Q1 2021 Change Healthcare Inc Earnings Call
[music].
Thank you for standing by and welcome to the earnings Conference call change healthcare Inc. Q1 fiscal year 21, all lines have been please can you give had any background noise I.
I forget for some decent there would be a question answer session.
Let me start shifting now to do so we'll be given that the appropriate time. Thank you. It's now my pleasure to turn to going over to your first speaker for today Mr. Evensen.
Senior Vice President Investor Relations, Sir you may begin.
Thank you operator, good morning, and welcome to change Health Care's earnings call for the first quarter fiscal 2021, which ended on June Thirtyth 2020, I'm joined today by Neal decrease Enzo change healthcare as president and CEO and Fredrik Eliasson change healthcare as executive Vice President and Chief Financial Officer first Neil will provide a business update and then Frederic will review the financial.
For the quarter and outlook, followed by closing remarks from Neil after that we'll open the call for questions before we begin I'd 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 the comments for several reasons, which are discussed in more detail in the company SEC filings.
Sept as required by law change healthcare assumes no obligation to update any forward looking statements or information. Please also note that where appropriate we will refer to non-GAAP financial measures to evaluate our business reconciliations for non-GAAP financial measures to GAAP financial measures are included in our earnings release and the appendix of the supplement slides accompanying this press.
In addition, I want to remind everyone that copies of the earnings release and the supplemental slides accompanying this conference call are available in the Investor Relations section on our website at Www Dot change healthcare dotcom with that I'll turn the call over to Neil Neil.
Thank you Evan good morning, everyone.
While Corbett 19 continues to impact both the U.S. healthcare system and economic activity. We a change healthcare have moved decisively to strengthen our long term position in the market through operational initiatives to improve our cost structure and productivity as well as through new sales initiatives and solution introduction to address current.
And future customer needs.
We are seeing positive indicators with customers across all three segments.
First quarter bookings were inline or slightly above our expectations across the board with a continued increase in our average deal size and steady win rate.
Our sales cycles implementation timelines continued to be slightly extended however, we are receiving strong lead generation above pre coated levels as a result of our digital marketing and enterprise sales initiatives across both payors and providers.
Our conviction on the value and innovation, we're bringing to payers providers and consumers is further supported by the findings of 2020 change healthcare Harris poll consumer experience index, which explored the consumer healthcare journey.
Our research established that finding accessing and paying for health care in America requires so much work that half of consumers surveyed have avoided seeking care.
More than two thirds of consumers that every step of the healthcare processes, a chore and most said that they don't know how much you treatment or site visit costs until a month later.
Consumers want accurate cost estimates from payers and providers as well as price transparency.
Consumers, especially as the covert pandemic continues our overwhelmingly seeking a retail like E commerce experience when they interact with the healthcare system.
81% of consumers surveyed agreed that coated 19 will fundamentally change healthcare delivery with most leaving the pandemic will speed digital adoption.
They expect health plans and providers to drive value for the all digital or mostly digital consumer.
Change healthcare through our connected consumer health Sweet offers the most comprehensive E commerce platform to effectively help providers and health plans manage the patient journey from pre to post care.
Our collaboration with Adobe at Microsoft on our connected consumer Health suite has yielded a solution that offers patients a modernized and enhanced experience by providing physician details patient reviews.
Access to price comparisons and other features related to their care all out an integrated scalable and secure platform.
Applications enable patients to schedule appointments prepay for the service have a touchless check and experience and benefit from price transparency and service bundling solutions.
Now I'll briefly highlight our financial performance for the quarter.
The initial trends we outlined on our last call continued to improve since early June as indicated in the chart on slide five.
As a result, we were able to deliver stronger than expected results for the first quarter reporting solutions revenue of $648 million adjusted EBITDA of $197 million adjusted earnings per share of 25 cents per diluted share and free cash flow of over.
$100 million.
Given the strength of our performance in liquidity, we repaid the entire $250 million drawn on our credit facility.
While overall utilization trends throughout the U.S. have improved and were above our expectation in Q1 and have continued around such levels with some volatility into July.
Our outlook for the year assumes the following.
One hubspots occur as we have already seen in Texas, Florida, Arizona and other states.
Two we recognize the risk of additional impacts on the health care system during the flu season.
And three we maintain a moderate timeline to move through the backlog of deferred procedures.
While Frederic will discuss our quarterly results and outlook in more detail. We believe it remains prudent to maintain our outlook that utilization levels will not returned to pre coded levels until the end of our fiscal year for both internal resource planning and external guidance.
Our first quarter activities and results demonstrated our continued focus on innovation expanding our core franchises.
And optimizing our cost structure to accelerate our growth and performance coming out of this crisis.
In the first quarter. Despite the challenges of Cove at 19, we continue to sign new contracts across all our segments.
In our payment accuracy business, we side multimillion dollar deals expanding our relationships with several of the largest managed care.
Excuse me companies in the country.
More and more payers are recognizing the value of our payment accuracy and coordination of benefits solutions that leverage our front end position in the industry's workflow our unique data assets and our AI capabilities.
In one case, we went from the initial interest from a payer to an executed contract and only five weeks.
In our imaging business, we signed multimillion dollar deals with leading regional hospital systems, including our WJ Barnabas health and Providence Health system in.
In addition, we launch new imaging modules, including our cloud Native Enterprise imaging network analytics, which are now and use it Bronson health care system as well as other leading healthcare systems.
With us migrating more than 3 million studies in less than three month, which would typically take an excess of one year for an on premise pack system.
This new module improves organizational workflows productivity and efficiency, while helping our customers plan for Cove at 19 surges and related staffing needs.
