Q4 2020 Change Healthcare Inc Earnings Call
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Now, let's say the comps over to your speaking today, Kevin Smith Senior Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you operator, good morning, and welcome to change Healthcare's earnings call for the fourth quarter and full year ended March 31st 2020, I'm joined today by Neal deeper sends out change healthcare's, President and CEO and Fredrik Eliasson change Healthcare's Executive Vice President Chief Financial Officer.
First Neil will provide a business update and then Frederic will review our financial results for the quarter and year end the outlook followed by closing remarks for Neil after that we'll open the call for your questions.
Before we begin I would like to remind you that the comments included in today's conference call include forward looking statements actual results may differ materially from the results suggested by Mike.
The comments for several reasons, which are discussed in more detail in the company's FCC filings.
Except as required by law change healthcare assumes no obligation to update any forward looking statements or information.
Please also note that we where appropriate we refer to non-GAAP financial measures to evaluate our business reconciliations for non-GAAP financial measures to GAAP measures.
Are included in our earnings release any appendix of the supplemental slides accompanying this presentation I want to remind everyone that copies of our earnings release on the supplemental slides accompanying this conference call are available on our Investor Relations section of our website at Www Dot change healthcare dotcom with that I'll turn the call I've been Neil Neil.
Thank you out and good morning, everyone and I hope, everyone is safe and well.
The impact of called at 19, I'd change healthcare in the U.S. health care system is clearly at the forefront of everyone's mind, which is why we plan to spend the greater part of this call discussing its impact any actions, we have taken to support our customers and partners.
As you'll hear when we review our solid fourth quarter performance and our views on that slide 21, the fundamental strengths of our market position core franchises and our innovation engine, along with prudent financial management have served us well in this unprecedented shock.
Alongside handling the immediate challenges from called at 19, we have continued to innovate and expand our core franchises to accelerate our growth coming out of this crisis.
As the crisis unfolded in February we initiated our business continuity systems and established a clear set of priorities, which we communicated widely and consistently.
First we focused on protecting the health and wellbeing of our team members.
Second we focused on our customers by communicating proactively and frequently.
Introducing new products and services that address their now urgent needs, while continuing to innovate in our core franchises and providing guidance on how to sustain their business operations.
Third we took the actions needed to support business continuity in our financial and operational executive objective.
And fourth we maintained our focus on a transformation through new product development automation and advancing our platform.
Given our intelligent health care network sits at the center of the U.S. Health care system. We had early warning signals about the potential impact of called it and that allowed us to take the actions I just described on a timely basis.
In the Middle of March we started to see a material drop off in certain elective procedures, specifically in our eligibility and claims volume and specialties like dental.
Subsequently, we started to see a progression across other specialties as we move through the second half of March.
As you can see from the chart on slide five we saw continued negative trend in April which started to level off and showed early signs of recovery in may.
We would expect as elective procedures start to open up across the country, we will see incremental improvement in these trends in our performance.
Well, we have seen the financial distress. These declines have caused our provider customers.
Overall, the government support and the effective financial management, we help them with seem to be stating off the more dire consequences for most providers.
Now I'll briefly highlight our financial performance for the year, then provide some color on our business activity in the current quarter as well as actions we have taken to advance innovation, while executing on initiatives to improve our operating performance.
I'm pleased to report we closed out the fiscal year with another strong quarter for both solutions revenue and adjusted EBITDA, even with a small impact from cobot 19 in March.
During the fourth quarter, we continue to drive free cash flow delivering over $300 million in free cash flow for the year ahead of our previous expectations.
This demonstrates our ability to execute on our strategic initiatives and deliver organic growth across our leading franchises.
Advance the transformation of our RCM services in enterprise imaging businesses and execute on operational excellence to further improve margins and free cash flow.
Additionally, new business trends in the fourth quarter continued to be positive exceeding our internal bookings targets for the year with positive trends in new bookings in our enterprise imaging and RCM services businesses.
Within RCM services positive trends continued in our average win rates and contract size.
Let me now provide some color on contract wins across the business in the fourth quarter.
In our payment accuracy business, we continue to win multimillion dollar deals, including with two leading blues plans.
In our imaging business, we added two new logos displacing two of our largest competitors.
Increasingly provider organizations believed that with our cloud native solutions flexibility and easy upgrades.
This may be the last imaging system migration they may ever need.
And in RCM services business, we continue to have success selling it to hospitals that aggregators wedding multimillion dollar deals.
Now in the first quarter, despite the challenges of Cobot 19.
Many customers continue to sign contracts, especially in our payer business, but including providers buying or imaging solutions decision support software RCM technology and RCM services.
Many of these customers were excited about the new offerings, we announced during the quarter some of which I'll briefly mentioned in a few minutes.
In addition, subsequent to the fourth quarter, we continued to execute on our strategy to few innovation and long term growth and completed the acquisition of the Rx network and Pdx.
These two leaders in the delivery of electronic solutions to the pharmacy industry extend our reach to more than 59000 pharmacies in the U.S.
The combined portfolio of pharmacy network and software analytics solutions will support faster more integrated development and cross selling opportunities.
Ill now move onto our response actions.
And outlook related to call that 19.
The spread of Cobot 19 in the uncertainty around its trajectory in the United States has driven lower healthcare utilization without a corresponding increase in spending or transactions from cobot 19 related interventions.
As we have always made clear a portion of our business is tied to overall volumes of activity in spending in the healthcare industry and therefore, we have been negatively impacted by this industry trend.
Well health care activity is resuming this unprecedented downturn, let us to several actions that we took to mitigate its impact on our business and help our customers during this crisis.
To ensure our business continuity in the safety and welfare ever team members. We quickly moved our employees to work from home shifted to a virtual meeting environment suspended all non critical business travel and expanded tele health and cobot related peto carrbridge to all employees.
In conjunction with academic government and private research effort. We immediately began to use our data to monitor manage and research cobot 19.
For example, we are contributing to a registry that provides de identified data, but what is expected to ultimately be nearly every cobot 19 patient, allowing researchers to study other diseases spreading which population groups are most vulnerable and how effective proposed treatments are.
Services free for government and academic researchers.
Building upon the relationships we establish with this work we have also signed two significant commercial agreements for ongoing projects with several more being negotiated.
With our customers, we maintain frequent detailed communications and moved to virtual implementations, even as cobot 19 has caused near term dislocation in their staffing.
Although this will not offset the full impact in fiscal year 2021 from delayed implementation. It places us in a strong position to support our customers.
The uncertainty and volatility that they all recognize will be with us for some time.
We have seen virtually no canceled implementations to date.
From an offerings perspective, we expanded our accelerated several initiatives and solutions across our platform that met our customers new or newly urgent needs. Let me give you. Some examples of these offerings that are helping our clients deal with their unexpected challenges.
