Welcome to the MultiPlan Corporation Third Quarter 2023 Earnings Conference Call. My name is Harry, and I’ll be your operator today. [Operator Instructions] I’d now like to turn the conference over to Shawna Gasik, AVP of Investor Relations. Thank you. Please go ahead.

Thank you, Harry. Good morning, and welcome to MultiPlan’s third 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 third 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 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 filed 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 their comparable GAAP measures 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. Well, what a difference a year makes. This time last year, I had the unfortunate job of informing you that our results had fallen short of our expectations and visibility had become more challenging. In the four quarters since then, we wasted no time pivoting the company. We stabilized our revenue base and reset financial expectations, formalized a new strategy to transform our business, and initiated a growth plan to execute on that transformation. As I sit here today, I’m happy to report that we are both tracking to our full year 2023 expectations and making excellent progress executing on our growth plan. We delivered third quarter results that were in line with our guidance and that met our expectation to resume growth in the back half of 2023. And during the quarter, we achieved several milestones in our growth plan, with a number of new product initiatives rolling out on or ahead of schedule. With our business now stable, our visibility increasing, and our pipeline of new business growing, we are even more confident that we are well positioned to deliver accelerated growth in 2024 and beyond. Starting with our third quarter results as shown on Page 4 of the supplemental deck. Revenues were $242.8 million, and while that was 3.1% lower than the prior year quarter, it was up about $5 million, or 2% sequentially. Revenues came in at the midpoint of our third quarter guidance range, driven by increases in our identified potential savings. Adjusted EBITDA was $152.3 million, down about 12% from the prior year, but in line with the second quarter of 2023. Adjusted EBITDA was also in line with our third quarter guidance, albeit closer to the lower end of the range, reflecting…

Thank you, Dale, and good morning everyone. Before I begin, I just want to echo Dale’s view that we’re really pleased with our solid execution in the quarter and how we’re progressing through the year as planned. I’m going to start with a review of the quarterly financial results. I’ll follow that by commenting on our fourth quarter outlook, and I’ll finish up by providing an update on our balance sheet and capital allocation. As shown on Page 4 of the supplemental deck, third quarter revenues were $242.8 million, declining 3% from Q2 2022 as year-over-year volume growth helped us absorb a meaningful portion of the annual headwind of approximately 8% related to contract renewals with our larger customers. Importantly, revenues increased 2% from the prior quarter as we delivered on our expectation to resume growth in the second half. Excluding a $3.6 million contribution to revenues from BST, third quarter revenues were $239.2 million, down 4.5% from prior year quarter and up about 1.4%, or $3 million sequentially, despite one less business day in Q3. Turning to revenues by service line as shown on Page 5 of the supplemental deck, network based services revenues declined about 4% from the prior year quarter and were down less than 1% sequentially. Analytics based services revenues declined about 3% from the prior year quarter, but were relatively strong sequentially increasing about 5% from the prior quarter, inclusive of $1.5 million of incremental BST revenues. Payment and revenue integrity services revenues were flat from the prior year and declined 6% sequentially or about $1.8 million. The sequential decline was driven primarily by lower clinical negotiation volumes, which were partially substituted by additional activity in our analytics business. We also had lower revenues in our revenue integrity services, which can exhibit lumpy quarter-to-quarter performance.…

Thanks, Jim. Before we open the call for questions, it bears repeating that we’ve been on quite a journey over the past 12 months. The headwinds have dissipated and the tailwinds are picking up. We’ve stabilized revenue and pivoted to a refresh strategy, and the execution of our growth plan is in full swing. We remain confident that the initiatives we are working on will amplify our growth in the coming years and that we are marching down a path of transformation. As a result, I see great things on the horizon for our company. And as we said at our Investor Day, within five years, MultiPlan will be a stronger, more diversified, faster growing and better capitalized company. And as Jim just mentioned, we expect to grow in 2024. Operator, would you kindly open the call for Q&A?

Thank you. [Operator Instructions] Our first question today is from the line of Daniel Grosslight of Citigroup. Daniel, your line is open. Please proceed. Daniel Grosslight of Citigroup, your line is now open.

Hey, guys, thanks for taking the question. I want to go back to some of the comments that Jim made on utilization this quarter and the lag, as you mentioned, Jim, there’s always this lag. So the sequential decline in volumes, I think you were implying was due to kind of what providers and payers had said in 2Q. As we look towards 4Q and 2024, it seems like the payers and providers are seeing an increase in utilization. So, I’m curious how that is transferring to how you’re thinking about 4Q and 2024, and if you can provide any additional detail around the composition of that utilization?.

