Change Healthcare Inc.
Q2 2022 Earnings Call Transcript
Published:
- Operator:
- Good day and thank you for standing by. Welcome to the Change Healthcare second quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. . I would now like to hand the conference over to your speaker today, David Elliott, Senior Director of M&A and Investor Relations. Please go ahead.
- David Elliott:
- Thank you operator. Good morning and welcome to Change Healthcare's earnings call for the second quarter of fiscal 2022 which ended on September 30, 2021. I am 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 and then Fredrik will review the financial results for the quarter followed by closing remarks from Neil. Given the pending transaction with OptumInsight, we will not be taking questions or providing financial guidance. Before we begin, I would like to remind you that the comments included in today's conference call include forward-looking statements. Actual results may differ materially from the results suggested by the 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 will turn the call over to Neil. Neil?
- Neil de Crescenzo:
- Thank you David. Good morning everyone and thank you for joining us. Our results this quarter continue to demonstrate solid execution of our growth strategy and the underlying strength and momentum in our business. We continue to create value for our payor, provider and consumer customers by delivering innovative and transformative solutions. Along with our customers, we remain focused on lowering costs, enhancing access and improving outcomes for the benefit of everyone in the healthcare system. Now let me provide you with some financial highlights for the quarter and insight into our continuing success as we advance our platform to deliver increased value for all healthcare stakeholders. First, a quick review of the quarter. Solutions revenue, adjusted EBITDA and free cash flow were $774 million, $246 million and $90 million respectively. Our performance results from continued positive momentum from customers expanding their business with Change Healthcare, new product introductions and new business initiatives, supported by improved healthcare utilization trends as pandemic impacts recede. We remain confident in our ability to continue to deliver strong performance as we move through the remainder of our fiscal year, while continuing to make significant investments across our platform and executing on the transformation initiatives in our TES segment. Fredrik will provide more details on our financial performance shortly. In regards to the pending transaction with UHG, I am pleased with the team's efforts progressing the regulatory review and developing plans for a successful integration. We look forward to continuing to work diligently in coordination with UHG to continue to provide the necessary information requested by the DoJ and complete the transaction in the first part of 2022. Now let me provide an update on our success across our segments. First, touching upon our software and analytics segment. We continue to see opportunities across the segment as payors and providers take advantage of Change Healthcare's high ROI solutions that leverage our unique data, AI models and workflow capabilities. In payment accuracy, risk adjustment in quality and RCM technology solutions, we continue to expand our relationships with a broad range of customers, including some of the largest payors and providers in the country. In payment accuracy, we moved a premier payor customers' primary editing over to our cloud solution and are now surrounding the primary editing with our complementary capability in secondary editing. This innovative approach to perform claims processing automation in the claim workflow results in more claims billed and paid accurately the first time, promoting transparency and eliminating costly rework and administrative waste for payors and providers. We also signed a multi-million dollar contract to provide our pre-payment insight and review product to an existing health plan customer with over two million covered lives. With prepayment insight and review, we help customers reduce waste in the payment process by identifying improper payments before they are paid. This enterprise sale demonstrates the value to customers of our end-to-end payment accuracy solutions set and our continued success cross-selling our solutions. Our risk adjustment and quality solutions help customers close gaps in care more rapidly to improve health outcomes and lower costs. For one large and well known leading healthcare customer, we implemented Risk View, Dual Enrollment Advocate, Research Complete, Part D Complete and Community Advocate, our innovative social determinants of health solution. This customer views integrating Risk View Risk Analytics with a dual enrollment and recertification program as critical to their long term risk adjustment strategy. Through this integrated approach, we were able to demonstrate a 10
- Fredrik Eliasson:
