MultiPlan Corporation
Q4 2020 Earnings Call Transcript

Published: 10 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the MultiPlan Corporation's Fourth Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Shawna Gasik, EVP of Investor Relations. Thank you. Please go ahead, madam.

[Shawna Gasik:]

Thank you, Chris. Good morning and welcome to the MultiPlan's fourth quarter and full year 2020 earnings call. Joining me today is Mark Tabak, Chairman and Chief Executive Officer; Dale White, President of Payor Markets; and David Redmond, Chief Financial Officer. This call is being webcast and can be accessed through the Investor Relations section of our website at www.multiplan.com. Also available on our Investor Relations website will be a supplement slide deck to today's call in addition to the fourth quarter and full year 2020 earnings press release issued earlier this morning. Before we begin, I'd like to remind you that our remarks and responses to questions may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those stated or implied by forward-looking statements due to risks and uncertainties associated with our business, which are discussed in the risk factors included in our registration statement on Form S-1 and other SEC filings. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, please note that we assume no obligation to do so. Certain financial measures we will discuss on this call are non-GAAP financial measures. We believe that providing these measures help investors gain a more helpful and complete understanding of our financial results and is consistent with how management views our financial results. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure to the extent available without unreasonable effort, is available in the earnings press release and in the slides included in the Investor Relations portion of our company's website. I would now like to turn the call over to our Chief Executive Officer, Mark Tabak. Mark?

[Mark Tabak:]

Thank you, Shawna. Welcome everyone to MultiPlan's fourth quarter and full year 2020 earnings call. Before we begin, I'd like to say that we hope everyone is staying safe of the . I would also like to acknowledge more than 2000 outstanding MultiPlan colleagues for their tireless efforts and thank our customers for their enduring trust and partnerships. We are very pleased to announce our results today. We are reporting stronger than expected results in the third quarter. Today we deliver even stronger fourth quarter results. We exceeded both our revenue and adjusted EBITDA guidance for the fourth quarter and for the full-year. Even with the continuing impact of COVID, revenues for the fourth quarter were up 14.2% over Q3 2020, 3.6% over the fourth quarter of last year. Adjusted EBITDA for the fourth quarter was strong up 17.8% over Q3, and up 4.5% over the last Q4 2019, again even with the continuing impact of COVID.

[Dale White:]

Thank you, Mark. Good morning everyone. As you've just heard, we delivered a strong fourth quarter. We generated revenue up 14.2% over Q3 and up 3.6% over Q4 2019. In fact, our Q4 2020 performance was slightly ahead of our performance in Q1 2020, the last quarter before COVID signaling that our business and that of our customers is both buoyant and adaptable. With the onset of COVID and subsequent lockdowns, we saw a dip in claims charges in Q2. By the start of Q3 we began to see a rebound. So the reduction in claim charges appears to have been only temporary. That said, the claims mix has been and continues to be different with more lower dollar claims which makes sense considering all of the COVID testing, telehealth and to some extent the COVID treatment services. Weekly COVID testing claims between mid-June at the height of the pandemic and now are up by a factor of 10. Telehealth volumes spiked starting in April and reached what has become a new normal, running about the same from week to week since May. Treatment services are about 50% less costly on average now compared to the early months as the healthcare system has stabilized around effective protocols. These trends, together with the limited health system capacity for non-urgent services, due to the recent surge in COVID testing in cases, leads us to expect continued pressure on the business as a result of COVID into 2021. These headwinds should abate as 2021 progresses. Spurred by their own COVID driven business impacts, our customers have heightened interest in initiatives to strengthen cost management and payment accuracy. For example, in the second half of 2020 we were engaged by a payor to collaborate on developing a Medicare Advantage network across multiple states. We reached agreement with another national payor to add Data iSight services to their solution hierarchy which is now scheduled to deploy July 1, of this year. We implemented program changes with all of our top payor customers to generate more savings. Since our November acquisition of HST, we've wasted no time in taking to the market the next generation of reference based pricing services. We call it value driven health plan services, a new, low cost, high engagement health plan design that is member empowered, writer friendly, and network compatible, and it's the only reference-based pricing service that comes with a national, independent NCQA accredited physician network, tightly integrated, which at this point is one of the most sought after use of reference based pricing.