Yes, so maybe to talk a little bit about the arc of this year and what it pretends for 2024, but we saw a nice uptick in the first half of the year in our savings. It raised about 5% in the first two quarters compared to fourth quarter of last year. So we saw that and it was actually pretty consistent with what we saw in the provider universe, the hospitals, et cetera. And it’s the best way to describe it is it’s plateauing. I don’t know whether that’s consolidating to get to a higher level. We’ve always been a little cautious about calling the uptick, but obviously we look at the leading indicators, and it seems to be ticking upwards. So that obviously doesn’t feel bad for our business, but we’re just not ready to call another upswing in volume. But what it is not is going backwards, it’s not coming down, it’s not falling, but I think it’s consolidating at a new level and grinding upwards. So that bodes well for our business, but we’re not hanging our hat on that for growth next year. I think we’re kind of planning for a flat that may be slightly up volume environment, but very low. That’s just not part of our planning process. As it pertains to the mix of our business, we’ve got a pretty big mix on the physician side, and then we’ve got a pretty big portion of our mix on the facility side. So what you see out of the hospitals, et cetera, is actually consistent with us, which is we’re seeing some upswing in volume surgeries, et cetera. So that is rhyming very closely to what some of the hospitals have described. On the physician side, it’s relatively flat. And so just given our mix, it’s a little bit slower than what the hospitals see across the board. So, to summarize, feels good consolidating in a new plateau, doesn’t feel like we’ve got risk on the downside, it’s a little bit more about how do we – whether we call the upside here.

Got it. Thanks. And as we think about 2024 and looking at your longer term guidance that you provided during Investor Day of 4% to 5%, you just mentioned, Jim, that you expect utilization to be flattish to maybe slightly up. Is there any change in how you’re thinking about that 4% to 5% growth rate for 2024 or anything that would prevent you from hitting that in 2024? And then as we think about EBITDA margin too, is 4Q the right margin run rate that we should think about for full year 2024? Or are there some additional investments that you need to make that might lead to some additional margin degradation?

Okay, so let’s break it into two parts. So is utilization a big part of our growth algorithm? And the answer is it never has been. Medical inflation, membership growth, productivity improvements, if you go back to our Investor Day, those are bigger pieces of the overall puzzle. So it’s not inconsistent with – our statements are not inconsistent with our long term model, Daniel, in terms of how we think about things. I look at utilization uptick as all upside. If it really ticks upwards, then that’s super helpful for us. But medical inflation, productivity improvements are bigger pieces of the overall puzzle. On the expense side, I think you can equate third quarter to be the [indiscernible] of our margins. And as we march into 2024 and going forward, I can’t say that we’re expecting any major uplift in margins because we’re continuing to make investments here. But obviously in February, we’ll come out with guidance and give you a sharper point of view. But we’ve been clear that we’re aiming for mid-60s type of margins in the business. That is deliberate, and it’s also indicator that we see growth opportunities and we’re willing to invest in them.

Got it. Thanks for the comment.

[Operator Instructions] Okay. And it appears we have no further questions in the queue today. So this will conclude the MultiPlan Corporation – oh, my apologies, we do have – we have just had a question registered from the line of Madison Aron of JPMorgan. Madison, your line is open. Please go ahead.

Hi. Thanks for taking my questions. With regards to the QPA stuff that you noted earlier that you’re working with your payers to provide them assistance, is there anything that you could quantify around what that opportunity looks like going into next year since it’s going to be incremental to what you’re doing? And then as we think about margins going into the first half, I know you’re making a number of investments to prepare for 2024, especially with BST, how should we think about the progression of margins? Do you expect it to be under some pressure in the first half due to these investments and then to ramp up more in the second half of next year? Thank you.

I can answer the first part of the question. It’s still too early to size the opportunity going forward in 2024. The federal court in Texas just released the opinions on the two NSA related cases in August, what was called then as TMA 3 and TMA 4. And it was in TMA 3 where the court found primarily for the challengers and addressed issues around how the QPA is calculated, like prohibiting ghost [ph] rates, requiring the QPA to be calculated by specialty, and prohibiting the payers from calculating QPAs across multiple plan sponsors. So it addressed a number of open issues. We believe the administration is set to appeal the decision and update its guidance documents to accommodate these changes. In fact, the administration just on October 30, released a proposed rule to the IDR process under the NSA, and it largely focused on the efficiency and communication between the disputing parties and tried to decrease the volume of disputes that are being submitted for the IDR process. The administration has requested comments from the industry for those proposed rules. Those comments, I think, have to be submitted by the beginning of January, and then we’ll wait for the publication of a final rule. So it’s still early in the process to declare what impact it will have in 2024. But we’ve already in the work we’ve done to date and the work we’re doing now, we’re positioning the company to respond to the growing complexity that we recognize continues to come with NSA.

Rishi [ph], why don’t I just address the margin question. As we go into 2024, I think there’s a couple tailwinds, which will help lift margins, and then there’s the investments we’re making in the business. And my first statement would be we’re trying to maintain this balancing act, which is maintaining our margins and putting ourselves in a position to go capture these new growth opportunities. So I don’t view that as a massive J-curve in 2024. I think it’s more of just kind of maintaining and some of the things that are positive, we’re going to get some lift as some of those one timers start dissipating and BST starts contributing a little bit more on the top-line. We’re going, obviously as volumes increase, that’s beneficial to us. We’ve got – we do have in our mix, some of the mix in our growth is going to slow our margin expansion down and then we’ve got investments in the business. So think about a balancing act for 2024 in advance of providing any guidance. I think that’s the best message we can give you. But Q3 certainly the nader.

Great. Thank you.

Thank you. And we have no further questions in the queue at this time. So this will conclude the MultiPlan Corporation third quarter 2023 earnings conference call. Thank you all for joining. You may now disconnect your lines.