome to Multiplan's fourth quarter 2023 earnings call. Our speakers today are Dale White, Chief Executive Officer, and Jim Head, Chief Financial Officer. Also joining us today is our incoming Chief Executive Officer, Travis Dalton. The call is being webcast and can be accessed through the investor relations section of our website at 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 2023 earnings press release issued earlier this morning. Before we begin, just 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 as 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 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 Multiplan's underlining 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. On the call with me today is our CFO Jim Head and our incoming CEO Travis Dalton. As we close out 2023, I am really encouraged by the progress we have made in transforming our business. We began the year with a new growth plan in hand and a clear sense of what we needed to accomplish. Throughout the course of the year, we executed in advance each of the initiatives under that plan. We launched several new products to enhance our core out-of-network payment integrity and value-driven health plan services through HST. We made a game-changing acquisition of a data analytics platform, Benefit Science Technologies, or BST, bringing a suite of new products that accelerated the development of a new data and decision science service line. and positioning us to further penetrate faster growing market segments, including Medicare Advantage and Medicaid. And we partnered with Echo Health to offer a healthcare payment service, which enhances the competitive position of our product suite in the TPA and direct to employer channels, and which will add value to each of our service lines as part of a bundled service. we expect to see further benefits from these investments in 2024 and beyond as our growth accelerates. Moreover, these initiatives are just the first in a long pipeline of new products we expect to launch over the next few years as we turn into a product-centric organization which aims to amplify and sustain our long-term growth and diversify our revenues. In addition to executing on our growth plan, We continue to put our business on stronger footing by reducing our risk and improving our financial position. The visibility and stability of our revenues increased following the contract renewals with our larger customers at the beginning of the year. The volume environment normalized throughout the year. Our business began growing again in the second half. And we delivered on our revenue and adjusted EBITDA expectations for the year. We have continued to be active with our capital allocation and made meaningful strides towards reducing our debt in 2023 by repurchasing or repaying $222 million in face value of our debt, much of which was at a discount, including $25 million of our 6% convertible pick notes in the fourth quarter. In total, we have repurchased or repaid $362 million of face value of debt over the last five quarters. Reducing debt remains among our highest priorities, and we expect to strengthen our balance sheet and optimize our capital structure as we grow revenues and free cash flow over the next several years. So, we made a lot of progress in 2023. And we did all of that while pursuing our mission to bring affordability, efficiency, and fairness to the healthcare system. This year identifying $22.9 billion of potential medical cost savings and helping to lower out-of-pocket costs and reduce or eliminate millions of balance bills for healthcare consumers. Turning to our fourth quarter results as shown on page five of the supplemental deck, revenues were $244.1 million, up about $1.3 million from the prior quarter, or a half a percent, and up 1.3% from Q4 2022, despite a difficult year-over-year comparison given the impact of our contract renewals with our larger customers, which were not yet in our revenue run rate in fourth quarter 2022. Revenues came in just below the midpoint of our fourth quarter guidance range. This was driven by solid sequential and year-over-year growth in our identified potential savings partially offset by the cumulative impact of several adjustments that affected revenue yield from identified savings, as Jim will detail momentarily. Adjusted EBITDA was $156.8 million, up 3% sequentially, and at the end of our guidance range, at the lower end of our guidance range for the quarter, driven largely by continued investments in the business. EBITDA was down 3% from the prior quarter. Our adjusted EBITDA margin was 64.2%, up 150 basis points from 62.7% from the prior quarter, meeting our expectations as we had said our margin would show sequential improvement in Q4. Importantly, BST costs were slightly lower than BST revenues in the fourth quarter. Adjusted EBITDA margin declined from 67% in the prior quarter, reflecting the impact of our contract renewals with larger customers, the BST acquisition, and our investments in the business. For the full year 2023, as shown on page 5 of the supplemental deck, revenues were $961.5 million, down 11% from the prior year, and adjusted EBITDA was $618.1 million, down about 20% from the prior year. Both revenues and adjusted EBITDA fell within our fiscal year