Ladies and gentlemen, welcome to MultiPlan Corporation Fourth Quarter 2022 Earnings Conference Call. My name is Glenn, and I'll be the moderator for today's call. [Operator Instructions] I would now like to hand the conference over to Shawna Gasik, AVP of Investor Relations. Thank you. Please go ahead.

Thank you. Good morning, and welcome to MultiPlan's fourth 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 our website along with the fourth 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 this day of the 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 supplement of slide deck and a more complete description on our annual report and 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 mean 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 in the 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. As we close 2022 and reflect on the past year, I'm proud of the progress we have made as an organization. While we have endured a period of softness in the second half and recent performance of the business has fallen short of your expectations and ours, we have taken tangible steps to improve the position of the company and have now reset to a stable base from which we can invest in the business and resume growth. We have made meaningful strides throughout the year. Once again, we demonstrated the critical value we provide to the health care ecosystem, processing $155.2 billion of medical charges and identifying $22.3 billion of potential medical cost savings in 2022. We implemented our new No Surprises Act services, taking advantage of our domain knowledge and considerable investment and turning what many viewed as a threat into a real strength of the company. We executed a holistic review of our growth strategy to prioritize our most strategic opportunities for growth, and we reinforced our case for investing in our business. And we continue to execute on a variety of fronts by selling new business, continuing to drive strong enrollment growth in our HST services, building our sales pipeline, investing in our people and solutions and managing our costs, all while continuing to deliver high levels of value and service to our customers. During the fourth quarter, we made further headway with actions we have been taking to strengthen the company's position. Since our last earnings call, we renewed a multiyear contract with another of our larger customers. We have now signed multiyear contract renewals with 2 of our larger customers in the last 6 months, increasing the stability and visibility of our business…

Thanks, Dale, and good morning, everyone. Before I begin, let me just say that I share the enthusiasm about the steps that we're taking to reposition this business and share the enthusiasm that we have an opportunity to drive growth going forward. I'm going to walk through today the financial results and the balance sheet for the fourth quarter and full year '22. I'll then turn to our outlook for 23, and I'll close by commenting on our plans for capital allocation. As shown on Page 5 of the supplemental deck, fourth quarter revenue was $241.1 million, a decline of 19.2% over Q4 '21 and a decline of 3.7% from the prior quarter. The quarter was characterized by consecutive monthly improvements in our volumes of identified potential savings as October was the nadir for the year, November showed improvement and December was our strongest month for savings since May of 2022. Our total revenues for the full year were $109.7 million, down 3.4% from the prior year. As shown on Page 6 of the supplemental deck, relative to Q3 '22, network-based revenues declined 7.6%, analytics-based revenues declined 2.2% and payment and revenue Integrity revenues declined 4.8%. In aggregate, these revenue trends were in line with our Q4 '22 guidance, which was largely informed by the run rates we were experiencing as we exited the third quarter. Versus the prior year quarter, fourth quarter revenues were about 20% declines for each of our service lines, reflecting a more challenging environment for utilization in the second half of '22. The customer shifts disclosed in our third quarter earnings call and difficult comparisons with our record fourth quarter of 2021. For full year 2022, network-based revenues declined 11.9%, analytics-based revenues grew 0.6% and payment and revenue integrity revenues declined 7%. Turning to expenses.…

Jim, thank you. Before I open up to Q&A, I want to say how extremely proud I am of our team at MultiPlan. Despite the difficulties posed by our -- by the external environment, our over 2,500 employees have risen to this moment by embracing the challenges and adjusting to change. They are super energized by our Growth Plan and continue to be dedicated to our mission to deliver affordability, efficiency and fairness to the U.S. health care system. Our Growth Plan sets forth concrete objectives to execute against, and it is largely because of our employees' unique talent, knowledge and expertise that I am confident we will achieve these objectives and that I continue to believe MultiPlan's best days lie in the years ahead. Operator, would you kindly open the call up for Q&A, please?

[Operator Instructions] We have our first question comes from Joshua Raskin from Nephron Research LLC. Joshua, your line is now open.

This is actually Marco on for Josh. Just had a couple of quick ones on our end. First, I was wondering if you could give us a sense of what percent of your revenues are already contracted for 2023. And also you mentioned that there were more planned client renewals through this year. Are any of those renewals among top 10 customers? And is there any additional detail you can provide to help frame your exposure there?

Yes. And thanks. It's a really good question. And I guess I'll frame it up. We -- as you know, it's -- we are always reluctant to discuss contracts in specific. But as you listen to our commentary, I think you can surmise a couple of things, and here's what we told you just now. We have now renewed two multiyear contracts with our larger customers. We expect to renew with another larger customer in the first half of 2023. The total expected impact of all of these renewals in '23 is included in our 2023 revenue guidance, and that's that 8% headwind that we talked about. So what we've done is we've given you the impact in totality that gives us a lot of visibility for the next few years, and it gives us the confidence to reinvest in the business and support our customers. We've sharpened our competitive position as a result of this, and we think we've removed the overhang. And I guess, in aggregate, we can tell you that we just -- this will represent over 50% of our revenues getting resigned.

And then just one more quick one. It looks like you're incorporating a softer volume outlook in your 2023 guidance. Is there any specific reason for that? Or is that just more of a general conservatism in forecasting the year?

