Ladies and gentlemen, thank you for standing by, and welcome to the MultiPlan Corporation Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Shawna Gasik. Thank you. Please go ahead, madam.

Good morning. Thank you for joining us today for MultiPlan's Third Quarter 2020 Earnings Call. Today, our speakers will be Mark Tabak, Chief Executive Officer; Dale White, President of Payer Markets; and David Redmond, Chief Financial Officer. Paul Galant, President of New Markets, will be available for the Q&A session. During the call, we will refer to the slide deck you will see during the webcast or which is available on the Investor Relations portion of our website, along with the third quarter 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 calculated and presented in accordance with GAAP, to the extent available without unreasonable effort, is available in the earnings press release and in the presentation slides included in the Investor Relations portion of our website at www.multiplan.us. I would now like to turn the call over to our Chief Executive Officer, Mark Tabak.

Thank you, Shawna. We'll start on Slide #3. Welcome, everyone, to MultiPlan's third quarter earnings call. My team and I are very excited about this important next chapter of growth for our industry-leading company following our recent debut on October 8. I've been at the helm of MultiPlan for almost 3 decades and have never been more enthusiastic about our future. To start us off, I will give a few remarks and hand the presentation over to Dale to talk about our business and the progress on our 3-part growth strategy and to Dave to talk about financials. Next, please. From a financial perspective, we delivered a strong third quarter, with revenues of $224 million and adjusted EBITDA of $166 million. We performed significantly better than we initially projected at the start of the pandemic and also better than the updated projections that we gave you at our August 18 Analyst Day. The year-over-year decline is due to COVID, which impacted us less in Q3 and than in Q2, but did cause a drop in realized customer savings that drives a big part of our economics. Dave will give you some more detail on that later. Now based on where we sit today, we believe that we will deliver a strong fourth quarter, with revenues in the range of $238 million to $253 million and adjusted EBITDA in the range of $180 million to $194 million at the midpoint of that range, and this represents a revenue growth rate of 9.8% quarter-over-quarter and minus 0.4% year-over-year. And adjusted EBITDA, the growth rate is 12.3% quarter-over-quarter and 0.3% year-over-year. Next, during the time since our August 18 Analyst Day, our team has continued to execute our Enhance, Extend and Expand 3-part growth strategy we call MultiPlan 3.0. As you will see…

Good morning. Thank you, Mark. Good morning, everyone. Next slide, please. We'll start on Slide 13. For those of you who don't -- who haven't met me, I'm Dale White, President of the Payer Markets. Since MultiPlan is new to the public markets, I would like to explain a bit about what MultiPlan does and how it does it, and then explain how we are making our strategic vision a reality. As you know, we've laid out our growth strategy during Analyst Day and discussed how the 3 part Enhance, Extend and Expand strategy will drive our growth in the coming quarters and years. Next slide, please. As Mark said, we are a data analytics company in health care. I know that some of you focus on technology and others focus on health care, so I will borrow Mark's tagline and tell you that MultiPlan's core mission is to make health care more affordable. The U.S. health care system is a $3.8 trillion market, growing at around 5% per year. Over $1.2 trillion of this is estimated to be overcharging, unnecessary services, errors, potential fraud, waste and abuse or administrative friction cost. Our job at MultiPlan is to reduce the end cost to our customers by identifying and advising them on how to reduce the cost of settling medical claims. We do this by leveraging our large network of 1.2 million providers wherein we have contracted rates as well as through our market-leading data and analytics that help set fair rates, where we don't already have contracted rates in place. We also combat waste and abuse using our proprietary Payment Integrity technology, and through our highly automated processes, we reduce administrative costs for the system as a whole. Next slide, please. Our customers are, for the most part, commercial health…

