Hello, everyone, and thank you for joining the MultiPlan Corporation Third Quarter 2022 Earnings Conference. My name is Darius and I'll be the operator for today. Before handing over to your host, Shawna Gasik, [Operator Instructions] I now have the pleasure of handing you over to your host, Shawna Gasik, AVP, Investor Relations. Please go ahead.

Thank you. Good morning and welcome to Multiplan's third quarter 2022 earnings call. Joining me today is Dale White, Chief Executive Officer; and Jim Head, Chief Financial Officer. The call is being webcast and can be accessed through the Investor Relations section of our website at www.multiplan.com. During our call, we will refer to the supplemental slide deck that is available on the Investor Relations portion of its website along with the third quarter 2022 earnings press release issued earlier this morning. Before we begin, a couple of reminders. Our remarks and responses to questions today may include forward-looking statements. These forward-looking statements represent management's beliefs and expectations only as of the date of this call. Actual results may differ materially from those forward-looking statements due to a number of risks. A summary of these risks can be found on the second page of the supplemental slide deck and a more complete description on our annual report on Form 10-K and other documents we file with the SEC. We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Multiplan's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the most comparable GAAP measure can be found in the earnings press release and supplemental slide deck. With that, I would now like to turn the call over to our Chief Executive Officer, Dale White. Dale?

Thank you, Shawna. Good morning, everyone, and welcome to the call. By now, many of you have had an opportunity to review our third quarter results. I'll say at the outset that these results were disappointing, and while the predominant driver of the shortfall was the decline in patient utilization of healthcare services, I would be remiss if I didn't acknowledge our results but nevertheless fell short of our third quarter expectations. I'm going to cover three topics this morning. I'll provide some context around the market conditions and moving pieces that drove our third quarter results. I'm going to reinforce that we continue to see strong underlying demand for our services, are highly engaged with our customers and remain focused on investing in our business to drive growth. And then I'll review the action plan that our leadership is implementing to manage the business through these more challenging market conditions. Let's jump into our third quarter results. As shown on Page 4 of the supplemental deck, third quarter revenues of $250.5 million declined about $40 million from the prior quarter and fell about $30 million short of our third quarter guidance provided in August. Adjusted EBITDA of $172.2 million declined about $37 million from the prior quarter and fell about $28 million short of our third quarter guidance. Despite this quarter's results, we remain highly profitable, maintain best-in-class adjusted EBITDA margins and continue to generate significant cash flow. In the third quarter, our adjusted EBITDA margin was nearly 69%. We generated $109 million in free -- in cash flow from operations, and we ended the quarter with $439 million of cash on the balance sheet. Our profitability provides us with significant flexibility to navigate a challenging environment, while pursuing our strategic initiatives and to thoughtfully allocate our capital. Third…

Thank you, Dale, and good morning everyone. I will echo Dale in acknowledging that while we remain confident about the strength of our business and our ability to grow long term, our third quarter was challenging and results fell short. I'll start today with my usual walk-through of the financial details and then provide some additional commentary about our outlook for Q4 and the action plan our leadership team is implementing to manage through the more challenging conditions for revenue. And I'll close with balance sheet, cash flow and capital allocation. As shown on Page 4 of the supplemental deck, Q3 revenue was $250.5 million, down 13.1% from Q3 '21 and down 13.7% from the prior quarter. Dale discussed the major components of the sequential decline, which are again detailed in the revenue bridge on Page 6 of the supplemental deck. I'd like to touch on some of these components in more detail and relate them to the decline in our revenues as a percentage of identified savings or what we call share of savings. Lower patient utilization in the healthcare system accounted for about $19 million of the change in revenues in the quarter. While total identified savings declined 4% sequentially, we experienced a much steeper decline in the savings categories that comprise most of our revenue. Specifically, as indicated on Page 8, identified savings related to our percentage of savings revenue model, which represents about three quarters of our savings volumes and over 90% of our revenues, that declined 7%, while our per member per month savings volumes actually grew 5%. The net volume effect accounted for about half of the $19 million impact from lower patient utilization. As our identified savings volumes declined, we experienced mix shift between service lines and products which unfavorably affected our revenues.…

Thank you, Jim. Before we open it up for Q&A, I want to acknowledge again that it was a tough quarter for MultiPlan and for companies inside and outside the healthcare sector, many of them household names. By no means am I sugar coating, these results are a disappointment, no question. And as any company does, MultiPlan has had its highs and lows. In my 20 years with the company, I've had a courtside seat to most of them. We always capitalize on the highs to become an even stronger partner to our customers, and we always come through the lows with renewed focus and energy. I believe this time will be no different because in our view, MultiPlan has the best fundamentals in our space. Operator, would you please open it up -- would you kindly open it up for Q&A?

