Welcome to the MultiPlan Corporation Fourth Quarter 2021 Earnings Conference Call. My name is Jordan and I'll be coordinating your call today. [Operator Instructions]. I'm now going to hand over to Shawna Gasik, AVP of Investor Relations, to begin. Shawna, please go ahead.

Thank you, Jordan. Good morning and welcome to MultiPlan's fourth quarter 2021 earnings call. Joining me today is Dale White, Chief Executive Officer, and Jim Head Chief Financial Officer. This 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 2021 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 annual report on Form 10-K for the fiscal year ended December 31, 2020 and our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2021, and other documents filed or to be filed with the SEC. Any such forward-looking statements represent management's expectations, beliefs and forecasts based on assumptions and information available 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 better and more 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, Dale White. Dale?

Shawna, thank you. Good morning, everyone, and welcome to our fourth quarter 2021 earnings call. Before we get into the business in hand, on behalf of my 2,400 colleagues at MultiPlan, I'd like to extend my congratulations and gratitude to Mark Tabak. In accordance with the company's previously announced executive transition plan, at the end of January, Mark moved to Chairman of the Board and I have moved into the chief executive role. Mark's vision, leadership and untiring dedication has had immeasurable impact on the MultiPlan success. And on a personal level, it has been my distinct privilege to work under Mark's leadership for the past 18 years. I look forward to working in partnership with him as he settles into the role of Chairman. I would also like to extend my sincere appreciation to our former CFO, Dave Redmond, who retired at the end of last year, and welcome our new CFO, Jim Head, who is on the call with me today. From the moment, Dave assumed the role of CFO in 2010, he was a tremendous steward of the company's financial position and helped us steer MultiPlan's growth. He instilled the mindset of cost control deep into MultiPlan's DNA, perpetuating our capacity to invest in the company's operating and intellectual capital and to seize on entrepreneurial opportunities. We wish Dave all the best in retirement. Jim Head assumed the CFO post in November after a 30-year career in investment banking. He's a proven leader with the right combination of financial expertise and a firm grasp of the unique dynamics in the healthcare industry. He has hit the ground running, and I'm confident that he will build on the incredible legacy that Dave left behind. Okay. So, moving on to the business at hand. The fourth quarter of 2021…

Thanks, Dale. Good morning, everyone. I'm excited to be part of the MultiPlan team and look forward to meeting and working with the investor community. Today, I'll be updating you on a successful year for the company and our outlook for 2022. As Dale mentioned, Q4 2021 was an outstanding quarter for MultiPlan with exceptional revenues and adjusted EBITDA. As shown on page 6 of the supplemental deck, Q4 revenue of $298.3 million was the highest ever quarter in MultiPlan's history, increasing 16.8% over Q4 2020 and increasing 3.5% from Q3 2021. Organic revenue growth remains strong. As shown on page 7 of the supplemental deck, excluding the revenue contributions from our acquisitions of HST and Discovery and normalizing for the decline in the impact of the COVID-19 pandemic during the quarter, revenues in Q4 2021 were up approximately $24 million or nearly 8.9% over Q4 2020 and up about $6 million or 2.2% sequentially. Our total revenues for the full year 2021 were $1.176 billion, up 19.2% over 2020 and our highest annual revenues ever. As shown on page 8 of the supplemental deck, in 2021, we experienced growth across all our service lines, with analytics-based services and payment and revenue integrity services each growing in excess of 25% in 2020 and network-based services growing a more modest 2.7%. As detailed on page 9 of the supplemental deck, we estimate the COVID-related revenue impact in Q4 2021 was approximately $5 million to $7 million, down from an estimated $8 million to $10 million in Q3 2021 and approximately half of the estimated COVID-related revenue impact of Q4 2020. For full-year 2021, the COVID-related revenue impact was $40 million to $50 million. Turning to expenses. Fourth quarter adjusted EBITDA expenses were $74.7 million. The increase of $14.5 million over Q4…

Thanks, Jim. Operator, would you kindly open it up for Q&A?

[Operator Instructions]. Our first question comes from Joshua Raskin of Nephron.

My question just on helping understand the assumptions that went into that 200 basis point headwind from The No Surprise Act. It sounded like that was just a handful of customers that are using different solutions, at least for now. So, am I understand that right, you don't think there's any impact on existing claims activity, et cetera? You think that the totality of the rest of your business is unchanged? Is that the way to think about it?

Yes, it is. Look, when we talked about the 2%, right, it includes known attrition, it includes new wins, and honestly some visibility around smaller customers that are in our pipeline, but haven't yet made a decision.

