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spk00: Good morning and welcome to the Multiplan Corporation's second quarter 2024 earnings call. My name is Harry and I'll be your operator today. At this time, all participant lines are in a listen-only mode and there will be an opportunity for questions and answers after management's prepared remarks. If you would like to enter the queue for questions, you may do so by dialing star followed by one on your telephone keypad. I would now like to hand the conference over to Shawna Gacic, AVP of Investor Relations. Thank you. Please go ahead.
spk02: Thank you, Harry. Good morning and welcome to Multiplan's second quarter 2024 earnings call. Our speakers today are Travis Dalton, Chief Executive Officer, and Jim Head, Chief Financial Officer. Jerry Hogg, Chief Operating Officer, will be available for the Q&A session. 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 second quarter 2024 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 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 reconciliations to their 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, Travis Dalton. Travis?
spk06: Thank you, Shawna, and good morning to all of you on the call. Thank you for your time today. I recently completed my first 100 days in my first full quarter here at Multiplan. I know more now than I did coming in. I validated my view on several aspects of the company, continue to learn, and am convinced we will execute on our evolution and transformation over time. I would like to share my reflections on the business with you today. It goes without saying it's been an interesting time to join the company and I'm more committed than ever to our transformational journey. That journey must begin with an honest assessment and a brutal confrontation of the facts. I'm exceedingly proud of our commitment to clients and relentless pursuit of service excellence. That is a very good thing. However, the fact is that financial results matter and ours simply haven't been consistent predictable, or good enough. We must perform better. By now, many of you have had the opportunity to review our second quarter financial results and our updated full-year guidance. Those results fell short of the expectations set entering the year. Our revised outlook is more fully aligned with the current realities of our business in the short term. But underlying that, I am encouraged by some key indications of progress and even more so by significant opportunities for growth in the mid and long term. All of that said, I am as excited as I have been since joining this great company. We have a clear, compelling vision and strategy forming for the future. We have great clients and longstanding relationships, an operating plan to execute better as we move forward, a current product portfolio that delivers value, a clearly defined set of new product opportunities, untapped technology and data assets, and a team of incredibly talented and dedicated professionals. We have a strong business foundation, we generate cash flow, and we have ample time to make progress. Our transformation requires a deep commitment to change, a sense of urgency, and decisive actions. Showing meaningful progress may take a bit longer than we had hoped, but I'm confident we can and will execute. Simply put, we know what to do to make this a world-class data and technology company that operates with more rigorous process, increased discipline, and enhanced organic product capability that drives more value for more clients across more markets. Over time, this will lead to sustainable growth. In a moment, I will share some of the encouraging progress that we're making, and I very much look forward to an opportunity to share with you my comprehensive vision for our transformation and an integrated strategic, operational, and financial plan in detail in the coming quarters. As I mentioned on our last earnings call, we have established a core operating framework to ensure that we more consistently achieve our results over time. Before I speak to the progress we've made against that framework, I would like to address a few key issues right up front. First, the overhang of media scrutiny has been an ongoing challenge. We have addressed it head-on, engaged directly with stakeholders, updated our value proposition, and will continue to do so proactively. We have established a corporate and government affairs team, inclusive of world-class public relations and lobbying representation, and will continue to protect our reputation, defend our business against misinformation and false narratives, and educate healthcare stakeholders about the value that we provide. We will actively use our voice to support the aims of healthcare quality, price transparency, and cost control. Next, we continue to confront with openness and transparency the legal claims against us, which we believe are without merit in our attempt to misuse the law in a way that will ultimately increase prices for patients and employers. The data is very clear that Multiplan, which operates in a highly competitive environment, makes health care more affordable for consumers, offers services across the entire continuum, seeks to eliminate or reduce balance bills, and supports price transparency, and the No Surprises Act. We are confident that the facts clearly support the merits of our products and the important role our company plays in the healthcare ecosystem. Next, we have faced a series of one-time environmental challenges that have impacted our clients, our claims flow, and our results. These included the clearinghouse destruction, which continued to affect us through the first half of the second quarter. We will continue to navigate these challenges and support our clients as we do. Next, it's taken longer to generate commercial traction with our new product initiatives than anticipated. However, I am confident that demand is there, the pipeline is growing, and the operating plan I mentioned earlier will get us back on track. Finally, we believe the prices of our products and services are competitively positioned in the marketplace across the spectrum of our clients, large and small. With the exception of an attrition overhang related to one of our larger clients, We have been growing at a mid single digit rate across the remainder of our customer base. While we now expect this attrition to constrain growth until mid 2025, at that point, the way should finally be clear for us to show growth in our core business. We have remarkable clients. It is our imperative to relentlessly develop and deliver new value for them. We will continue doing that because we are proud to serve them because doing so will sustain our success. After the value we provide in the market, before I joined Multiplan, I served providers for 21 years. In light of that, I had to ask myself the question, is Multiplan good for healthcare? I am as confident as ever that the answer is yes, unequivocally. We have a clear point of view, validated by facts. We are explicitly articulating that to stakeholders across our corporate communication channels, including our investor website. We will continue to communicate proactively and aggressively in support of our mission to make healthcare more transparent, fair, and affordable for all. Getting back to how we intend to move forward. In support of our vision to transform into a data and technology forward organization with an aggressive growth mindset, we are actively engaged across the company in a five-year strategic and resource planning exercise. This process, which is being led by our chief operating officer, includes assessing our market potential, evaluating our current set of products, sharpening new product development, fortifying our sales and go-to-market strategies, and clearly articulating our plan with precision, both internally and externally. This will allow us to