[Dave Redmond:]

Thank you, Dale and good morning. Both our press release this morning and Mark's comments a few minutes ago on this call, have already covered our strong performance in Q4 and our meaningful progress from Q2 to Q4 in 2020. Let me add a few comments about Q4 and the full-year 2020. Along the way, I will also review some key assumptions to help those of you maintaining financial models of the company, including some thoughts about COVID and the recent acquisitions and cash flow. Our net loss in 2020 of $529.6 million included $405.8 million of stock based compensation related to investing in value of Class B units of MultiPlan which bested upon the closing of the transaction on October 8, 31.7 million of transaction costs which have been expensed in the period and $103 million of costs related to the extinguishment of debt, our PIK holdco notes and our 18% debentures which were basically paid off in October of this past year, all in connection with the merger with Churchill on October 8, and subsequent replacement of those notes by comparable debt. These three expenses aggregating $540.5 million represents substantially all of the difference between the net loss of $556.4 million in 2020 in net income in 2019.

[Mark Tabak:]

Thanks Dave, thanks Dale. Before we go to Q&A, I'd like to offer a few closing thoughts. I'm extremely excited about our company's future. MultiPlan plays an essential role in identifying and addressing savings opportunities in the U.S. Healthcare System and remains a critical partner delivering 10's of billions of dollars in value to our payor customers with deep IT and process integration into their workflows. The foundation for growth is a longstanding strength of our business model, which includes our data, our algorithms, our platform, and our provider network. We are already connected to more than 700 payors and 1.2 million providers. We believe we are unique among the competition in providing an enterprise level platform that has capacity and scale to help even the largest and most complex of our payor customers address challenges and opportunities. For a decade now, the strength of our business model has been and continues to be reflected in our financial results. The financial hydraulics of MultiPlan are powerful, vast majority of our revenues are recurring. We have very limited customer turnover and are fortunate with many of our customers we routinely increased the level and scope of engagement. We remain excited about organic growth and continued operations as we expand our relationship with our customers. We have also over time made significant investments in technology, and as a result many of our processes are highly automated. This automation leads to a virtuous cycle of high margins converted to a high level of cash flow, a portion of which is then reinvested to further drive technology, drive value for our customers and the whole cycle repeats again and again. 2020 was quite a year for every person, every family every company. We are proud to have navigated the year successfully, in recognizing the challenges are not over yet. We are optimistic that the worst is behind us, and that 2021 will be another year of meaningful progress. Before opening to questions, I want to establish one ground rule. We have deep respect and gratitude for the unique relationships that we have with our customers. We also have great respect for our investors, including those of you on the call today. We understand that investors would like to understand every possible detail about our company. We also understand that we have a duty of confidentiality to our customers. Our goal is to honor our relationship with both our customers and you the investors and to do that successfully, we will not be able to answer questions regarding specific customers or regarding businesses owned by those customers. We would appreciate for those asking those questions to respect this position. With that I'd like to open the floor to your questions. Thank you.

[Operator:]

The first question comes from Josh Raskin of Nephron Research. Your line is open.

[Joshua Raskin:]

Hi, thanks. Good morning, guys. First question just actually a series of numbers clarifications first the $110 million COVID impact in 2020, how much was in the fourth quarter? I think you said the second part would be, I think you said $20 million to $25 million of public company costs in 2021, what is that versus 2020? And then I think Dave you, I couldn't get the CapEx number. I don't know if you said $70 million to $75 million or $75 million to $80 million, so just some quick clarifications there? And then I've got another question.

[Mark Tabak:]

Dave, are you going to walk through that?

[Dave Redmond:]

The CapEx number is $70 million to $75 million. The -- well I said $75 million to $80 million is where we are now; it was about $72 million last year. Relative to Q4, we estimate that the COVID impact was probably $12 million to $16 million, which is lower than it was in Q2 and Q3, but still certainly higher. And the last question was, what was the third one?

[Joshua Raskin:]

The public company costs in 2020?

[Dave Redmond:]

Public company costs in 2020 were relatively nominal. They were only about $2 million to $3 million. Most of that occurred late in the fourth quarter. So, obviously the big number is the D&O coverage.

