Change Healthcare Inc.
Q3 2020 Earnings Call Transcript

Published: 14 Feb 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Change Healthcare Inc. Q3 Fiscal Year 2020 Earnings Conference Call. At this time, all participants lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be aware [ph] that today’s conference call is being recorded. [Operator Instructions]I would now like to hand the conference over to Evan Smith, Vice President, Investor Relations. Please proceed, sir.

[Evan Smith:]

Thank you, operator. Good morning, and welcome to Change Healthcare's earnings call for the third quarter of fiscal 2020, which ended on December 31, 2019. I'm joined today by Neil de Crescenzo, Change Healthcare's President and CEO, and Fredrik Eliasson, Change Healthcare's Executive Vice President and Chief Financial Officer.First, Neil will provide a business update, then Fredrik will review the financial results for the quarter followed by closing remarks from Neil. After that, we'll open up the call for your questions. Before we begin, I would like to remind everyone that comments included in today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by these comments for several reasons, which are discussed in more detail in the company's SEC filings.Except as required by law, Change Healthcare assumes no obligation to update any forward-looking statements or information. Please also note that where appropriate, we will refer to non-GAAP financial measures to evaluate our business. Reconciliations for non-GAAP financial measures to GAAP financial measures are included in our earnings release and the appendix of the supplemental slides accompanying this presentation.I want to remind everyone that copies of our earnings release and the supplemental slides accompanying this conference call are available in the Investor Relations section of our website at www.changehealthcare.com.With that, I'll turn the call over to Neil. Neil?

[Neil de Crescenzo:]

Thank you, Evan. Good morning, everyone. I'm pleased to report third quarter Solutions revenue of $753 million and adjusted EBITDA of $232 million, another strong quarter. During the quarter, the 14,000 team members of Change Healthcare continue to execute on our strategic initiatives to deliver organic growth across our leading franchises, transform our RCM Services and Imaging businesses and focus on operational excellence to further improve margins and free cash flow.As a result of the strength of our performance, during the quarter, we paid down an additional $150 million of our debt in line with our commitment to reduce our leverage. The major opportunities in healthcare across three dimensions; how efficiently healthcare can be delivered, how we can improve outcomes, and how we, as consumers need to pay for it.Given Change Healthcare sits at the center of the ecosystem, we will continue to play a key role in the digital transformation of the U.S. healthcare market, delivering new, innovative solutions to address these critical areas.We will continue to invest in, and deliver advanced solutions in areas like payment accuracy, risk adjustment and quality, and revenue excellence as well as expand our reach with new solutions that address the needs of consumers, and empower them with information to improve price transparency, affordability and their overall healthcare experience.The recent launch of our application programming interface or API and services connection, which is a marketplace for open, standards based API products, expands our growth potential with both existing and new customers, by providing them are proven interoperability services and advanced analytics efficiently and effectively.Now let me provide you with some perspectives and how we're executing our growth initiative, and embedding innovation across our platform. As we have stated in the past, we have a strong cross-sell and up-sell opportunity in our existing client base, evidenced by our wins during the quarter, and fiscal year-to-date.In our software and analytic segment, we continue to gain traction with our market leading risk adjustment and quality franchises, as well as our payment accuracy franchise with key wins with several large payers, who continue to expand their work with us across their business unit, and across our solution portfolio.Customers continue to see the significant value they can derive from our innovative solutions. Recent wins include our risk view, risk adjustment software platform, which enables insurers to better understand risk score trends, help drive financial results and optimize appropriately their risk adjusted reimbursement.We also continue to have success with multiple modules of our payment accuracy suite of modular solutions. Through payment accuracy, we enable payers to create and deploy flexible automated rules that are integrated into the workflow of providers earlier in the process, thereby saving significant cost, improving cash flow, and increasing provider satisfaction.We have continued to gain momentum with our new, cloud native enterprise imaging platform. In early December, at the Radiological Society of North America's annual meeting, we announced several new provider partners that collectively manage 124 hospitals with an annual imaging volume of over 5.6 million studies.We expect these customers to migrate more than 66 million studies to the Change Healthcare enterprise imaging network, totaling over 2.8 petabytes. This cloud-native enterprise imaging platform is expected to go live with these customers in the first half of calendar year 2020.So we continue to see strong interest in the market for our enterprise imaging network strategy, which is built on cloud native technology and creates a scalable ecosystem, which includes radiology and cardiology packs, data management, vendor consolidation and data migration services, and care team collaboration and coordination.With Change Healthcare’s enterprise imaging network, a customer can optimize its electronic health record and overall IT investments, including eliminating certain capital requirements, and reducing operating expense associated with their imaging by at least 20%.Let me move on to our Network Solutions segment. We sold a number of new contracts in this segment, in data solutions, payments, and our dental network. And we experience an increase in medical network volumes as well.In our data solutions business, we are continuing to see demand across the healthcare and life services, life sciences sector while we are building our momentum in large financial services and healthcare media markets.We believe, we continue to be the innovation leader in healthcare data services. In mid-November, Amazon web services announced it's a AWS Data Exchange, a service that makes it easy for customers worldwide to securely find, subscribe to, and use third party data in the cloud.Change Healthcare was highlighted as one of the inaugural data providers participating in a data exchange, where we securely provide access to our unique de-identified data abstracts and analytics offerings.I also want to take a moment to highlight the value that we bring to life sciences companies, where we are only in the early stages of realizing this opportunity. Within the commercial space, life sciences companies turn to us or our partners to help measure real world effectiveness and with health economics outcomes research, both of which are concerned with downstream, health improvement, including improving access.Our customers want to know, is my drug being prescribed and paid for by PBM’s and insurers? And we are particularly well-placed to help, given we see daily prescriptions including the emergence of new drugs being paid and others being denied.Within the clinical trials space, companies turn to us or our partners to optimize site selection, what sites have patients meeting a desired protocol, determining what doctor is likely to be most receptive, modeling patient persistency etcetera.The clinical trial recruitment process is very labor intensive, and our data can save significant time and money for our customers. We are also seeing continued growth in our B2B payments business, including expanding our relationship with two of the largest payers in the United States. As a result of the significant ROI we provide them, these payors are expanding the deployment of our settlement advocate solution across additional segments of their large-scale provider networks. By doing so, they can improve their cash flow while saving millions of dollars per year.Let me move on to our Technology-Enabled Services business unit or TES. In our RCM services business within TES, and although we continue to see attrition in our historical customer base, we are making significant progress in our shift to selling into hospital-based physician groups and aggregators, leveraging the overall Change Healthcare existing customer base, as well as winning net new logos.Year-to-date, we saw improvement in our win rate, and the average size of deals, as well as an increase in new business opportunities. This is indicative of our initial success as we transform this business over the next couple of years.Notable wins in the quarter, include a multi-million dollar contract, leveraging our consumer payment solution set, a significant expansion of an existing relationship with a large regional medical center for broader RCM Services, and a new contract with one of the largest health systems in Massachusetts, for eligibility and enrollment services as they consolidate the vendors with leaders like Change Healthcare.Let me now take a moment to discuss some of our new solutions and market initiatives over the past quarter. Healthcare organizations continue to look for ways to drive down costs, increase efficiencies, reduce waste and conform with regulations around patient data access, and interoperability.One way to do this is to increase the availability of targeted software capabilities, delivered via standards-based API, that meet these needs in a simple and easy to access manner. To address this need, we recently launched a digital marketplace, the API and services connection, where our customers and partners can discover, and buy API’s created from our comprehensive portfolio of products in a simple and on-demand manner.This allows us to engage with existing payor and provider customers, while expanding our opportunity in new segments, including digital health companies. Dramatically speeding time to market for new capabilities and solutions, our API’s reduce application development time, testing and costs for developers, while promoting interoperability and fostering innovation across the ecosystem.In addition, our marketplace provides the ability to easily cross-sell and up-sell to existing customers looking to enhance their use of our products. We are already seeing new customers accessing our innovation through the API and services connection and expect this to increase throughout calendar year 2020 as we add more APIs and expand our distribution through other online marketplaces beyond Amazon, including the Microsoft Azure API marketplace.During the quarter, we also announced the industry's first nationwide solution to enable providers to submit documents and data, such as claims attachments, electronically to payers at a fraction of their current cost, and with vastly streamlined workflows.This is another value driven offering that is uniquely offered by Change Healthcare because of the scale and pervasiveness of our network and our ability to bring first of a kind innovation built upon our network to our customers.With this new capability, providers can submit documents and clinical data required for claim adjudication through the Change Healthcare network and reach any payer in the country. That's right. Any payer in the country. To give you some background on this situation, the Council for Affordable Quality Health Care has stated that 10% of claims require an attachment to enable adjudication and payment and that 94% of claim attachments are currently submitted manually.Handling attachments manually is costly, and causes delayed claims adjudication, which delays payments to providers and creates frustration for payers and providers. The total national savings opportunity by adopting electronic claim attachments is estimated to be as high as $500 million annually.And finally, at the JPMorgan Healthcare Conference, we gave a sneak peak at our shop, book and pay solution. Shop, book and pay brings world-class consumer engagement capabilities and technologies to healthcare in collaboration with our partners, Adobe and Microsoft.Consumer out-of-pocket health care spending is over $350 billion per year, and consumers are the fastest growing payer in U.S. healthcare. The result is several pain points for consumers as they deal with increased responsibility for payment, confusing bills, low transparency around cost, and limited payment options to address affordability.Change Healthcare shop, book and pay solution for the first time, will allow healthcare organizations of any size down to small doctor's offices to offer comprehensive e-commerce capabilities to their patients. More than just price transparency, it allows patients to shop for care, through consumer-friendly service bundles, procedure recommendations and relevant providers scheduling availability.We will provide the basic bundle of shop, book and pay services to providers on a per patient, per year basis, at a fraction of the cost providers are typically spending today for these capabilities.Hundreds of thousands of providers across U.S. healthcare love the opportunity to leverage the same consumer engagement in e-commerce technology that powers the best experiences today in the retail, banking and hospitality industries.In closing, the recent wins across our platform, the introduction of new value-added solutions that enhance and expand our market reach, and the execution of our strategic growth initiatives provides us with strong confidence in our long-term growth potential.Now let me turn the call over to Fredrik, who will review our financial performance for the quarter and provide you with more detail on our financial outlook for the year. Fredrik?