Thank you, Dale. First, as Mark said earlier, we delivered a strong quarter. Our revenue grew to $223.5 million in Q3, up 8% versus last quarter and down only 9% versus Q3 2019. The year-over-year decline is due to COVID, which impacted us less in Q3 than in Q2, but did cause a drop in realized customer savings that drive a big part of our economics. Customers sent us over 1 million COVID-related claims, including many COVID tests at relatively low dollar amounts, and many of our payer customers chose not to have those tests negotiated down or negotiated and adjudicated at an amount higher than they might normally have adjudicated. That is the bulk of why revenues were down year-over-year. Our identified potential savings on the COVID-related tests were approximately 80%, but the realized fee based on payers adjudication were approximately 20% below our normal levels. Now it is important to say that our performance Q-over-Q and year-over-year that was better than we forecasted on Analyst Day was not only driven by lower COVID impact, it was also driven by signing new customers and other initiatives associated with our 3-part strategy. Next slide. We have all been affected by COVID as well as the follow-on effects over the last several months. Here are 3 examples of how we've responded to this new environment. Even as claims went down dramatically in Q2, we have made continuous investments in further automating that small sliver of our claims process that is not 100% automated. As previously mentioned, we are also investing in machine learning and similar algorithms, which strengthen the system, and we are ready when more charges come. We are deploying agile teams to capture the opportunities and address new markets. We are growing our offerings and sales force for government…

Thanks, Dale, and thanks, Dave. As you know, MultiPlan has always had great leadership. We've enhanced that leadership team as we've gone public, and including Paul Galant, our new President of New Markets. I also want to tell you that we're actively building an Investor Relations function, with dedicated executives to be responsive to investors and lenders going forward. This will give you a much more accessibility to and contact with us as we go forward. We are also planning a non-deal roadshow shortly. I look forward to speaking with all of you again soon. With that, let's now open up the session to questions.

[Operator Instructions] Your first question comes from Josh Raskin from Nephron Research.

Here with Eric Percher as well. We've got a couple of questions. I guess the first one would be, overall revenues were down 9%, 9.1% year-over-year. Just simply, was United as a customer better or worse than the overall change?

Dave?

I think it was actually slightly better. Let me double check that, Josh, while you ask your second question.

Got you. All right. Second question, just you've talked about a couple of small customer losses, et cetera. Are any of those customers going to competitor offerings? And if you're losing them, what exactly are they doing?

Dale, you want to speak to the competition and -- with customers?

Sure. Josh, I mean, the customers, it really is a function of their cost management strategy. And as -- and I think as we said, it ebb and flows as the economy does. And in reality, their interest can be -- it can be aggressive or it can be in -- aggressive or generous to help them benefit approaches, and that ebbs and flows always with the economy. So if we do lose a small number of customers, they may be changing their strategy. They may be using another type of service. They may be reorienting their strategies to include Payment Integrity. There's lots of reasons why the small customers move around. And we're excited about the addition of HST and the opportunity to work with them and the addition of the reference-based pricing program that it brings.

All right, which brings me to the next question. HST versus Naviguard, can you compare and contrast? I understand they're both in the reference pricing world, but it sounds like you believe HST is a little bit different.

Dale, why don't you speak to the unique nature of the -- the collegial approach to the marketplace for HST, and then we can do the comparison to what the Naviguard offering really is about, which is largely focused on patient advocacy, if you will, to supplement that?

Yes. I can -- I'll take the first part of that question. HST's approach, I mean, I think as I said in my remarks, Josh, there are a number of reference-based pricing companies that had been around for a while. And many of them were adversarial in nature. And what excited us about HST was twofold. One was their collaborative approach with providers. They take a very collaborative, very engaged approach with the provider community in the way they implement their strategies. And secondly is the work they do on the front end, the front end with the member, and to assist the member, not only on the front end as the members seeking care, but they also have a patient advocacy center that they can utilize to engage with the member if any issues come up as the members navigating their way through the delivery system. So from those 2 points, their collaborative approach is not adversarial, it fits nicely with our provider network strategy. And their engagement on the front end with the member and with the provider is what excited us about the HST model. Mark...

But just a follow-up. On the basic mechanics -- I just want to make sure I get the basic mechanics, right? So the basic mechanics are they're using a reference price to reprice claims, correct? And I'm assuming it's typically off of some sort of percentage of Medicare. Is that -- are those sort of the similarities of like the approaches of those 2 companies?