For the Department of Health, one of the largest states in the United States change healthcare rolled out a coal that 19 ordering and testing service between clinics and 67 counties across the state and one of the major commercial lab companies.
All within 24 hours.
Both the state and the commercial lab company have praised our team for this unprecedented rapid and high quality rollout.
Our technology enables services team is working closely with the New York City Department of Health and mental hygiene on clinical tree Arash services.
We are utilizing our credential nursing staff for the city's cobot 19 paid time off initiative, which helps new Yorkers gain access to unemployment benefits. If they are unable to work if they have been exposed to covert 19 are ill or caring for someone who is.
After gaining insights into the long term needs for analytical datasets from our work with leading researchers public health officials and other experts we launched our cobot 19 analytic data sets a service, which uses de identified cobot 19 claims data to track disease progression and the efficacy of treatment.
In real time and its free for qualified researchers.
Data on Cobot 19 is mostly limited to static reports that capture the number of new cases, overall cases depth and cases by geography, and while useful offers limited insights into actual disease progression over time or the effectiveness of interventions on a timely basis.
We expect the increase in telehealth services to be a permanent change in healthcare delivery, but the speed and magnitude at the increase was a challenge for many providers and tele health platform providers.
To help with these tele health services, we launched a set of virtual care enablement solutions, including engagement financial management and workflow products and services.
We are now engage with over 150 Tele health platform providers.
Our tele health medical eligibility and claims bundle can be found on our API in services connection and purchase via the ADW as marketplace.
Our Tele health lab orders results and prescribed bundle can be found on our Apiay and services connection and will soon be added to the ws marketplace.
The rapid expansion of virtual healthcare underscored the critical need for clinicians on the front lines to be able to quickly access for patients health record, regardless of where that patient previously received care.
With our partners, including the Commonwell Health Alliance, we are enabling digital access to tens of millions of patient records. During the cold at 19 crisis to help improve care coordination and health outcomes nationwide.
The DLD and V.A. have also indicated a future interoperability expansion, including a connection to Commonwell. This year further expanding this important aspect of fighting cobot, 19, and improving care coordination generally.
The expansion of Tele health reimbursement and new state mandates caused by Cobot 19 resulted in an overwhelming rush of new policies.
Many with never before seen nuances that required rapid comprehension and implementation.
Our enterprise account teams and network implementation teams health health plans and providers manage the sometimes daily policy changes with rapid content updates and real time analytics, including new payment codes.
Our immediate implementation of cobot 19 codes enabled timely and accurate payments for providers on the front lines of fighting Cobot 19.
While healthcare payers have been less severely impacted by coated 19 than many providers, our payer customers brainstormed with us to come up with new products that could enable them to reallocate their resources as they deal with the unexpected challenges from cobot 19.
Payers noted that they needed to begin developing solutions to comply with the recently issued CMS patient access and interoperability rule, which comes into force on January Onest 2021.
They knew that change healthcare had worked closely with industry leaders across the healthcare ecosystem as well as the federal agencies to develop this new approach to making patient data available using industry standard.
Yes.
So together with our customers, we design and have now launched our connected consumer health interoperability.
To enable health plans to quickly and securely meet the deadline for the CMS patient access and interoperability rule.
Our innovative solutions significantly reduces the cost complexity and deployment barriers to empower payers to rapidly meat CMS is regulatory requirements. While further advancing the trust between health plans in their members with improved data security.
Support our customer and the industry to give them more access to patient data in the midst of the cobot 19 challenges, we are providing our ice for free to our health plan customers.
Given healthcare providers financial and operational challenges. We also launched a new service the change healthcare national payments connector.
This one stop solution dramatically accelerates providers path to a paperless business with a single enrollment delivering connectivity to 100% of U.S. payers.
This new service includes the electronic transmission of claims attachments as well as the receipt of digital payments from any payer in the United States.
In addition to eliminating costly manual paper based processes. This solution allows providers administrative staff to work from home, while accelerating payments to urgent priorities among providers that have emerged during the cobot 19 crisis.
Our insights into the software and service components of patient access as well as our deep and longstanding relationships with customers in those areas helped us design and deliver new innovative patient access solutions.
Utilizing our virtual front desk capabilities, we rolled out a new touchless waiting room for our customers.
This digital patient access service allows patients to remotely checking for their appointments complete forms and register on their personal device.
When the clinic is ready they are appropriately directed inside the office or hospital to receive their exam or procedure to help ensure that social dispensing practices are followed.
So as you can see based on the feedback we have heard from our customers around these new innovative offerings. We expect continued demand from both providers and payers for solutions that reduced their dependency on labor improve efficiency and create a more flexible and distributed infrastructure to ensure a patient.
Access to information and care and enhanced engagement, especially during a period of volatility and uncertainty.
Now, let me turn the call over to Frederick who will review our financial performance and the initiatives, we have taken to strengthen our liquidity and cost structure as well as provide our financial outlook Frederic.
Thank you Neil good morning, everyone.
I'm very pleased to report a strong fourth quarter and first fiscal year as a public company achieving our goals the underlying growth across all three segments, including the impact of the previous disclose plan contract exits.
I am services business and the transformation of our imaging business.
Vision, we continue to work diligently on a strategic objectives and subsequent to year end, we divested our interest in the majority of the connect analytics businesses and acquired both the Rx network and Pdx businesses supporting our long term growth objectives.
So starting on slide seven in the fourth quarter fiscal 2020 under assay six so six solutions revenue was $787 million, which was slightly above our expectations. Despite the $6 million negative impact from cobot 90.
Consistent with our prior guidance ASV six so sakes negatively impacted revenue in our software analytics segment by $12 million offset by $2 million positive impact technology enabled services segment for the quarter adjusted EBITDA was $264 million, which was negatively impacted by the previously mentioned revenue impact.
From a assay six so six partially offset by $6 million favorable impact on commissions and new contract setup cost as a result of the new accounting standard.
Adjusted net income was $133 million adjusted net income per diluted unit was 42 cents.
Now moving to our results on a ASV six to five for comparative purposes on slide eight.
For the fourth quarter under assay picks so five solutions revenue was $797 million compared to $778 million in the prior year.
Overall growth in revenue was 2.4%, which included the negative impact of $12 million from plan contract eliminations technology enabled services business year over year impact relates optimization of our connected analytics business and $6 million due to covert 90.
Excluding the impact of these items solutions revenue growth would have been 5.5% for the quarter.
Adjusted EBITDA for the quarter was $269 million compared to $257 million in the same period of the prior year adjusted EBITDA margin as a percentage of solutions revenue for the quarter fiscal 2020 was 33.8% compared to 33% last year.
Permanent adjusted EBITDA and related margin improvement reflects incremental revenue growth and operational synergies offset by cobot 19 impact and continued growth investments to support our enterprise sales enterprise imaging and new product development and launch activities.