[Fredrik Eliasson:]

Thank you, Neil. Good morning, everyone. I am very pleased to report yet another successful quarter, delivering continued underlying growth across all three segments offset by the impact of previously disclosed actions, we're taking in our RCM services and Imaging businesses to reposition for growth, as well as our Connected Analytics business, where we are continue to review strategic opportunities, to maximize the value of those assets.As we move toward the end of a build phase, we are poised to deliver improved revenue growth in fiscal year 2021, driven primarily by an acceleration in the growth of our Software and Analytics and Networks Solutions segments and continued progress in repositioning our RCM Services business in our technology enabled services segment.We have a clear line of sight and remain confident in our strategy of focusing on core growth and operational excellence initiatives to drive long term, sustainable growth, profitability and cash flow.Now let me review our financial results for the quarter, and then provide guidance for our fourth quarter fiscal year 2020, and full year fiscal 2021. As you can see here on slide six, and as I've outlined in prior quarters Change Healthcare adopted a new revenue recognition accounting standard ASC 606 effective April 1st 2019 on a modified retrospective basis.In our financial results from April 1st this year and going forward, we'll use the new revenue recognition standard. Historical financial results for reporting periods prior to the fiscal year 2020, our percentage in conformity with a prior revenue recognition standard ASC 605.For fiscal year 2020, however, we will provide a bridge to ASC 605 results for comparative purposes. In addition, we will focus our presentation on solutions revenue as it excludes postage revenue, which is merely a passthrough.For the third quarter of fiscal 2020, under ASC 606, Solutions revenue was $753 million which was in line with our expectations given the strong performance in our Network Solutions and Software Analytics segment.These results include $24 million less revenue as a result of a change in accounting standards. This was $7 million higher than previously anticipated. The ASC 606 impact and software analytics was $19 million and was primarily related to Decision Support Solutions, which includes the acceleration of certain revenue primarily into the first quarter of the fiscal year and the extension of certain revenue to future periods.For technology enabled services, the negative impact from ASC 606 in the quarter was $5 million due to the continuing fee structure, revenue for these services under the new accounting standard is not recognized as the services are delivered versus when the amounts were collected on behalf of customers under the prior accounting standard.Adjusted EBITDA was $233 million placing us in a solid position to meet our full year financial objectives. Adjusted EBITDA was negatively impacted by the previously mentioned revenue impact from ASC 606 which drops directly to the bottom line and the previously outlined investment to support our data solution, AI, enterprise imaging and enterprise sales initiatives.This was partially offset by [Indiscernible] million of favorable impact on commissions and new contracts set up costs as a result of the new accounting standard. For the fourth quarter, we expect a positive impact on commission expense to be approximately $4 million.Adjusted net income was $106 million, and adjusted net income per diluted unit was $0.33. Now moving to our results on the ASC 605, for comparative purposes on Slide seven. For the third quarter, under ASC 605, total revenue was $832 million compared to $822 million in the same period of the prior year.Solutions revenue was $777 million, compared to $763 million for the third fiscal quarter of 2019. Overall growth in revenue was 1.8% which included the negative impact of $69 from planned contract eliminations in our technology enabled services business, and the year-over-year impact related to optimization of our connected analytic solutions business.Adjusted EBITDA for the quarter was $250 million compared with $234 million in the same period of the prior year. Adjusted EBITDA margin as a percentage of Solutions revenue for the third quarter of fiscal 2020 was 32.2% compared with 30.7% last year.Improvement in adjusted EBITDA and related margin improvement reflect the incremental revenue growth and operational synergies. Net income for the quarter was $49 million resulting in net income of $0.15 per diluted unit compared with net income of $13 million and net income of $0.05 per diluted unit respectively for the third fiscal quarter of 2019.Adjusted net income was $124 million resulting in adjusted net income of $0.39 per diluted unit compared with adjusted net income of $96 million or $0.38 per diluted unit respectively for the third fiscal quarter of last year.Adjusted net income reflects the improvement in adjusted EBITDA, lower interest expense, and the $8 [ph] million reduction in strategic and integration related expenses. This was partially offset by higher amortization expenses related to strategic and integration CapEx, and higher income tax expense in the current period.The per unit results also give effect to the IPO, with $322 million fully diluted units outstanding in the third quarter of fiscal 2020, compared to $253 million fully diluted units in the same period of the prior fiscal year.Now let's take a look in more detail at a performance of our segments on slide eight. Once again, we are using the prior accounting standard ASC 605 to provide a more meaningful year-over-year comparison.Starting with revenue, the Software and Analytics segment grew 5.3% year-over-year. Growth in our Software and Analytics segment was driven by strong performance in our leading franchises like payment accuracy, decision support, and risk adjustment.Results was partially impacted by a previously disclosed strategic assessment and optimization of our Connected Analytic Solution, and a transition in our imaging business to cloud based enterprise imaging solution.In addition, the quarter was impacted by the slower ramp up of a previously disclosed large contract, which will impact our Software and Analytics guidance for the fourth quarter and full year.Our Network Solutions revenue increase by 5% year-over-year. Key drivers included implementation of new customers in Data Solutions, payments and dental, combined with stronger medical network volumes.In addition, we continue to make progress on adding new opportunities for growth in areas like all payer attachments, market expansion opportunities and expanded distribution channels for data use cases, as well as new solutions like shop, book and pay, all of which Neil reviewed in his early remarks.In our Technology Enabled Services segment, overall revenue declined 3.7%. This includes $16 million of planned, contract eliminations. Excluding this planned attrition, revenue growth was 2.5%.Fiscal year-to-date, planned attrition was $41 million and revenue growth excluding the planned attrition was 2.4%. As Neil mentioned, we continue to drive additional wins and expand in health systems and aggregated markets and continue to reposition our solutions to better address and market dynamics, to enhance efficiency and to improve the long-term growth potential.Turning to adjusted EBITDA. Software and Analytics grew 8.6% year-over-year. The results were driven by revenue growth, along with operational synergies and cost initiatives related to the Connected Analytics Solutions, partially offset by investments to support our AI