Good morning and welcome to the MultiPlan Corporation Second Quarter 2024 Earnings Call. My name is Harry and I'll be your operator today. At this time, all participant lines are in a listen-only mode. And there will be an opportunity for questions and answers after management’s prepared remarks. [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, Harry. Good morning and welcome to MultiPlan's second quarter 2024 earnings call. Our speakers today are Travis Dalton, Chief Executive Officer; and Jim Head, Chief Financial Officer. Jerry Hogge, Chief Operating Officer, will be available for the Q&A session. The call is being webcast and can be accessed through the Investor Relations section of our website at 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 2024 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 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 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 their 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, Travis Dalton. Travis?

Thank you, Shawna and good morning to all of you on the call. Thank you for your time today. I recently completed my first 100 days in my first full quarter here at MultiPlan. I know more now than I did coming in, have validated my view on several aspects of the company, continue to learn and I'm convinced we will execute on our evolution and transformation over time. I would like to share my reflections on the business with you today. It goes without saying it's been an interesting time to join the company and I'm more committed than ever to our transformational journey. That journey must begin with an honest assessment and a brutal confrontation of the facts. I'm exceedingly proud of our commitment to clients and relentless pursuit of service excellence. That is a very good thing. However, the fact is that financial results matter and our simply haven't been consistent, predictable or good enough, we must perform better. By now, many of you have had the opportunity to review our second quarter financial results and our updated full year guidance. Those results fell short of the expectations set entering the year. Our revised outlook is more fully aligned with the current realities of our business in the short term. But underlying that, I am encouraged by some key indications of progress and even more so by significant opportunities for growth in the mid- and long-term. All of that said I am as excited as I have been since joining this great company. We have a clear, compelling vision and strategy forming for the future. We have great clients and long-standing relationships, an operating plan to execute better as we move forward, a current product portfolio that delivers value, a clearly defined set of new product opportunities,…

Thanks, Travis and good morning, everyone. I would like to reiterate what Travis said. While growth is taking longer to materialize than we expected, we are making progress and we remain confident in the company's medium- and long-term prospects. Today, I will walk through the financial results for the second quarter of 2024. I will then turn to our outlook for the second half and provide updated guidance for full year '24. And finally, I'll close with a review of our balance sheet and capital allocation. As shown on page 4 of the supplemental deck, second quarter revenue was $233.5 million, a decrease of 1.9% from Q2 '23 and effectively flat sequentially. Our revenues fell just below the line of our guidance range for the quarter as a solid recovery in volumes was offset by volatility in our revenue yield and by slower-than-anticipated sales of our new products and services. Turning to revenues by service line as shown on page 5 of the supplemental deck, relative to Q1 '24, network-based revenues declined 0.9% sequentially or about $0.5 million, driven by continued softness in our complementary network and Property and Casualty businesses. Our analytics-based revenues were essentially flat sequentially, with strength in Data iSight offset by softness in our NSA volumes, including attrition related to a major employer plan served by one of our larger ASO clients. Our Payment and Revenue Integrity revenues declined 1.4% sequentially, driven by softness in our Prepayment Clinical Negotiation business, offset by continued strong growth in our post-paid portfolio. Versus the prior year quarter, network-based revenues declined 20%, analytics-based revenues grew 5.6% and Payment and Revenue Integrity revenues declined 5.3%. Excluding a $3.8 million contribution to revenues from BST which is reported in our analytics-based revenues, second quarter consolidated revenues were $229.7 million, effectively flat sequentially…

Thank you, Jim. Before I open the call to questions, let me just reiterate my belief in our path forward. This is a transformational journey but we have a compelling vision that's forming and a strategy for the future as a data and technology-led organization that will continue to bring value for our clients and achieve sustainable growth. I look forward to sharing our progress with you very clearly in the coming quarters. Operator, would you kindly open up the call for any questions. Thank you.

[Operator Instructions] And our first question today is from the line of Joshua Raskin of Nephron Research.