Yes.

Yes. Both have a reference-based pricing, oftentimes using Medicare as the reference point. And then they both have -- both Naviguard and HST have a consumer advocacy program that they try to mitigate the exposure -- the higher exposure that those members would have for out-of-pocket costs for both in-network, which will be the coinsurance and deductibles, and also the out-of-network charges as well. At the same time, address issues relative to abrasion -- a potential abrasion with providers and a potential abrasion with the subscribers.

Your next question comes from Daniel Grosslight with Citi.

One of the contentions of that short report is that basically your contracts are not enforceable. So can you go into more detail on what a typical contract entails? And what's preventing someone like a United from using something like Naviguard, while still being in contract with you, simply shifting claims to Naviguard?

Look, we -- our contracts with the large payers are multiyear. United has been under multiyear contracts with us since 1994, Cigna, since 1992, Aetna, since 1994, as an example. The contracts, multiyear, they're automatically renewable. And when we sit down to review the contract, typically changes the scope of services we provide them. It's not an adversarial contract renewal process. They sit down with our team, they look at how we make -- and help together, we can enhance the value by generating more savings through the solutions that we have identifying egregious billing or clinical aberrations through our Payment Integrity product. What the basis of these contracts is the continued value that we provide to those payers for both their insured book of business, where they're taking the medical risk, and then for their self-insured business, where they provide an array of administrative services, one of which are the MultiPlan out-of-network solutions.

Got it. And can you just speak to the exclusivity that's built into those contracts? And is there kind of anything preventing a large payer from shifting claims to another similar service?

I think in almost every case, the out-of-network business, MultiPlan is in that first position and receives almost all of the out-of-network claims. So we get first look at all the out-of-network claims. Patient goes to the provider, provider sends that claim to the payer, the payer sees that, that provider is in their network. If they're not in the customers' proprietary network, they electronically send that to MultiPlan. We get first look on that. And as Dale, Dave and I all mentioned, last year, we received $106 billion in charges from those payer customers. We also tailor our solution set of networks, negotiation at iSight to meet the goals and objectives of that payer to maximize savings. Obviously, the more savings we can generate for the payer, the more revenue we can generate for MultiPlan. And we have a high persistency rate and generate significant savings. As we referenced, there were [ $19 billion ], and over $100 billion in charges received last year.

Got it. Okay. And then just going to your example of Jane and Jack here. If Dr. Smith is not contracted with MultiPlan, so you're using your iSight with Dr. Smith. What's stopping him from going to Jane and balance billing for that $400 that you see? Is there anything that prevents balance billing when iSight [ paid Dr. Smith ]?

Dale, I think it'd be useful -- why don't we take a step -- in the spirit of education here, why don't we least take a moment and explain to the group how Data iSight works. And the experience we've had using it since 2011, we have a very low appeal rate because it's not a black box. It's analytically driven, and there's a methodology that when we walk that through the provider, we have an appeal rate that is middle single digits. Why don't we talk about the mechanics of how Data iSight actually works?

Sure. As Mark said pretty well, Data iSight is a methodology that establishes a grade of reimbursement for the provider. It does that either using a cost-based-driven methodology, meaning it uses the Medicare cost reports and other publicly available data to establish a reasonable -- using the cost as opposed to charge to establish a methodology. And it compares like facilities and like claims, meaning it takes into account severity of illness or injury. And it takes in -- it's adjust for wages, so it takes into account the difference in geography and a -- rise at a rate of reimbursement for the facility. And it's designed -- and as Mark said, it's very transparent with the provider. There's a portal, which the provider can access to better understand how the claim was reimbursed. And as Mark said, our appeal rate is very low. And -- but we have a team of individuals that if the provider raises their hands or has any questions about how the claim was reimbursed, the methodology behind the claim and -- either a physician or a facility, then we have a team of advocates that engage with that provider to educate the provider, help the provider understand the methodology, help provider understand the reimbursement, and enter into discussions with the provider if they have any questions around the rate of reimbursement. And as Mark said, our appeal rate with the providers have been, for the most part, very low.