initiatives and enterprise imaging transformation.Network Solutions adjusted EBITDA increased 4.7% in the quarter, driven again by the growth in the data and B2B payment solutions, and continued volume across the network including increased growth in a medical and dental networks offset by increased investments to support the expansion of our data solutions business into new markets, expansion of our dental network and integration of network capabilities.In technology enabled services, adjusted EBITDA decreased by approximately $3 million due to the repositioning of the revenue cycle services and the communication and payment solutions business.We expect this segment will show stronger year-over-year and sequential adjusted EBITDA growth and related margin improvement in the fourth quarter as a result of our operational excellence initiatives, including our automation and initial impact of artificial intelligence initiatives.Last, corporate expense decreased by $3 million which increased public company expenses being more than offset by lower SG&A expenses. Overall, the results across the business continued to support our ability to achieve our goals for the year.Moving to cash flow and our balance sheet on slide nine. Free cash flow was $120 million for the three months ended December 31st this year, compared to negative $45 million for the same three months in the prior year.Adjusted free cash flow was $151 million for the three months ended December 31, 2020 compared to $17 million in the prior year period. Fiscal year-to-date free cash flow was $214 million versus $59 million in the prior year period.Adjusted free cash flow was $325 million fiscal year-to-date versus $250 million in the prior year period. During the quarter, we paid down $150 million in debt. As a result, total loan from debt including the short-term portion was slightly over $4.8 billion with credit agreement net leverage ratio of 4.7.This is down from 4.9 in the prior quarter. Our liquidity remained strong ending the quarter with over $74 million of cash and cash equivalent, and a fully undrawn revolver. Our objective remains to reduce leverage by approximately half a ton a year, including debt pay down and improved operating performance.Now moving onto our financial guidance and key assumptions on Slide 10. As I stated in prior quarters, we do not intend longer term to provide quarterly guidance, but given the impact of ASC 606 and this being our first year as a public company, we felt it was important for investors to get a clear view of our quarterly expectations.Our expectations for the fourth fiscal quarter this year is with Solutions revenue to be in the range of $775 million to $785 million which includes an estimated $14 million net negative impact from ASC 606.Revenue guidance assumes year-over-year Software and Analytics revenue to be essentially flat compared with the prior year reported ASC 605 revenue. This is in line with the guidance we provided last quarter for Software and Analytics and related to the slower than anticipated rollout of a large contract and the continued impact of our strategic assessment of connected analytics.In addition, we also expect corporate and eliminations to remain flat with the third quarter for the remainder of the year. Adjusted EBITDA is expected to be in the range of $260 million to $270 million as a result of continued improvement in overall margins year-over-year and sequentially partially offset by the ASC 606 revenue impact already mentioned.In addition, we expect adjusted net income to be in the range of $115 million to $125 million. For our prior guidance, full year revenue is not expected to differ materially between the two accounting standards. Including the incremental ASC 606 impact in the third quarter, we anticipate the full year impact to be approximately $6 million decrease in revenue for the year.As a result of this incremental ASC 606 impact, and the previously disclosed slower than anticipated contract ramp up in Software and Analytics, revenue growth is not expected to be in the lower end of our 1% to 2% guidance for the year.We continue to expect our adjusted EBITDA growth to be in the range of 6% to 8% with adjusted net income to be in the range of 9% to 11% for the fiscal year 2020. In addition, full year free cash flow is expected to be in the range of $250 million to $300 million, adding back the temporary integration CapEx and OpEx, our free cash flow for the fiscal year 2020 will be above $400 million as previously guided.To provide even further transparency for investors, I'd like to highlight the following key assumptions for the full fiscal year that supports this guidance. Interest expense in the range of $282 million to $285 million, integration related expense of $110 million to $120 million, adjusted effective tax rate for the fiscal year of 12% to 30%. CapEx of approximately 7% of solutions revenue, excluding integration CapEx of approximately $20 million to $25 million and basic units outstanding of 319.2 million units, which includes the minimum number of shares for the TEUs.Fully diluted shares are expected to be approximately flat with the third quarter assuming no additional delusion from the TEU. Now turning to fiscal 2021 guidance. For both our Software and Analytics and Network Solutions segment, we continue to expect strong revenue growth of 4% to 6% as previously guided.Software and Analytics growth is supported by the continued demand for our leading solutions in payment accuracy, decision support and risk adjustment including new value-added solutions launched in FY 20 as well as the momentum in our enterprise imaging transformation. It also assumes the continued headwind from our Connected Analytics business.Network Solutions growth is supported by the continued momentum in our data solutions and payment businesses as well as our continued rollout of new solutions including a nationwide all-payer attachment solution.With respect to technology-enabled services, we continue to make progress on pivoting to higher growth segments of the market, focusing on value driven contracts with hospital affiliated physician groups and aggregators. But bookings growth for the segment, year-to-date are in line with expectations. A recent decision by one of our RCM services customers to insource a significant portion of the current business is anticipated to have an approximately $30 million impact of our revenue in fiscal year 2021, primarily impact in the second half of the year.This integrated delivery system will continue to use RCM software, network connectivity and patient access services. We're also in advanced discussions with them to expand the scope of our relationship to include a new high value-added capabilities that we offer. This is a good example of how we can provide value to our customers even after needs change because of the diversity of our portfolio.I would also note after accounting for this contract, our concentration risk is limited. We know our RCM serves as customer representing more than 2% of our remaining our RCM business. As a result, we're not expecting technology enables services revenue growth for fiscal year 2021 to be flat to up to 2% year-over-year.So based on the aforementioned trends for our three segments, we continue to expect overall revenue growth for the company in fiscal 21 to be within our target range of 4% to 6%. We also continue to expect adjusted EBITDA growth of 6% to 8% as we execute on additional productivity initiatives that will offset the impact of lower revenue growth expectations for technology-enabled services.Now with that, let me turn it over to Neil for his closing remarks.