Of course. [Operator Instructions] The first question comes from Joshua Raskin from Nephron Research LLC. Please go ahead, Joshua.

Thank you, good morning. So, [technical difficulty] question kind of sequentially here. So the first thing, I just want to make sure I understood your commentary, Dale, around 2023, it sounds like you expect the 4Q run rate to sort of continue or at least now what you're seeing in 3Q to continue. So, can we assume that 2023 is expected to be down relative to the 4Q run rate because the customer -- the big customer [technical difficulty] run rate?

Yes, Josh, this is Jim. I think, well, I'll offer a couple of observations -- a couple of dimensions. Number one, we're not providing 2023 guidance, and I think we're going to have a lot more visibility on run rate at the turn of the year than we have right now. So, I would say, on one hand, we are acknowledging that the run rate of the business today is, third and fourth quarter look a lot like, but I don't think we're ready to kind of make a prediction as to what next year is going to look like. I do think that as we said in the second quarter earnings call, we do have this customer contract adjustment which is going to be a headwind to growth. We've talked about that being muted flattish in terms of the impact, because it will be an offset to other initiatives and other growth areas, as well as it could be all things being equal, it's kind of a flat environment. So I think it's too early to say, Josh, there's a little bit of ambiguity on Q3 and Q4 because of utilization, but as we've seen in prior cycles, that can change relatively soon, and I think we'll have a better handle on that after our -- with our fourth quarter announcement.

Okay. So it sounds like if 4Q utilization were to be the run rate [technical difficulty] this customer adjustment will be a headwind, right? So, but to your point, there is new growth and that sort of thing. The other question is, the slides, looking at the sequential change of $39 million decline in revenue. Only $3 million was kind of termed as not recurring. It seems like just a huge drop in utilization and I understand you kind of went through the litany of issues. But can you confirm that, that was the only catch up in that -- there was no other sort of retroactive adjustments or anything that was maybe overstated in the first half of the year and then what specifically was the $3 million customer adjustment for?

Yes, so Josh want to make sure I understood. Let's talk about the one - let's maybe go to refer to Page 6, and just to kind of provide some specificity. Once the, the one-time customer adjustment, that $3 million that's just true ups from frankly some 2021 claims et cetera. It's not - it's not unusual given our revenue accounting that we could have some retroactive - true-ups. But it is, it doesn't happen very often. So those are one-time kind of true-ups against the past. I guess I would call and I'll just walk across this the - contract adjustments. Those are - kind of modifications with customers along the way that - I wouldn't say normal course, but they happen and there about $4 million of adjustments in this quarter. And then last but not least, I want to call it the yield normalization because that is, that is less about, that's a lot more about performance then history, so to speak, in the sense that the yield normalization we have utilization of savings that we present - to our customers. And we accrue to historical yields and what happened in Q1 and Q2, and it took a little bit of digging, we were just performing above our accrual levels historically. And that's because whether it was COVID or some - other classes of claims where our clients were just accepting an abnormally high level. In Q3 largely because of some of the volume shifts et cetera. It normalize so what that means is we have a comparison issue. It's less about business walking out the door, it's more like the yields have come down a little bit in some of those areas, particularly in our analytics business and it just creates a tough compare against last quarter. So we wanted to call that out. So you understood where we are today. So I hope that help in terms of the compulsory

Yes, yes so it sounds like it's not necessarily run rate and environmental quarterly, but I understand you're resetting to a lower level right that the recurring is that it continues in the future. Not that you're expecting these sorts of headwinds every quarter.

Exactly and listen, we see this - kind of the benefits of volume when things come in a little bit high. Our yields are a little bit higher elective surgeries, which are oftentimes big tickets, the ortho is et cetera can enhance our yields and when volumes recede. And I think you kind of parse through the detail here, but our volumes came down about 7% in our percentage of savings categories. You could argue that they were even higher in some of the discretionary categories, because our NSA claims were steady. And so we - could kind of get that the benefit when it swings up and we get the decrement when it swings down.

Okay, got you. Thank you.

The next question comes from Daniel Grosslight from Citigroup. Please go ahead, Daniel. Your line is now open.

Hi guys, thanks for taking the question. I want to stick with Slide 6 for a little bit and really focus in on the $8 million program-related attrition. Curious if you have any color on where that client wins, what was the issue with that program? Specifically, if there is pricing pressure competition, et cetera. Just a little more color on the $8 million program-related decline?

Right thanks, Daniel. It is a look - as I said, and I've said repeatedly, we always like to win 100% of the time. In this case, the customer made a decision to shift part of its business and part of this work to a competitor and not have all that takes in one basket. And so from that perspective, it didn't - the client's customer didn't - change it service portfolio with us how it utilizes us all the same services that the client. The customer utilized prior to the change is the same array of services they use us - use through us today for the lion's share of the business.