remain laser-focused on executing now, but also prepare for the next through product and business development. Our vision builds on a strong foundation that includes our analytics-based services, 1.4 million provider networks, payment integrity products, HST value-driven health plans, and data and decision science capabilities in price transparency, risk analytics, supplemental insurance, and other areas. Building a resource and capital allocation with precision, along with developing and adhering to a robust and welcome to annual operating plan, will help us realize our vision and maximize those results. Delivering on that vision will be all about execution. We will be focused on our operating principles, clarity of purpose, alignment of talent, and focus on KPIs and accountability. And we will be focusing on getting fit for growth with a process rigor worthy of a great public company. Let me take each of these in turn. Clarity. We've made significant progress updating our message set and value proposition. We've refreshed our external messaging, website, and educated many key stakeholders. We will continue to be vocal in the role we play across the healthcare ecosystem. Alignment. We have added significant talent in applying clear accountability with the authority to operate. We've added a senior vice president of corporate affairs, a vice president of government affairs, a chief data scientist, a national sales leader, additional new market sales talent, and we have an incoming CFO. Combined with our existing talent, we have a team that is committed to and capable of accelerating our transformation. Focus. We have rounded out our set of 41 KPIs and have a clear tracking mechanism with accountable owners to ensure we execute on our strategies. This will allow us to take prudent real-time decisions and monitor forward indicators of progress against our goals. As we advance clarity, alignment, and focus, becoming fit for growth will encompass two key areas. Process, rigor, discipline, and insights. We have established data-driven bookings forecasts, an annual operating plan, monthly operating cadence, and product lifecycle management approach. We have much work to do, but this will yield more predictable results for the business and enable us to make more and better products over time. Laser focus on where we put our time, energy, and money. The processes noted are all in support of clear allocation of resources. They will enable us to make sound and timely decisions around expense and capital outlays that deliver better quarterly performance and create long-term value. They will help us prioritize investments in those products and initiatives that are most important to growth and have the highest market potential over time. We're investing today in a few key areas. Enhanced capabilities for our core clients. As identified at the start of this year, we will continue to seek opportunities to better serve our clients. This is job number one. investing in our data architecture to provide flexibility and extensibility in our technology stack. We will be able to more quickly iterate on internal projects and also potentially serve a platform-based ecosystem over time. Price transparency products and analytics serve the entire healthcare ecosystem. Assets acquired through our BST acquisition give us a strategic advantage. We have integrated BST to get more focused and will be aggressive in pursuit of this market opportunity. Internal automation with AI, starting with our NSA processes and continuing with other backlog of projects. More leveraged value as we progress. This is only the beginning. Over time, all of this will allow us to increase our total addressable markets and diversify our customer base as we serve our national and regional payer clients more aggressively deliver value for TPAs, brokers, consultants, and plan sponsors, address opportunities in provider markets, and deliver a data platform and analytics vision that meaningfully expands the capabilities we offer in all of these markets. We will be persistent in driving better results. I am pleased with the energy and determination of the organization, which has already resulted in better progress to support growth demonstrated by several examples. We added four new logos in Q2 and had a key TPA win. Sales are up 8% year over year, and our pipeline has grown by double digits in the first half, even with headwinds associated with the exogenous events that I mentioned earlier. Our plant optics product suite has been recognized with another key award for data and analytics, and we continue to close sales with plant optics and Ben Insights, including two additional in the second quarter across multiple sales channels. We closed our first provider client with bed insights and predictive risk models. I will also be a keynote speaker at the Critical Access Hospital Conference hosted by the National Rural Health Association to highlight our transparency products and analytics. If we want to control costs in healthcare, enabling autonomy and access in rural America is a key component. We believe that we can help in many ways. We are focused and on track with our development roadmap for key products that serve our core client base, we held the first leadership interlock with our new product lifecycle management plan, with our teams identified 15 new product ideas and over 30 additional enhancements for consideration. We're moving quickly to evaluate those concepts against client needs and market potential to prioritize our efforts and maximize results. Likewise, we will continue to advance our partnership opportunities to extend market reach. As I mentioned, we added new senior talent in the quarter. That we are able to attract these world-class professionals and that they want to be part of our journey is a strong endorsement of the company and the opportunity we have to unlock meaningful value over time. We know we operate in a competitive environment, an ever-changing environment. Our strategy, systems, processes, and people have to be ready and able to succeed in that environment. That will require transformation. We will take it straight on and we have the determination to do so. In summary, as I noted at the outset, we realize our financial results have not met expectations. As a management team, we will confront that with brutal honesty. We know what work to do and I am confident over time, and we have some, that we can and will achieve sustainable results. We are working tirelessly to deliver a clear strategy for predictable and sustainable growth. As we move forward, I will communicate more detail around our strategic and capital allocation plan, one that is underpinned by the investment discipline, organizational alignment, and execution focus needed to achieve that plan, and is supported by investor disclosure that will allow you to hold us accountable. I look forward to demonstrating all of this to you and improving our say-do ratio. You are what your record says you are. Ours needs to get better, and we will be relentless. I would like to turn it over to Jim to cover the details of our results. As disclosed this morning, Jim has decided to lead Multiplan, but will be staying with us in a strategic advisory role through the end of the year. Jim has been uncompromising in pursuit of service excellence for our clients, embodies our core values, and is frankly just a straight shooter. The board of directors and I can't thank him enough. We will be welcoming Doug Garris as our CFO starting August 5th and Doug will work closely with Jim through the end of the year to ensure a smooth transition. I have worked with Doug previously and I'm confident he is the right person to help carry us forward with our operating plan and has the execution skills we need to drive sustainable growth. I'm excited to work closely with him on realizing our potential. Let me turn it over to Jim.