[Neil de Crescenzo:]

Thank you, Fredrik. As we've demonstrated, we continue to leverage the strength of our platform to deliver new, high value solutions that address the major opportunities to improve healthcare, and meet the critical needs of our customers.The recent launch of our API & Services Connection and our participation in the AWS data exchange, will accelerate our ability to bring innovation to our customers and further support our growth potential.We are focused on continuing to deliver on our commitments and remain on track in our purposeful journey. Our 14,000 team members deliver value to our customers every day helping them optimize financial performance, eliminate administrative waste, improve clinical outcomes, and enhance engagement and access to healthcare for consumers.Now, I'll turn the call over to the operator to take questions. Operator?

[Operator:]

[Operator Instructions] And our first question comes from Robert Jones with Goldman Sachs. You may proceed.

[Robert Jones:]

Great. Thanks for the questions and all the detail. I guess Fredrik, maybe just to go back to the RCM comments that you just made. I'm just curious given it seems like this is a fairly sizable headwind on this decision, that this IBM has made. How should we think about that in the context of your ability to get to that 4% to 6% top line growth overall next year. And obviously, it sounds like you guys are still very confident in achieving that, but just trying to this in context of how big a change this was relative to your prior expectations.

[Fredrik Eliasson:]

Well, I mean, we felt really good about next year before this obviously occurred, and had plenty of room to meet our guidance. We feel still very good about meeting that and you can see the growth we had here this quarter between the software and the Network Solutions business. We still expect to grow our technology-enabled services business next year. So the fact that we have such a great momentum here is a good testament to the diversity of our portfolio and the strength that the underlying solutions have in the marketplace.So overall, obviously we've also baked in at this point that we our connected analytics business will be with us. That's a drag, if that changes, that will obviously even further improve our line of sight to that 46%. But that's why you make sure that you know one of the -- one of the key things that we've done since the IPO is to make sure that whatever we say, we can deliver and we can absorb some of these things without changing where we're heading. And the good news is from an earnings perspective this is not that difficult because of the continued efforts and vibrancy we have on our productivity initiative.So, from a bottom line perspective, this really doesn't change the story at all. And we will still be able to get to our 4% to 6%.

[Neil de Crescenzo:]

Bob, it’s Neil. We also continue to remain very encouraged by the strength in sales and bookings as we've gone through the year, relative to our expectations, which continues to build the foundation for the growth rate accelerating next fiscal year.

[Robert Jones:]

Now, that, that's helpful. I guess just a quick follow up. As you mentioned, the connected analytics being a drag, we noticed in the S4 that there was some language around restrictions from divesting certain assets for a few years. Does that play a part in your ability to continue to pursue the sales or the removal of certain businesses over the next couple of years?

[Neil de Crescenzo:]

he restrictions that are outlined in S-4 really relate to some two core assets that we have absolutely no intent of not being part of Change Healthcare going forward. So, Connect Analytics for example would not be part of that as we continue that assessment of what makes the most sense there.So it will really not have any practical implications of the journey that we're on to repositioning some of our assets looking across the portfolio, what makes sense and what doesn't make sense. It really doesn't change our strategic direction.

[Robert Jones:]

Great. Thanks so much.

[Neil de Crescenzo:]

Thank you.

[Operator:]

And our next question comes from Lisa Gill with JPMorgan. You may proceed.

[LisaGill:]

Thanks very much. Good morning. As we think about the amount of data that you have, as we think about all healthcare billing and we look at what's going on do you see around surprise billing potential legislation, can you talk about the potential role that you think that change could play around maybe providing data?And then secondly, just going back to what you did announce at our conference around shop, book and pay, how do you think about member engagement? Is that going to come from your side? Or is that going to be the provider that's going to be engaging their patients in these kinds of products?

[Neil de Crescenzo:]

Yes, thanks Lisa. Those are I think two very important areas. I think on the data side. As you know, we've long been very active proponents for greater transparency and utilization of data, we call data liquidity by all the participants in the system, including its utilization to optimize healthcare that's directed by the government. So we've been very very pleased and excited to continue to provide that perspective to all the parties in the system, including our payor and provider customers as well as government agencies, and we'll continue to do so. And I think it is further supported by the investment we've made over many years and will continue to make around security, privacy, scalability and the ability to provide data to all the constituents to optimize U.S. healthcare.On your second question, regarding engagement. I think, it's a great perspective to bring up, because I think has stopped from being involved the industry for so long. There really has been historically, maybe a lack of collaboration to the extent it could benefit U.S. healthcare among providers, payers, government agencies, regulatory bodies and others. And I think that's changing. We feel very fortunate to be at the epicenter of all of these data flows, and these relationships across our 30,000 customers. And as you know our business as well balance between payers and providers.And so, what we see evolving including with initiatives like shop, book and pay is frankly all the participants looking to engage whether it's members on the payer side or patients in the provider kind of parlance, so that they can establish the kind of loyalty and ease of doing business with these entities that frankly many other industries including the ones on which we've built our solutions that they've leverage such as retailing, financial services, and others have done for many years. So we feel very fortunate to be able to serve these engagement needs across many constituencies, which we think gives us a also a great market opportunity.

[LisaGill:]

Great. And just as a follow up Fredrik, when you made all the comments as we think about the fourth quarter or 2020 and 2021 as we think about this exchange with McKesson, I think historically, you've talked about the tax rate moving back towards 24%. I just want to make sure that I have that correct, and that's going to happen on the day that that transaction is complete?

[Fredrik Eliasson:]

Yes. Obviously, having that split spin profit that exits behind us is a very positive end for us across the board in terms of simplifying the structure, and probably the biggest beneficiary of that is the tax rate. And at that point, right now, we have half of our earnings coming through partnerships.So we said 12% to 13% is what you should think of as we move forward. We said around 25% is the tax rate starting essentially fiscal year 2021. Based on the current timing, they might be a little short stub period at the end of this year. But for all intents and purposes, as we think about fiscal year 2021 that tax rate should be around 25%.

[LisaGill:]

Okay, great. Thank you.

[Fredrik Eliasson:]

Thanks, Lisa.

[Operator:]

And our next question comes from Manav Patnaik with Barclays. You may proceed.