Okay, make sense and then it seems like you're generating more of your revenue from PEPM versus shared savings, is that just a 3Q and maybe 4Q issue and you expect that to normalize back in 2023 or should we think about more savings coming through PEPM which will continue to weigh on your revenue yield in 23 and beyond?

Yes and we're being a little bit more transparent on that mix because the PEPM waiting, so to speak in that savings is getting if it continues to grow. It's going to be a bigger - component of it. So it does - speak to a little bit of yield degradation by just virtue of volume right. In our 10-Q, we call out the revenues on a percentage of savings versus PEPM. So I think that - you will have the tools, I think between our schedule on Page 8 versus the 10-Q to kind of think through some of those yield implications, but you're absolutely right as we, as we grow our PEPM business, the savings that are going to be attached to that or associated with that we will continue to grow. That's our network side, and it's also or HST right.

And as I noted in my comments, Daniel, the value driven health plan business grew substantially coming just January 1 right. I think we're adding 39 groups, almost 15,000 new lives and we're, we've already exceeded 1 million total lives. So as that continues to grow and that business in particular is based on a PEPM and model it will take - a bigger piece of our revenue.

Okay and last one for me, just on EBITDA, you guys mentioned you have really good incremental margins, but on the way down, you have high detrimental margins. So I'm just curious for 2023 if we don't see a nice rebound in utilization, are we going to be kind of at the same run rate of EBITDA margin as you are in Q3 and Q4? How much cost, can you actually take out of the business if you don't see that return to utilization. And then just one - kind of accounting thing I guess for EBITDA this quarter there was a $28.5 million add back in EBITDA for expenses where did that come from?

Okay, why don't we take the margin question first and then we'll hit the transaction expenses, the margin what I can do is give you a little bit of context on the expense side, because the margin will be, as we said, it's going to be a function of what kind of revenue assumptions you're going to make, but the one thing that we can control is our expenses. Now having said that it's relatively fixed, we've got $78 million of EBITDA expenses in Q3. We've got, we're predicting $80 in our guidance so, just kind of think of that as a run rate. What we're trying to do here is identify cost to mitigate the inflation of that base for next year. So you can imagine that we're probably the most cost conscious company out there - given the margin profile we have today. We still have some opportunity to sharpen our pencil on cost, but it is relatively fixed. And we don't want to be in a position where we missed out on our customer commitments and our revenue opportunities by cutting our costs too thinly. So we're taking, a very disciplined approach to this, but you should not expect that our costs are going to take a shift down, so to speak, in 2023. I think what we're trying to do is mitigate what you could call an inflationary rate against that cost base and then find some areas of investment and we'll call out those investment areas in our guidance in 2023. So let's you - some context on how we're thinking about it and then as we talked about the 2023 revenue it's going to be a little bit of a function of where we kind of enter the new year and that will drive the margin on whether it's 68 or otherwise. And then secondly, Daniel, you asked about transaction expenses in our adjusted - the non-GAAP EBITDA. And you're correct. There was an increase of transaction related expenses in Q3 of about - you see about $27 million in the schedule. This is non-cash. The vast majority of that figure relates to reserves that we accrued this quarter for litigation of prior transactions. Now as a policy, we're just not going to comment on any pending litigation. But I would just say that you can look at our 10-Q or public disclosure and we call out, what that means, essentially in our filings.

Got it. Appreciate the color. Thanks guys.

Thanks Dan.

The next question comes from Cindy Motz from Goldman Sachs. Please go ahead, Cindy. Your line is now open.

Thanks for taking my question and thanks for the detail. I just had a couple, but just following up on that last thing, you said Jim about the litigation reserve. So, yes, because just in looking at the G&A that was reported and then obviously weather wasn't add-back of $28.5 million or so, that litigation expense, I mean is that going to continue. It's non-cash and it's not going to continue, correct? Or how does that work.

We can't comment on -- whether it will continue or not, but I think the right way to describe it is, if we're putting a reserve on the balance sheet, it's because there is an estimate and I think I would just go to our public disclosure in the 10-Q and it explains our cause, how we -- our philosophy on that.

Okay. And then just some housekeeping with the expenses. So, the gross profit margin is about 78%,79%, is that correct? Am I am I getting that right.

Yes, if you're tackling it off the press release, it's fine. We typically look at our EBITDA margin versus our growth but in the 10-Q, it will have the breakout the gross margin, personnel expenses etcetera and then the G&A side of things. That should be able to bridge any questions you have.

All right. Okay. And just one, just going back to the revenue bridge because there's good detail on Page 6 with the revenue bridge, so obviously explain utilization, it looks like the yield is related to this just with the customer loss, as well as partial do you expect potentially and maybe other losses with this customer others. I know it's hard to predict, but are you I understand about utilization everything, but do you feel like the competition is increasing, like, is it coming down to price or just any other color. I know you've already talked a lot about the macro but just anything on the competitive situation around pricing would be helpful. Thanks.