spk09: Thanks, Travis, and good morning, everyone. I would like to reiterate what Travis said. While growth is taking longer to materialize than we expected, we are making progress and we remain confident in the company's medium and long-term prospects. Today, I will walk through the financial results for the second quarter of 2024. I will then turn to our outlook for the second half and provide updated guidance for full year 24. And finally, I'll close with a review of our balance sheet and capital allocation. As shown on page four of the supplemental deck, second quarter revenue was $233.5 million, a decrease of 1.9 percent from Q2 23 and effectively flat sequentially. Our revenues fell just below the low end of our guidance range for the quarter as a solid recovery in volumes was offset by volatility in our revenue yield and by slower than anticipated sales of our new products and services. Turning to revenues by service line is shown on page 5 of the supplemental deck. Relative to Q124, network-based revenues declined 0.9% sequentially, or about a half a million dollars, driven by continued softness in our complementary network and property and casualty businesses. Our analytics-based revenues were essentially flat sequentially, with strength in data eyesight offset by softness in our NSA volumes, including attrition related to a major employer plan served by one of our larger ASO clients. Our payment and revenue integrity revenues declined 1.4 percent sequentially, driven by softness in our prepayment clinical negotiation business, offset by continued strong growth in our post-pay portfolio. Versus the prior year quarter, network-based revenues declined 20 percent, analytics-based revenues grew 5.6 percent, and payment and revenue integrity revenues declined 5.3 percent. Excluding a 3.8 million contribution to revenues from BST, which is reported in our analytics-based revenues, Second quarter consolidated revenues were $229.7 million, effectively flat sequentially and down 2.6 percent from the prior year quarter. During the second quarter, we experienced solid growth in volumes of billed charges and identified potential savings, with June showing recovery from the clearinghouse cyber outage that continued to impact our claims flows through April and May. As shown on page seven of the supplemental deck, total second quarter billed charges increased 9 percent sequentially to $45.3 billion, and identified potential savings increased 8% sequentially to $6.2 billion. As shown on page 8, in our core percentage of savings revenue model, identified potential savings increased 3% sequentially to $4.4 billion. With respect to the utilization environment, bill charges from both facilities and physicians were up sequentially. We also note the data from some of the publicly traded hospital systems, which suggested reasonable sequential strength in second quarter inpatient and outpatient surgeries, but more sluggish trends in emergency room visits, which on balance is a positive signal for our forward volumes given our typical claims lag. The sequential increase in our volumes is mostly offset by a decline in revenues as a percentage of identified savings, or what we call revenue yield. As shown on page eight of the supplemental deck, our revenue yield declined about 31 basis points sequentially for the overall business, which includes both PSAVE and PEPM. In our core percentage of savings revenue model, which is approximately 90% of our revenues, our revenue yield fell about 14 basis points in the quarter, which had an impact of about 6.3 million to our revenues. This included about 11 basis points or about 4.9 million of revenue decline from yield shifts and about three basis points or 1.5 million of incremental decline from customer credits that ended in Q2. Notably, none of the decline in our PSAVE revenue yield was related to any contract changes with our customers. It was yield and mixed behavior within existing contracts. Turning to expenses, second quarter adjusted EBITDA expenses were 86.8 million, increasing 1.5 million from the prior year quarter and down 0.9 million sequentially. The increase of 1.5 million over Q2 23 was primarily due to increases in personnel expenses related to increased employee headcount, and year-over-year increases in compensation and related benefits, including increases in personnel costs from the acquisition of BST. For the sequential comparison, the 0.9 million decrease in adjusted EBITDA expenses reflected tight expense controls. Adjusted EBITDA was 146.7 million in Q2-24, down 3.9 percent from 152.7 million in the prior year quarter, and down 0.1 percent from 146.8 million in Q1. Our Q2 adjusted EBITDA was slightly above the lower end of our guidance range. Adjusted EBITDA margin was 62.8% in Q2-24, up 20 basis points from 62.6% in Q1, and down from 64.2% in the prior year quarter. Our second quarter margin was modestly below the 63% to 64% range mentioned in our prior commentary, and like adjusted EBITDA, reflected the combination of lower than anticipated revenues and lower costs. Moving on to our outlook as shown on page nine of the supplemental earnings deck, we have revised our full year 2024 revenue guidance to $935 to $955 million versus our prior guidance of $1.0 to $1.03 billion, reflecting sluggish growth in our core business and slower than anticipated new product sales. In summary, our revised full year 2024 revenue guidance assumes only a modest uplift in our core business in the second half after a difficult first half, and muted growth from new product sales. Moving to our revised adjusted EBITDA guidance, we are reducing our estimate