Hello, everyone, and welcome to the MultiPlan Corporation Second Quarter 2023 Earnings Conference Call. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I would now like to hand the conference over to Luke Montgomery, SVP, Finance and Investor Relations, to begin. Thank you. Please go ahead.

Thank you, Nadia. Good morning, and welcome to MultiPlan's second quarter 2023 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 second quarter 2023 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 the date of this call. Actual results may differ materially from these 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 filed with the SEC. We will 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 their comparable GAAP measures can be found in the earnings press release and 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, Luke. Good morning, everyone, and welcome to the call. As many of you heard at our Investor Day on June 28th, MultiPlan is in the midst of a transformation. This transformation began with our strategy review late last year, which resulted in our refreshed growth plan and led to the steps we have taken to reset the business in 2023. And it is continuing with the execution of that plan, which pivots our business through a number of actions. First, we are capitalizing on the strength of our platform and our deep-payer relationships. Second, we are enhancing our core business by becoming a product-centric organization and investing in new services and solutions. Third, we have created a new data and decision science service line and partnered with ECHO Health to offer B2B payments both to further our footprint in in-network and government market segments. And finally, we are focused on using our cash flow to improve our capital structure. All of this we firmly believe helps unlock the enormous potential value of our franchise to the benefit of our shareholders. I am pleased to say that during the second quarter, we have made significant strides towards realizing our transformation. In our view, the second quarter marked an inflection point for the company, in terms of both the results we delivered and the execution of our strategy. Let me take each of these points in turn. Beginning with our Q2 results as shown on Page 4 of the supplemental deck, we reported revenues of $238 million and adjusted EBITDA of $152.7 million, excluding the contribution from our newly acquired data science company, Benefits Science Technologies, or BST, revenues of $235.9 million were above the high end of our guidance range and effectively flat from the prior quarter. Adjusted EBITDA,…

Thanks, Dale, and good morning, everyone. Today, I'll do the usual walk-through of our Q2 financial results, provide some commentary on our second-half outlook, and discuss the revisions to our 2023 guidance. And as usual, I'll close with a review of our balance sheet and an update on our capital allocation plans. As shown on Page 4 of the supplemental deck, second quarter revenue was $238 million, declining 18% from Q2 '22 and up 0.6% from the prior quarter. Excluding a $2.1 million contribution from BST, which closed on May 8, second quarter revenues were $235.9 million, down a modest 0.3% from the prior quarter. Turning to revenues by service line, as shown on Page 5 of the supplemental deck. Network-Based services revenues declined about 10% from the prior-year quarter and were effectively flat sequentially. And Analytics-Based services revenues declined about 22% from the prior-year quarter and were also effectively flat versus the prior quarter. We saw relative strength in Payment & Revenue Integrity services revenues, which declined about 12% from the prior-year quarter but increased about 9% sequentially through strong performance from our clinical negotiation, clinical review, and discovery health products. Our second quarter revenues were driven by a modest sequential uplift in savings volumes. As detailed on Page 6 of the supplemental deck, medical charges processed increased 8% from Q1 '23 to $43.1 billion, and potential medical cost savings increased 2% from Q1 '23 to $5.7 billion. In the core commercial health plans category, the sequential increases in medical charges processed and potential medical savings identified were both 2%. Identified potential savings in our PSAV revenue model were effectively flat sequentially, despite our typical seasonality in the second quarter. As Dale noted, as patients reengaged and capacity returned in the system, we saw a positive mix shift within…

Thanks, Jim. Before we open up the call for questions, I'd like to circle back where we started this call. MultiPlan is working hard to execute its transformation, that means investing to capture meaningful opportunities in growing markets and implementing our growth plan by expanding our products and services. And while it's still early, we have a clear line of sight on where our transformation leads us. In short, we believe the execution of our transformation will unlock the value of our franchise over the next few years, by making us a company with an accelerated growth profile, a more diversified mix of revenues by product, by channel and by customer, and a stronger capital structure that will provide us more flexibility to shape our destiny. As I said at our Investor Day, the leadership team and all of our employees are aggressively going after it, and we will be relentless in our execution. We know we have to deliver the results, and we're on track to do just that. Operator, would you kindly open the call up to Q&A?