I got a couple here. So just the first -- well, first, I should start with a thanks to Jim for all of his help and best wishes on whatever your next endeavour is. My question -- or first question is just guidance for the second half. It implies a decline in EBITDA of about 5% and EBITDA was also down about 5% year-over-year in the first half. I just would have expected the second half to improve in light of the disruption from Change Healthcare. I'd be curious if that's still $5 million to $6 million and then just potential cost savings and initiatives. So I'm just curious in the second half, what's the offset there?

Yes. And Travis, I'll take this one. Josh thanks for the kind words. Just a couple of things. Let's just maybe talk about the two components of the second half. The revenue side, you've seen some strength in volumes as we've kind of gone through Q1 and Q2. It's rebounded a little bit. But I think we're being cautious a little bit. There's been volatility on the revenue yield side of things. And so we're calling a second half that is modestly better in the core. I think one of the things that is coming up softer is just new sales in some of our growthier [ph] areas like HST and BST. So we remain a little bit cautious on the topline for the second half as a result of that. On the cost side, whenever I think about margins, I really kind of think about the cost base that we have which is relatively fixed which is you're going to see costs pretty much the same, relatively flat in the second half, maybe uptick a little bit. But again, we're judiciously making some investments in the future. We're tightening our costs but maintaining the investment level because we want to -- we're committed to these products and there's still a little bit of ways to go. And there's a little bit of just absorbing the full run rate in the second half of BST. The first half didn't have too much of BST in it last year. So this year, you can kind of track our quarterly progression. And so that's the expense side of things. But I think we're just being -- given where we're at, some of the volatility, both in the external environment, as well as some volatility in our revenue yields, we're just being cautious on the second half.

Okay, that's helpful. And then, you mentioned slower commercial traction on the new products. I'm just curious -- does that mean more customers are saying no or does that mean that the sales cycle is just taking longer?

Yes. This is Jerry Hogge. Mainly there, we're talking about our HST, our value-driven health plan pipeline and transactions. The conversion of sales into revenue is a little longer than was budgeted. But the pipeline is robust and sales are continuing. It's just the conversion into revenue.

Okay. And then the last one, the 3% headwind to revenues in 2025 -- call it, whatever, $25 million to $30 million. Could you just give us some more color on that? I'm not sure I understood if that was a large health plan or if it was a customer of a health plan? And then what was the decision, what products were they buying? What led to the departure?

Travis, I'll take this. I think -- Josh, I think just to kind of -- we don't do a lot of discussion, as you know, historically. A, it's one of our larger clients; B, it's a program inside the overall relationship and they're going to kind of move in a different direction strategically. So we -- in the interest of being transparent, we wanted to call that out but we don't really talk any more specifically about that. But we didn't want that to kind of come as news in the coming year as we are getting the entire picture put together.

This is Travis. I'll put more color on that. We're confident in our core. As I said during the script, we feel good about our price, the value -- and we're seeing good delivery and we're seeing actually some growth inside of our core national accounts. I think these are strategic things, not in relation to the value we bring. That said, we always are seeking to bring more value to clients to ensure that we continue to grow that space. So that programmatic change related to strategy was impactful to us and we thought it was important that we just say that for what it is but also create some calm that we're very confident in our core set of clients and the capabilities and the value we bring to them on a go-forward basis.

Our next question today is from the line of Daniel Grosslight of Citigroup.

And I'll echo Josh's comments on -- it's been great working with Jim. Hope to continue our conversations in the future. I guess my first question really is on revenue yield and the volatility you've seen there, really since the first quarter of 2022, every quarter basically has been a sequential decline in revenue yield. And while you've been very upfront about the contract renewals in 2023 that led to yield declines I'm curious if you could provide a little more detail on the current volatility. I'm not quite sure what kind of the net yield shifts and credit actually means. So maybe if you can just provide a little more detail on that and when you anticipate those yields shifts and volatility to abate?