to 580 to 595 million. We now expect adjusted EBITDA expenses to be closer to 360 million, down from our prior projection of about 370 million, reflecting expense reductions as we seek to manage our adjusted EBITDA margin while maintaining investments in projects that are expected to generate revenue growth. The combination of our revenue adjusted EBITDA assumptions implies an adjusted EBITDA margin of about 62% for full year 2024, slightly below prior expectations. Turning to our third quarter guidance is outlined in page 10 of the supplemental deck. We anticipate revenues of 230 to 245 million and adjusted EBITDA of 140 to 155 million. And as Travis mentioned, we now expect future attrition related to a specific program at a larger client, which will impact the results starting in 2025. While we're not providing guidance for 2025 today, we do that in February each year typically. In the interest of transparency, we expect this program attrition to pose an approximate 3% to have, excuse me, 3% headwind to revenues next year. But it's also, as Travis mentioned, With the exception of an attrition overhang related to one of our larger clients, we've been growing at a mid-single-digit rate across the remainder of our customer base. While we now expect this additional attrition to constrain growth until mid-25, this should clear the way for us to show ongoing growth in the core. As you're aware from our press release, we again conducted an impairment test in the second quarter of 2024, which incorporates current financial market conditions including our share price, market discount rates, forecast revisions, and other factors. Based on this test, the estimated fair value of our good and low was less than our carrying value. As a result, we recorded a non-cash impairment charge of $553.7 million and recognized the charge in our GAAP earnings results. Turning to the balance sheet and capital allocation. Our operating cash flow was $18.5 million in the second quarter and levered free cash flow was a negative $7.0 million. As a reminder, the second and fourth quarters are typically our lower quarters for cash flow given the timing of our interest and tax payments. As shown on page 13 of the supplemental deck, we ended the quarter with $49 million of unrestricted cash and we did not buy any securities this quarter. That of cash, our total and operating leverage ratios were 7.5 and 5.4 respectively. Our long-term capital priorities remain the same. Our highest priority remains investing in the business to drive growth and long-term value. You should expect us to continue making critical organic investments to support our platform, including our new core products and our data and decision science service line. With our remaining cash flow, we will primarily focus on debt reduction. While our long-term priorities have not changed following the acquisition of BST, in the near term, we will emphasize organic investments and debt reduction, and de-emphasize M&A and share repurchases as we focus on debt retirement. In terms of our capital structure, we've been consistent. We have time, we have flexibility, and we will continue to be thoughtful and circumspect in our approach. Finally, as to the news as to why I'm leaving, that I'm leaving Multiplan and why. I've been clear that I believe in this company. You've heard this from me many times. I believe in its people and its strategy, and I'm confident we're going to emerge from our transformation as a stronger, more diversified and sustainable company. However, as Travis mentioned, this is an important moment for us in a multi-year journey. Our transformation will require a few more years to complete, and on a personal note, that timing doesn't fit with my horizon. This company needs a CFO who can see it all the way through. Travis and I are committed to creating a seamless transition for Doug, and I plan to remain on until the end of the year to make sure that happens. I look forward to catching up with many of you in the coming days as we go through our quarterly earnings and on a personal basis. That brings me to the end of my comments. I'll turn it back over to you, Travis.
spk06: Thank you, Jim. Before I open the call to questions, let me just reiterate my belief in our path forward. This is a transformational journey, but we have a compelling vision that's forming and a strategy for the future as a data and technology led organization. that will continue to bring value for our clients and achieve sustainable growth. I look forward to sharing our progress with you very clearly in the coming quarters. Operator, would you kindly open up the call for any questions?
spk00: Thank you. Certainly, if you would like to ask a question, please dial star followed by one on your telephone keypad now. If you change your mind, please dial star followed by two to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. And our first question today is from the line of Joshua Ruskin of Nephron Research. Please go ahead. Your line is open.
spk01: Joshua Ruskin Thanks. I got a couple here. So just the first, well, first I should start with a thanks to Jim for all of his help and best wishes on whatever your next endeavor is. My first question is just guidance for the second half. It implies a decline in EBITDA of about 5%. And EBITDA was also down about 5% year over year in the first half. I just would have expected the second half to improve in light of the disruption from change health care. I'd be curious if that's still $5 to $6 million. And then just potential cost savings and initiatives. So I'm just curious in the second half, what's the offset there?