[Ryan Leonard:]

This is Ryan Leonard on for Manav. Just curious on the moving pieces into 2021. I wasn't sure if I got that. So the $30 million contract in RCM that they're in sourcing, you currently have plans to offset that? Or that requires new sales to that client in order to offset?

[Fredrik Eliasson:]

No absolutely, we're also in that. And that I think to Neil's earlier point about the fact that we see a significant amount of bookings growth in that business. That will help us offset that and which is why at the end I gave the growth rate that we're expecting right now for taxes to be about zero to 2%. So we still expect to grow even though we have that headwind in that segment next year, and we is also why we still feel very comfortable with our 4% to 6% top line growth next year.

[Ryan Leonard:]

Got it. Thanks. And in one of the comments you mentioned you know data exchanges and this kind of seems like new ways of utilizing your data. How should we think about that longer term? I mean, this 4% to 6% framework you've laid out, does that incorporate some penetration increases there or is that more long-term kind of upside?

[Fredrik Eliasson:]

Yes, I think as Ryan we've talked about previously, we do have parts of our business that are growing well above our targeted growth rate and we factor that in to how we develop the confidence in our overall guidance. I think these areas that are also margin accretive as well as growth accretive are ones that have been areas where we've deployed our capital and we'll continue to deploy our capital, so that we can overtime continue to enhance our overall revenue growth rate across the company, and really does leverage this sort of unique position we're in, both in terms of our scale and being at the epicenter of U.S. healthcare.

[Ryan Leonard:]

Thank you.

[Operator:]

And our next question comes from Jailendra Singh with Credit Suisse. You may proceed.

[Jailendra Singh:]

Thanks a lot. My first question around kind of following up on your comments around your enterprise imaging business. The company had some nice wins last quarter. Maybe talk about what is resonating with the marketplace. Are you gaining market share in that market? Or how should we think about the return to your growth in that business?And also like, can you spend some time from health systems perspective, how easy or disruptive is for them to switch vendors in that area?

[Neil de Crescenzo:]

Yes. That's a great question. And as you could probably tell from both our comments this time previously, we're very excited about what we're doing in enterprise imaging. And just a reminder, really the background, this is really the industry's first cloud-native SaaS solution and it benefits from reducing the IT burden on the enterprise as well as their capital investment and operational costs.And per your point about migration, it also provides easier access, and distribution of images and data, that allows the caregivers to collaborate and provides for improved patient engagement. So it really does meet the pain point of the hospital CIOs as well as it aligns for where imaging is going.And when you think about how industries have evolved over the years, this sort of step function and improvement is something that can power additional growth. The other thing that we benefit from when you ask about migration services, the migration process that we've established with this service, and as I mentioned, the massive volume of images that we expect to be migrated just in the first six months of this calendar year from my previous remarks are indicative of the advances that frankly the big cloud vendors have made in optimizing the migration from on-premise, old architecture solutions to these new cloud native infrastructures. So we're very fortunate to be able to leverage that with what we're doing in enterprise imaging.

[Jailendra Singh:]

Okay. And then my follow up, can you spend some time around your comfort around leverage. I mean, at what level do you feel comfortable about getting more aggressive on M&A? I mean, you guys made a new hire in Ryan Miller as Senior VP of Corporate Development last quarter. Maybe talk about his focus over the past couple of months, and going forward?

[Neil de Crescenzo:]

Yes. So we've been very clear that deleveraging here coming out of the IPO is priority number one. We've set a target to deleverage about half a ton a year and get to around 4. We said at that point, we will really see what the shareholder base look like, because frankly we don't know what it's going to look like based on the fact that we now have the McKesson exit and have a little bit of a dialogue there, see what the optimal capital structure looks like based on the capital markets. And of course, see what the M&A environment looks like as well.So that's the journey. We'll update the market probably later next fiscal year in terms of where we're heading there. But we're very comfortable to operate at a higher level of leverage, because of the fact that we have such a high recurring revenue and such as strong free cash flow.In terms of M&A specifically, we will continue to do some along the way that make sense where we can add capabilities, that makes more sense for us to purchase versus build ourself, but it probably be smaller, short term because of our prioritization of the lever. As you move forward, they will become bigger, but is also going to be extended to be making sure that it makes sense economic and it fits into the core of who Change Healthcare is.So, it's going to be very disciplined. And as I think we've stated many times, most of our acquisitions in the past have started as partnerships, to make sure that just that, that we're very disciplined, and that whatever we do put capital to work towards in terms of M&A, that is very low risk and provides the sort of returns that we would expect.

[Jailendra Singh:]

Great. Thanks a lot.

[Operator:]

And our next question comes from Sean Wieland with Piper Sandler. You may proceed.

[SeanWieland:]

Thank you. Good morning. So I wanted to ask about the regulatory landscape around data privacy, particularly CCPA out here in California, the California Consumer Protection Act. How do you see this affecting your positioning in the market with respect to data, and your go-to-market strategy? And I guess net, net is a good thing or a bad thing for you?

[Neil de Crescenzo:]

Well Sean, yes, that's a great question. I guess, I would say, it's just the thing. In reality, we've been dealing with federal and state regulation really since the inception of the company. CCPA is obviously a state specific regulation as you know. There's a number of efforts to make sure it's not done in a way that all that further complicates the existing regulatory aspects of HIPAA so that we take advantage of the federal legislation and we don't end up with an extraordinary level of complexity at the state level now, with potentially new state laws even beyond CCPA. But I think for us, we fortunately have developed the infrastructure and the expertise and are very involved at both the federal and the state level to first of all understand well in advance how we may need to change any of our operating procedures infrastructure etcetera. Patient identity mechanisms in order to make sure we're in compliance with any new regulations. But also, I think meaningfully engaging at the state as well as the federal level to make sure that there's not too many unintended consequences for some of these legislations given the sort of special needs around patient data and existing federal laws such as HIPAA.

[SeanWieland:]

Okay. Thanks for that. And I got a follow up on the RCM client’s loss or insourcing. I guess, two questions. Two-part question. One is, why did they insource? And two, is that $30 million impact, do we think about that as a $60 million run rate? And what's the impact on EBITDA?

[Neil de Crescenzo:]

Yes, well I think as Fredrik mentioned, one of the strengths of our business is having the diversity and balance to be able to handle these things. I think, you're thinking about the financial ramifications correctly, and one of the things that we mentioned is that this integrated delivery network is going to continue to use our RCM software, our network connectivity, and a variety of our patient access services.So as our customers have different strategic needs, as their perspectives change, and they develop their own strategies. I think, it's an example of how we continue to have important strategic relationships with those customers, and the diversity of our business and its balance allows us to handle it, and still meet our objectives from a financial perspective.

[SeanWieland:]

Okay, thank you.

[Operator:]

And our next question comes from Michael Cherny with the Bank of America. You may proceed.

[Michael Cherny:]

Good morning and thanks for taking the questions. So, I just want to hang out a little bit more on the fiscal 2021 guidance. It's -- according to $30 million loss, it's absorbing roughly a 1% hit to total revenue growth. I guess, as you think about that versus the 4% to 6% range that you're sticking with is there anything across the business outside of keeping Connected Analytics and what's in place that's changed or gotten better or worse beyond that one customer loss that you're seeing with the insourcing?