Yes. And so just maybe to kind of peel this back a little bit. The kind of the master service agreements and the contract rates on it, nothing's changed on that. But underneath it, there's programs, there's clients. There's -- it's kind of yield behavior, there's accruals, etcetera, that go into the yield. And what we saw in Q2 was -- and we get -- we have true-ups over time so the client credit is -- I'll address the $1.4 million of client credits. Those were washing through our system. Those will abate at the end of Q2. We had a little bit in Q1. So hopefully, that's going to be a positive shift. The remainder of that, about $4.8 million against the same book of savings, if you will, Daniel is some shifts in business and some normalization of just the overall yield. And so those -- some of those are going to be a little bit temporal, some will continue. And so I think the yield is starting to come together probably in the high 4s. I don't think -- I think we were probably masking some of the -- or not seeing some of the underlying volatility because things were netting out pretty nicely last year and kind of keeping pretty steady. I think there's a little bit more volatility in the yield right now. But the good news is, is volume seems to be -- we'll wash through that and volume is picking up pretty nicely. So I think if we're going to feel a little less great about the yield part, I think we're feeling better about the volume. You saw that in the quarter. Things are starting to come back a little bit. And that was -- that included some of the change washing through and it's still positive 3% sequential. The other part about it is there's some clients that are pretty rich that have dropped off in terms of the yield and others that are growing faster that are -- have a slightly lower yield. So if you see that even inside some products. So we're just -- that's one of the reasons why we're a little bit cautious as we let some of this stuff wash through, particularly the credits in the first half and before we get to the second half. So we're just being conservative on that.

Okay. And then on your capital structure, obviously, you have some time there. I think the converts are the most -- the nearest term maturity in 2027. I'm curious, though, your 5-year plan now takes you outside of that maturity. And so it might make sense to start addressing that earlier than anticipated rather than waiting in I think the bonds -- all the bonds are trading at a pretty steep discount now. So I'm curious, other than repurchasing opportunistically in the open market, are you having conversations or are you open to having conversations with some of your credit investors and restructuring some of these pieces of debt?

Yes, it's a pretty off asked question, Daniel. You see some swirl in the market around this. But I think there's a couple of fundamental things that we'll say which is -- and we've been consistent on this which is we have time, we have liquidity and we have flexibility. And that points to we've got that. But that doesn't mean we are not thinking in the moment and not kind of dealing with a lot of the swirl. We had some big swirl around our -- in the prices of our securities in Q2, just given some of the external news on the legal and Washington front. That seems to be kind of abating a little bit in terms of its -- the pressure on those securities. But you should assume that we have been thinking and all along since the time I joined here, we've always been thinking actively about our capital structure. But we're just going to be thoughtful about it. And we're just not forced to do anything or to act hastily. That doesn't mean we can't be opportunistic but we're not going to be forced to act hastily around any of those. So the other thing I would say is our investors talk to us all the time. So it's not like -- we're not dealing with this in a vacuum. We're getting input and advice from all of our security holders all the time. So it's always an active dialogue.

Got it. And last one for me, just on your long-term outlook. It sounded like there wasn't any change in kind of that 4% to 5% core out of network growth and potentially getting to 8% to 10% with some of the newer products. It sounds like it's going to take a little longer than expected but is that still the expectation in terms of long-term targets?

Yes. And it's interesting. Maybe just kind of the fundamental thesis kind of remains intact. We've seen -- I think as we mentioned but for one client, we've had kind of a consistently strong mid-single-digit growth over the last handful of quarters here out of our -- the rest of the business, I'll call it, the core [ph]. So underneath the results don't look like if underneath that thesis is absolutely intact. And as we continue to bring out new products, it's that additional layer cake that gets you to a higher growth rate. Travis, you should comment on this but that is the fundamental thesis of how we're doing it. So, I'm probably not in the best position to do kind of the long-term point of view but that's -- the algorithm is intact. And Travis, I'll let you expand.