Net loss for the quarter was $108 million, resulting a net loss of 34 cents per diluted unit compared with net income of 38 $9. A net income of 15 cents per diluted unit, respectively for the fourth fiscal quarter 2019.
As part of the Mckesson exit additional and allowance are now available for change healthcare to utilize and the creation of the associated tax receivable agreement created a onetime impact on IP unal this quarter of $164 million.
Adjusted net income was $134 million, resulting in adjusted net income of 42 cents per diluted unit compared with adjusted income of $126 million or 50 cents per diluted unit, respectively for the fourth fiscal quarter of 2019.
Adjusted net income reflects the improvement in adjusted EBITDA, lower interest expense and lower tax rate.
This was partially offset by higher amortization expense related to strategic and integration Capex.
The per unit results also gives effect to the IPO with 320 million diluted units outstanding in the fourth quarter fiscal 2020, compared to 253 million fully diluted units in the same feared or the prior fiscal year.
Let's take a look in more detail at the performance of our segments on slide nine.
Once again, we are using the prior accounting standard AMC picks so five to provide a more meaningful year over year comparison.
Starting with revenue to software analytics segment grew 2.8% year over year growth in our software analytics segment was driven by strong performance in our leading franchises like payment accuracy decision support and risk adjustments.
It's also partially impacted by previous disco strategic assessment and optimization of our connect analytics business and the transition imaging business to cloud based enterprise imaging solution.
Additions in the quarter experienced a $3 million cobot 19 impact mainly due to deal timing.
Network solutions revenue increased by 8.6% year over year key drivers include a onetime customer settlement of $7 million as well as growth from implementation of new customers a data solutions payments an increased market penetration in medical network, partially offset by lower dental and medical network volumes of $2 million result.
We recorded 19.
Technology enabled services segment overall revenue declined 1.3%. This includes $12 million a plan contract eliminations and a negative 2 million dollar impact from Cobot 19 excluded the plan attrition revenue growth was 4% for the quarter.
Fiscal year 2020 plan attrition was $53 million inline with expectations delivering revenue growth for the full year, excluding the planned attrition of 2.9%.
Turning to adjusted EBITDA software analytics grew 2.2% year over year results were driven by revenue growth along with operational synergies and cost initiatives related to the connect analytics business, partially offset by investments support initiatives and enterprise imaging transformation as well as cobot 19 impact as I mentioned earlier.
Network solutions, adjusted EBITDA increased 6.4% in the quarter driven again by the growth in the data and beat to be payment solutions and continued volume growth across the network.
The growth in a medical network was partially offset by the cobot impact I mentioned as well as increase investment to support new product launches and market expansion opportunities and the integration of additional network capabilities.
Your technology enabled services adjusted EBITDA increased approximately 1 million dollar due to the efficiency gains from automation and productivity initiatives offset by increased cost associated with our repositioning initiatives as well as a $3 million co that 90 impact.
Moving onto cash flow and our balance sheet on slide 10.
Free cash flow was $121 million for three months ended March 30, Onest 2020, compared to negative $18 million in the prior year.
Adjusted free cash flow was $157 million compared to $42 million in the fourth fiscal quarter last year.
The full fiscal year free cash flow was $335 million versus $41 million in the prior year.
This includes $22 million a pass through funds in fiscal year, 20, and $3 million a pass through funds in fiscal year 19.
Adjusted free cash flow was $482 million for fiscal year 2000, an increase of 189 million year over year.
Late in the quarter, we do $250 million from our revolver during the height of that market turmoil. While we continue to have strong liquidity position and believe we will be cash flow positive for the year. We thought it was prudent have access to additional liquidity in an uncertain macro environment.
Our liquidity remained strong ending the quarter with over 408 million dollar some cash and cash equivalents and $530 million in Undrawn revolver capacity. In addition, subsequent to the quarter to support Ers network and Pdx transactions, we successfully issued $325 million of nodes as an add on to all.
Already outstanding 5.75% unsecured notes due March 2025.
Total long term debt, including the short term portion net of cash at quarter end was slightly over $4.6 billion with a credit agreement net leverage ratio of 4.6.
Now, let me move on to provide some additional color related to the impact of the cobot 19 pandemic on slide 11.
As Neal share with you earlier, we're already seeing early indications of recovery based on our claims volumes and expect this to continue over the coming months in quarters.
Such we currently anticipate the most significant of the impact on our financial performance from lower healthcare utilization levels will be in the first quarter fiscal 2021 with the greatest impact on a network solutions and technology enabled services segments. Thereafter, we would expect a smaller impact on a year over year basis for our quarterly right.
Revenue and adjusted EBITDA performance as it moves through fiscal 2021.
Although the speed of the recovery us uncertain and will recall, our moderately severe scenario, where we have.
Assumed elective procedures volume so utilization do not fully recover until the end of our fiscal 2021 year, we expect our fourth quarter revenue to be in line with the prior year included the impact of fair value adjustments, the Rx pdx and connect that analytics transactions.
We are actively aligned our staffing levels, primarily in technology enabled services segments to address lower interim volumes.
We reduced the number of contractors and primarily furloughed employees in total about 2000 head count reductions, providing us with greater flexibility to scaled back up as volume recover the benefit of these actions will start to impact us late in the first quarter and into the second quarter. We also continue to move forward.
Or accelerate our automation and productivity initiatives, which should provide further margin expansion has moved beyond this period.
Well, we're encouraged by the signs that utilization is starting to improve the speed of the recovery still not clear and as a result, we would only been providing financial guidance for the first fiscal quarter of 2021, along with certain assumptions and then provide you with supplemental information for the full fiscal year, so to that point turning to slide.
Yes.
For the first quarter, we expect solutions revenue to be 595 million to $620 million, which includes the impact of a fair value adjustment related to the Mckesson exit which reduced reported revenue due to reduction in deferred revenue in the first quarter by 55 million.
We will provide more detail in a moment adjusted EBITDA to be 160 million to $175 million, which includes up to 10 million in additional bad debt expense and excludes the delayed impact of approximately $50 million benefits from cost initiatives and adjusted earnings per share to be 40.
Into 18 cents per share, let me provide additional color by segments and software analytics, approximately 75% of revenue is subscription or maintenance, which will have minimal impact or 25% is continue to see a renewal base, which we currently estimate to have a negative impact of about 35% to 40% in the first.
Order.
SNA impact is driven by timing of implementations procedure volume decreases and relaxation by limit the number of payers and states on a reporting requirements. The segment will also reflect the sale of connect analytics business as a may onest 2020 will generate approximately $67 million in revenue and $26 million in adjust.
EBITDA for the prior 12 month period.
In network solutions based on the current volume trends, we anticipate an average approximately 35% decline in network volumes for the quarter about 20% to 25% decline in that business to business payments and which is about 10% of our network revenue and high teens growth in the data solutions, which also represents about.