Yes, Cindy we always have competitors as every business does right, and so we like our chances, we always have a right to win and but we never win about a 1,000%. And so from our perspective, we have a great set of services, we have a great client roster, our services are broad, they are sticky, they provide flexibility for every market shift and including the one we're facing now. And we've, I think we have a proven track record to grow both organically and through acquisitions and we clearly accelerated integrating and cultivating those businesses we acquire. And so yes, we have competitors and -- but we compete every day and I like our chances.

Okay. Thanks for taking my question.

Thank you.

The next question comes from Steven J. Valiquette from Barclays. Please go ahead, Steven. Your line is now open.

Great, thanks. Good morning, everybody. So a couple of questions here. Again the revenue bridge on Slide 6 is definitely useful, I guess just to simplify things, thinking about going from Q3 to Q4, you're sequentially guiding for both revenues and EBITDA to be down sequentially in 4Q versus 3Q, but what's the single biggest factor that drives that downward trend sequentially. If you have to point out one from all the moving parts. The second question is, I didn't really have time to go look up all the various debt covenant before the earnings call this morning. But the downward trend in EBITDA, let's call it $650 million annualized run rate, if you just take the fourth quarter guidance times divide by four, does that put the company in jeopardy of chipping any debt covenants in the next year. You showed the current leverage ratio on Page 14 in the slide deck. But -- where I was going to come down into next year and also is your credit definition EBITDA comparable to what you're showing for equity EBITDA in the slide deck today. Thanks.

So why don't we make sure I got this, I'll answer the covenant and the debt EBITDA. The debt-EBITDA and what we put in our press release are the same. So just you understand the -- they're consistent. Our covenants are largely incurrence versus maintenance. So I don't think we have any material covenant issues coming up and we obviously monitor that pretty closely. I'd also just point out that, our maturity schedule, which you'll see in the supplemental deck. We're not up against any looming maturities the convertibles are -- end of 2027 and the rest of our capital is at 2028, our term revolver is a little bit sooner than that. But the major components of our debt structure it turned out. So we've got flexibility here, as we navigate through a little bit of a soft patch. So I hope that answers your call -- your debt questions. And then Q4, I think the simplest way to describe it, Steve, and it's a good question is let's say our July run rate revenues, etcetera, which reflects April-May timeframe, what was included in our Q3 was higher and as we went through the quarter we get to September, which is reflecting kind of June, July environment, it was down. And so we're kind of managing through that downturn with a run-rate beginning the quarter that's just lower than the run rate beginning last quarter. And so that's a major rationale for why we're little bit lower.

Okay, that's helpful, thanks.

Thanks Steve.

The next question comes from Rishi Parekh from JPMorgan. Please go ahead, Rishi.

Hi, thanks for taking my questions. And I apologize, I've been hopping around on calls. So if you've already answered these questions, I apologize for that. One, on the customer lives. Is it reflective of the, you know, is that lost for the entire quarter or is it just a portion of the quarter. And if you were to, if it's just a portion, what's the loss of the entire quarter. And as it relates to that customer, was that loss -- as it relates to a competitor, did it move in-house or was it a, I think you had noted as a competitor, I just want to make sure it did not move in-house. And what area did it impact, was that iSight, was in the Network Business, was it Payment Integrity and was that loss mostly due to price service. I was hoping you could provide some more details as to what led to that loss. And I have a follow-up.

Okay. Let's break that down. The $8 million is the full quarter. The shift occurred literally on July 1.

July 1

July 1. And it affected mostly our analytics side but in negotiations. But again, I think as Dale mentioned, it's a little bit more of a customer spreading the eggs around in their basket versus going in-house.

Okay. And then on the utilization. Can you maybe just break down what areas were impacted, was the most of elective surgeries, was it related to the NSA related claims, behavioral health. I was hoping that maybe you could rank or bucket what areas were impacted in that utilization?

Yes, it's interesting. It is not -- NSA was as we said, was a bright spot. And it was mostly --

I think it was mostly in areas you would expect, Daniel, I'm sorry, Rishi, in the elective category. So facilities like ambulatory surgical centers, general surgery, orthopedics, PT evaluations, Cairo musculoskeletal, those were the types of services that were largely impacted.

Yes. And we can see that in the claims Dale that we're processing, i.e. savings categories, some of this is less severe and more non-emergent and more elective categories were down, were down even more than the average 7% rate that we saw. And it affects our business because a lot of that is processed through Data iSight where there's really attractive savings. And so that, that's part of that product mix shift in that $19 million, we're talking about Rishi.

All right, thank you.

It appears we have no questions at this moment, I'm going to conclude today's call. Thank you everyone for joining and have a lovely day.