Yes, I'll just add a few comments. So I think Jim is accurate. I mean, we're in a good position, believe it or not, to grow from a set of core products and clients that are longtime clients. And as we improve our organic product capability, we think we can make more stuff and make more better stuff to put it simply is what I tell the team. And as we had our first interlock, like I said, we had over 50 new product enhancements and product ideas that we think over time, we can move into that core client base. So I think it's still extremely viable and we're looking for some reasonable growth in that space over time. Beyond that, I'm really confident that we can, I would say, expand our total addressable market, particularly do better with TPAs, brokers, consultants and plan sponsors direct. We're going to look at all of our options to be more aggressive, dare I say, maybe disruptive at times because I think we have a right to win with some of our product set and capabilities and then finally, if you expand kind of a concentric circle outwards, I think we've got some great opportunity as it relates to our analytics business. We signed a provider client this quarter that was very interested in our risk prediction capabilities which was super interesting and super repeatable. So as I said earlier, I believe in what we're doing and it's going to take a little more time than we thought and we're going to put a clear view of that down for all of you which is the work that Jerry is doing. But I am top in expanding those opportunities and selling better into those markets with more sales to have.

Yes. And this is Jerry. Let me just kind of add to what Travis said. So I think the [indiscernible] of your question at the beginning was the core business, right? We have favorable volume trends, we have a near-term yield trend that's unfavorable. And we described the sources of that yield variance on the downside. But we think after this one programmatic change comes to a conclusion with one client that, that yield trend becomes stable and potentially favorable. So whether it's stable or favorable the growth trend is favorable over the long term. And thus, the core business trajectory follows.

Our next question today is from the line of Madison Aron of JPMorgan.

I have a few questions here. I guess, one, just given the challenges with HST, should we assume that the yields are going to be trending closer to or below 1%. And I'm still not sure what gives you the confidence? And why do you think you have the visibility that we won't see further declines in the PSAV rates. As well as noted earlier, they keep sequentially declining. I just don't know what the bottom is here. I was hoping that you could walk us through that.

Yes. So let's answer the first question quickly. So on HST, it's a per member per month. So if we perform well on savings, i.e., a lot of volume come through the system. We don't get the benefit of it. It just happens to be super sticky revenue. And I would also just say that validates the value proposition. But on page 8 of our deck, we talk about the primary KPI which is the PSAV yield. And Rishi [ph], you're right, it has continued to decline. It was pretty stable last year after the rate change at one of our larger clients. And there's been a little bit of a downdraft. But we can -- underneath it, there's a lot of factors that we can put our fingers on that we think will abate or they're just washed into the system. And then there's always just a little bit of volatility around the margin. I -- believe it or not, we feel like some of the bigger changes have washed through at this point. And so I -- we feel like that's going to stabilize but it's not going to be within a basis point range every single quarter. What's going to benefit this is where the savings just start growing, okay? And within a couple of quarters, all of a sudden, the growth in the volume offsets any of the yield declines. And so that's what we're going through right now. It's pretty painful. And we can put our fingers on some of the very, very specific things. But it's not -- there's not a fundamental flaw in our model. It's just that things are changing over the course of these last couple of quarters.

Okay. And then on the large payer program, I was hoping that maybe you could provide us a little bit more detail. Was this a -- in terms of specifically what type of product was this an NSA related product? And what gives you the confidence that this may not extend to other comparable programs within that large payer or to similar programs with other large customers, assuming that there's some level of competitive pressure here? And then what are you seeing in terms of your TPA relationships and any other meaningful changes with other customers?

Yes. Rishi, specifically to the big program, I think, over time, we'll be a little bit clearer on this. We wanted to put the earmark out there. But I think it is not a -- I would not describe this as a trend. As Travis said, this is a little bit more of a strategic decision. And I would just remind everybody that in the core of our network business that includes NSA, it includes Data iSight, all this stuff. We've got an array of assets that are hard to replicate and scale. And so it's not something -- it's not an easy task for someone to shift business or internalize consistently. And so we called this out but I don't think it's a trend. We've had moments over time where people have internalized things and the world is getting more and more complex as you're aware of. And so having an independent provider that can deal with, make the investments to deal with an ever-changing complex world, particularly in the NSA world, I mean the loss still haven't settled and they may be changing, continuing to change. It's a big leap to make those types of decisions. So we don't see it as an ongoing trend. But as Travis pointed out, this is -- but for one client that we've seen some of this, it's been pretty consistent across the board that we feel like we're in a good position.