No, we're actually -- maybe to give you a little context here. We're forecasting a stable volume environment as we exited the year. You'll see revenues come down a little bit because it's the impact of these contract renewals in 2023. So when -- if you could go to our share of potential savings and think about a stable volume environment and kind of take our guidance and run it through the take rate and things like that, you'll see the take rate come down a little bit. We do not think that it's a major move, but it does reflect new pricing. And -- but just to be clear, this is price impact versus volume impact in our first quarter guidance.

We have our next question, comes from Steven Valiquette from Barclays.

So with all the moving parts on Slide 11, around the revenue bridge for '23, just curious if there's any more color you can provide just on the outlook by segment. When you think about the network-based services, analytics-based solutions, payment integrity, is there any one of the three, I guess, which ones are going to maybe decline the most year-over-year? Is it pretty evenly spread? Just trying to get a better sense for framing the '23 outlook for revenue across the three segments.

Yes. I think it's -- let's start with maybe the easier one first. I think we don't expect -- we think Payment Integrity, there's some degradation at the second half of last year. We think that's kind of washed through. I think there's always a little bit of interplay between network and analytics, not because network is poorly performing. It's just the substitution in between the 2 as the claims flow through our client environments. I would say that we will continue to see a little bit of substitution in the network side, but largely the analytics is going to drive the performance.

We have our next question, it comes from Daniel Grosslight from Citigroup. Daniel, your line is open.

I wanted to go back to the question around utilization and try to square a couple of comments that you made. So December was the strongest quarter from a utilization standpoint that you've seen since May 2022. Your guidance isn't really assuming any meaningful uptick in utilization. Why shouldn't we expect the utilization recovery in 2023 if December was so strong?

Daniel, it's a great question. And I'd love to be able to tell you exactly -- pinpoint exactly when utilization will come back. But as we said, December is a -- December was the strongest month for us since May of 2022, and really October was the lowest point, right? So that was the nadir. You always have to remember that we have that claim lag of about 4 to 8 weeks built into our volume. Going forward in 2023, we've really been conservative, right? We took -- we anticipated that our run rate would be flattish and that there's only a very modest uptick in recovery.

Got it.

Daniel, I think what you're hearing from this is -- this is the utilization environment, you can look at some leading indicators and feel a little bit better about it. But we're a little -- as you know, from last year, we're idiosyncratic, and we're just not ready to call a massive turn and get ahead of ourselves on the utilization front. So I think as Dale mentioned, we're being conservative. I think we've got maybe 2% over the course of year increase off a relatively kind of low base rate. So we're not even getting close to where we were in Q1 or Q2 of last year at all. We're kind of -- I think you're kind of saying a somber utilization environment until we see different data points.

And I appreciate more of the color that you've disclosed in your presentation around PEPM and percent of savings rates and revenue. But I just wanted to dig in a little deeper into some of the dynamics there. You've seen a nice increase in savings, potential savings from the PEPM model recently, but revenue yields from that savings is compressing a little bit. Just curious if you can describe what's going on there in a little more detail, savings rate -- saving growing in PEPM and revenue declining.

Yes. So this is the good news, bad news of HST. The good news is it's a really sticky business that is on a per employee per month basis. And if they do better and generate more savings with their special brand of reference-based pricing that they employ, the savings will go up. And this is one of the reasons why we broke it out because we're compensated on a much stickier basis on a per member per month, and that's what you're seeing in the PEPM is HST generating more savings for their clients. And that makes us stickier and it makes us more valuable.

[Operator Instructions] Our next question comes from Rishi Parekh from JPMorgan Chase. Rishi, your line is now open.

I have two questions. One, on the utilization. Are there any specific specialties that might be driving that utilization pressure that you saw either in Q4 and then what you expect to see in 2023? And then my second question, as it relates to the contracts, did the second renewal go into effect on Jan 1? Meaning is that 8% impact that you're expecting for this year, is that an annualized impact? And then with that, I think you also said that you expect to resign a third major customer. Is that contract also that contract expectation also included in that 8%?

Yes. Good to hear your voice, Rishi, and albeit with the New Jersey. And just to answer your contract question, the second -- the contract that we alluded to, we signed in the fourth quarter, the rates go into effect at the beginning of the year. The additional customer will be, as we said, will be signed in the first half. So what we've done is amalgamated the entirety of all of those into one adjustment that reflects the entirety of the year. And I think it's a good basis for you to understand the impact of all that in totality.

And it's included -- all of that -- all the expected impact of our renewals with these larger customers is baked into, it's already included in our revenue guidance that we gave to you.

You want to talk about utilization?

Utilization, I think you asked a question about the softness in utilization. As I've said, we -- look, we're predicting only a modest uptick in recovery as Jim said, you can look at the leading indicators and start to see some positive trends in utilization. We've seen considerable softness in the second half of last year around what I'll call non-emergent procedures. So it's ambulatory surgery, it's orthopedics, it's surgery, it's PT, OT, it's a lot of the cyromuscularskeletal procedures. That's where we see -- that's where we've seen a -- saw a drop off in procedures and treatment that was done. And again, it's mostly in that non-emerging area. Our ER and what we call our surprise build procedures is tracking to expectations. It's right in line with where we expected to be. It's been very steady, and it's exactly where we thought it would be.

We have no further questions on the line. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.