And it's six to eight week claims, so it's not like you've got any data points yet, right? This is just based on sort of client activity to date.

You're absolutely right. We're 45 days into the new legislation and we're only starting to see claims with data service on or after the first of the year.

Can you talk to us broadly expectations? I know you talk about your customer concentration in your filings. I'm sure we'll see it in the K. But as you move into 2022, the totality of your top 10 payer contracts, any material changes to – again, I know you don't give customer specific. But in your top 10 payers, any major change, any material change in that group?

We will be filing our 10-K. And as typical, we'll give you visibility on that. But I think we can tell you, there's no material changes in that composition.

I meant more into 2022.

We feel comfortable with that statement as well.

I'm sorry for one last one, but the 200 basis points of margin compression in 2022, 75 basis points is coming from what you're calling structural cost increases and then another 75 basis points from investments to support growth initiatives. I would assume those are buckets that are kind of every year, right? So that 150 basis points is sort of incremental, maybe $17 million, $18 million above and beyond the growth that you typically see. That just screams as relatively large. Is it just wage inflation is a lot worse? Is it the integration of the new products or new things? How do we think about that? I'm just thinking longer term, right, in terms of the next couple of years, should we be thinking about margin pressures going forward as well?

It's a good question, Josh. And I think the starting point is our best-in-class margins, which from the outside coming in, is still pretty amazing to me. So, we're going to be on the podium every year in this regard, and we don't see that changing dramatically. But we have seen some structural cost increases, and it's hard to hide when your expenses are 25% – it's personnel and it's 25% of your revenues. But we will see a little bit of that this year. The investments in the platform this year are a little bit of catch up from last year. So, I'm not so sure we're going to see that going forward. And then last, but not least, the investments to support the growth initiatives, it's a little bit of a mismatch as we ramp up some client contracts. And some of these have more labor intensity to them in the payment integrity and subrogation arenas. So, we see a little bit of expense pressure there. So, I don't view these as a step down that we anticipate every year. We may see a drift downwards by basis points, not percentage points over time by a mix, but we don't see this as a long-term trend.

Our next question comes from Daniel Grosslight of Citi.

Congrats on a strong quarter. And congrats Dale on the promotion and Jim on joining the team. The COVID impact for 2022 is a bit higher than we anticipated. If you listen to the managed care organizations or provider commentary during their 4Q earnings calls, they're clearly anticipating the return of non-COVID utilization this year. So, can you just break out in a little more detail where you expect to see the most impact from COVID and it sounds like it's mostly first half weighted? Should we anticipate any COVID impact in the second half of this year?

Listen, this is our crystal ball of today. And we exited the fourth quarter, which was seemingly a pretty good environment, with still a little bit of COVID impact, which was largely in our network businesses. And a little bit – quite frankly, we still see suppressed kind of non-COVID activity vis-à-vis where we were in 2019 on roughly the same – kind of the same-store concept. So, we still will see that. I will agree with you that we are anticipating a heavier weight at the end of the first quarter and maybe going into second quarter of this year. So, think about the entire year, more front half weighted. But, again, I think we're all going to have a better sense of where we are probably at the end of the second quarter as to whether or not COVID abates or whether we're going to see some persistence. There's just a lag, in particular, on elective surgeries that's going to occur. And I think that's the big question mark for us.

Again, like last quarter, it's mostly being felt in the networks business and you expect that dynamic to continue into this year?

Well, said differently, we haven't seen it. We haven't seen it be removed yet. And so, I think we admit that this is a little bit of crystal ball, given the fact that we just don't know where COVID is going. But we just see the claims popping up on the Omicron. side.

Daniel, we have that six to eight week lag in claims. So, the claims we've seen now in January and February thus far, really for dates of service back to – where services were provided in November and December. And that, as you well know, was the height of the Omicron variant. So, we're definitely feeling in Q1.

It sounds like you're making some very good progress in payment integrity and you're investing a lot in that space for 2022. But if I just look at the quarter, it was a little bit lighter than we anticipated, down around 7.5% sequentially. Can you spec out the reasons for the sequential decline in payment integrity? And how we should think about the growth in that segment specifically in 2022?

Daniel, I would separate 2021 versus 2022. In 2021, we had a little bit of softness in our political negotiations in fourth quarter, but not something we think is a long-term issue. But what's really going on in the payment integrity side is new customer wins, and those ramping up, particularly in the second half of 2022. So, we are starting to get some momentum and a shift in the business in payment integrity in 2022. And obviously, seeing some good pipeline across those lines of business.