10% of our network revenue network solutions impact is driven by decrease elective assets and the overall healthcare activity.
The quarter also include a contribution from Trx network Esa may 1st 2020.
And pdx as of June 1st 2020, as a reminder, ers generated approximately $67 million in revenue at $31 million in adjusted EBITDA annually prior to the exercise our option acquisition and pdx generated approximately $75 million in revenue and $17 million in adjusted EBITDA annually.
For the prior 12 months.
In our technology enabled services, we are expecting on average about 40% decline in continues to based RCM revenue for the first quarter in communication and consumer payment services were expecting decline of about 25% and the remaining businesses are stable the impact on test is driven by reduced elective procedures.
James impacting RCM services business, and lower print volume impacted by reduced ERP and era volumes related to reduce claims activity.
Although we've taken cost optimization actions.
Minimal impact on adjusted EBITDA in the first quarter due to a lag between revenue decline and the cost reductions an incremental cost due to work from home transition, but will help the following quarters.
Last as result of the Mckesson exit we were required to account for the exit of the business combination, which results in Macon certain fair value adjustments. The justice will have an impact on our reported revenue for the first quarter and full year, but will not impact our adjusted EBITDA.
Let me give us some color on the core to impact of such fair value adjustments.
Impact on revenue results from required reduction or deferred revenue that will reduce reported revenue in Q1 by $55 million. In addition interest expense and depreciation will be impacted by the revaluation of the balance sheet as well this will impact both net income and adjusted net income going forward, we expect first quarter inch.
This expense of approximately $70 million, including approximately $4 million in noncash pretax interest expense for fan fair value adjustment related to Mckesson exit.
We also expect depreciation and amortization expense of approximately $140 million, including approximately 54 million from the impact of fair value adjustments related to Mckesson exits included in the $54 million is $77 million increase in amortization of intangibles an increase of.
2 million for depreciation of fixed assets offset by approximately $25 million reduction in amortization of capitalized software.
This reduction and amortization of capitalized software will favorably impact our adjusted net income an earnings per share. We're also estimating up to $10 million or increased bad debt expense provision in the first quarter consistent with anticipated increase in our receivable balance due to the impact from coded 19 on our provider customers.
And then move now to slide 13 for full fiscal year, 2021, supplemental information and assumptions.
As I stated our current assumption is for a gradual improvement of healthier locations throughout the remainder of the fiscal year. If the recovery first faster our results in turn will recover faster as well, we expect full year fiscal 21 free cash flow to be positive with amount dependent upon the pace of the ROI.
Recovery, However, first quarter free cash flow is expected to be negative, but improving sequentially throughout the year as historically the first quarter is our lowest free cash flow quarter due to bonus payments and timing of working capital.
Capital expenditures are still expected to be approximately around 7% of solutions revenue, excluding the impact of fair value adjustments and excluding integration related capex as we manage spending in line with the cobot impact.
In integration related operating expenditures is estimated to be approximately $80 million integration related capital expenditures approximately $20 million.
The full impact on revenue, resulting from the required reductions in deferred revenue, we reduced revenue recognized in future periods by $137 million.
As a result, the building back our deferred revenue during the fiscal year 20, 129 million of the 137 million dollar impact will be recognized in fiscal year 21, and the balance will impact fiscal year 2002 reported revenue. Once again, we don't expect any impact on adjusted EBITDA.
We expect interest expense in the range of $280 million to $290 million for fiscal 2001, which includes approximately $14 million in noncash pretax interest expense for the fair value adjustment related to Mckesson exit.
We also expect additional depreciation and amortization of approximately $250 million for fiscal 21.
The additional amortization expense is comprised of an increase of approximately $308 million for intangible assets offset by an approximately 100 million dollar for the above mentioned reclassed to acquired intangible asset amortization as well as an additional $7 million of depreciation for fixed assets.
In addition, adjusted effective tax rate of approximately 25% as corporate structure will now be simplified post mckesson exit and last basic outstanding shares would be about $320 million two to 320 million shares which includes the minimum number of shares for the to use five.
Finally, I want to reiterate that I believe the first quarter, we'll experienced the largest negative impact on a year over year basis, with a relative negative impact declining and a positive impact from cost initiatives increase as we move throughout the year now with that let me turn it back over to Neil for his closing comments.
Thank you Frederic.
Let me close our prepared remarks by summarizing some key aspects of what we have learned over the past few months as well as our longer term views.
First prior to the Cove at 19 crisis, the multi year financial trajectory, we established upon our IPO last year remained on track.
Naturally lower healthcare utilization in the short term will impact our results negatively this year. However, as overall healthcare activity picks up our results will automatically improve even prior to the benefits we will see from new sales.
Second the solutions, we provide our customers to streamline operations enhance engagement and increase revenue are even more important given the impact of cobot 19.
Each of our solutions aims to provide a clear ROI for our customers that will improve their financial performance.
And third we are accelerating our initiatives to further improve our operational excellence and our cost structure as we are dealing with cove at 19.
These actions will enable us to emerge from this period as an even stronger company financially.
The covert 19 crisis has created tremendous challenges for our society and the U.S. healthcare system.
But it has also underscored the strength resiliency and commitment of our change healthcare team members customers partners and the communities, we live in and serve.
Thank you and now we'll take questions.
As a reminder to ask a question you need to press star one that you telephone to answer your question press the pound Keane, please symbolic composite Kenny roster.
Our first question comes from Michael Cherny with the Securities. Your line is open.
Yes.
Thanks, so much and thanks for allowed the details are provided.
Frederic I want to go back to comment that you made.
Regarding the pacing of recovery expecting over the course of the year.
Hey, sub sectors as you've seen steady improvements in certain areas. So far that you think will come back faster and I guess, how do we think as we looked at all the various different data points will see across healthcare in terms of different specialties, the different types of utilization and the speed of those recovering versus.
As when those each one we'll have the greatest impact on your business.
Yes, I think we have an incredible accurate barometer in the medical network volume that we see each and every day in terms of the volume because we do so sub segments. There. So I think generally as healthcare utilization overall increases we are very much in that.
Two thirds of our business that either one third is volume based one third revenue base and under one third is going to SaaS perpetual license businesses.
I think unit volume based I mean, as you see that slide at Neal showed as that increases I think we will see a relatively consistent improvements across our business that there is some lag in certain areas such as our print business. For example that is it takes a little bit longer to to recover just because the window.
Statements goes out, but generally asked how stabilization comes back so does the different parts of our business as well.
Got it I'll leave it there from now Opex in Q.
Thank you. Thank you Sir our next question comes from Robert Jones with Goldman Sachs. Your line is open.
Great just two questions I guess, one just on the.