We are confident that the value realization now validated by our imaging customers combined with our strong pipeline indicate that a growing number of organizations believed that our cloud native enterprise imaging solutions, maybe the last imaging system migration they ever experience.
In our RCM services business, we continue to have success selling into hospitals at Aggregators, winning multimillion dollar deals and we are seeing strong demand from virtual care and tele health providers.
In addition trends and average deal size when rates and our pipeline continue to be positive.
During the quarter demand increased across our services portfolio, including in digital engagement for eligibility in enrollment, which helped increase the number of applications completed for government programs for uninsured patients.
This was and will remain a critical need given the surge of uninsured patients in certain regions in the United States.
In addition, we also saw increased market adoption for our proprietary AI solutions and for RCM growth analytic solution, which helps providers effectively determine where to develop or expand clinical programs and services.
Elect optimal locations and demonstrate to payers, how a particular provider is able to deliver the most cost effective care.
Our underlying transformation here is building momentum and being recognized specifically, we earned Frost <unk> Sullivans product leadership award for the total RCM market.
They highlighted change healthcare as being at the forefront of RCM innovation investing and progressive RCM technology, such as AI that deliver ROI for customers and are aligned with industry trends towards patients centricity and value based care delivery.
Moving onto our fast growing data solutions business in our network solutions segment.
We continue to expand both cobot 19, and non coal that 19 related applications with particular strength in financial services and life Sciences during the quarter.
We now have over 50 research institutions engaged with our cobot market insights offerings, including Duke University, where we recently presented at Duke combating Cove at 19, and disparities with data seminar.
Our data is highly valued by our collaborators working to fight covert 19, given that we see nearly 50% of all covered related claims data.
We provide our partners a comprehensive view of the patient by including critical details on a de identified basis, such as other diagnoses past care and social determinants of health data.
Change healthcare has been and we'll continue to be instrumental in research related to the prevalence and spread of disease efficacy of treatments patient tracing and other applications, which underscores the value of our data and a significant growth potential ahead of us.
I would also note that we have had a positive reception and initial adoption from payers and providers for our recently introduced solutions that reduce review briefly a half dozen of them from the past few months.
Just seeing solid initial market acceptance and positive enrollment trends.
N P X eliminates costly manual paper based processes and allows providers administrative staff to work from home while accelerating payments. These are too urgent priorities for providers as a result of the pandemic.
During the quarter, we added 17, new products to our API and services connection marketplace spanning payments pharmacy clinical and medical network.
Just introduced in January or marketplace now offers over 30, API products, providing solutions to power revenue cycle management payments and medical eligibility workflows with over 80 unique customers and already processing over 25 million API transactions per quarter.
Furthermore to address an immediate market need we recently provided free access to the change health care clinical network, one of the nation's largest lab networks, which enables providers to quickly order labs and in home test for Cove at 19 to help speed diagnostic results for patients nationwide.
The service portal helps providers in patients identify lab options to improve access to testing.
Only 55% of providers have electronic health record or other digital connections to labs and if they do it is typically fee based.
The burden can fall on the patient define of testing facility place the lab order using their prescription and collect their results.
[noise] network includes the leading commercial labs home testing companies regional in hospital labs, and approves access to testing by helping providers identify and order from new labs or new tests like for Cove at 19 being ordered from existing labs on the network.
Finally last month, we launched the change health care clinical data retrieval service, a new cloud based interoperability solution that makes it easy for Payors and a broader range of organizations to instantly retrieve patient records from virtually any EHR.
For the first time payers can get the patient care data they need an an integrated electronic fashion to verify claim accuracy pay claims manage risk profiles satisfy quarterly quality reporting requirements, such a fetus and optimize interventions.
As you could see our broad scale, an automated access contrast, with the traditional manual chart retrieval process, which is not only inefficient and costly but also limits. The number of records that could be gathered and it's subject to human are due to the sheer volume of data.
Based on the customer feedback around these new innovative offerings. We expect continued demand for our solutions as we help produce dependency on labor improve efficiency and enhance engagement to improve patient access to information and care.
Now, let me turn the call over to Frederick who will review our financial performance and the initiatives, we have taken the strengthen our liquidity and cost structure as well as provide our financial outlook Frederick.
Thank you Neil good morning, everyone.
Oh I'm happy to report a strong first quarter.
Even in the space of these challenging times proving the resilience and importance of three segments and products across the healthcare industry.
Is Neil discussed utilization rebounded faster than unexpected, which combined with new business wins and implementations and the quarter enabled us to surpass are guidance and support are increased outlook for the second quarter and a full year.
Starting with slides seven for the first quarter solutions revenue was $648 million compared to $797 million in the same peered of the prior fiscal year.
Overall decline in solutions revenue was 18, 7%, which reflects the negative impact of Cove, 19, and a deferred revenue adjustment a $55 million as part of the fair value adjustments associated with Mckesson exits.
This was partially offset by the net impact of M&A activity of $6 million and new sales and organic revenue growth in the quarter.
None of the impact of deferred revenue in M&A activity revenue declined 12, 5%.
Justin EBITDA for the quarter was $197 million compared to $281 million in the same period of the prior fiscal year.
Decrease in adjusted EBITDA reflect.
Of reduced volumes related to Cove at 19, and continued growth and investments support our enterprise sales enterprise imaging and your product development launch activities.
This was partially offset by incremental synergy realisation of approximately $9 million in the quarter and other business optimization initiatives.
And that loss for the quarter was 59 million, resulting in a net loss of 18 per diluted sure compared with net income of $72 million or 28 per diluted units for the first fiscal quarter of 2020.