Yes. Supplemental to that, when you look at our network, the 1.2 million providers under contract, then you look at our analytical negotiation services, all of those claims by contract, by agreement, there is no balance billing, and the member is held harmless from any surprise billing. And we've seen, over time, that out-of-network providers often, after some experience with MultiPlan, either for the negotiation, analytical services or Data iSight, will become a network provider for all the benefits the provider gets from being a network member within MultiPlan. But the network continues to grow year-over-year. It's now 1.2 million providers in a national [ system ].

Yes. That makes sense. I guess, do you have any data around what percent of members are kind of stuck with the surprise bill of those claims that -- where you don't have a contract network, just purely relying on iSight?

Historically, the appeal rate has been in the 4% to 5% range going back to 2011. And the overall majority of those cases, the -- there's a -- the negotiation results in a settlement and the member is protected and the provider gets a timely, accurate payment.

Okay. Got it. And then just one last one, and I'll hop back here in the queue. On the surprise billing, I thought that breakdown of your revenue was extremely helpful here. I guess as we look at the around the 11.4% of the bills that are either settled using your network or through your negotiated process, what's the risk here that a surprise bill, federal legislation, really just obviate some of the need for your complementary network? So the -- your plans will just -- say, we'll just rely on that benchmark or whatever it will be, and we won't rely as much on MultiPlan for -- as entry network.

Well, look, I'm not prescient enough to know what will come out of Washington, DC. I think as we said in the presentation, I think we have these 2 models. But I look at the years of experience we've had operating in those 30 states, and based on that, it's had a material impact on our business, and that our network business, our complementary network business, our negotiation services has continued to flourish and grow. So I make the conclusion that it will be a similar experience at a federal level with the self-insured [ list of ] plans.

Your next question comes from Rishi Parekh from Barclays.

I wanted to clarify one item. On the -- on UNH's YouTube video on Naviguard, they talk about the price-enabling strategies and savings on bill charges. It seems as if they have some type of analytical platform. Now I get it, it may not be that robust, and I agree with you that your platform is a lot broader. And I also agree that you're not going to lose 100% of the UNH business. But given their platform and assuming that they're active, and considering UNH's public comments that they're indexing out-of-network claims in Medicare, do you expect to see certain types of UNH claims, such as ED claims or lab claims shifting over to Naviguard? And even if it does, will you still have a role on these claims?

Dale, you're -- why don't you comment on the way -- I think -- why don't you comment on the way that MultiPlan is used by United across all their book of business? Because in Naviguard -- Naviguard, quite honestly, is another product offering that United brings to the marketplace. And one of the -- embedded or included in Naviguard offering is our Payment Integrity product, because we have a robust, very effective, prospective Payment Integrity product, which I believe is the gold standard and best-in-class. We view Naviguard as a reference-based pricing product that United will bring to a certain segment of their marketplace. But United uses all our solutions to enhance their offering, lower their medical costs, lower their administrative costs and improve their go-to-market strategies. Dale, can you supplement that?

No, I think you're right, Mark. I mean it is clearly one -- it is one of the several programs that UnitedHealthcare offers. And it really gets down to the choice of the employer to adopt a reference-based pricing program, depends on a number of strategies and their objectives and their health plan and we -- and how they want to go about minimizing plan costs. And as Mark said, United uses as an array of services from MultiPlan, depending on that configuration, their needs and their clients' needs.

United has -- Look, United is a market leader. It has a very diverse customer base. And that calls for offering a variety of health plan options to the employers, and the employers often offer multiple benefit plans. And I see Naviguard as one of the plans that UnitedHealthcare will offer their health insured ASO customers. And just like we've been doing since the early '90s, we provide value-added services, and that they will take us along because we can improve the performance of that product. It's very analogous to when [ United Ready ] is a product to go on the ACA exchange market, the exchange business, that's another product offering to that segment of the population, low-access MultiPlan services as well to produce better medical cost management in terms of egregious and excessive billing, and at the same time, identify collaborations that are inherent in some of the care that's being delivered today.