Outlook for topline growth if I look at the utilization comments in slide that you provided yet certainly looks like you're off the bottom at least tracking claims looks like down 26% from the pre covered levels I guess, assuming that this trend line continues.
Yes, and the direction that Dan is it reasonable to think you can get back to that that kind of mid single digit topline growth by the end of the year is that something I know, you're not giving full year guidance, but is that is that within the realm of possibilities from where you sit today.
Well I said in my prepared remarks that if you look at all of M&A activities and the deferred revenue impact that we should be in line with.
The fourth quarter of last year, so essentially flat year over year, when you get to the fourth quarter of this year now once again I think it's important to point out that we've taken a relatively conservative view of the recovery here.
Really in order to stressed ourselves internally not to hang onto assets and to drive productivity to the greatest extent that we can so if you have recovery. If you just take the kind of the straight line that you've seen so far that would indicate that you get back earlier, but of course, we don't have a good predictor of SEC.
In ways regional shutdowns and those sorts of things. So if the recovery happens earlier there is no doubt that we should be able to see earnings growth in the fourth quarter as well.
And revenue growth, but based on what we have said in terms of kind of just to give you some sort of a gauge in terms of how we're thinking about the business. We're not planning for that right now we're planning for that the full healthcare utilization recovered to pre cobot levels by the end of the fourth quarter, we'd like for that to be wrong, obviously, a lot quicker, but thats, how we kind of give you a.
A sense of how we're thinking about revenue year over year as well.
That's helpful and I guess Frederic on the cost side, you mentioned 15 million of savings is that mostly all into Q.
Based on the comments you made and I guess anything by segment would be helpful. And then just on the cost savings if the scenarios don't play out as optimistically are there other levers you can pull on the cost side as we progress further in the year.
Sure. So the predominance of that cost saving is isn't technology enabled services and will be have identified is still lag impact between the volume decline and the ability to get those resources out which is probably six to seven weeks. The actual cost takeout is probably a little bit greater than that.
But reality is we expect to call a lot of the furloughed employees back hopefully sooner rather than later as well as some of the contractors are no longer with us. So we were just indicating that that's a that's the lag in the in the first quarter that we're expecting.
If you then to your second part of your question terms of where do you see the cost takeout opportunities in our technology enabled services business clear Thats, where the most this.
In our network businesses are very fixed business is great when things are growing but in the decline like this obviously painful because there aren't that many levers we can bowl because of the same time, we do have so many opportunities to grow that business. We continue to invest there as well and the software business. There is some and thats, 25% that isn't.
SaaS perpetual appropriate per member per month, and we've pulled some of those triggers as well so but the biggest is clearly within that technology enabled services business.
I think the last part of your questions. There are additional levers we're looking at such as real estate and we're working through that because obviously, we have proven that we are able to work from home in a way that we perhaps wasn't able to before so in this environment longer term what does it make sense, what makes sense for us to do with a real.
The portfolio Thats something that we're still working through internally right now and that could provide additional lever going forward.
Very helpful. Thank you.
Thank you. Our next question comes from the last time.
Please your line is helpful.
Thank you all good morning, guys.
Two questions.
We're a big top lot about new wins, and the pipeline and so forth.
Obviously, nobody wants to disruption, but do you think theres opportunities yet given you scale to take incremental share beyond maybe what your regional pipeline looks like.
Well I think we've seen that especially with the innovation in the new offerings that we launch in conjunction with the needs. We saw with our customers. So if you think about the ones that I covered even in my prepared remarks went up.
These are things that are really hitting the needs that our customers see in the market part of it really builds upon the data on the timeliness of our data and I mentioned tower working both like many people and almost a public assistance mechanism with a lot of the work we're doing with many entities around tracking co bid, but learning how that so.
Following our data assets to be utilized in ways, we frankly hadn't seen as much previously given the needs or new and their urgent I also mentioned work, we're doing whether it's with department of health in different states to take advantage of our network our software and our technology enabled services business and of course, those are new offerings because.
Those are new needs again, and then as you know we've been investing a lot in looking at how to create a better digital patient experience and you've seen the launch of our connected consumer health suite in conjunction with Microsoft and Adobe, our touchless waiting room for providers.
National payments connector. These are all things that we've been working on for quite some time, but given the massive changes, including the advent of tele health jumping upwards. So tremendously five or 10 times volumes from what people previously saw and the need for people to think about the long term operational implications.
Of coated.
Of Cove at 19.
These are sort of tailwinds for us as we go through the year and as we build up a continued robust solution portfolio going into fight 22.
Got it and then just kind of similarly, I mean you guys.
Done two deals now sold to connect analytics business I mean in terms of that by this is bill type decision like is the as the M&A pipeline get more active or how should we think about that see them.
Well, we've always had a very active M&A pipeline I think as we've discussed previously we look at well over 100 potential opportunities each year, but it's very intentional in terms of building upon the core strength in things like our network connectivity and the Rx networks. Obviously, a great example of that and also the synergies we get with.
Software and analytics businesses that are deeply embedded and important parts of the healthcare system and so the pdx acquisition, obviously fits very well into expanding both our market reach and the breadth of our solution portfolio is clearly the use of therapeutics and frankly, the position of pharmacies and what we're seeing around testing.
And the provision of treatments and medicines to people will continue to be prominent as we deal with Covance 19 in a long term investment in testing contact tracing and other mechanisms to deal with any future pandemic. So we maintain the strategic approach that we've discussed since the IPO being intentional.
Now looking at things that add to the strength of our core capabilities and doing it in a way that financially prudent given that we want also maintain our focus on maintaining liquidity.
Alright, Thank you guys.
Thank you. Our next question comes from Lisa Gill with JP Morgan.
Hi, Thanks, very much good morning.
One of the things we've heard in the marketplace is some entities, giving discounts, especially on that provider side, just given how difficult. This environment is for them are you hearing that at all or your customers asking for a discount whether its temporarily or in some way.
Is that impacting your revenue at all with the my first question and then secondly, I just really want to understand the bad debt I understand that it with conservative to take the 10 million, but we were specifically are you seeing pockets of customers that are having issues around potential payments and how to how do we think about that as the most retrofit.
Surely so I don't I take the first question that I'll ask Frederick replied more to your financial distress kind of questions. So I think first of all we've maintained really a focus on innovating with our customers.
There are some customers that have talked about discounts I think the financial support provided particularly to the provider industry by the federal governments and other mechanisms and the fact that people are now opening up to elective procedures that have more the beginning of normalcy in the healthcare environment really have not made that may be as.
Prevalent a phenomenon as you might have thought and given the innovation, we've been providing customers and the feedback we've gotten to them and their appreciation on the continued support both in financially and operationally as they've had to deal with so many challenges, particularly the providers on the front lines I wouldn't say thats really been any impact on our business there is.