Adjusted net income was 81 million, resulting in adjusted income of 25 per diluted chair compared with adjusted an income of $141 million.56 per diluted unit, but the first physical quarter of 2020 <unk>.
Just the net income reflects the decline and adjusted EBITDA as noted earlier higher amortization expense related to <unk> integration capex as well as higher tax rates as a result of the Mckesson exit which we previously outlined this was partially offset a lower interest expense as a result of the year over year Redux.
And the outstanding debt.
Sure results also get effect to the IPO with $320 million full diluted shares outstanding in the first quarter of fiscal 21 compared to 253 million fully diluted units and the same period of the tire fiscal year for all intents and purposes sure a change health care, Inc. Is equal to a unit of change health care LLC.
Now, let's take a look in more detail at the performance of our segments on slide eight.
Before I discuss the performance I want to highlight of key changed during the first quarter of fiscal year 21, we implemented a new and effective allocation methodology that among other things allocates all administrative certain other corporate expenses to their respective reportable segments. This out.
Acacia methodology differs from the methodologies utilized and the prior fiscal years.
Therefore, the adjusted EBITDA of the joint ventures reportable segments has been recast for those appears to be consistent with the company's new allocation methodology <unk>.
Recast prior fiscal years results can be found and a 10-Q.
Earnings presentation.
Starting with revenue the software analytics segment declined nine 7% year over year.
The decline in our software analytics segments was driven by an approximate 25% decrease in a non subscription continuously based businesses, primarily in RCM and legacy imaging solutions and two lesser extent in a risk adjustment and remember engagement business due to Covid 19, as well as the impact of their connected unlit.
X divestiture $11 million.
We also saw stability and underlying strength in payment accuracy decision support and capacity management as well as new wins in the cloud based Nfa's imaging solution, which goes well for the coming quarters.
Ah network solutions revenue increased 9% year over year, which includes the impact from <unk> and pdx of $17 million.
Key drivers include growth from implementation of new customers in data solution and increased market penetration and medical network and beat to be payments business.
The growth in this business, primarily offset by lower network volume and beat to be payments of approximately 20% and 5% respectively. Due to Cove at 19.
And that technology enables services segment overall revenue declined 24, 2% Tesla, what's the hardest hit business due to Cove at 19 due to tie correlation to health care spent.
We saw the RCM services business negatively impacted by approximately 30% and the communication in print business impacted by approximately 20% due to cope with 19.
On the positive front RCM turnaround efforts remains on track and we're contingency positive trends in RCM when rates and deal size.
In addition, we contingency an uptick in vendor consolidation and outsourcing trends, which we believe should further support new business potential should continue to transform RCM services business.
Turning to adjusted EBITDA software and other declined 85% year over year.
Results were driven by investments as a port are initiatives and enterprise imaging transformation as well as the Kobe 19 impact I mentioned earlier offset by underlying revenue growth in key franchises.
<unk> solutions, adjusted EBITDA declined, 11% and a quarter driven again by lower network volume due to Covid 19 impact I mentioned as well as increased investment to support significant number of new product launches and market expansion opportunities.
And technology enables services adjusted EBITDA was negative $18 million compared with $25 million in the same peered other prior fiscal year, driven primarily by lower volumes related to Covid 19, and the RCM services and consumer and print businesses.
As we discussed Tonight guidance last quarter resources excluded delayed impact of approximately $50 million of benefits from cost initiatives taken during the quarter.
Moving on to cash in a balance sheet on slide nine.
Free cash flow was $102 million this past quarter compared to $17 million in the same peered of the prior fiscal year.
The biggest driver of our strong free cash flow and the quarter was better than expected customer payment timing, giving us even greater confidence and a full year cash flow outlook and the resilience and diversity of our customer base.
We also benefited by $22 million from a shifts and a terminal interest payments from the first quarter and $40 million from deferred payroll taxes.
Just the free cash flow was 127 million despite the impact of the pandemic compared to $61 million in the first fiscal quarter last year.
Although uncertainty obviously remains in regards to healthcare utilization in the next six to nine months due to Cove at 19.
As a result of our strong cash collection in Q1, and our confidence in our cash but for the remainder the fiscal year, we repay the $250 million revolve a draw and the quarter.
Ah liquidity remains strong ending the quarter with over $178 million of cash in cash equivalents and $780 million and undrawn revolver capacity.
Total long term depth, including short term portion net of cash at quarter and was slightly under four 9 billion with a credit agreement net leverage ratio of five two.
Let's move to slide 10 for financial guidance for the second quarter, along with certain assumptions and supplemental information for the full fiscal year.
For the second quarter, we expect solutions revenue to be $670 million to $690 million, which includes the impact of a fair value adjustment related to Mckesson exit, which will reduce reported revenue due to reduction in the Fred revenue in the second quarter by $39 million.
Justin EBITDA to be $180 million to $190 million and adjusted earnings per share to be 20 to 23 for sure.
Let me provide additional colored by segment.
Software analytics, approximately 75% of revenue subscription or maintenance and is expected to grow in the low single digits, while 25% is contingency or renewal based which we currently estimate to have a negative impact of about 10% and the second quarter.
<unk> impact is driven by timing of implementations procedure volume decreases and relaxation by a limited number payers in states are reporting requirements.
In network solutions based on current volume trends, we anticipate on approximate 10% decline in network volumes for the quarter about mid single digit increase and beat to be payments, which is about 8% of our network revenue and high teens growth in data solutions, which also represents about 8% of our network revenue.
<unk> solutions impact is driven by decreased elective visits and healthcare activity due to cope with 19.