[Fredrik Eliasson:]

If I look across the business, we continue to be positively pleased. I should say pleased with what we're seeing at each of the different solutions. If there's one area I would highlight, is probably a network business that continues to really show more strength in terms of not just the core of that which is the medical network, which continues to do very well, but also the very fast-growing payment and data solutions business. And so, we're very excited by that. But then even within our software business we continue to see a payment integrity business. Our decision support business, really across the board, there we're seeing great vibrancy.So I would say this, that you know before this decision, I would have used the word extremely comfortable with next year guidance, now we're just very comfortable with next year guidance, and I think that you've seen over the last three quarters, what we say we're going to do we do. And the same thing holds true for FY 2021 guidance. We wouldn't put it out there, we gave it a little bit more detail today, as we've gone through the planning process.And just to give you a bit more color, but there is no doubt that from our perspective we're very comfortable with the guidance that we provided, and we expect to continue to live up to each and every quarter of the journey we're on, which is a very purposeful journey to very specifically transform and repositioning for growth, the areas we talked about RCM services, imaging, and then the strategic assessments we connected.If we do those three things right, and continue to innovate in the core business, we know that the four to six is really an interim growth target and longer term, we should do better than that. But once again, we do want to get ahead of ourselves in terms of how we communicate to the market.

[Michael Cherny:]

Thanks Fredrik. And then just one quick separate technical question, on your solutions revenue side, in terms of 606 guidance for the quarter, you came in dead smack in the middle. Was there any impact in terms of what you had expected on the conversion of 606 relative to how your numbers shook out. I needed a 605, 606 conversion. Not specifically talking about the 3Q guidance, and where that shook out in terms of any impacts on 606 that you had not expected when you gave that guidance?

[Fredrik Eliasson:]

Yes, we make sure I understand the question. We did highlight that we had more 606 impact than we had anticipated going into the quarter about $7 million. That has to do with implementations and renewals and we see that spill over now. Our best estimate that we will have about a $6 million negative impact for the year for 606. If you strip out the 606 there were some pluses and minuses in the quarter as you would always expect. But that goes back to the diversity of our portfolio, the strength of our portfolio. But I think overall it was pretty consistent. It was more the 606 impact than anything else that impacted the quarter.

[Michael Cherny:]

So basically, almost the high end of the guidance. Absent that unexpected 606 change.

[Fredrik Eliasson:]

Yes, that's pretty much right.

[Michael Cherny:]

Awesome, thanks Fredrik.

[Operator:]

And your next question comes from Daniel Grosslight with SBV Leerink. You may proceed.

[Daniel Grosslight:]

Hi guys. Thanks for taking the question. The question is similar to Sean's, but more on a federal level. There's been a lot of noise in D.C. around the proposed interoperability rule and some very powerful constituents coming out against the rule on privacy concerns. I'd love to get your read on the situation there at HHS, how you think it's going to shake out and how or if the new rules or any watered-down new rules would impact your business?

[Neil de Crescenzo:]

Yes. No, it's a great question. As you say, a little bit more on the federal side versus the California question from Sean. I think one of the things that we've been in discussions continuously with our customers, with the regulators, including NC and others in HHS in Washington, in our perspective, is continue to look at what's best for patients. I think that's really -- hopefully, everybody's perspective in the different stakeholders that impact U.S. healthcare.I think the fact that we have worked collaboratively now for decades with not only providers and payers, but with everybody from EMR vendors to claims adjudication software providers to large systems integrators, etcetera, while continuing to participate on virtually all the major committees and task forces, including those that you just mentioned, that HHS or ONC and others have in Washington to sort of shape these regulations, I believe our approach is sort of a neutral third party, really trying to provide more transparency and data that could be utilized, not only by stakeholders, meaning payers or providers, but particularly importantly consumers is really how we've approached this.And I think while there is certainly a number of participants that are concerned that anybody's one perspective is going to dominate, I expect, as everybody continues to work together, and we have more digital data that can benefit improving the efficiency and effectiveness of U.S. healthcare, we'll end up with something that's balanced at the end of the day.

[Daniel Grosslight:]

Got it. Thanks for -- thanks for that perspective. And then just one on the S&A segment. You mentioned you expect that to grow around 4% to 6% in fiscal year '21. You've had some continued strength in some of your core products payment accuracy, risk adjustment, and decision support. Can you just help us dimensionalize or think through how fast those product lines are growing relative to the overall growth rate of, of S&A, and with the margin profiles of those products, specifically, payment accuracy, risk adjustment and decision support looks like?

[Fredrik Eliasson:]

Those businesses are obviously a big part of software. And you know this overall software margin profile, I would say that the payment integrity, payment accuracy business is one of our biggest businesses that we have in there with very attractive margins.When it comes to the revenue picture, 4% to 6%, absolutely feel comfortable with that, even with Connected Analytics continued headwind. So if you strip that out, it's going to be significantly more than that. And so we try not to get into the individual pieces of our business because it changes from quarter-to-quarter. And as you see here, just keeping to three business units, there's a lot of reconciliation that has to occur in every period.But I would say that if I look at the main -- the main components that is in our Software and Analytics business, each one of them grow at a very high, at least high single-digits to above that. So it's a very attractive growth across all of them. And obviously as we go through the repositioning of some of the assets and we get through the connectors, we will highlight these more and kind of shift toward more communicating around that.But right now, we are still in the face of really addressing and reposition to grow some of these things that are holding back our growth rate. Eventually, you will see us be much more transparent about some of these other ones. But right now, the focus is on fixing the things that we need to fix and we have a clear line of sight to. And we'll, over time, highlight more of the other ones as well.

[Daniel Grosslight:]

Understood. Thanks, guys.

[Operator:]

Our next question comes from Eric Percher with Nephron Research. You may proceed.

[Eric Percher:]

Thank you. Question on the productivity initiatives. I understand that element of automation and early elements of AI are expected to drive some productivity improvement, and it sounds like margin expansion as we get into Q4 and into fiscal year 2021. Can you help me understand what exactly it is that you're automating and where AI will come in and how that flows through to the P&L?

[Fredrik Eliasson:]

Yes. So let me first take you the broader question around the synergies and how we're thinking about it. I can let Neil add a little bit about AI and automation. But so I think we had $150 million of synergies that we estimated from this transaction that was done two and half years ago. A lot of the organizational optimization synergies were done immediately. As we now have the organization more functioning like Change Healthcare, we see additional opportunities for our synergies.For example, we have -- we implemented one ERP system in -- now for Change Healthcare versus two before and that drives synergies. Second piece, I would also say is that we are much more disciplined and targeted and data-driven in terms of how allocate our operating resources with our IT R&D organization as one Change Healthcare now versus kind of legacy structure that was in place before.And this allows us really to rethink how we allocate our resources and drive efficiency that way and adding more resources to faster-growing solutions to capture new opportunities. So net, this is saving, but we're still, within that, also able to drive efficiency. But in terms of the AI, let me turn it over to Neil.