spk09: Yep. And Travis, I'll take this one. Josh, thanks for the kind words. Just a couple things. Let's just maybe talk about the two components of the second half. The revenue side, you know, you've seen some strength in volumes as we've kind of gone through Q1 and Q2. It's rebounded a little bit. But I think we're being cautious a little bit. There's been volatility on the revenue yield side of things. And so we're calling a second half that is modestly better in the core. I think one of the things that has been is coming up softer is just new sales in some of our growthier areas like HST and BST. So we remain a little bit cautious on the top line for the second half as a result of that. On the cost side, whenever I think about margins, I really kind of think about the cost base that we have, which is relatively fixed, which is you're going to see costs pretty much the same, relatively flat in the second half, maybe uptick a little bit. But again, we're judiciously making some investments in the future. We're tightening our costs but maintaining the investment level because we're committed to these products and there's still a little bit of ways to go. And there's a little bit of just absorbing the full run rate in the second half of BST. The first half didn't have too much of BST in it last year. So this year you can kind of track our quarterly progression, and so that's the expense side of things. But I think we're just being – given where we're at, some of the volatility both in the external environment as well as some volatility in our revenue yields, we're just being cautious on the second half.
spk01: Okay. Okay, that's helpful. And then you mentioned slower commercial traction on the new products. I'm just curious, does that mean – more customers are saying no, or does that mean that the sales cycle is just taking longer?
spk05: Yeah, hey, this is Jerry Hogg. Mainly there, we're talking about our HST, our value-driven health plan pipeline and transactions. The conversion of sales into revenue is a little longer than was budgeted, but the pipeline is robust and sales are continuing is just the conversion into revenue.
spk01: Okay. Okay. And then the last one, that 3% headwind to revenues in, in 2025, you know, call it whatever, 25 to $30 million. Could you just give us some more color on that? I'm not sure I understood if that was a large health plan or if it was a customer of a health plan and then what was the decision, what products were they buying? You know, what, what led to the departure?
spk10: Yeah, I'm happy to jump in.
spk06: Travis, I'll take this.
spk10: Yeah, go ahead. Okay, go ahead.
spk09: Now, I think, Josh, I think just to kind of, we don't do a lot of discussion, as you know, historically. It's, you know, A, it's one of our larger clients. B, it's a program inside the overall relationship. And they're going to, you know, kind of move in a different direction strategically. So we, you know, in the interest of being transparent, we wanted to call that out, but we don't really talk any more specifically about that, but we didn't want, um, uh, we didn't want that to, uh, you know, to kind of come as news in the, in the coming, in the coming year, as we are getting the entire picture put together.
spk06: You know, this is Travis on that. Right. We're, you know, we're, we're confident in our core. As I said during the script, we feel good about our price, the value. And we're seeing good delivery. We're seeing actually some growth inside of our core national accounts. I think these are strategic things, not in relation to the value we bring. That said, we always are seeking to bring more value to clients to ensure that we continue to grow that space. So that programmatic change related to strategy, was impactful to us, and we thought it was important that we just say that for what it is, but also create some calm that we're very confident in our core set of clients and the capabilities and the value we bring to them on a go-forward basis.
spk01: Okay, that is understood.
spk00: Our next question today is from the line of Daniel Grossleit of Citigroup. Please go ahead. Your line is open.
spk04: Hi, thanks for taking the question and I'll echo Josh's comments. It's been great working with you, Jim. Hope to continue our conversations in the future. I guess my first question really is on revenue yield and the volatility you've seen there. um really since the first quarter of 2022 every every quarter basically has been a sequential decline in revenue yield and while you've been you know very upfront about the contract renewal in 2023 that led to yield declines and i'm curious if you could provide a little more detail on the current volatility i'm not quite sure what kind of the net yield shifts and credits actually mean. So maybe if you can just provide a little more detail on that and when you anticipate those yield shifts and volatility to abate.
spk09: Yeah. Yeah. And so just maybe to kind of peel this back a little bit, the kind of the master service agreements and the contract rates on it, nothing's changed on that. But underneath it, There's programs, there's clients, there's, you know, it's kind of yield behavior. There's accruals, et cetera, that go into the yield. And what we saw in Q2 was, and we get, we have true ups over time. So the client credits is, I'll address the one, the 1.4 million of client credits. Those were washing through our system. Those will abate at the end of Q2. We had a little bit in Q1. So hopefully that's going to be a positive shift. The remainder of that, about $4.8 million, against the same book of savings, if you will, Daniel, is some shifts in business and some normalization of just the overall yield. And so some of those are going to be a little bit temporal. Some will continue. And so I think the yield is starting to come together probably in the high fours. I don't think, I think we were probably, um, probably, uh, you know, masking some of the, or not seeing some of the underlying volatility because things were netting out pretty nicely last year and kind of keeping pretty steady. I think there's a little bit more volatility in the, in the yield right now, but the good news is, is volume seems to be, you know, we'll wash through that and volumes picking up pretty nicely. So I think if we're going to, feel a little less great about the yield part. I think we're feeling better about the volume. You saw that in the quarter. You know, things are starting to come back a little bit. And that was, that included some of the, you know, the change washing through and it was still positive 3% sequential. The other part about it is there's some clients that are pretty rich that have dropped off in terms of the yield and others that are growing faster that are, have a slightly lower yield. So if you see that even inside some products, So we're just, that's one of the reasons why we're a little bit cautious is we let some of this stuff wash through, particularly the credits in the first half and before we get to the second half. So we're just being conservative on that.