And technology enables services, we're expecting an average about 15% decline and contingency based RCM revenue for the second quarter and communication and consumer payment services were expecting a decline of about 20% and the remaining businesses are stable.
The impact on test is also driven by reduced elected procedures volumes impacting RCM services business and lower prints volume impacted by reduced E.
Eri volumes related to reduction in timing of claims and Billy activity in each case due to cope with 19.
Last let me provide you with some supplemental information and assumptions for full fiscal year 21.
As I stated are current assumption is for continued gradual improvement of healthcare utilization throughout the remainder of the fiscal year, we expect full year fiscal 21 free cash flow between $150 million to $200 million <unk>.
Capital expenditures are still expected to be approximately 7% of solutions revenue, excluding the impact of fair value adjustments and excluding integration related capex as we manage spending in line with a cold with 19 impact.
Integration related operating expenditure is estimated to be approximately 80 million integration related capital expenditures approximately $20 million no changed from the prior quarter.
We expect interest expense in the range of 250 $260 million for the fiscal year adjusted effective tax rate of approximately 25% and basic and fully diluted shares outstanding will be about $320 million, which includes the minimum number of shares for the teu's now with that.
Let me turn it back over to kneel four is closing comments.
Thank you Frederick.
Let me close are 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 is we've already seen as overall health care activity picks up our results will naturally improve even prior to the benefits we will see from new sales.
Second the solutions, we provide to streamline operations enhance engagement and increase revenue or even more important given the impact of Cove at 19.
Third we continue our initiatives to improve our operational excellent and our cost structure as we navigate the impacts of Cove at 19.
These actions will enable us to emerge from this period even stronger.
While there remains challenges for the U S healthcare system, and our economy, the strength resiliency and commitment of our change healthcare team members will continue to drive value for our customers partners and the communities we live in and served.
Thank you and we will now take questions.
Thank you Sir at this time I would like to remind everyone in order to ask that question Pratchett Star one ear phones. Indeed time, we're asking you to please.
Can only one question and one final Apple.
I guess someone is there any roster.
And our first question comes from the line of My House Tonight from party or any is open.
Hi, Good morning, guys I just had a question around the margins by segments are you obviously.
Located at the cost et cetera, I was just hoping you could maybe give us some color on how we should think about what the tie get to the long term targets for each of those might be taking small should should be like me thinking about.
Yeah. So obviously it changed a little bit now as we have allocate out all the full.
All of the corporate cost.
If you look at last year.
Bye the segments, I think and you'll have that in in our 10.
<unk> and and earnings presentation, I think that's a good starting point, because obviously last year's a first year with the six O six and so forth in first year as a public company and we have said publicly from there we expect to improve those margins by 50, 275% across for the whole company, obviously is going to very little bit by by each of.
Segments, but we feel pretty good about opportunities to die margin expansion in all three each year without necessarily be a little bit different. So I don't think anything is has fundamentally changed except that the based on his change, which we've given you know for FY 2000.
That has been restated.
Got it and then just one draw that question.
Cold they resolve the tested what defenses and bickering means for a lot of people I was just curious.
Yeah, and looking at the portfolio entertaining areas that.
Volume related that.
I think but converting going to subscriptions.
Yeah, I think that's a good good question.
We do look at that.
I think it really comes down to what allows us to best accelerate our growth and market share in some cases <unk>.
<unk> had transaction based pricing arrangements, where the customer fell because the value. We are provided they decided that it might be more valuable to them and just from a general contracting perspective and their costs consistency forecast the ability to go to a P. M. P M or P something for him Pm <unk>.
Roach, so we're pretty flexible on that and it really is one of the things that we bring to customers. It's what's the best way to link hour gain to your gains.
So it does happen, but I wouldn't say it is benny wholesale change at this point.
Got it thank you.
Your next question comes from the line of Michael Shiny from Bank of America. You line is open.
Hi, This is Alan and for my Thanks for the question.
Looking at the free cash flow guidance is there any way to explain what utilization assumptions are embedded at the top and bottom end of the range.
This is Frederick so the 150 200 is based on our.
Assumption that we will have a gradual recovery from what we stand here today.
The average so far this quarters, a little bit more than 10% down.
The last point that we shared infestation was about 8% down and our assumption at this point is that is going to be slow and gradual recovered from there.
The actual range is not so much driven by the utilization changes as more around collection patterns and other things around working capital more than that utilization itself.
Great and then following up on the utilization point is there anything you can say about June and July about the geographical dispersion between some of the Cove. It Hotbox you mentioned and then some of the places where capable gone down.
Well I think we are seeing the variability as as your sort of implying because of the different issues around case loads and.
Impatient admissions et cetera, but given our network and all the services we provider. So broad it doesn't really have a material impact on the overall trend line that we've shared for example, and slide five so they're really wouldn't be anything that we would provide that isn't already known from just what you see in the news about case loads and whatnot.
I think the way we look at it is and unfortunately, our customers are very confident this we keep the services and capabilities coming in of help them in many cases, where they run into these crunch periods of challenges from an operational perspective, but overall for us given the breath of our network and at least currently the way the hot spots in the growth.
And then decrease in case load.
It hasn't really had a material impact on our overall.
Castro the way, we see the business progressing.
Great. Thank you.
Yeah.
It comes from the line of high embracing from Credit Suisse. Your line is open.
Yeah This agenda investment.
So on your comments around foundation volumes knowledge person Willow Creek or is it true dollar volumes as well or a dollar volumes are training better than three colgate's and also like to on that part I'm. The same line with new projects and solutions you guys have lawns over the past three months is it fair to see that company.