Of course. [Operator Instructions] Our question first question today goes to Joshua Raskin of Nephron Research LLC. Joshua, please go ahead. Your line is open.

Hi, thanks, and good morning. My question is around traction with health plan conversations on all the new product launches including BST for 2024. I'm curious where the plans are showing the most interest? And then, inversely with all that's going on for the payers in terms of utilization changes and some of the impacts you are seeing there, big changes for Medicare, are you seeing that slow down their process at all? Do you think you're hitting a little bit of a wall as payers prioritizing sort of fixing things internally this year? Or do you feel like traction is picking up?

Josh, thank you. No, we're not seeing a slowdown of payer interest, in fact, it's the opposite. There's an acute interest in managing their uptick in utilization, helping them to manage their total cost of care, including the out-of-network claims that they see particularly as utilization returns. And so, there is a strong interest across all of our payers, including our larger customers, our regional health plans, and our third-party administrators for all of our products and services. We're really excited about the introduction of the BST product line. As you know, we were collaborating with them since last fall around price transparency and we're now -- we're pleased that we're rolling out our first phase of our price transparency product called PlanOptix. And we've already been in front of our customers telling them about the product and our plan to launch it. So, we're excited. We haven't seen a slowdown of interest. And the two products that from BST that we're focused on is price transparency. But the second is what we call claims risk, claims restoring, and then insights. And so, all three we're out in front of our customers with those focusing on those three products, but there is an array of products behind them that we plan to launch later this year.

Got you. And then, just a quick follow-up. The top-line number came in a lot stronger than the bottom-line relative to our estimates and I understand some of the cost. But maybe, Jim, if you could just refresh like why are we not seeing that flow through and if utilization were to persist a little bit better than expected, should we expect that flow through more to the bottom-line going forward?

Yeah. Thanks, Josh. We talked a little bit about first quarter -- in the first quarter call about the step up in costs, and that's really just investments, Josh. And it's not -- it's a little bit more of a step up in time, but it doesn't just step up every single quarter, as we saw, we're going to step maybe another $1 million in Q3. So, it's a little bit of a sawtooth as we move forward. But as we start seeing volumes, it's incrementally going to drop to the bottom-line, which is why we feel comfortable that we can make some investments, and when we see the volumes, we can maintain our margins. So, I wouldn't look too much into that. I would look at the Q3 and we also get some burden from Benefits Science, which is about 100 basis points for the year in our full year guidance. So, there's a little bit of burden as we make some investments, but again we're making investments because we see demand, Josh, and that's kind of the main message here.

Okay. Thanks.

Thank you. [Operator Instructions] And our next question goes to Daniel Grosslight of Citigroup. Daniel, please go ahead. Your line is open.

Hi, thanks for taking the question. I'd like to focus a little bit on the revenue guide for the remainder of the year and really that 1% to 2% net new sales and growth initiatives. Are you able to provide any more detail around that, which segments products will drive that growth this year? And how much of that has been sold already versus what you need to go out there and get? And then, as we think about '24, is there anything that would prevent you from hitting that 4% to 5% core long-term growth rate that you have provided during the Investor Day?

Okay. So, let's break it down into two parts, the net new sales, new growth initiatives. You should assume if it's going to be in our Q3, Q4 guidance, there is a fair amount of visibility because it's implementing new products and new sales, et cetera. We're seeing it. We're seeing strength in our HST platform. We're actually seeing strength in some upsells in our core, so it's relatively broad-based. And then, we've got some early returns from some of our new products like Balance Bill Protection. So, I think it's -- the right way to think about it is it's kind of in motion and disbursed broad base, which is exactly the way you want it to be. It's not that lumpy. As it pertains to the second question, on '24, we see there -- we think there is plenty of opportunity in the core. You're going to see a couple of dynamics. First of all, I think if capacity increases in the system and medical and inflation continues to roll through the system, you're going to see those tailwinds very much in line, but it's also enhancements to our core that are helping. We're always going to see those little headwinds on the margin, as we talked about in our Investor Day. But as we think about the core tailwinds in the main part of our business, it feels pretty healthy.