That impact on Dsos and financial challenges and as your second part of your questions. One I'll, let Frederick give you to answer there.
Sure. So obviously, we had we've anticipated an increase in dsos from our provider customers were in dialogue with a lot of them that are.
Asking for different things and.
We certainly don't want to be perceived as a bank in any way shape or form, but we are working where there is strategically makes sense, both with them and for us to do certain things, we do work with them on a case by case basis, but generally.
We don't want to be extending additional credit we have seen an increase in.
DSO in the first month there in April.
And we were committed to monitor that we took our.
We took the 10 million or we anticipate taking up to $10 million will reset here in the quarter.
But obviously, we will take a look at that where we end up in June to see RIDEA DSO and see what the payment patterns are as Neal indicated there is a lot to support for the providers as well so it might not be as bad as we think but right now that is our best estimate. So we will continue to monitor very closely thank you.
Thank you. Our next question comes from Carolyn Johnson with Credit Suisse. Your line is open.
Thanks, Good morning, everyone.
Centric I just want to better understand your comment around fiscal fourth quarter Rose 21 expectations, you expect us to be flat year over year, you industry, including these would be since our nations you'd be does should benefit from recent deals, but it seems that to your underlying assumptions are that.
Vince will also normalize in fiscal fourth quarter, just trying to understand like why you don't expect to your turn into some growth in fiscal fourth quarter are you, saying that trends will nominated at a lower than we had been previously just to give us any kind of no color on that.
No. It's just really math in that you're saying by the end of the quarter. We had you have to have some sort of scenario that you viewed plan you resourcing around your capital expenditures et cetera, et cetera, So we aligned around us.
Scenario, where at the end of the quarter, which means that the beginning of the quarter. It is still down in terms of overall utilization. So the average for the quarter will be net down versus prior year and once again.
It is we hope that were wrong on this.
We will no real time in terms on high could we are but it is driven by our desire to test productivity levels as volume returns and did not fit on resources more than we really need to see what sort of additional productivity. We can have we firmly believe that we have the opportunity.
The with some of the things that we're doing here to actually come out of this crisis as a stronger company because of some of the prudent financial decisions, we're making and this is one of them that underlies that that comments.
Okay, and then my follow up thanks for all the comments around Tele health care use of doing clearly covered nineteens, having implications on how can it might get delivered once things are done to most normal environment. This high likelihood that mix between what you will candidate in person would look pretty descent in.
Most private I was curious about change has got a positioning in that new environment and does that have any implication off on your long term revenue and EBITDA growth targets, if a mix changes.
Well I do it really doesn't I think one of the benefits from the diverse revenue base, we have and the way we're integrated into all the care processes is at the site of care continues to provide the volume to our networks utilizing our software our analytics, both on the payer and provider side.
I think what are the things that been clear, while we had already been servicing the tele health platform providers prior to the advent of coated.
I think the fact that we had built our technology. So that it can be uptake and not only by obviously large providers, who are doing their own tele health type of activities or the very large tele health platform providers, but really we all the way down to very specialized or smaller providers really.
Put us in good stead and as I mentioned in my prepared remarks, we were careful to put together a series of easily consumable bundles that are available at a very economic price.
For even the smaller providers. So I think you're one of the benefits of having as we've always talked about over 30000 customers as well as the over 700 channel partners is that we've been able to cover the waterfront, so having a sort of reinvent things for the tele health phenomenon is something Fortunately, we had but always done because we hadn't.
Thought that has being anything any different than just another site of care both than what we did do is kind of ramp up the access ramp if you will including for smaller providers, who are really challenge because of the jump in volumes that they've seen over the last three months.
Okay. Thanks, a lot.
Thank you. Our next question comes from Stephanie Davis.
Your line is open.
Hey, guys. Thank you for taking my question.
No.
Yes.
You can do about volume actually does give you a unique opportunity to accelerate different initiative that you maybe would not.
Turning to work on behind the scene.
While the bottom line, what what are you.
How did schedule your initial turnaround plan, what's on your your near term.
Thank you can look on flat this year.
Well you know Stephanie we we've really tried to continue to accelerate our innovation and I think you've seen that among other proof points in just the pace with which we've introduced new and pretty innovative solutions into the market I'd say more than.
With the decrease in volumes sort of allowing us to move much much faster I think we generally moved pretty fast what I've really seeing the difference being is the customer receptivity to the sorts of innovations I mean, clearly every provider to one degree or another had a tele health strategy, even if it was not to focus tele health historically.
But.
These sorts of.
Areas that we focus on using data to provide better decision support as part of the workflow the ability to do things digitally including our digital patient experience using open apiay wise to allow data flow better. These are all things that were priorities for our customers and we had had these solutions underway, including the ones that we announced Steve.
And in Q1, but I think what's really changed more than necessarily an increase in pace of our innovation because I think it was pretty decently pace beforehand is the receptivity of customers, who now are saying, okay. The idea around digital the ideas around interoperability the ideas around inline real time.
Next we need to adopt them now because we've got many other challenges to focus on and we need to be a little bit less perhaps reticent to look at these innovations and energy, including them and how we operate.
Continuing that you thought you guys did have a lot of building solutions.
Even in two years ago and last year that.
How do you see a market uptake.
Now.
Oh Gosh, you really should add a lot more analytics and we just opened underinvested for the past years.
I think what I think thats a good summary, Stephanie I'd say also the use of it in a broader sense estimate of course the code at 19 tracking is a clear indication as well as the coordination that's needed now on a county or city or regional or state or even national basis. So there is a natural focus on data.
I'm sure it not too many people in America, new the phrase flattening the curve prior to three months ago, right, which is essentially statistical determination and in of itself. So.
We're seeing.
People looking at analytics as a way to manage the kind of volatility that we see that.
Frank Wasnt quite the case previously and health care. So I think thats really increase people's understanding an appetite for data and then the fact that we can take the data we have which is quite unique in terms of its timeliness, it's breadth and its granularity and use it in a variety of circumstances.
And then once we get the understanding from working with customers and partners on how that is needed then sort of packaging it into new offerings as you've seen with our cobot 19 analytical data sets and some of the work, we're doing with public health entities and others.
That's meant that the growth of that business, which is in the high teens in terms of continued revenue growth has not only continued that growth, but also broaden our set of offerings.
Okay Awesome. Thank you guys. Thanks, I guess, you hate turn it around.
Hi.
Thank you. Our next question comes from Eric Percher weakness on research your line is open.
Thanks for all the commentary on the volume dependent businesses I'd like to ask your views on from the businesses that are more tied to provider spending we know that budgets are being adjusted in real time and sounds like there was some real momentum many enterprise imaging I'd expect that some of those.
Products, probably appeal to a more decentralized hostile environments, so maybe a little bit on how you're thinking about the hospital budgets and how that may play through in Europe.