[noise] positioning at three cause it frequently volume level, it's much better than what it was five six months back just trying to understand we're comparing apples to apples here.
Yeah, let me get to the first question Fregeau, Andrew I think so we haven't seen.
Dramatic change and kind of the average claim amount, which is what you're asking right.
<unk> across the country.
<unk>, but it hasn't been like there's been overall a big change.
I think there's been a lot of.
Support provided to the provider community.
As well from the from the federal government and other means and so I don't think we've yet seen any particular changes relative to pre covert patents and the.
Sort of claims expense if you will that we see coming through the network could you come to your second question again, I'm not sure I quite caught it yeah I want to understand that's with now you have launched several of progress solutions over the past 345 months I'm just trying to understand that accompany I'd like to change has the operating at volume level.
What <unk>, what do you think that you want positioning as much bedroom in terms of taking advantage of dependent volume level are you really need that volume to come back it frequently level to update at the same logo profile just trying to understand complaint company today.
Five six months back got it now good question Yeah, No I think we as we described even after the IPO.
We really saw our growth trajectory, both the ability for us to sell more into our customer base as well as the general growth in health care, which obviously that's quite some changes this year versus what any of US had foreseen, but then the third pillar was really innovation. So all these a lot of innovation you saw including the announcements that you mentioned over the <unk>.
Quarter. So these event in the works for quite some time as you can imagine given the breath of some of these solution areas. So I think we will benefit from both the return back to.
A more typical healthcare system in the underlying trends in health care utilization, but in addition, we do expect these new innovative solutions to be the third element that I mentioned in terms of continuing to power our growth, particularly as we get out of the <unk>.
Dramatic changes that occurred under Covid.
And just one quick follow up for Frederick So system first quarter.
When you give guidance.
Included $25 million extra costs 10 million Baghdad expense 15 million additional cost overhead, which was not expected to repeat in pisco second quarter.
True and is that reflected in your physical second quarter outlook.
Yeah. So two things there so when it comes with a $15 million a delay cost stakeout, obviously is susie volume returning.
We're going to need to add those resources back and we already are starting to do that.
So it's going to come in terms of incremental revenue in the margin associated costs. Obviously, we want the volume back and we'll be glad to add back some of the resources. What we're trying to do is to make sure. We don't add back one for one of the resource item. The team is doing a very good job of managing that to drive some of the incremental productivity on the bed that side as you earn unprepared.
Remarks, we we did not see the impact that we had anticipated in terms of delayed collections and as a result, we did not have to go through the high end of that range.
And that kind of mid to ups upper single.
Just in terms of the impact on a bad that we thought it was still prudent we don't think that all health systems are completely out of the Woodsheds. So we had to take some impact it but it wasn't as severe as we would've thought originally.
Okay. Thanks, a lot guys.
Thank you. Your next question comes from diagnose Stephanie Davis.
Alright and is open.
Hi, guys congrats on the corner.
Thanks, Stephanie.
He mentioned a lot about education teens clients hang of a pattern remarks, I want to check in again update on efficiencies will change.
Are there any takeaways the pandemic around productivity just getting your strangled results in a lighter workforce and looking forward I'm thinking of making any of the changes more along Carmen nature.
Yeah. That's a good question Stephanie I think what are the things Frederick and I also talk about even in the last earnings call is.
Let's make sure we understand the dynamism that really all of us somewhat got forced into injecting into our business how that can help us in the long run. So I think the work that we've done and working from home and the focus we have on productivity and quality metrics that allowed us that allowed us even through the crisis and obviously now.
To provide the level of service and as you said the savings and revenue enhancements et cetera to our customers.
Has really helped us think about how we can continue to accelerate our productivity and the dynamism of how we apply resources going forward. So I think we like everybody else is still learning a lot from this process, but I think we're pretty confident that in the long run.
It'll help us continued to enhance the productivity the services, we provide and obviously that had helped with our continued margin enhancement that we've talked about previously.
I understand council and quick question guidance last quarter U at the size that you are asking it's skiing conservative.
How should we think about detriment the pukey guidance.
[noise] across client volumes and one's a free J.
Why not issue for your guidance, just given headbanger starting off.
Yeah, clearly we're on the conservative side in terms of the first quarter guidance and now.
Clearly.
We're delighted the fact that things came back quicker than we had expected obviously is helping a results for the for the full year and clearly are free cusp as well as you know are getting back to a much smaller.
Declined versus pre Covid levels, there isn't that much of a variation left and I still think that it's reasonable and frankly prudent to assume that it's not.
I mean, it's hard to see us getting back to.
All the way back to pre Covid levels until there's a vaccine in place just because we see that not discuss health care you see that.
A lot of different activities and so that's why we maintained this kind of very gradual recovery throughout the rest of our fiscal year.
In terms of the second part of your question about the full year guidance I guess to some degree we have the second quarter, obviously guidance in front of us right now.
Giving you an endpoint in the fourth quarter in terms of we think is essentially last year over year with average decline in volume somewhat being offset by the incremental products and so forth in productivity gains that were expecting an synergies.
And so it's really the Inbetween there is the third quarter. So I mean, I think to some degree we kind of giving you the path for the rest of the year.
They could come a point.
Where it makes sense of the four year, but from our perspective. The key thing we're focusing on as a management team now is really setting yourself up for FY 22, and to drive that sort of accelerated growth that we know that our portfolio businesses are are capable of.
Alright, that's helpful. Thank you guys.
Thanks.
Your next question comes from the line of rubber challenge from Goldman Sachs Sardine or something.
Great. Thanks for taking my questions. This is Jack Rogue outline for Bob So if I recall correctly.