Got it. Okay. And then, on capital deployment, obviously, repayment of debt is taking higher priority, now that you are integrating BST. I'm just curious if you have a target leverage ratio that you guys are aiming for and how quickly you can get there.

Yeah. And we talked a little bit about it at the Investor Day. We don't really have a target per se. I would actually flip that around and say, it is a function of two things. The leverage ratio is a function of us growing the business in '24 and beyond. It is a function of us deploying our capital. We're much more in a -- now that we've kind of used up that excess on our balance sheet, we're in a little bit more of a pay-as-you-go realm. So, if acquisitions are on hold at least for the time being, just because we're integrating BST, you should assume most of the cash flow is going to go towards -- a little bit of cash flow towards investing in the business, but most of it is going to go towards debt repayment. By definition, it's not so much cash flow that's going to be a game changer on our leverage. So, it is really a function of growing our business. But we indicated at our Investor Day, we definitely want to get to a reasonable level by the time we get to kind of that refinancing window on our debt in the '26-'27 timeframe.

Got it. Thank you.

Thank you. We have no further questions. This now concludes today's call. Thank you all for joining. You may now disconnect your -- we've just had one question come through from Rishi Parekh of JPMorgan. Rishi, please go ahead. Your line is open.

Hi, thanks for taking my questions and getting me in. Just one, and I apologize I've been bouncing on through a few other calls. But as it relates to utilization for the second half of the year, can you just maybe break down your utilization expectations just given what you're seeing out there and just from everything that we're hearing from providers relative to, I just want to isolate that versus the pricing that we're seeing? And the second, outside of the NSA, can you just talk about overall what are the volumes ex the NSA-related activities that you are seeing? Thank you.

Yeah. And I guess, we'll start with -- by the way, I think it is fair to say that the visibility in our business has really gone up. And we're seeing an uptick in our PSAV volumes. And if you think about it over the first half of the year, we're up about 5% from Q4 of 2022. Now, it is important to recognize we are skewed towards out-of-network. We've got a claims lag. And we've got a broader book then maybe just surgery, right, because we've got general physician activities, just a broader base of healthcare. But those qualifiers aside, we're actually seeing very similar trends albeit on a lagging basis to what the hospitals are seeing, which is upticks in ASC and inpatient surgeries. And so, inside that portion of our book, we're seeing behavior that's very, very similar. Where we've lagged a little bit or just haven't seen the growth is on just kind of the classic positioning office claims, which are relatively stable and our NSA is relatively stable. So, with our unique platform, it's actually very consistent with what we're seeing out there. I think, the other part about it is, "Hey, okay, sequentially, the hospital's up a couple of percent on surgeries, et cetera. Can that sustain itself? Can it sequentially grow every single quarter?" And what you heard from Dale is we're not ready to call that yet, because I think there is a capacity issue here. It's not a demand issue, it's a capacity issue. If you get injured, Rishi, if you go out and play pickleball and hurt your knee, my guess is, you're probably three months away from seeing an orthopedic surgeon just given the backlog that happened. So, by definition, the system had an uptick in capacity, but it's hard to tell whether it will sustain. So, we're just not ready to call that yet.

Rishi, you also asked about the NSA, sort of NSA claims and the process itself. We are seeing an uptick in NSA claim volume over fiscal year 2022. And as importantly, we are seeing increases in the number of claims that we negotiate post payment, when a provider is unhappy with the payment, we're seeing an uptick in the number of claims requested for negotiations, as well as the number of arbitration cases that have been initiated. So, significant increases in the process itself are related to post-payment negotiation and the initiation of arbitration. Rishi, you there?

Yeah, thank you.

Okay. Thanks.

Thank you. We have no further questions. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

Thank you.