Okay. And then just lastly, you noted execution to drive our execution skills to drive growth. I was hoping that you could just elaborate on what this actually means. Historically, the growth was product and relationship driven. Is this no longer the case? Meaning that is the product deficient and not meeting customer demands? Are there better competitive offerings? Any insight would help because the view has been -- these acquisitions will start to turn around this year and we'll see a meaningful free cash flow turnaround in '25. That does not seem to be the case. Are we expected to see that turn around more like '26, '27, '28, this 5-year plan? How should we think about -- or at least can you at least help us quantify given all these uncertainties, where this is going?

Yes. This is Jerry. I'll jump in on that one first. So I think the outlook, our long-term strategic outlook is fundamentally premised around two ideas, right, stability and fundamental favorable trends, growth trends in the core and then better execution on taking our products to market in our -- all of the new products that we've spoken about today and prior earnings calls. So the market potential for the products remains there. We think we've got a differentiated product set in every area that we've talked about. We simply haven't executed as well as we can on the marketing and sales front and that's where we're going to be focused to create the kind of pipeline that we need to support healthy revenue growth and capture the part of each market that we think our products deserve based upon their differentiation. And we've got, as a part of that plan, very specific revenue trajectory for each one of them that we're going to pressure test and triangulate on and support with the pipeline as we go. But fundamentally, it's been slow getting out of the blocks and creating the pipeline. And then in the HST example, in particular, converting the transaction to revenue, just given the lag in enrollment and ultimately, when things started getting paid. So we'll see evidence of that. We'll understand what it means in terms of transaction size and will allow us to forecast that business better. At the same time, we build up the pipeline for that product and the others.

Our next question today is from the line of Jessica Tassan of Piper Sandler.

And James, it's been nice working with you, however, briefly. So first, I'm just interested to know if Douglas worked with you on the revised forecast.

So Doug will be coming in. Yes. Sorry, Jim. I'll take it. So yes, we've been working closely, primarily with Jerry and with Jim. So we've been looking at the business holistically. We've been meeting with our product teams. We've been meeting with the market teams. We've been doing, I would say, triangulating on those views and coming up with something that we think is fair and reasonable based on what we know today which is more than we knew entering the year. I've worked with Doug previously, so I have experience with Doug and his expertise really is in technical accounting, FP&A and setting up a finance organization. So one of the big challenges, I think we've had and you all are hitting on it today is getting more precision and predictability with our yields and our revenue forecast over time. And so that is a primary job one focus for Doug is to come in and help us continue to validate the assumptions that we've made but also help us be more predictable in how we look at revenue and how bookings turn to revenue and over what timeframe. So we can avoid having this kind of call again under my tenure anyway. And so that's what I expect from Doug but I'm confident that Jerry's got the process in place working closely with Jim and that we've done everything we possibly can in our current construct to scrub this [ph]. And frankly, we're just taking it head on which is why we're having this call today and being as transparent we are with where the numbers and where we think the issues are.

I'm sorry. Go ahead.

No, no, please finish.

So just kind of going back to the core business, right? There is a favorable volume trend. There is a question mark on the yield, right? So our view is, as Jim said earlier, there were some onetime things in the quarter that diminished the yield on a sequential basis. But looking at that question holistically, we think the long-term trend is that the yield stabilizes and potentially reverts upwards a bit. It is driven by a number of factors that are subject to the win of healthcare consumption and the nature of the claims that we see. But the volume trend is undeniable. We reported it at kind of the byline of our press release, 8%, 9% growth. So if we believe that the thesis or the conviction that our yield is going to stabilize and you can imagine what that does to the core business and then the rest of it is execution on the new products that we have in-flight, as Travis mentioned, as well as the products that we acquired through our recent acquisitions. We just need to monetize those because there is value there. And that's really an execution question and we are on it 100%.