See expected payment accuracy to be challenging first quarter because of lower healthcare utilizations, but it looks like you called it out of the strength I'm curious what happened in this line of business was it just better than expected utilization or was it something else for.
Jack just to parse out a little bit I think we particularly called out as a straight as the market share gains we had through new multimillion dollar contracts with payers in Q1.
So just to be clear on that I think.
As your obviously well aware there were some changes in the payment accuracy market because of some of the restrictions from states and some of the practices payors.
That occurred then we're now seeing that get back to normal.
So it's still.
Rebound if you will from the circumstances that recurring when there was a lot of almost emergency actions put in place in our Q1 and in different different states. So we see it coming back, but so that business remains very strong, but it just to be clear what I'd, particularly mentioned are prepared remarks, whereas some of the new.
Deals that we had put in place in Q1 that makes sense.
Yeah very helpful. And then you've talked a lot about the API marketplace in recent quarters and I think utility there is pretty intuitive is there a number as far as contribution to sales and the quarter from this channel or is it two Nathan Timothy needle.
Think it just continues to help accelerate the growth that is Fredrick mentioned, we were on a good trajectory prior to the Covid pandemic and I think we had been planning this and we've architected are solutions to be provided through SaaS based solution services in some cases, where people want the services to wrap around it and then through API for that.
Be the easiest way for customers the uptake, our intellectual property and capabilities and.
<unk> into their processes are processes with our channel partners. So it's just gotta be another contributory element to the growth rate acceleration that we expect to see particularly as we come out of the Covid pandemic.
Thanks.
Thank you.
Our next question comes from the line or anything like handle from Yankee Morgan There 90, something.
Hi, it's Annie on for Lisa Thanks for taking the question.
Can you speak to the financial health of your clients and how the demand environment looks currently just given utilization bounce back and steam losses come through.
Yeah, any I mean is Frederick mentioned, we tried to be prudent thinking about this I'm sure you'll remember the huge amount of uncertainty only three or four months ago.
Around that I think we've seen is that the.
Financing that's provided by the federal government and others is clearly had an impact obviously, there's still some uncertainty about how that's going to continue given the negotiations that are going on in Washington, but I think.
As much as obviously a number of places are thinking about what this means for them certainly in the next 12 months prior to a vaccine and maybe a return to somewhat normal thing.
I think the support that's been given to them as one of the reasons why we haven't seen some of the more dire predictions regarding the issues. Our customers have had we also serve <unk> over 30000 customers at all elements of the size spectrum healthcare is always of course spent a pretty dynamic market.
And clearly a number of people ourselves included are concerned about areas. For example in rural help with some of the smaller practices, perhaps that don't have as much financial wherewithal to get through some of the volatility that's inherent in this situation, but by and large there's been a semi think surprising strength and the ability of provider is to get through this.
But I think a lot of it has had to do with the support provided by various federal agencies at others and of course, we'll have to see how that progresses in the next month's ahead.
That's great to hear.
D seen any changes to the competitive environment, Arkansas, a nation opportunities just given the disruption in the marketplace.
Yeah, I mean, we.
We made some acquisitions and and the quarter, particularly expanding our business in the pharmacy network I think we're going to continue to see as the industry consolidates.
For more broader.
Scale.
Partners for these entities I think what are the things that were excited about is the fact that we can provide value working with smaller companies and most of the M&A. We've done over the years is on the back of a long commercial relationship sometimes with the smaller companies.
So I think we're going to continue to see the consolidation and the market is healthcare itself continues to be more of a system in a little bit less broken out into the silos. It's been in historically and hopefully we will continue to benefit from that.
That's great very helpful. Thank you.
Okay.
Our next question comes from the line of Sean Oh Island from Piper Sandler and is open.
Thanks, very much good morning, so on the CMS interoperability will you mentioned it briefly for patient data provider directory data.
I'd just like to learn a little bit more about your go to market strategy, there and how meaningful an opportunity that is for you and to come in quarters.
Sean I mean first of all we had worked extensively with N C. CMS all the different folks that were involved in those rules as you know had a rather lengthy.
Period, [laughter] prior to them being issued and so.
We had built up during that time, a series of offerings, and we announced free access to our interoperability Apis for payers, who are able to take them up.
Directly we're also working with ones where their systems requires a bit more implementation that just being able to take advantage of the Apis. So I think it's it's significant in terms of continuing to add value to our customers.
And I don't given the breath of our company.
How can it be.
Huge accelerant to the overall company growth rate, but it's really done is continued to embed us.
And our customers and it's something that we really developed with a number of them because they were grappling as you can imagine, particularly three or four months ago with all the uncertainty around Cove. It and then I think some people we're hopeful that the deadline would be postponed beyond January some of the enforcement has been set to be postponed six months, but.
In general people realized you know only four or five months ago and the final roof came out that they needed to do something over the next subsequent nine months. Fortunately were there to help them in <unk> seem very strong demand from our pay our customers and including new in smaller customers.
For this kind of offering.
Great related to interoperability HHS connect program to collect data on Kobe 19, It sounds like you could have a meaningful contribution in our collection of Kobe 19 related data.
Are you involved in that program at all.
Or doing anything with the government there.
Yeah, we're working with Jose Arietta CIO under Secretary ASR as part of many CMS programs around this so.
It's really been a good relationship trying to help the federal agencies, because I think they're they've been cognizant of the fact that some of the things. They want to do that may already be rails or data that's available to them that will allow up our system to be put in place faster than otherwise would be the case versus sort of manual data collection or initiating new data collection.