One last one for me on the capital deployments slide. You're currently levered around 5 and 7 times. And it seems like M&A is taking priority over debt, at least in the near term. Where are you comfortable operating on a leverage basis? And if you make an acquisition, can you flex up much on your leverage?

And maybe we can look in the rearview mirror and talk about the balancing act that we achieved because we don't have a target. But I do think – we do believe that we need to migrate the leverage ratio down and we were actually successful doing that in 2021. We took it down a turn, despite the fact that we actually made some acquisitions. Discovery was funded in 2021. HST was funded in 2020. But we've been able to use that free cash flow to continue to do acquisitions and using growth to delever. So, I think the emphasis that I'd like to give the audience here is we are trying to balance growth and deleveraging. But we absolutely understand from the investor community that leverage is an issue and we're working to migrate that down over time.

Our next question comes from Franklin Jarman with Goldman Sachs.

I guess just first to follow up on the NSA impact of 0% to 2% for the year, how do we think about sort of longer-term applications? As you think about your discussions with customers and their implementations, what percent are you sort of fully complete on? And should we think about any follow-on effects in 2023?

NSA, we're 45 days into it. And we have a good sense of how our larger customers are approaching compliance with NSA and we're continuing to move forward with our larger customers. And as you heard me say, we have over 90 implementations and over 50 implementations in the pipeline. Our solutions, as you think about it, with the up to 2% that we mentioned, that Jim and I mentioned, look, it's known attrition, it's new wins. It's some lack of visibility around our smaller customers that have yet to make a decision. But we think it's a modest step down. It's not a recurring incremental headwind. And we don't view our offering at all as a stopgap measure for our customers. We think there will be continued persistence, in fact, in the use of our NSA solutions for a couple of reasons. We're an independent and we're independent NSA compliance solution. We have the back-end negotiation, postpaid negotiation and arbitration, management capabilities that many of our payers don't possess and will need in the NSA world. And this is really complex. It's a really complex piece of legislation for our payers to implement. And you need the agility and the operational excellence that MultiPlan brings to the equation for a payer to fully comply and to do this really well. And that's what we do and have always done and will continue to do going forward.

Just a follow-up on the balance sheet. As you think about the debt paydown appetite and balance against M&A. This year, your bonds have drifted below par. So just curious, as you think about deploying capital and looking at your bond prices roughly 10 points below par, how do you think about the appetite to buy back bonds in the open markets versus other opportunities for growth?

I start with the balancing act that we're talking about, which is how to deploy capital between M&A opportunities and debt reduction. But if we're in the debt reduction arena, I do think we will look at all options to optimize that, Frank. So, I think in some ways, I don't want to speak to specific tools that we may use, but I think all those tools are available.

Our next question comes from David Common with J.P. Morgan.

Very helpful that you could put a best guess on the NSA impact and also frame it as not a stopgap measure. I had a couple of follow-ons, though. To what extent does the tussle over the mechanics of arbitration affect you? And are you able to give us any more color on, just so even laypeople can understand, when you said it was the single biggest software release, I think? What's involved in that, to the extent that we might understand it?

If our CTO was on the phone today, he would attest to it being the single biggest release and effort that we've ever had in the history of the company. By that, we mean it touched all of our operating platforms. And so, we spent the better part of 12 months doing what we needed to do in terms of understanding the legislation, listening to our customers, understanding their needs, wants and desires as they interpreted and implemented The No Surprises Act and we're sitting here today – on January 1, we were ready to implement the act on behalf of our customers. And so, it touched most of our operating platforms and it was a heavy IT lift. Again, our agility, our nimbleness, our expertise, our understanding of our customers' needs and the requirements of the law, we were ready on January 1 to do it. The sort of the newness of the law was arbitration. That was probably – arbitration services was a new service for the company. Everything else in terms of claims mechanics, repricing of claims, data analytics, postpay negotiation, those were all things that are in our wheelhouse. And those are the things we do every day. And that's why our customers turn to us to help them implement the law. Arbitration management was a new services for us, but we had the benefit of Discovery Health Partners and their years of experience with subrogation. And so, we asked Liz Longo, who was a long time, long tenured Discovery executive, to take over that service and be ready and build our arbitration support service on behalf of our customers, and we're ready today. And in the event that there is a claim that is disputed and we are unable to negotiate successfully, we're ready if it goes to arbitration and work with our customers.

And if I interpreted this right, it sounds like the great majority of Surprise Bill claims volume will be staying with you in one way, shape or form – arbitration, processing, what have you.