- Well, thank you, Neil. Good morning everyone. The second quarter results demonstrate the underlying strength and momentum in our business and the continued execution of our growth strategy. Starting with slide six. For the second quarter, solutions revenue was $774 million including a deferred revenue adjustment of $3 million as part of the fair value adjustments associated with the McKesson exit compared to $706 million in the same period of the prior fiscal year, which included a $39 million fair value adjustment. We continue to see positive momentum in our business in both bookings and pipeline activity across all three segments. The quarter was positively impacted by volume recovery and new sales volumes across all three segments. Net of the impact of deferred revenue and the net revenue related to acquisitions and divestitures in each period, solutions revenue increased 5.2% year-over-year. Net loss for the quarter was $36 million, resulting in a net loss of $0.11 per diluted share compared with net loss of $43 million or $0.13 per diluted share for the same period of the prior fiscal year. Adjusted EBITDA for the quarter was $246 million, an increase of 6.3% over the same period of the prior fiscal year. Adjusted EBITDA reflects the items I outlined related to revenue, partially offset by investment to support business initiatives, including new product launches and the market expansion opportunities. Adjusted net income was $114 million, resulting in adjusted net income of $0.35 per diluted share compared with adjusted net income of $104 million or $0.32 per diluted share for the second fiscal quarter of the prior year. There were 324 million diluted shares in the second quarter of fiscal 2022 compared to 321 million diluted shares in the same period of the prior fiscal year. Now let's take a look in more detail at the performance of our segments on slide seven. Starting with revenue, the software and analytics segment increased by 2.4% year-over-year. However, adjusting for the $6 million impact of the Capacity Management divestiture, revenue in our software and analytics segment increased 4.2% over the prior year. Our network solutions revenue increased 17.1% year-over-year. Key drivers include a return to more normal health utilization, incremental revenue for COVID-19 vaccines, growth from implementation of new customers and continued double digit growth in the data solutions and B2B payments businesses. In our technology-enabled services segment, overall revenue increased 0.1% year-over-year, primarily as a result of volume recovery and new sales, partially offset by customer attrition. Our RCM turnaround efforts remain on track and we continue to see positive long term trends in both RCM win rates and deal size. Turning to adjusted EBITDA. Software and analytics decreased 4.3% year-over-year, driven by the impact of the divestiture and increased product investment. Network solutions adjusted EBITDA increased 19.6% year-over-year, driven primarily by continued growth across the segments and COVID-19 vaccine-related revenue. Results also include our continued investments to support a significant number of new product launches and market expansion initiatives we have underway. In technology-enabled services, adjusted EBITDA increased 6.3% year-over-year, driven by the same factors that impacted revenue as well as the continued optimization of our cost structure. Moving on to cash flow and our balance sheet on slide eight. Free cash flow for the quarter was $90 million compared to $68 million in the same period of the prior fiscal year. Our liquidity remained strong, ending the quarter with $80 million of cash and cash equivalents and $779 million in undrawn revolver capacity. Total long term debt net of cash at quarter-end was under $4.6 billion, net leverage ratio was 4.4 times at quarter-end. During the quarter, the company repaid $100 million in term loan facility obligation. And subsequent to the end of the quarter, repaid an additional $60 million on the term loan. As noted in the press release, due to the pending transaction, we will not be providing financial guidance. With that said, I wanted to provide some color on the expected cadence for the remainder of fiscal 21022 given the year-over-year vaccine impact, M&A activity and the ongoing transformation of TES. As in previous years, in our S&A business, we anticipate sequential improvement in revenue and adjusted EBITDA as we move through the rest of the fiscal year. In addition, we continue to be impacted by the sale of Capacity Management, which occurred in the third fiscal quarter of the prior year. In TES, we expect to have a stable to slightly improving performance in both revenue and adjusted EBITDA year-over-year as we move into the second half of the year with majority of the transformation benefit positively impacting the fourth quarter. As I previously indicated, our network business had a materially positive impact from COVID-related vaccine volume in the first half. We anticipate vaccine-related revenue to trail off in the remainder of the year and as a result, we expect the second half network revenue to be slightly lower than the first half. Now with that, let me turn it back over to Neil for his closing comments.
- Neil de Crescenzo:
- Thank you Fredrik. In closing, Change Healthcare remains focused on developing and delivering innovative and transformative solutions for healthcare providers, payors and consumers to improve clinical, financial and care outcomes. As I have stated previously, our goal is to deliver on three key objectives for our stakeholders. First, we will deliver superior consumer experiences. Second, we will drive increased efficiency and accuracy for financial transactions in healthcare. And third, we will deliver solutions that optimize decision-making for our customers on their journey to value-based care. The strength of our financial performance to-date and ability to continue to deliver innovative, value-added solutions to our customers is a testament to our employees' commitment, dedication and innovation. We will continue to partner with our customers to help them lower cost, enhance access and improve outcomes, creating value for everyone in the healthcare system. Thank you very much for your time joining us today.
- End of Q&A:
- This concludes today's conference call. Thank you for participating. You may now disconnect.
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