Aspects. The other thing that I think it's been important for everyone understand and we really appreciate it and working with them and others as as you know our data collected for among other reasons often for billing or submission of billing and so there's a natural quality element to it it's sort of not being just collected on an emergency basis for a special purpose, it's basically part of the operating.
Mechanisms of providers and others. So I think that's something they've also appreciate it as well.
Thanks very much.
Sean.
The next question comes from the line.
Sauce ragi from Cohen is open.
Hi, essentially James on for Charles.
You're assuming 16% decline in the contingency based RCM revenues for.
Second quarter can you tell us that assumes potential impac of.
For the declines from covered hotspots, like Texas, and Florida also like how much exposure to you your customers have to these areas.
Well I think we have a very broad business. So as we've looked at this and done are forecasting and looked at a state level and I'm actually in some cases down too.
ZIP code level, we haven't seen that there would be a material impact even with some of the hot spot flare ups and it really comes down to the fact that the breath of our breath of our business and the fact that we do operate in all 50 states.
Yeah. The other thing to just in terms of it just to clarify also the 15% versus kind of the 10% for the network claims is more around the fact that there's a lag between RCM services revenue and activity on the health care system. So that's going to driving that kind of 5% difference between the two if you were asking for.
In there.
Okay, Great and also can you speak to the integration of Eurex and CTX how's that progressing and.
Have you identified caution.
Energy opportunities, if so could you share that with us.
Sure James well first of all it's progressing well academies or two organizations.
Network part was obviously part of the company before it gets about out we brought it back in and then the Pdx Company is one word also work with literally for decades. So.
Integration has been preceding very smoothly, we expected it to.
We certainly are going to get advantages through synergies, maybe I'll, let Frederick talk about some of the financial aspects.
No, we expect about $10 million of synergies over the next.
Three years.
Can realize there and then we think there's ultimately additional revenues synergies, but we haven't really quantify that yet.
Okay, great. Thank you.
Thanks.
Our next question comes from the line of Magic, Delaware from Bird their name is open.
Alright is open.
Sorry about that and muted myself.
On the bookings front, Neil I'd talked about the sales cycle extending slightly I was hoping you can provide some details on that dynamic and have you seen any improvement from our sales cycled perspective, with the recovery and utilization over the past month.
Yeah that we have I think there's still a bit of an extended sales cycle clearly our customers and even our own people are the industry is trying to understand how are say holes activity is going to work, especially given the challenges around air travel and other things that you'd be well aware. We are now meeting with customers again it is more.
[noise] selective and it was before the pandemic, we are seeing sales cycles tighten up relative to what they were a three or four months ago I wouldn't say, they're completely back to normal. They are in some instances more on the pay your side and the provider side for again reasons, you'd probably find pretty self evident.
So I'd say, we're on our track back to normalcy [laughter], but I think that is also a lot of work going on that only with us, but with our customers to understand how they want to have these interactions and an error, where there's still a lot of challenges on mobility and people having physical proximity.
Alright, I'll go ahead I'll hop back in Q.
Your next question comes from the line Overcharged Sheila from National Bank here Okay.
Hi, This is Charlotte on French Orange. Thanks for taking my question on the new clinical data retrieval service can you discuss other avenue in Ottawa work and whether it will be sure subscription or transaction day, and then how we should be thinking about the market opportunity to either.
Well I think it's early days, but we're seeing a lot of a promise and that because of the obviously the importance of clinical data separate probably bed that are appreciated and now during the pandemic over the last three weeks or so I think we've moved around about 19 million medical records each week and <unk>.
Now.
I think moved about records for almost 95 million people, which is up about $5 million just from June. So it is a substantial growth opportunity for us.
The use of the data is very specific to the east cases under which it is used by payers or others, who need that data. So generally speaking it will be a bit of it I think of transaction oriented business. So that's sort of typical in the way the demand comes but in some cases, given the complexity of the use case or the specific.
The value of the data to the person who need to the pricing will probably be very different but I'd say overall.
We expect it to be a significant business over time, it really relates to a paradigm that we helped create really in the country as I mentioned, it's pretty unique now to finally see this starting to come into reality it's scale.
But.
[noise] pricing mechanism will be primarily more transaction oriented it'll be different substantially relative to the specific these cases for the people who need the data.
That'd be great. Thank you.
Thank you.
Your next question comes from the line of Ryan Daniel's from William Blair is open.
Good morning. This is Jerry <unk> Orion. Thanks, a lot of questions, maybe just one on the cue to revenue guidance.
As we think about kind of the potential swing factors that did you from the law onto the arrange to the high end of the range should we think about that as being mostly kind of related to potential variance with volume utilization activity or is there any kind of larger deals that are expected to come through.
Any sort of sales cycle issues or things like that that we should be thing just trying to get a sense of sort of a potential very answers swing factors.
Sort of low ends of the high end of the range.
Yeah, I think you're right.
It is clearly utilization driven I would say.
Is.
The number one.
[noise] driver there.
And especially in RCM services in a network and then 25% of the business and SMA that is volume dependent.
It is much less dependent on deal timing at this point when you have two months left in the.
Quarter, you have pretty good visibility into our overall revenue performance when it comes to deal psychosis always something that good slips and so forth, but a big a driver here is is utilization. So we've seen a market come back between our last earnings release in this obviously led to the over performance here, but as I said earlier now.
We're looking at the kind of at 10% decline could.
Get a little bit better than that clearly could.
But.
The magnitude of the barons as much smaller.
That it was just a few months ago, because we were so far down at that point, then we have such a rapid snapback in terms of utilization.
Yes, that's helpful. And then maybe just a quick follow up maybe just an update on cross selling efforts. That's obviously been kind of wanted a recurring themes with sort of a broader transition to more of a enterprise selling effort and things of that nature. So.