And with that, can you just maybe provide us an idea or quantify the number of lives that have actually migrated over to reference-based pricing and what your expectations are for '21 versus '20?

I don't believe we have that data at hand to respond to that. Reference-based pricing...

But I do think it -- excuse me, I do think bears repeating. And the guys have said this a bunch of times here, our business has grown with United, okay? Our business will continue to grow with United quarter after quarter. And so how many lives have migrated to Naviguard? It's a reasonable question. It's certainly not impacting our business.

And then...

I think the follow-up on Josh's earlier question, the United growth from Q2 to Q3 is greater than the 8% growth of the entire company from Q2 to Q3. So United continues to grow and be a bigger part of our business.

Great. If could just ask one more. In the past, you've talked about with -- that you have this, I guess, you call a revenue-sharing agreement with your payers or your customers, and that UNH makes money on your services other than the cost saves, and that creates some stickiness with these customers. I was hoping that -- if you could just quantify what this amount is with UNH or in total with all of your payers that -- so we could better understand that stickiness. I mean is it $50 million? Is it $100 million? Is it $200 million, $300 million?

I can't tell you the -- I can't tell you the -- I can't answer that question. I truly don't know.

Your next question comes from Andrew Kugler with Goldman Sachs.

So first, just to remind -- first, historically, claims repricing has been outsourced to third-party vendors such as yourself. Can you maybe just talk more broadly about the market and why this is the case and hasn't previously been insourced? Are there any sort of regulations or any kind of ERISA legislation that prevents this? And does it sort of matter if the repricing amount is based on a negotiation or a nonstandard reference price like cost plus, which is what you guys do, compared to maybe a more standard reference price, such as a multiple in Medicare, like Naviguard seems to do, a percent of both charge, like it has historically been the out-of-network repricing amount in the past? And do you see the market shifting anytime soon to insourcing versus outsourcing?

Okay. So the -- our customers view us as a partner. They outsource the repricing of out-of-network claims because we have a market data advantage, an incomparable database across 700-plus payer customers. We're highly automated, we're highly efficient, and we can reprice those out-of-network claims in a very timely and accurate manner. It makes it much more cost-effective for them to use us than to internalize those services. We have impressive size and scale. We have a differentiated data advantage. We have incredible speed and accuracy and persistency in those claims. And for nearly 30, 40 years is payers have recognized that value, and that's why they continue to do business with us and our business has continued to grow year-over-year.

Let me just add something, Mark, if I may. When we were doing diligence on the company, the thing that we were most impressed by is the fact that they're drawing their data from claims of 700 payers. It's not a single payer database. It is claims from 700 payers. It is very, very different than what any single payer can do on their own, which is why they all come to MultiPlan, because we provide that independent third-party gold standard. There are many, many products that are in the market today, and they have been forever, whether it's reference-based pricing or consumer advocacy. I think what might be getting lost a little bit in the translation is that we're talking about apples and oranges here. Solutions like -- you guys keep mentioning Naviguard. Solutions like Naviguard, they're consumer-facing. You can go on their website and see it's a nice product, but it's a consumer-facing product that helps consumers to negotiate doctor bills. And it's done on a one-by-one basis. It's fundamentally different than what we do. We're an enterprise solution. We process 360,000 claims a day, 7 days a week, 365 days a year. So we support and we are very much in favor of products like Naviguard because they help consumers. And one of our strategies in Expand, you may know, is for us to start to provide services to providers and consumers, in addition to payers. So this is all quite consistent. But the motion that this is taking business away from us or that this is going to be in direct competition with us or that United is stopping its flow of claims with us, is just factually inaccurate.

We would now like to turn the conference back over to Mr. Mark Tabak.

Thank you very much. I'd like to leave you with a couple of thoughts, if I may. MultiPlan, for decades, has enjoyed a market-leading position with impressive scale and a market-differentiated date advantage. Mission-critical nature of our product really has created a competitive moat around our company that drives high recurring revenues. And the attractive financial we have gives us strong cash conversion and best-in-class margins. As I said before, we will be doing a non-deal roadshow in the coming weeks, and we look forward to speaking with you all again. Thank you for your support.

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