[Joshua Raskin:]

Got you. And then my real question is just maybe you could talk a little bit about 2021, I understand that there's a lot of uncertainty with COVID et cetera, but maybe if you could just talk broadly about customer retention. I know you're not going to talk specifically about any individual customers and I understand that, but maybe any meaningful additions or subtractions, again without naming names just start of the year or any big changes that we should know about? And then if you could just remind us of the seasonality that's causing the lower 1Q number? I guess I'm just not as -- I just -- we don't have a ton of history here, so I just, I'm not as familiar with the idea of reduced seasonal weakness in 1Q?

[Mark Tabak:]

Let me talk about seasonality and then turn it over to Mark and Dale for the customer discussion. Typically it's not a deep seasonality, it's probably 1% to 2% kind of, as you go from Q4 to Q1. Mostly it's a byproduct of obviously in Q1 most people are on calendar year health plans, and so your new deductible, your new co-pays kick in, and people tend to be a little bit reluctant to utilize a lot of services, obviously, services that they have to use, but elective stuff generally is pushed into later in the year after they kind of have a sense of where they are from a health plan perspective and what deductibles that they've used up. So it's a relatively minor number Josh. I'd say it's probably 1% because we really are not heavily seasonally adjusted, but there is a slight softness generally in Q1.

[Joshua Raskin:]

Okay.

[Mark Tabak:]

Josh, look we are deeply engaged in discussions with our customers, we have a high level of persistency, and the relationship and services we offer to those customers continues to expand, Dale I want you to just without naming names, why don’t you just talk again about some of the projects that we have, that are being implemented and other discussions that are underway to reinforce the fact that we are a valuable component, helping them rein in healthcare costs and make sure that the healthcare can be made more affordable to their customers and their subscribers?

[Dale White:]

Yes, thanks Mark. As Mark said, we have a number of projects underway with our customers to continue to strengthen their response and affordability and payment accuracy. They range in across a number of other engagements if you will. As I mentioned, we're collaborating with payors on the development of Medicare Advantage and networks, since everyone knows Medicare Advantage is growing significantly and that's an opportunity for us. We continue to expand our Data iSight services and our reference based pricing services into payors. We have implemented program changes with a number of our clients, and we continue to add new clients through our expanded sales efforts. We're continuing to add new clients across the commercial market, the third party administrative market and the Blues market as well. And we're really excited. Right? I mean, I think you heard that in my remarks and Mark's opening comments about the opportunities through the acquisition of HST and Discovery. We're super excited about both of these and we've wasted no time in hitting the market hard with initially HST, and the next generation of reference based pricing services, and we're already beginning to look at opportunities to cross sell discovery services into their customers and into ours. And they clearly widened and deepened our payment integrity suites by the addition of the premium services, the coordination of benefits, the subrogation, and we're excited about those opportunities as well.

[Dave Redmond:]

Go ahead Mark.

[Mark Tabak:]

Yes, I'm sorry, Dave, go ahead, I'll finish.

[Dave Redmond:]

No, no go ahead and I'll finish.

[Mark Tabak:]

The words are important, but I'm going to guide you to the numbers. Even in a COVID environment, revenues for the fourth quarter were up over 14% over Q3 and they were up 3.6% over the fourth quarter of last year. That should punctuate the strength of the relationship, and the ongoing expansion of the business as the customers recognize the value we bring to the marketplace.

[Joshua Raskin:]

Yes, I mean that's helpful. I don't want to put words in your mouth, but is the bottom line, as we sort of think about 2021 as a jumping off point is, 4Q is the right run rate, there'll be maybe 1% 2% seasonality, maybe some disruption from Texas, but the remainder of the base businesses is impact with potential opportunities through new acquisitions and new customers, is that a fair way to frame 2021?

[Mark Tabak:]

Organic, supplemented by opportunistic, inorganic M&A activities and it leverages the incredible efficiency, because in addition to the other metric I guide you to obviously, in addition to the revenue growth, let's look at the adjusted EBITDA growth of Q4 versus Q3 up 17% plus, and up 4.5% over Q4 of last year.