[Neil de Crescenzo:]

Yes, thanks. Eric, when we think about robotic process automation, we call intelligent process automation, it's really automating workflow, particularly from some of the more administrative and largely standardized elements of workflow particularly across our businesses, including our service business. So there's a lot of manual processing work, common tasks done by humans that are interacting with technology, we use these tools to decrease the cycle time and often, frankly, perform the tasks faster and just by virtue of it being in software with even greater reliability than a human can.So these are areas like patient access, our utilization services, charges and coding, claims, reimbursement. So I think that's what we'll continue to do in deploying intelligent process automation. From an AI perspective, and really as exhibited by the announcements and new offerings that we've come out with over the last three to nine months, it's really around taking our unique data assets and the understanding we have around these broad, complicated processes and providing analytics that really is not possible to be provided by other participants because they don't have the data, the expertise or the ability to embed these analytics into workflow. So that's been particularly prevalent and I would say the payment accuracy area as well as decision support and our RCM business. So hopefully that gives you some color on what we're doing around intelligent process automation in AI.

[Eric Percher:]

Thank you for that. And staying in TES, on the contract departure. I want to make sure I understand the nature of where you are refocusing. Is this the type of client that you're trying to move toward? And I understand, of course there's software and service, and they're going to maintain a relationship with you. And then I guess, the second part of that would be relative to the service element. Is that likely to be lower margin than the overall segment?

[Fredrik Eliasson:]

Well, I mean I think, as you know, our Services segment generally has lower margins than our software, our network segment. And to get back to the first part of your question, I think this is a good example of a long-term relationship with the client, which is when their needs change, we continue to provide them a lot of value as well as frankly, continue to innovate with them. So I think, again having 30,000 customers and having that kind of balance and a broad portfolio of really innovative offerings allows us to continue to serve our customers and grow with them, irrespective of how their strategies can occasionally change.

[Eric Percher:]

Thank you.

[Operator:]

And our next question comes from John Ransom with Raymond James. You may proceed.

[John Ransom:]

Hey. Good morning. Thanks for squeezing me in here at the end. Just going back to the imaging business, two questions there. First of all, how much data needs to be migrated to the cloud, if you look globally versus what's been migrated today? So, just kind of a penetration question, how long that will take?And then secondly, how long before we really integrate AI into the workflow so that before the radiologist gets the image from the pack, there's an AI overlay with some help. And then, what does that do for your P&L once you start implementing more AI into the workflow? And how would that work? Thanks.

[Neil de Crescenzo:]

Sure, you bet. Well I think, first of all, on the comments on imaging and migrations, as I mentioned, even with the initial customers we have working with on this, we expect to migrate 66 million studies, 2.8 petabytes of data, just in this current first half of calendar 2020. So I think while historically these sorts of ideas were quite daunting, as I mentioned in response to one of the other questions, I think the fact that the cloud vendors have been investing now for years, right, in figuring out how to optimize these transfers from a variety of means -- I won't get in all the kind of technical gorp [ph] around it, means that when you think about the overall migration to the cloud, the fact that imaging is now moving in that direction, really benefits from the last, what two, three, even five years of investment by very, very large companies to optimize the movement. In this case, it just happens to be DICOM-compliant images versus the other things that have been moved historically to a cloud-based platform. So, I think that's one of the benefits we've gotten now taking these capabilities into the imaging space.Then your second question about AI. I should be clear, where we focus on AI, we focus on AI to improve the workflow and the benefits that our solutions provide to the imaging department. We have the ability for the users of our system to integrate whatever AI solutions they have around some of the areas you mentioned, both diagnosis and treatment plans pertaining to clinical determinations and some of the research and studies that have come out on that literally just in the last six months, would certainly potentially can make that very promising.And in fact, there's going to be testimony coming up in Congress about how to use AI to continue to improve access and effectiveness of radiology reading. Our use of AI is far more around optimizing the process elements of imaging. And frankly, we have already been doing that. And that's one of the reasons that this AI-integrated platform continues to be attractive to customers.

[John Ransom:]

So, just going back to my initial question. Do you have any sense of where we are in the migration phase globally for imaging data?

[Fredrik Eliasson:]

Well I think we're early. I mean, when you think about this being the industry's only cloud-native platform that integrates this capability, both around native file, the migration that you asked about AI capabilities, care collaboration around care teams, this is something that we've really just started talking about in the last year or so since we've built these capabilities.So I think it's still early stages, but I do think the industry -- it really aligned with the overall confidence in these cloud-based architectures is becoming increasingly attractive, too. So, this is all about patient care. So, it's going to happen at a measured pace.

[John Ransom:]

Right. And just one follow-up. I'm kind of fascinated by the fact that you guys still have -- you still typically mail claims, and you have -- I know pass-through postage revenue. Just a question, why in the world in 2020 are we still printing out claims and sticking a stamp on them and mailing them through the post office? Why has that not been moved to electronic years ago?

[Neil de Crescenzo:]

Yes. Well I think just to maybe correct some of the perception you may have, it's really less around mail claims. While there still are printed claims, it really comes down to very low-volume circumstances. Really, a lot of it is around communications, whether the members for health plans or patients. So think more EOBs. And then payments, frankly. The reason why we're seeing the kind of growth we're seeing in our payments business is the ability to turn that into electronic means of distribution versus what historically has been paper checks.So I wouldn't take that mailing aspect so much applied to medical claims, because as you say, the electronic penetration is increased there quite a bit over the last decade. It's really in some of these other areas, which, frankly, as I just mentioned, with this claims attachment solution, where the industry body [Indiscernible] of those claims attachments are still done manually. We're just going to continue to help the industry do these things electronically as we've done with claims over the past decade or two.

[Fredrik Eliasson:]

So it's funny you mentioned this, I'm sitting here looking at -- I just got in the mail, our annual enrollment package in the mail, physical mail. To your point, we're still doing that.

[Neil de Crescenzo:]

So feel free to recommend to your payer to give us a call and help with that.

[John Ransom:]

Okay. Thanks so much. Appreciate.

[Operator:]

And our next question comes from Sean Dodge with RBC Capital Markets. You may proceed.

[Sean Dodge:]

Guys, good morning. Thanks. Maybe going back to the fiscal 2021 guide one more time. You've got the movement in the back half of the year, but then Fredrik, you mentioned this is a booking success thus far and then the effort certainly to offset the departure.I guess, how should we be thinking about the cadence of that 4% to 6% revenue growth over the course of the year? Do you expect kind of a slower start to the year and then an acceleration or vice versa?

[Fredrik Eliasson:]

I think we'll provide you more views of that as we get into our fourth quarter earnings release. Obviously, we are just finalizing the plans here and working through the quarter. It goes without saying that obviously the most of that $30 million will impact the second half of the year that, that's going to have an impact in terms of the cadence. But in terms of the rest of the business, software and network business beyond what you should have seen historically in terms of how it splits up into the quarter, I think it's too early to say. We'll give you some path to get to a more better view as we get to the fourth quarter earnings release.

[Sean Dodge:]

Okay. And then Neil, you mentioned the large cross-sell opportunity that remains in your existing clients. You also talked about new business you've been able to sign from outside the base through things like the new API offering. Can you give us a sense of the new business you signed over the last couple of quarters? What proportion is coming from existing versus outside your current footprint?