guidance ranges. Adjusted EBITDA margin was 64.3% for fiscal year 2023, down from 71.2% for fiscal year 2022, but within the range of 64 to 65 that was implied by our full year 2023 revenue and adjusted EBITDA guidance. We continue to deliver strong cash flow in 2023, generating $171.7 million of operating cash flow and free cash flow of $62.9 million. As I mentioned, we have continued to make excellent progress on our growth plan. I'd like to spend a moment taking stock of what we achieved in 2023 and discuss the objectives and initiatives focusing on in 2024. Starting with the multi-year context as shown on page 10 of the supplemental deck, the growth plan is integral to our transformation and is underpinned by a set of rolling objectives and new product initiatives. As we've laid out at our investor day, We still expect our 2023 and 2024 initiatives to generate $200 to $275 million of incremental annual revenues over the next several years. And we won't stop there because we've identified a long pipeline of opportunities, including a range of initiatives that will be in focus in 2023, 2025, and beyond. We entered 2023 with four key objectives on our plate. First, strategically enhance our core services to drive more savings and value for our customers. Second, expand our HSP platform. Third, solidify our market leadership in NSA services. And finally, expand our service offerings to include data and decision science services and a healthcare B2B payment service. As shown on page 11 of the supplemental deck, Each of these initiatives and the product initiatives underneath them are on track and are expected to deliver revenue growth for 2024 and ramp up in 2025 and beyond. First, our new balance bill protection product is off to a great start. Recall that we launched this product in the second quarter of last year as the first step in our objective to expand our value-driven health plan or HST platform, and we onboarded 11,000 lives for 2023. So far in 2024, we have added about another 7,500 lives, bringing the total to nearly 19,000 lives, and we expect to add additional lives throughout the year. We expect balance bill protection to contribute at least $6 million of revenue in 2024 to our HST business, and we're just getting started. We're already working on launching a version of this product for our core multi-plant services, which I'll get into shortly. In advancing our objective to enhance our core services, we launched ProPricer in the third quarter, and in October, we onboarded a few large customers. As we mentioned last quarter, ProPricer is our next generation out-of-network repricing solution which uses machine learning and AI to apply customer rules in choosing the optimal multi-plan solution to apply to a particular claim. Based on what we know today, we anticipate ProPricer to generate revenues of $8 to $10 million in 2024. And you'll hear in a moment that enhancing the ProPricer suite features prominently in our 2024 growth initiatives. Also getting strong traction is our itemized bill review service, or IBR, which is a payment integrity service that reviews high-dollar inpatient facility claims during the adjudication process to identify billing errors and prevent overpayments. Recall that during the third quarter, we introduced functionality enhancements, including bundling with our advanced code editing analytics to proactively identify cases. With these enhancements, we added five customers, generating annualized revenues of about $5 million. As a result, we expect IBR will contribute nicely to the solid growth we are anticipating in payment revenue integrity services in 2024. No surprises at compliance remained a significant focus in 2023, and we advanced our objective of solidifying our market leadership by building an NSA insights portal and creating rules-based claims processing capability. We believe customer and claim-specific rules bring huge value to payers because not all surprise bills are the same. Our rules-based processing engine allows our customers to recognize and leverage the unique conditions of each claim, including the likely outcome of dispute resolution. And we have seen increased success rates in pre-IDR post-pay negotiation by applying rules that allow greater flexibility in negotiating settlements. We are also creating machine learning and other tools to enhance our success in negotiating settlements and improving our customers' chances of winning IDR cases. Continuing with the initiatives on page 11 and turning to our new data and decision science service line, as we mentioned last quarter, we released planned optics search in July and the first version of planned optics intelligence in October, and I'm pleased with our pipeline. Recall that planned optics is a software suite that provides healthcare cost analysis, and critical market insights by leveraging machine readable files of payer price transparency data. The software will help our customers prepare and execute strategic contract negotiations with providers, understand competitive position to drive market expansion, sales and retention strategies, improve stop loss premiums, and optimize provider networks. Also within the BST family of products, we had a number of wins with our supplemental insurance services and Ben Insights. Now