[Joshua Raskin:]

Perfect. Thank you.

[Operator:]

Your next question comes from Daniel Grosslight of Citi. Your line is open.

[Daniel Grosslight:]

Thanks for taking the question, guys. Just focusing back on that 2021 guide or lack thereof, it seems like it's just COVID right now that's preventing you from providing that type of clarity. And if I heard you correctly, in 4Q that COVID impact was around call it $12 million to $16 million and it doesn't sound like you expect that to increase heading into 1Q. So, putting this all together, it does seem like you have some clarity into 2021 right now, seems like the impact of COVID has decreased substantially from 2Q and 3Q of '20 and it seems like in the back half of 2021, you expect that to be even further dissipated. So, I guess, I'm just curious, what do you need to see at this point to get more clarity for 2021 and provide that type of annual guidance?

[Dave Redmond:]

I think Daniel we probably need to see another 40 to 60 days to just see how it plays out. Obviously, as we talked about, we have kind of a delay in our claims from six to eight weeks. So we clearly want to make sure we understand what happened in Q4 in terms of claims and how that impacts us. We're excited about the vaccine roll out. We're excited about a lot of the company opening up. As you know, I live in Florida. If we were a 100%, Florida based company, we'd probably be a little bit more optimistic on a lesser COVID impact. But you know, we're a national company with a national footprint, and our five largest markets are California, New York, Illinois, Texas and Florida. And so, Texas and Florida are a little bit different than the other three in terms of how much they've opened. So far, there's been a lot of discussion about I think California pretty much opens up in April. I think we just, if you sat in a room and told -- ask everybody, what do you think the COVID impact is and wrote down a number, that number just varies quite significantly, kind of depending on your everybody's point of view and the data that we have. And it made it really difficult for us to say we're going settle on this number, given not really having 100% of the information we think we needed to settle on a number.

[Daniel Grosslight:]

Understood, okay.

[Dave Redmond:]

Right, despite the impact of COVID, we would not have been able to achieve these kinds of results and among the customer base that we have.

[Daniel Grosslight:]

Yes, I understand, okay. And then just going back to the surprise billing comments you made, it seems like now you expect that could, will not have a negative impact on you, and could even be positive. If you look at the literature of similar legislation passed at the state level, out-of-network claims dropped pretty dramatically. So I was wondering if you can bridge us to no net impact and possibly positive impact, given we're likely to see claims out-of-network claims drop at the national level when this legislation is implemented.

[Mark Tabak:]

Dale, why don't you speak to the role we played at the state level? And when surprise bill legislation was implemented at the insured book of business, and then I'll punctuate that after that interim.

[Dale White:]

Yes, let me take it Daniel from Q2 perspectives. One, as you all know, there has been surprise billing legislation on a state level for several years now. In fact, I think about 30 states have surprise, are faced with surprise billing legislation on their fully insured business. And we have played a role with those inside those dates with our health plan customers on health, inside those states with our health plan customers on helping them to achieve compliance in response to this, to the state legislation that's in place, and we've played a vital and critical role in that regard. As you also noted, the legislation at the federal level has just passed, and we only have the statute. HHS has to work through the rulemaking and until it has critical questions about the process will remain unsettled. At the same time, the way the law was passed, it certainly protects consumers from receiving balanced bill when they seek emergency care and other ancillary related services related to that emergency care. The state -- it does not include any benchmark payment standard for insurers upfront to pay out-of-network providers. There is a 30-day payor -- period for payors and providers to negotiate and if those negotiations fail, there's a process for independent dispute resolution. We think and believe all of these features of the statute suggest that MultiPlan has the opportunity to continue to play a critical role, and helping our clients to achieve savings for our customers and the plan members they serve after the legislation goes into effect.

[Daniel Grosslight:]

And the reliance that those Payor customers have on MultiPlan to deal with the state level surprise billing legislation, that same alliance will take place at a federal level with the insured book of business on even a broader scale because of the added complexity and the size of that ASO market governed by the recently enacted surprise billing legislation.

[Mark Tabak:]

And I'll just add, it's early and the rulemaking still needs to run its course, but we're already in discussions with a number of our customers about how to work with them, how to help them evolve solutions, how to help them comply under the new statute.