Yes.

Our next question comes from Steven Valiquette with Barclays.

Dale, you've been with the company for a while, but, obviously, with the change to the CEO role now official, I guess I'm curious if you're able to share any preliminary thoughts just around any potential strategic changes in product or service offerings or just any other operational expansions or other adjustments that may take place following your transition to the CEO? Or should we just assume kind of more the same from all the [indiscernible] just curious to get your thoughts around that.

That's a great question. And you're absolutely right. Jim and I, we inherited a very successful company with a 40-year track record of growth, in particular in the last 20 years since Mark and I were operating partners at the company. We have been and we'll continue to be effective in achieving our mission to deliver affordability, efficiency and fairness to the US healthcare system. There is not a lot that needs to change as we continue to execute on our enhance and extend elements of our growth strategy. We're now more deliberately focusing efforts on the expand element. And we're starting to look out to a longer-term horizon to determine the best way to leverage our data, our extensive data, services and connectivity to bring new value to the healthcare delivery system. So simply said, we're just investing in our growth. We want to invest in our growth.

And speaking of that, you touched on this a little bit, but as far as the operating cash flow, we've got a couple inbound questions just on the operating cash flow guidance going down a little bit in 2022 versus 2021 despite the guidance for EBITDA to be up a little bit in 2022. My guess is that's related to the investment spending you alluded to on slide 18, but just looking for more color, just some confirmation around that.

Listen, in some ways, our guidance on cash flow is pretty consistent with last year and we had a little bit of a – last year's 2021 guidance, it's a little bit softer. Two or three reasons. Number one, on one hand, we have more EBITDA. On the other hand, we have more interest expense because of the refinance. That was terming out. So, we've got a slightly higher burden on the interest expense side. We are taking capital expenditures up a bit and there's just some working capital and other stuff that is taking that down a little bit. But over the course of the year, we'll have a better sense of how some of those elements will play out. And we were a little bit light on taxes last year with respect to where we thought we'd be in terms of cash taxes. So, I don't think it's a fundamental change. But as you rightly point out, we're slightly – relative to our EBITDA, we're a little bit below where we might have been for those reasons.

I also got a couple of questions on the 2% headwind around NSA. But I'll just follow up with you guys offline later on that.

Our final question comes from Rishi Parekh with Barclays.

With the litigation that's going on surrounding the NSA, if there were any changes to the QPA, how does that change your plan offering? And does that 2% headwind, do you feel that headwind will decline if the QPA is not the primary focus or the presumptive default rate? And I have a follow-up.

That's a great question. You're right, we're 45 days into Surprise Bill with two sets of interim regulations. And as you know, there's been two lawsuits filed, one by the Texas Medical Association, and I think the other by an emergency room physician group. And since then, I think there's been four additional suits that have been filed by providers all raising complaints, similar to the Texas one and about the provisions of NSA and the IDR process and the ban on balance bills. I think we hope to get clarity around the legislation as the year unfolds. I think the federal government is expected to issue a final IDR by May of this year. But I don't think, in either direction, we're well positioned, if they move away from QPA, if they allow a greater flexibility by the provider in getting higher rates of reimbursement because of the complexity or the severity of the treatment or illness that they're doing. All of our services will be applicable in that regard, no matter which way it goes. So, we feel we're well positioned. And of course, we'll pay attention to the law and to any changes in the law. And again, we'll course correct if needed, but we're not concerned.

And then, earlier, you highlighted a number of customer wins, and I believe 6% to 9% growth in revenue. Now I know there's a startup cost too before you actually start to realize those wins. So, I assume a lot of that growth is going to be second half weighted. I was hoping that you could confirm that. And then, you also noted that you have some wins for 2023, can you quantify the expected revenue around those wins?

Well, I don't think we're going to give too much specifics on the wins, but just to clarify, in the growth, we have some contracted wins that are going to ramp up in the second half of the year and will not achieve run rate. So we are going to get some additional benefit going into 2023. And those contract wins are in spots where we have to stand up the service for important clients and kind of have the teams ready in subrogation and some of the more labor intensive data mining opportunity. So, as we go into 2023, you'll see some benefit of that. And we can be more explicit in terms of how we see the growth going. But again, these investments are against contracted business, so it's all a positive from our perspective.

That was our final question, so I'll hand back for any closing remarks.

Listen, we appreciate your time and support and continued confidence in the business and we look forward to working with you. And thank you for today.

This concludes today's call. Thank you for joining. You may now disconnect your lines.