Hi.
Yes, I think Eric that's a good question I think we did allude to some of it but to be more specific per your question. Yes. We did see people take a pause as they are in the midst of dealing with covance.
Wasn't that they didnt understand the value proposition is instill appreciate it but as you can imagine, especially when the uncertainty was at its height. It just wasn't the time that purchasing processes remained in the same.
The same trajectory that they did back at our in our Q4, we're now seeing that come back.
And we're very.
Optimistic relative to the otherwise still evolving environment in terms of our new sales and the momentum, we're starting to see and maintaining in Q1.
So I think what we've seen is that there was a delay on the island form of call. It hitting the pause button on some of the spending and them the sort of trajectory or pace of processes that are underway, but they are now beginning again, because I get our solutions being so oriented to either helping people improve their revenues reduce their costs.
Or improve their efficiency, that's something I think every CFO, particularly in the provider segment has got at the top of his or her agenda.
And on that front on the test side do you see more demand for outsourcing I know you've got books.
Physicians and hospitals and moving towards the hospitals, but do you think that demand increases as.
Organizations are financially challenged.
I think we've just seen the beginning of that Eric I think that would be a supposition that we would have and having lived through like you and many others. Many business cycles I think thats almost inevitable. When you go through a business cycle like this particularly with the challenges we're seeing in the economy and we'd all course don't know how fast that's going to come back, but I think people honestly have been.
So.
Focused on dealing with the disruption.
Due to Cove. It I mean, obviously you heard about some of the contracts we sign that were engendered by the need whether it's around testing networks tree Ais services call Center services.
Which frankly wouldn't have even existed without the need that existed pertaining to cove it but for your question on sort of a broader longer term trends.
I think you're probably right.
But with so I think deeply just now starting to think okay.
If I'm out of the.
Beyond the fire of dealing with that what am I thinking about for the future. So we're cautiously optimistic but I think we'll have to see.
Thank you.
Thank you. Our next question comes from Steve Halper with Cantor Fitzgerald.
Yes, hi, good morning.
On the comment of 50 million of delayed cost actions are we to think of that as an annualized.
Benefit.
Recognizing that youre going to be bringing back people, but just sort of clarify that 50 million dollar delayed cost action.
Steve So you should think about that as that's the impact in the quarter from having this six seven week lag between the volume declining and us being able to adjust the resource base I would say the actual number of reductions which has said in my prepared remark about a 2000 sites just slightly higher than that but as volume returns and I've said.
We've actually in the process of starting to return some of the furloughed employees that will hopefully be instead substituted by revenue growth with a higher margin than that but if for some reason things don't return if we have significant.
Significant disruption during the second half that is certainly helpful. And you should think about that as continuing for the rest of the dress for the fiscal year going forward, but that's how to think about its really the lag impact in the quarter itself and hopefully we'll be substituted by revenue growth as things recover.
Thank you.
Welcome.
Thank you. Our next question comes from glance Angelo.
Yes.
Oh, yes, thanks for taking my question.
And forget just will follow up on some of the cash loan balance sheet issues. It seems like you have.
A fair amount of leverage on the balance sheet, but your any good spot from a liquidity perspective and in this quarter. You now spent over 420 million on these two acquisitions and Neil I was hoping you could maybe comment on what you're seeing some of the cross selling and synergy opportunities or that you referenced in your prepared remarks, and how we can maybe start to think.
About how that could impact the growth algorithm on a more normalized basis and then maybe my second question to that is.
As you compare the potential ROI on these investments where you at all tempting to by your own stock intra quarter, given the big dip and how do you think about that from a from a comparison perspective. Thanks.
Yes. This is face I'll take the first of the second part I'll, let Neil I think comments on the on the cross selling opportunities. So we are in a good players from a liquidity perspective, a said we did the 250.
Early on at the height of the term mall and we raised the 325, it really attractive rates compared to where the market I think was at that point.
So we don't have liquidity issue, we don't think about it that way we are.
Whereas 4.6, we were much higher pre IPO. So we've worked our way down intent was to get down to 4.0 very correctly, obviously, that's going to be slow down a little bit where we are right now the acquisitions that we've done hasn't really materially changed the leverage because of the fact that we've got to that attractive.
Multiples.
And so thats just another testament to the strategy that we have in terms of.
How we think about our M&A strategy, but I'll let.
I'll, let Neil talk about the kind of the cross selling opportunities there.
Yes, I think when you think about the Rx and the Pdx deal first of all strategically these are really at our sweet spot I know you know we have over 30000 customers, but the penetration the understanding these businesses have been in the pharmacy market for over 30 years that we get with these acquisitions really allow us to leverage a number of our solutions.
Into those markets also ers and Pdx have also work together again literally for decades. So when you think about the revenue opportunity is very much in line with keeping within our overall approach to getting our revenue growth into the mid single digits and with the synergies, which were frankly pretty easy to identify because of the scale.
We have and the relationships we already had for many years of course with both of these companies. We're very optimistic about the EBITDA growth of course being in excess of that the other thing thats, maybe not quite so obvious because they are clearly leaders here in the pharmacy market are the relationships with life Sciences companies when you think of.
At the pharmacy market is obviously, a close relationship with the people providing generic or branded therapeutics, we certainly been doing a lot more work with those companies through our data solutions business, but now the way that we can inject analytics to help with everything from medication adherence to identifying opportunities to do intervention at the farm.
Missy and frankly, the continued importance to the pharmacy as a healthcare provider. It really gives us enormous leverage with both the solutions, we already had a change healthcare as well as to take the understanding of pharmacy transaction from Iraq, the deep and multi decade understanding of pharmacy workflows in pdx.
And the great data assets and connectivity to the rest to healthcare system, we have and we think really accelerate the innovation and cross sell across all those constituencies.
Okay. Thank you.
Thank you.
That's your line is open.
Sandy Your line is open please check your mute button.
Oh, sorry, you broke I Didnt give you called me. Thanks, So much most my questions have been asked so maybe just one clarification.
Hedrick, obviously connecting analytics that business goes out of software and analytics, but just want to make sure I think about the pdx and he Rx.
Which of the through which segments are that is going to going into will they be discrete or will it be sort of mixed across the different segments. Thanks.
Yes, yes, so so both.
Pdx any rx will be added into the network solutions business and as you are right connects analytics. It was in the software business and it will now no longer be there obviously so.
Okay, Great and then just as a Claire follow up clarification. So.
Several of your assets so it sounds like Frederick as you taking costs out of the business and you you're bringing revenue back on there's some cost it come back on but do you think longer term because of this change in structure. The long term margin to the business may end up essentially being better than you thought or is it just yield.
You can get back to those same targets or is there something structural that long term. There is actually higher long term margin potential I'm not trying to quantify a date, but just that long term potential. So wanted to make sure I was clear on your inch there. Thanks, Yes, no I do think Thats. The case I think as vomit returns there is no incremental sales or anything so we're very comfortable.