[Daniel Grosslight:]

Understood, all right, I appreciate all the color guys. Thanks.

[Mark Tabak:]

Thanks, Dan.

[Operator:]

The next question comes from Andrew Kugler of Goldman Sachs. Your line is open.

[Andrew Kugler:]

Hey, guys, thanks for taking my questions. Look, following up on the guidance, as we think about your 1Q and extrapolate it to the full year, is there a reason to believe that covered lives using your product should change materially after 1Q or given that, as you mentioned, the health care plans are typically renewed at the end of the year in November, December, are the covered lives going to be rather consistent through the course of the year? And then I have a follow up, thank you.

[Mark Tabak:]

Dale, do you want to take that?

[Dale White:]

It's, you would expect most of the lives to remain consistent throughout once you get past January, but there are changes that take place through, periodically throughout the year, based on they're very cyclical in terms of when employer groups renew with their payors and providers. January is a big month for that. April, July and October tend to be smaller, but relatively meaningful months when payors benefit plans typically renew. So there's some -- there's simple, typically some ups and downs throughout the course of the year.

[Mark Tabak:]

Yes, I would add to that. Look, as you know, our top-10 national customers represent about 80% of our revenues and that relationship with those top-10 continues to grow and continues to expand. And they expand their commercial book of business and they expand their government business, particularly Medicare and Medicaid, they bring our services of networks, analytics and payment integrity along with that, so it's an addition to the expansion of lives. It's how they use our services on a much broader footprint.

[Andrew Kugler:]

All right, great, thanks. And then may be following up on that last comment, so in terms of switching programs and adding to the services that you're providing for these customers, can you guys just update us on sort of where you are with recouping revenues for the programs that ended up getting suspended in 2018 and were resolved at the end of fiscal year '19? Just given the growth that you saw year-over-year, even including the impact of the COVID headwinds, it does seem like there was a large benefit. So I'm just curious how that's evolved throughout fiscal year '20, and then how you're looking at it continuing to expand over the next year? Thank you.

[Mark Tabak:]

Dave, do you want to step into that?

[Dave Redmond:]

Yes Mark, make a couple comments first, and then I'll add on to you.

[Mark Tabak:]

Look, okay I can, I'll go back to my previous comment though. We're deeply embedded in with the international customers, those top-10 customers. That business continues to grow and expand. We wouldn't have achieved those results without the expansion. We're regaining business that was suspended previously, but plus adding new business through new installations and new programs that are being rolled out by our customers. We're not going to talk about the customers, but when I look at the that top customer base, our business continues to expand in terms of revenues, claims and charges submitted, claims that we match and re-price and the discounts that they use to drive efficiency and cost savings.

[Dave Redmond:]

The revenues from that particular customer continue to grow. So I mean, to a great extent 2018, 2019 what happened is behind us. Obviously, that customer has moved on and corrected what impacted our revenues in those two years and our growth from that customer continues to grow every quarter. And so we believe that -- '18 and '19 is behind us and that all of our customers are working very closely with Dale on new initiatives and new savings opportunities and continue to grow moving forward.

[Mark Tabak:]

They re-implemented, they have re-installed and re-implemented those programs that were suspended previously and they've added new services and new installations that MultiPlan has brought to the market.

[Dave Redmond:]

Let me just add, let me just add a comment that like we have done for decades now, we work with our customers every year, every month, every day, to find additional opportunities to generate savings and more value with our customers. And we do that through our sales and account management team. They're fully and deeply engaged with our customers to follow their needs and their desires and their direction and their focus. And we work with them on identifying new initiatives and things that we either expand what we do for them today, move into payment integrity, add additional services, help them focus on Medicare Advantage if they're pursuing Medicare; all of those things take place and took place throughout 2020 despite COVID.

[Operator:]

Your next question comes from Rishi Parekh of Barclays. Your line is open.