spk04: Okay. Okay. And then on your capital structure, obviously you have some time there. I think the converts are the most important. the nearest term maturity in 2027. I'm curious though, you know, your five-year plan now takes you outside of that maturity. And so, you know, it might make sense to start addressing that earlier than anticipated rather, you know, rather than waiting. And, you know, I think the bond, all the bonds are trading at a pretty steep discount now. So I'm curious, you know, other than repurchasing opportunistically in the open market, Are you having conversations or are you open to having conversations with some of your credit investors in restructuring some of these pieces of debt?
spk09: Yeah, it's a pretty oft-asked question, Daniel. You see some swirl in the market around this. But I think there's a couple of fundamental things that we'll say, which is, and we've been consistent on this, which is we have time, we have liquidity, and we have flexibility. And that points to, you know, we've got that. But that doesn't mean we are not thinking in the moment and, you know, not kind of dealing with a lot of the swirl. We had some big swirl around our, you know, in the prices of our securities in Q2, just given some of the external news on the legal and Washington front. That seems to be you know, kind of abating a little bit in terms of the pressure on those securities. But you should assume that we have been thinking and all along since, you know, since the time I joined here, we've always been thinking actively about our capital structure, but we're just going to be thoughtful about it. And we're just not forced to do anything or to act hastily. That doesn't mean we can't be opportunistic, but we're not going to be forced to act hastily around any of this. So the other thing I would say is, Our investors talk to us all the time, so it's not like we're not dealing with this in a vacuum. We're getting input and quote-unquote advice from all of our security holders all the time, so it is always an active dialogue.
spk04: And last one for me, just on your long-term outlook, it sounded like there wasn't any change in kind of that 4% to 5% core out-of-network growth and potentially getting to 8% to 10% with some of the newer products. Sounds like it's going to take a little longer than expected, but is that still the expectation in terms of long-term targets?
spk09: Yeah, and it's interesting. Maybe just kind of the fundamental thesis kind of remains intact. We've seen I think, as we mentioned, but for one client, we've had, you know, kind of a consistently strong mid-single-digit growth over the last, you know, handful of quarters here out of the rest of the business. I would call that the core. So underneath, the results don't look like, but underneath that thesis is absolutely intact. And as we continue to bring out new products, it's that additional layer cake that gets you to a higher growth rate. Travis, you should comment on this, but that is the fundamental thesis of how we're doing it. So I'm probably not in the best position to do kind of the long-term point of view, but the algorithm's intact. And Travis, I'll let you expand on that.
spk06: Yeah, I'll just add a few comments. So I think Jim's accurate. I mean, we're in a good position, believe it or not, to grow from a set of core products and clients that are longtime clients. And as we improve organic product capability, we think we can make more stuff and make more better stuff, to put it simply is what I tell the team. And as we had our first interlock, like I said, we had over 50 new product enhancement and product ideas that we think over time, we can move into that core client base. So I think it's still extremely viable, and we're looking for some reasonable growth in that space over time. Beyond that, I'm really confident that we can, I would say, expand our total addressable market, particularly do better with TPAs, brokers, consultants, and plan sponsors direct. We're going to look at all of our options to be more aggressive. Dare I say, maybe disruptive at times. Because I think we have a right to win with some of our product setting capabilities. And then finally, if you expand kind of a concentric circle outwards, I think we've got some great opportunity as it relates to our analytics business. We signed a provider client this quarter that was very interested in our risk prediction capabilities, which was super interesting and super repeatable. So as I said earlier, you know, I believe in what we're doing and it's going to take a little more time than we thought. And we're going to put a clear view of that down for all of you, which is the work that Jerry is doing. But I am confident in expanding those opportunities and selling better into those markets with more sales to help.
spk05: Yeah. And this is Jerry. Let me just kind of add to what Travis said. So, you know, I think the kernel of your question at the beginning was, you know, the core of business, right? We have favorable volume trends and we have a a near-term yield trend that's unfavorable. And we describe the sources of that yield variance on the downside. But we think after this one programmatic change comes to a conclusion with one client, that that yield trend becomes stable and potentially favorable. So whether it's stable or favorable, the growth trend is
spk00: is favorable over the long term and thus the core business trajectory follows got it thank you thank you our next question today is from the line of madison aaron of jp morgan please go ahead your line is now open
spk03: Thanks for taking my questions, and Jim, thank you so much. I have a few questions here. I guess one, just given the challenges with HST, should we assume that the yields are going to be trending closer to or below 1%? And I'm still not sure what gives you the confidence, and why do you think you have the visibility that we won't see further declines in the PSAP rates? You know, as what was noted earlier, they keep sequentially declining. I just don't know what the bottom is here. I was hoping that you could walk us through that.