[Neil de Crescenzo:]

Well, it's really been a balance. And I think what we've done with the new enterprise sales capability and focusing on channel partners and digital health companies and the ability for them to now buy our innovation, for example, through this API marketplace. We'll probably see over time a continued increase in the percentage of our business coming from, let's say, truly net-net-net new logos, people who haven't bought a single thing from us in the past.Those tend to be frankly, some of the newer entrants into the industry, and therefore, smaller just because they're earlier in their stage of development. With 30,000 customers, we sell something to a lot of people. So we think the opportunity is still predominantly to improve our cross-sell and up-sell into the very large customer base we have. But as we've continued to develop these enterprise sales capabilities and focusing on new entrants into the market, we'll continue to benefit from growth there as well including through these new highly efficient distribution mechanisms like the online API marketplace.

[Sean Dodge:]

Okay. That's great. Thank you.

[Operator:]

[Operator Instructions] And our next question comes from Sandy Draper with SunTrust. You may proceed.

[Sandy Draper:]

Thanks very much and thanks for squeezing me in and out. We'll keep it to just one question. Maybe Neil, I'd like to -- have you talked a little bit about the enterprise sales strategy. You've talked a lot about products and product innovation, and that's helpful. But when you think about where you are in terms of the adoption of the enterprise sales strategy, how that's working further changes? Do you need to grow the sales force, but just an update on that would be great? Thanks.

[Neil de Crescenzo:]

Yes. Great, Sandy. Thanks for the question. I think we're really pleased as exhibited, frankly in our bookings stuff, but also in the kind of discussions we're having with customers about the continued advances in the strategy. So as we discussed previously, it started with having an objective and having leadership that's very experienced in building these kinds of enterprise sales forces having coming from other large companies have been successful in doing so in the past.And now we've started having these discussions. And really as I think, as supported by the breadth and quality of our portfolio, starting to sit down with customers and really design, how are we going to work together over the next one, two, three years. And that really to me, is a harbinger of whether you have an enterprise-level strategic relationship.Are the two parties sitting down and saying, look, we're confident you can add value. We're confident in the quality of your solutions. So instead of thinking whether we're going to be in business together in the future, let's optimize the way we're in business together in the future. And as you know that caused us to bring in people who are very comfortable operating at that C-suite level and understand how to have those strategic discussions with customers. But I've been equally pleased about the receptivity among our customer base to really take our relationship to that level where it might not have been the case in the past.So at the end of the day, it all gets proven out in the sales growth and then translating that into the revenue growth as Fredrik has mentioned, but we're pleased with some of the early indications we have that we're moving down that journey successfully.

[Sandy Draper:]

Thanks. Appreciate it.

[Operator:]

And our next question comes from Matthew Gillmor with Baird. You may proceed.

[Matthew Gillmor:]

Hey, thanks. I wanted to ask about the ERX buy-up and light of the McKesson Exchange. So can you remind us how long after the exchange transaction before you can execute the ERX buy-up? And then maybe what are the -- some of the EBITDA implications as you're looking out to 2021? And is that included in guidance or not?

[Fredrik Eliasson:]

Sure. So we have previously disclosed that once McKesson's ownership is below 5%, we have a contractual right to exercise the option. And we've said that's certainly an option that we are intending to exercise at some point because it makes sense economically. We have not shared what that number is. And we will do so if we exercise the option.In terms of the guidance, it does not include exercising that option. It is purely organic growth that we've included in our guidance. So -- because we try to make sure once again that when we set something out there, that we're going to be able to deliver it and it's based on things that is within our control.

[Matthew Gillmor:]

Got it. Fair enough. Thank you.

[Operator:]

And our next question comes from Ryan Daniels with William Blair. You may proceed.

[Ryan Daniels:]

Hey guys, thanks for taking the question. Just a quick one on the new shop, book and pay. It seems like it's a very well-positioned product, given the increase in consumerism and the consumer expectations as well as the growth in high-deductible plans.So number one, I guess, multipart has that actually launched to the market? And then number two, I assume it's a recurring PMPM model, but is it sold on the number of patients ahead of practice? Or is it priced on the number of patients who actively kind of use the platform to engage via searches and bookings, etcetera?

[Neil de Crescenzo:]

Sure, Ryan. So first of all, we're working with beta partners on it right now. It's been something such as with our imaging effort, we've been working on for quite some time, as you may imagine. Because if we have something that we're going to offer the industry, it has to be proven and needs to operate at scale. So it is early days. So I think we'll have more to say on that, as you might imagine, at HIMS, which is as you know coming up in the next few weeks or so.And then back to your other question. We've been flexible in exploring with people. How they see the best value in this. I think over time, it will be more -- pricing will be more in the latter mechanism you mentioned, around usage, so that it's really well tied to the value that our customers and their customers are getting from it. So, but I think, it's still early days as this whole market is evolving. And given the size of our customers, in some cases, their own sophistication on, what they've been doing in this area. And what they're trying to do in this area. We're really trying to be flexible in having those discussions, particularly with larger players.

[Ryan Daniels:]

Okay. Thank you for the details.

[Neil de Crescenzo:]

You bet.

[Operator:]

And our next question comes from George Hill with Deutsche Bank. You may proceed.

[George Hill:]

Hey guys. Thanks for squeezing me in here. I'll be brief. As you guys think about the payer risk-facing business from a technology and solutions perspective. Given that the payers, we see a little bit of volatility of risk demand related to the HIF. Do you guys see any volatility in the domain for your services or technology, as it relates to acute care space?

[Neil de Crescenzo:]

Well. It's a good question, George. But I think as the payers are dealing with all these circumstances like you just mentioned. The one thing we're hearing is they need to continue to improve their efficiency. And either by reducing their cost, they're finding ways to gain new revenue as well as per Ryan's question, understanding how to continue to improve their engagement with their members. So I think, as Fredrik mentioned is the growth of our businesses, including those that take advantage of the needs of our payer customers, we've seen it to be a pretty steady demand and balance across the board. And again, I think it's because of the diversity of our offerings.And then, in fact they're really indexed these kind of core challenges which not only the payers frankly but everybody in the field is grappling with, which is really, how do we improve access and continue to improve quality. But do it in an ever more cost-effective basis because of the sheer cost of healthcare in the country. So given that sort of the itch we continue to scratch. We continue to see that demand, including among the payers.

[George Hill:]

That's helpful. Thank you.

[Neil de Crescenzo:]

Thanks, George.

[Operator:]

Ladies and gentlemen, this concludes our Q&A portion of today's call. I would now like to turn the call over to, Neil de Crescenzo for closing remarks.

[Neil de Crescenzo:]

Thank you very much, operator. So as we began the call, we're very pleased to have had another strong quarter on this purposeful journey that we've articulated to investors, customers and our internal 14,000 team members at Change Healthcare, that again every day are providing this kind of value that really fuels our growth, to our over 30,000 customers, across payers, providers, channel partners and really every stakeholder in the healthcare industry. So, thanks for everyone's continued support of the company. And we look forward to continuing the dialogue with our investors. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.