moving on to our 2024 growth plan. As you can see on page 12, the four objectives driving our strategies are to lead the next generation of claims processing, to advance our HST employer solution in a box platform, to deepen the value proposition of our core services, and to enhance and expand the data and decision science service line. I'm very excited about the first objective. We know from our 2023 launches of balance bill protection and pro-pricer that we are well positioned to bend the healthcare cost curve by applying technology, data, and decision science in the management of medical costs. Multiplan has all of the tools to make this happen. In 2024, we expect to meet the strong interest of our customers, that the strong interest of our customers have expressed in a configuration that bundles balance bill protection with ProPricer. We are also making significant enhancements to the ProPricer engine this year and next, which not only will further enhance the flexibility we offer to our customers and increase the savings we deliver, but will also generate dramatic operational cost savings for multi-plants. But we aren't stopping with out-of-network claims. You may recall one of our 2023 objectives was to develop the next generation of our provider network asset. In 2024, we are working on an exciting intelligence hub concept that will enable Multiplan and our customers to curate provider networks for specific populations. We believe the future of networks is curation and our unique combination of data, decision science, and network development assets, along with our over 40 years of experience working with providers and payers, uniquely positions Multiplan to lead the way. The next objective is to advance the employer solution and box platform of HST. We are already near completion with enhanced reporting, as well as predictive and prescriptive analytics, leveraging BST's Ben Insights risk management platform. We are also working with care navigation companies on a strategy to integrate concierge service options enriched with our risk models and the new member engagement programs they enable. Finally, we continue to consider ways to tie in a pharmacy option. Next is our objective to deepen the value proposition of all of our core services. The initiatives listed on slide 12 are over and above the work we do every day to improve the performance of our products. Within our analytics-based services, our focus in 2024 is to fully launch the NSA portal and rules-based processing enhancements that I mentioned earlier. And we also have growing interest from our customers with fully insured business and services that aid in meeting state surprise bill requirements. And it's not shown here, but we are also monitoring the regulatory rulemaking involving QPA administration and advanced explanation of benefits, which, subject to timing, could very well lead to additional product development in 2024. In addition to NSA services, we are introducing a new reference-based pricing option that considers meeting rates in the market, capitalizing on the capabilities we've developed for NSA compliance. We are introducing more comprehensive claim editing, which features service level tiers for first pass, subsequent pass, and post-payment needs, and we will drive adoption of our new B2B payment service through product bundling, sales, and marketing. Our final objective is to enhance and expand the data and decision science service line we introduced in mid-2023. Efforts are underway across all of the products in this line, but our highest priorities are clinical risk models and plan optics. Our risk models are unique in their interoperability, which means we not only score risk, but we provide the dominant factors that comprise the score so our customers can take more immediate action. In 2024, we are introducing additional models focused on high-cost claimants to better inform stop-loss coverages and on the senior population to add value for Medicare Advantage plans. We are also advancing the product roadmap for PlanOptics to further enrich the data and to add feature function to our software suite. Notably, we are also in the ideation stages of a planned optics-like solution for providers, which will be a significant 2025 focus and open a new market vertical. As I reflect on the significant progress we made during 2023, and as I look forward to 2024 and beyond, I am confident that the company is on sound footing, our growth has begun to accelerate, and the transformation of our business is on track. With our growth plan well underway, I have decided now is the right time to transition the leadership of Multiplan to our new CEO, Travis Dahl. Travis is precisely the right individual to guide the company through this exciting next chapter. His extensive experience driving new product innovation to scale, the success he has demonstrated expanding into new markets, his commitment to delivering customer value, and his outstanding leadership capabilities will be critical to steering us from the early stages of our growth plan to the realization of our strategic vision. Travis's first official day as CEO is tomorrow. So this is a perfect moment to introduce him to all of you. So I'm going to pass the call to him to say a few words. Travis, welcome.