spk09: Yeah. So let's answer the first question quickly. So on HST, it's a per member per month. So if we perform well on savings, i.e., a lot of volume comes through the system, we don't get the benefit of it. It just happens to be super sticky revenue. And I would also just say that validates the value proposition. But on page eight of our deck, we talk about – we talk about – the primary KPI, which is the PSAVL. And Rishi, you're right. It has continued to decline. It was pretty stable last year after the rate change at one of our larger clients. And there's been a little bit of a downdraft. But underneath it is a lot of factors that we can put our fingers on that we think will abate or they're just washed into the system. And then there's always just a little bit of volatility around the margin. Believe it or not, we feel like some of the bigger changes have washed through. at this point, and so I, you know, we feel like that's going to stabilize, but it's not going to be, you know, within basis points range every single quarter. What's going to benefit this is where the, you know, the savings just start growing, okay? So, you know, within a couple quarters, all of a sudden, the growth and the volume offsets any of the yield declines, and so that's what we're going through right now. It's pretty painful. And, you know, we can put our fingers on, on some of the very, very specific things, but it's not, there's not a, there's not a fundamental flaw in our model. It's just that things are changing over the course of these last couple of quarters.
spk03: Okay. And then on the large payer program, you know, I was hoping that maybe you could provide us a little bit more detail. Was this a, in terms of specifically what type of product was this an NSA related product and what gives you the confidence that this may not extend to other comparable programs within that large payer or to similar programs with other large customers, assuming that there's some level of competitive pressure here. And then what are you seeing in terms of your TPA relationships and any other meaningful changes with other customers?
spk09: Yeah, Rishi, specifically to the big program, I think, you know, over time we'll be a little bit clearer on this. We wanted to put the earmark out there, but I think it is not a, I would not describe this as a trend. As Travis said, this is a little bit more of a strategic decision. And I would just remind everybody that in the core, you know, the core of our network business that includes NSA, it includes data, I said all this stuff, we've got an array of assets that are hard to replicate and scale. And so it's not something, it's not an easy task for someone to, shift business or internalize, you know, consistently. And so, we call this out, but I don't think it's a trend. We've had moments over time where people have internalized things and, you know, the world is getting more and more complex as you're aware of. And so, having an independent provider that can deal with, make the investments to deal with the ever-changing complex world, particularly in the NSA world. I mean, the laws still haven't settled and they may be changing. continuing to change, it's a big leap to make those types of decisions. So we don't see it as an ongoing trend. But as Travis pointed out, this is, you know, but for, you know, one client that we've seen some of this, it's been pretty consistent across the board that we feel like we're in a good position.
spk03: Okay. And then just lastly, you noted execution to drive or execution skills to drive growth. I was hoping that you could just elaborate on what this actually means. Historically, the growth was product and relationship driven. Is this no longer the case, meaning that is the product deficient and not meeting customer demands? Are there better competitive offerings? Any insight would help because the view has been these acquisitions will start to turn around this year and we'll see a meaningful free cash flow turnaround in 2025. Jerry Barberio, That does not seem to be the case, are we expected to see that turn around more like 2627 28 this five year plan, how should we think about or at least can you at least help us quantify given all these uncertainties where this is going. Jerry Barberio, yeah.
spk05: Jerry Barberio, This is Jerry i'll jump in on that one first yeah so I, I think the outlook our long term strategic outlook is is fundamentally. premised around two ideas, right? Stability and fundamental favorable growth trends in the core, and then better execution on taking our products to market in all of the new products that we've spoken about today and prior earnings calls. So the market potential for the products remains there. We think we've got a differentiated product set in every area that we've talked about. We simply haven't executed as well as we can on the marketing and sales front, and that's where we're going to be focused to create the kind of pipeline that we need to support healthy revenue growth and capture the part of each market that we think our product deserve based upon their differentiation. And we've got, you know, as a part of that plan, very specific revenue trajectories for each one of them that we're going to, you know, pressure test and triangulate on and support with pipeline as we go. But fundamentally, it's been slow getting out of the blocks and creating the pipeline. And then in the HST example in particular, converting the transaction to revenue just given the lag in enrollment and ultimately when things started getting paid. So we'll see evidence of that. We'll understand what it means in terms of transaction size. and will allow us to forecast that business better. At the same time, we build up a pipeline for that product and the others.
spk00: Thank you. Our next question today is from the line of Jessica Tassan of Piper Sandler. Please go ahead. Your line is now open.
spk07: Hi, guys. Thank you for taking the question. And James, it's been nice working with you, however briefly. So, first, I'm just interested to know if Douglas worked with you on the revised forecast.
spk06: Oh, Doug. Yeah. So, Doug will be coming in. Yeah. Sorry, Jim. I'll take it. So, yeah, we've been working closely primarily with Jerry and with Jim. So, we've been looking at the business holistically. We've been meeting with our product teams. We've been meeting with the market teams. We've been doing, I would say, triangulating on those views and coming up with something that we think is fair and reasonable based on what we know today, which is more than we knew entering the year. I've worked with Doug previously, so I have experience with Doug, and his expertise really is in technical accounting, FP&A, and setting up a finance organization. So one of the big challenges I think we've had, and you all are hitting on it today, is getting more precision and predictability with our yields. and our revenue forecast over time and so that is a primary job one focus for doug is to come in and help us continue to validate the assumptions that we've made but also help us be more predictable and how we look at revenue and how bookings turn to revenue and over what time frame so we can avoid having this kind of call again under my tenure anyway and so that's what i expect from doug but i'm confident that jerry's got the process in place working closely with jim And that, you know, we've done everything we possibly can in our current construct to scrub this. And frankly, we're just taking it head on, which is why we're having this call today. And, you know, being as transparent we are with where the numbers and where we think the issues are.