We have ever solutions that we have is as strong or even stronger coming out of this when we look at a cost structure. We have done a couple of things I've alluded. This before looking at real estate portfolio, we have 85 different sites across the country. So we're looking at what can we do there to drive efficiency that we probably wouldn't have done in the same.
Time span as we're now able to do it second as we now transitioned lot of things to work from home. It look it requires you to look at productivity per team member in a different way, especially around our services.
Parts of the business and we think theres opportunity here to manage it differently going forward and require some technology overlays and so forth every working through but net net the core of your questions. Yes, I do think there are opportunities to actually improved margins coming out as a good crisis should always be utilized and thats what were looking at Atlanta.
Here and that's that's a tough way of looking at it but that's the way you have to look at it to make sure that when you have dislocation like this that you've tried to take advantage of it.
Great. Thanks, so much.
Hi.
Thank you. Our next question comes from Charles Rhyee with Cowen Your line is open.
Yeah, Hey, Thanks for squeezing me in here and just.
So there has been already asked and gone over just wanted to just to clarify a couple of things you talked about some of the opportunities with that you're asking pdx, but if I recall you had at the start of fiscal 20.
You had talked about.
50 million in sort of synergies related from organizational optimization partnering productivity improvements cetera by the end of fiscal 21.
If you could just my is where where do we end up at the end of fiscal 20 and does any of the remainder get impacted because of what's going on with Covance 19, or whereas some what we're talking about like to 15 million is that sort of additive to that number. Thanks.
Yes, So we had about 150 originally from the merger dumb identified.
We did about 37 in this past year. So that would have about 49 left to be gain from what is identified nothing has really changed in terms of the ability to get to that we have detailed plan. So long to get that I would say probably some of it as pushed back a little bit just because of the fact that you.
You can move as quickly when you're transitioning people to working from home some of the offshore initiatives that we had as probably delayed a quarter too, but all of that 49 those left to begun so we've got about 100 in total so far I would say that we have.
We will get the vast majority of that here in F. Slide 21, with some spillover into the first and second quarter of EPS Wise 22, because of the fact that we had focused on a few other things for a period of time here.
Great and then just started if I Miss I apologize did you provide any sort of cost synergy targets for ers and pdx.
We we have not we think that they are significant.
In an opportunity, especially on the cost side, we think the significant portion can be achieved over the next year, but there's more to be had after that and then I think the revenue synergies are quite substantial as well and that's probably going to be over two or three year period to start achieving those but that's the found.
Nation for the transactions, which is not only to get them at the appropriate price, which we obviously have both of them, but also to even further enhanced than by driving significant amount of synergies so absolutely.
That's great I'm, sorry, what's left so.
Can you talked earlier about sort of seeing sort of steady improvements.
Yes, hi, crush businesses within the network solutions business are you able to tell src into it and see what percent of your clients may have begun to start elective procedures is that something you're able to detect.
Yes, no we do and I'd say the answer is all I think someone asked a question earlier about whether they're significant discrepancies and it's really just a matter of the pace at which people are our opening up and everybody's opening up I think we'll see as Frederic mentioned, we've tried to be prudent and presuming.
Both how fast people will open up and then whether we'll see a resurgence that might cause some.
Downs or decreases in the fall or from some of the regional.
Issues that May result from some of the circumstances that have been reported in the press, but we've seen basically everybody starting to open up I think all the states have allowed elective procedures.
Over the course of the last month, but at the pace will differ obviously, depending upon a number of factors.
Great. Thank you very much guys.
Thank you Charles.
Thank you once again, ladies gentlemen, if you will start thinking at this time. Please press Star then one are you touched on telephone. Our next question comes from Sean Dodge with RBC capital markets. Your line is open.
Hi, good morning, Thanks, maybe on the payment accuracy business can you give us a little insight into how your your peer clients are balancing or thinking about those types of activities over the next few quarters.
Providers and taking a big hits I'd imagine, there's some sensitivity were increased sensitivity around wanting to minimize things like abrasion.
And then at least for the time being payers seem to be enjoying some some lower medical cost so.
Seems like there's a little bit less incentive for those types of activity to snap back quickly give any any thoughts around that.
No I think first of all I think you're absolutely right on your insights I think obviously providers, particularly over the last few months of out of it a challenging situation and so payers have been particularly focused on avoiding.
There are always trying to but particularly focused provider abrasion I think it we mentioned that there was some negative impact just because some of the activity was really not the main focus of payers over the last few months, but the the efforts around utilization management and electronic prior auth and payment audit payment accuracy or.
Payment integrity are going to continue because it's appropriate to make sure that we have prudent spending in the healthcare industry and so we see things now normalizing even relative to some state changes that were imposed if you will on on a couple of states on the payers. Those are now sort of going back to normal so we see it.
Again, a little bit like I described earlier a bit of a pause and what would normally be the pace of utilizing those solutions, but it's now coming back and I think what are the things that number of our customers told us they really appreciated as I think you may know, we've really focused on solutions in that space that minimize provider abrasion, because we put the logic and helping them.
You know code correctly and submit claims correctly on the front end rather than on the back end, where it's been a lot more invasive into their processes when you're trying to correct any issues and I think it's really increased the appreciation among our payer customers about the way we're approaching us to try to find the balance in the industry, but I think you're right on how.
It was a bit of a different circumstance over the past three months.
Okay, that's great and then just.
Real quick one on the revenue cycle services business.
How much of a lag is there from when when claims of reimbursement slow down and when it shows up in revenue I get that were pointed as revenue recognition occur there is that the actual cash collection or is that at some point after that.
We used to be under six to five that it was more of the cash collection, but the way fix was six.
Changed that was that you've moved much closer towards to actual activity that we're doing so I would say, it's about 30 to 45 days of a lag between the actual activity to us recognized in the revenue used to be 60 to 75 to 90 days before.
Okay, great. Thank you.
Thank you and this includes the question answer session I would now like to turn call back over Neal decreasing Jones for closing remarks.
Thank you very much operator will we really want to express our appreciation for all the dialogue we have with everybody on the call. Our just very pleased with the work we've been able to do with our customers our partners and really we hope and our way, helping the country deal with these unprecedented shocks that we've seen and the ongoing challenges around covance.
19, Fortunately as Weve long told you we focus on the kind of solutions that improve the efficiency of healthcare and the effectiveness and do it in a way that make it makes it as easy as possible for both our provider customers and our payer customers to help the system evolve to something that's more efficient more effective and has better outcome.
So we're really.
Very pleased by the support our customers have shown us as you've been in this crisis and we're going to continue to innovate with them to help the U.S. healthcare system. So thanks, everybody for calling in today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you announced.
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Yes.
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