[Rishi Parekh:]

Hi, thanks for taking my question. Just going back on the last question, you processed about 26 billion of claims in Q4, '19 and 29 billion in claims in Q4, '20. Can you bridge that increase? Can you just give us an idea? Just going back on the last question, we know that there's some challenges with some payors, how much of that increases? You have said improves through the year, was realized in Q4. I don't know even now if you have this level of detail, but how much of it was due to delayed procedures that were in Q4? I'm just trying to better understand the run rate and also better understand your take rates for 2021.

[Dave Redmond:]

We don't really have the ability to analyze how much is catch-up from delayed procedures. Our revenues as a percentage of our savings is up about 5.2% in Q4, that's up over numbers that were in the high 4s, 4.8 and 4.9 in the previous quarters. Q1, I think was about 5.1, Q4 last year was about 5.2. So we're basically at revenue as a percentage of savings similar to where we were in q4 last year in Q1, which really didn't have much COVID impact. And that's in spite of the fact that, as Dale mentioned in his call, a higher percentage of our claims are COVID related claims, which result in less savings number and lower reimbursement than what our claims had been previously. So we're pretty proud of where we are revenues, percentage of savings, and it is certainly expanded and rebounded from the levels that we were at in Q2 and Q3, which is primarily driven by COVID.

[Mark Tabak:]

But as you know, the delays were largely in diagnostic and elective procedures and we don't have that level of detail to discern electives from non-electives, but we can look at the charges that we received and the relationship with our customers. And again, we would not have produced these kinds of results quarter-over-quarter and year-over-year without that expansion that you've seen.

[Rishi Parekh:]

Yes, and then on your guidance for the year, your organic growth rate is consistent to what you said in the past, but you also talked about opportunities. You've made two acquisitions HST and Discovery, you're working with some MA plans. You have the Blues opportunity as well. How should we think about those opportunities in '21? Is it, mid single digits, high single digits, low single digit type, growth expectations? And putting aside COVID I guess that COVID has an impact and is impacting your view on '21. But putting aside all that, what do you think those opportunities are for these new programs that you're winning?

[Mark Tabak:]

They're largely speak again to the attraction of HST and Discovery. And then let's talk about again, the aggressive integration and cross-selling that is well underway, with those two programs to expand our TAM and also expand the scope of services we can bring to the market.

[Dave Redmond:]

Sure, like we do every year, we -- let me speak to a couple of different points. So like every year we look for opportunities within our existing customer to customer days to deepen the relationships that we have, through the implementation of additional services. Two, we always look for new opportunities and new logos and through our sales talent. And as Mark mentioned earlier, we expanded our sales talent last year, late last year, and expect them to drive additional opportunities and grow through the addition of new logos and new opportunities. Relative to HST and discovery, HST as you know was acquired in November 2020. And it expands our analytics based services category by adding a new line of value driven health plan services. And there's significant opportunity for us. We're excited about it, because of it's -- the position has the next generation of healthcare services and reference based pricing that it brings to the market for both our TPA market space and our regional health plan or our provider sponsored and independent health plans. Discovery is also interesting to us, very excited about that opportunity, because it does a couple of different things. It certainly adds payment integrity and revenue integrity services. It grows our government market footprint. It’s adding several new Medicare Advantage and new Medicaid customers. It's expanding our portfolio of payment integrity products from 2 to 6 and we now have 6, much more deeper and wider suite of payment integrity service expanding both pre and post payment modalities and significantly strengthening our ability to land and expand. And it also adds another service line focused on what we call premium payment accuracy for Medicare Advantage plans. And with the opportunity to look at Medicaid and perhaps ACA exchange space plans. It improves, it increases our footprint and in network claims. As we've mentioned before, in our Extend strategy, one of our goals is not only to deepen our relationships in regional health plans and TPAs, but it's also to extend our reach into in-network claims of the Payor and the addition of Discovery does that. At the same time, there's a number of clients that we don't work with today or they don't work with us today and the cross-selling opportunities between MultiPlan adding data, not data, Data iSight, but Discovery Services or Discovery's cross-selling MultiPlan services into its unique client base is something we'll pursue this year as well.

[Operator:]

There are no further questions at this time. I will now return the call to our presenters.

[Mark Tabak:]

Thank you very much. We appreciate your continued support and we look forward to speaking with you again, following with our Q1 earnings call. Thank you very much, stay safe.

[Operator:]

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