Got it. And I just wanted to ask on the program attrition, I guess, just how much notice that, that customer has to provide to exit that particular product? And are there a significant number of kind of modular program-based engagement that could attract effectively at any time?

Yes, Jessica, under these agreements, there's no volume commitment. There's no minimums or anything like that. So there's -- it is not a contractual issue. We tend to get pretty good visibility on this which is one of the reasons why we're telling you about something that's going to happen in the future. And that's basically just a good relationship with the customer. But as I pointed to, again, this is very specific and it's not something that every client is going to choose strategically to try and do or has the scale and capability to do.

Got it. And then my last one is just on the volume growth that's offsetting the yield declines. Is that occurring within customers or is that occurring through the new customer acquisition? Can you just help me understand the drivers of the volume growth would be helpful.

Yes, yes. It's -- I would describe it as pretty much same-store sales, same-store volume meaning book of employers using -- utilizing healthcare more. Does that make sense, Jessica?

Got it. Yes, I guess it's the number of times that MultiPlan has invoked in a year or cost of given population, has that changed? And is that driving some of the volume growth you guys are both seeing and anticipating in the future? And if so, is the number of kind of engaged interventions has increased within a particular [indiscernible]?

Yes. I think it's a little bit -- in a broad base. I don't think it's a massive change and all of a sudden, there's a bunch of new consumers that are using out-of-network services. I think there is -- as you're seeing with hospitals, there's been a fundamental uplift in the demand side, largely because of capacity. So we're just seeing a little bit of that throughput. And then we're also seeing healthcare inflation which is always part of the equation in terms of overall bill charges starting to wash through. I don't think it's a major trend but over time, I think the inflation expectations on a forward basis are starting to increase as hospitals, etcetera, are trying to renegotiate contracts and then tangentially pushing up their charge masters which is their list price. So, we're seeing price and volume just across the board going up. We see -- physicians is always a little bit slower but on the facility side, it's picked up. And it's very similar to what you see at HCA tenant [ph] etcetera this quarter.

And our next question is from the line of David Beard [ph] of Jefferies.

Thanks Jim and thanks team for the time. A lot of mine have been answered but I just want to put a finer point on the revenue question. You kind of hit on it a little bit. I know you want to stay away from giving full-blown 2025 guidance. But in light of this 3% attrition headwind, at this point, do you see or foresee enough stability in the yield and an up growth on the volume to overcome that 3% attrition headwind in 2025 to get back to a positive revenue outlook or how should we be thinking about kind of level setting with that headwind?

It's -- maybe to answer it more in an isolated piece. So the yield -- I do think the yield is going to settle. I don't think that's going to be the story in 2025. The volume environment feels good. We haven't seen any signals that suggest that it's going to get worse. We've always been a little cautious calling the upswing. And so -- but I would also point in the rear-view mirror and say, all things being equal, we've seen nice solid growth in kind of the bulk of our customer base even trailing from this last quarter. And so there's just a good solid trend there that exists in the business. We also are planting -- the seeds that are getting planted on these new products. And whether it's HST or BST, BST being a big contributor will continue to help us. It's been slower than we'd liked. So you put some of those ingredients together. And then I think what we're trying to do is say here's one more ingredient which is a headwind. And we've always had things like this along the way that we've overcome but that's kind of the ingredients for 2025 but we're just not going to get into the algorithm for that. I think it's too early. And quite frankly, I think we're just going to have a lot more visibility as we get into the back half of this year and early next year to kind of shape that a little bit better for you.

And with no further questions in the queue at this time this will conclude the MultiPlan Corporation second quarter 2024 earnings call. Thank you to everyone who has joined us today. You may now disconnect your lines.