spk05: Yeah. I'm sorry. Go ahead. No, no, please finish. So, you know, it's kind of going back to the core business, right? There is a favorable volume trend. There is a question mark on the yield, right? So our view is, as Jim said earlier, there were some one-time things in the quarter that diminished the yield on a sequential basis. But looking at that question holistically, we think the long-term trend is that the yield stabilizes and potentially reverts upwards a bit. It is driven by a number of factors that are subject to the whim of health care consumption and the nature of the claims that we see. But the volume trend is undeniable. We reported it at the byline of our press release, 8%, 9% growth. So if we believe that the thesis or the conviction that our yield is going to stabilize, then you can imagine what that does to the core business. And then the rest of it is execution on the new products that we have in flight, as Travis mentioned, as well as the products that we acquired through our recent acquisitions. We just need to monetize those because there is value there. And that's really an execution question. And we're we're on it 100%. Got it.
spk07: I just wanted to ask on the program attrition, I guess, just how much notice does that customer have to provide to exit that particular product? And are there a significant number of kind of modular or program based engagements that could attract, you know, effectively at any time?
spk09: Yeah, Jessica, the, you know, under these agreements, there's no volume commitments. There's no minimums or anything like that. So there's, you know, it is not a contractual issue. We tend to get pretty good visibility on this, which is one of the reasons why we're telling you about something that's going to happen in the future. And that's basically just a good relationship with the customer. But as I pointed to, again, this is very, very specific. And it's not, you know, it's not something that every client, you know, is going to choose strategically to try and do or has the scale and capability to do.
spk07: Got it. And then my last one is just on the volume growth that's offsetting the yield declines. Is that occurring within customers or is that occurring through new customer acquisition? Can you just help me understand the drivers of the volume growth would be helpful.
spk09: Thank you. Yeah, I would describe it as pretty much same store sales, same store volume. Meaning a static book of employers utilizing healthcare more. Does that make sense, Jessica?
spk07: Got it. Yeah, I guess it's the number of times that multi-plan is invoked in a year across a given population. Has that changed and is that driving some of the volume growth? both seeing and anticipating in the future? And if so, if the number of kind of interventions has increased within a particular book, why?
spk09: Yeah, I think it's a little bit, at a broad base, I don't think it's a massive change and all of a sudden there's a bunch of new consumers that are using out-of-network services. I think there is, as you're seeing with hospitals, there's been a fundamental uplift in the demand side largely because of capacity. So we're just seeing a little bit of that throughput. And then we're also seeing healthcare inflation, which is always part of the equation in terms of overall bill charges starting to wash through. I don't think it's a major trend, but over time, I think the, you know, the inflation expectations on a forward basis are starting to increase as hospitals, et cetera, are trying to renegotiate contracts and then tangentially pushing up their charge masters, which is their list price. So we're seeing price and volume just across the board going up. We see physicians is always a little bit slower, but on the facility side, it's picked up. And it's very similar to what you see at HCA Tenet, et cetera, this quarter.
spk07: Thank you.
spk00: Thank you. And our next question is from the line of David Beard of Jefferies. Please go ahead. Your line is now open.
spk08: Hey, thanks, Jim, and thanks, team, for the time. A lot of mine have been answered, but I just want to put a finer point on the revenue question. You kind of hit on it a little bit. I know you want to stay away from giving full-blown 2025 guidance, but in light of the 3% attrition headwind, at this point, do you see or foresee enough stability in the yield and enough growth on the volume to overcome that 3%? attrition headwind in 2025 to get back to a positive revenue outlook? Or how should we be thinking about kind of level setting?
spk09: You know, yeah, it's it's a it's a it's a maybe maybe to answer it is more in an isolated piece. So the I do think the yield, the yield is going to settle. I don't think that's going to be the story in 2025. The volume environment feels good. We haven't seen any signals to suggest that it's going to get worse. we've always been a little cautious calling the upswing. And so, but I would also point in the rear view mirror and say, you know, all things being equal, we've seen, you know, nice solid growth in, you know, kind of the bulk of our customer base, even, you know, trailing from this last quarter. And so there's a, you know, there's just a good solid trend there that exists in the business. We also are planting, you know, the seeds that are getting planted on these new products and whether it's HST or BST, BST being a big contributor, will continue to help us. It's been slower than we've liked. So you put some of those ingredients together and then I think what we're trying to do is say, here's one more ingredient, which is a headwind. And we've always had, you know, things like this along the way that we've overcome, but that's kind of the ingredients for, for 2025, but we're just not going to get into the algorithm for that. I think it's too early, and quite frankly, I think we're just going to have a lot more visibility as we get into the back half of this year and early next year to kind of shape that a little bit better for you.
spk08: Got it. Okay, thank you.
spk00: Thank you, and with no further questions in the queue at this time, this will conclude the Multi-Plan Corporation second quarter 2024 earnings call. Thank you to everyone who has joined us today. You may now disconnect your lines.
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