Pink in the past few mentioned, maybe a two 5 billion potential opportunity for cross selling so just any updates on how that sort of progressing how that may be impacted Q1, and how that sort of built into expectations for the rest of the year.
That's a great question some of the multimillion dollar deals that I mentioned, whether in payment accuracy or imaging business RCM services business really has benefited from the enterprise sales approach that we've taken I think as.
Customers, particularly <unk>.
Provider side, we're so stressed obviously over the course of our Q1 they looked at people that they already had very strong relationships with to continue to expand services in new areas as well as existing services. We had because you can imagine in some cases, we might be working with our service at 40% of the institutions half.
<unk> now we can expand the 60 8100 et cetera. So I think that continues to be a driver of our business and why even obviously it in period.
Stream uncertainty, which was R Q1, we still had a pretty successful sales quarter.
Got it yeah, thanks for that color and congrats on the corner.
Your next question comes from the lineup deal Grasslike from city here I need to open.
Hi, guys. Thanks for taking my question and congrats on the quarter here I just wanted to go back to the quarterly cadence for the rest of the year I think you've previously mentioned do you think about the quarterly cadence.
Kind of cutting in half the negative impact.
From from covered each quarter until you kind of get to that steady state later and your fiscal year. So does that assumption still hold we should kind of think of the negative impact being being cut in half as we move throughout the at the rest of the year each quarter.
Yeah, I think obviously the slope of the line has changed versus my guidance in the in the first and the fourth quarter.
The guidance of the first quarter versus where we are today and.
We know think about kind of the utilization and we use the claims.
Data.
For that we say to think about 10% down here in the quarter.
I think from there you should basically a draw a straight line to the end of the year is the way to think about it. So the concept in the end point is the same by the slope of the line is different than it was just a few months ago because of the various rapid come back of utilization.
Got it.
So it assumes we should assume it linear progressions, you that that yeah normalization.
And then just.
Got it.
Just a follow up on the imaging sides some good wins.
WJ in Providence.
These new new imaging clients or are you kind of just adding on your some some crowd modulus to them.
And if they are new have you.
Oh, you're going to be able to kind of implement the full sweetness year or do you can have to wait until things settle down with with Kobe.
Well I mean, so first of all in some cases these were existing customers in other cases, they actually we're competitive wins through RFP processes against the other major.
[noise] industry vendors, so it's a bit of a mix.
Times, it's been a form and sometimes ladder terms of implementation as I mentioned one of the things in particular with our cloud based solution is the rapid ability we have to migrate from on premise systems to a cloud based solution and that's really based upon some of the inherent technical capabilities. If you have a cloud based approach so when you.
Think about the implementation, especially for these new systems, they're going much more rapidly and we gave some data on that then would've been the case historically and frankly, given the still challenges that many provider organization tab. The actual break if you will on the speed of implementation is going to be.
Far more of the institutions ability to deal with the inevitable change management that they have with any new system being implemented than it really happy to do with how fast we could do it sort of it a theoretical world. If you will but I think the core of your point.
Or implementation tapping more rapidly they absolutely are with these new cloud based solutions.
A little bit effects on that so we do expect over time.
The average implementation time will go down, but as we sit here today, there's still a bit of disruption not surprisingly and somebody's providers and that's really the break on things probably going as fast as they hopefully we'll at a more systemic basis once we get out of the pandemic.
Got it thank you.
Thank you.
Your next question comes from that I know Sandy delinquent from Chris Securitas Your nineties open.
Hi, This is a standard presumably thanks for taking my questions.
I guess most of my questions I'm going to ask so maybe I'll do the I'll be that guy and that's the obligatory telehealth question.
I know you said in the past gain traction selling Paul health related bundles towards your smaller providers, just curious what kind of uptake you've seen this task quarter. Thank you.
Yeah. Good uptake in I think I talked about some of the API uptake as well during our prepared remarks and that does come from including telehealth vendors. So I think what's been good really titanous back of the question on.
Wallet chair and cross selling opportunity is that often with some of the smaller companies. They may begin to have a relationship that some of these capabilities on an API basis, but then they start discovering other things we could do for them in fact, given the growth. Some of these companies are having operating they're back office through our RCM services business start starting to apply.
More of the AI models that has they increasingly your billing commercial insurers for aspects of care that they might not have historically as I'm sure you're aware of these teller vendors are expanding even beyond some of the original areas versus pure primary care into mental health follow up visits for some of the special.
Teeth et cetera. So.
It's really been a great opportunity for us. Unfortunately, we had develop these relationships.
Over a period of years, so for the bigger players there have been around a while it was more of an expansion more of this cross selling opportunity, but some of the very dynamic and well funded through V C. As in others Newark companies. They sorta get on board by letting US do some of the things could they could do technically very easy with US and then as we develop their relationship we get more opportunities to.
Expand.
Alright, thank you.
Thank you.
Your next question comes from the line of David Larrison Friends Alrighty and is open.
Hey, congratulations on a good quarter just longer term as we move past pandemic in terms of like topline gross.
It's 46% still reasonable and 68% adjusted EBITDA growth is that still sort of the goal. Thanks.
Well I think we've been consistent that the four to six six to eight is more of an interim target because think the underlying growth.
Passenger capability of our solutions said should warn to hire number than that but we we we're cognizant and I feel that we were getting from a kind of Ah zero to 1% to four to six and from there and we're going to tell you. The next step.
But obviously includes.
Additional work around the portfolio and also an additional product introduction that we have part of our strategic plan. So.
As you think specific about FY 22, clearly because the basis, so low that growth I, it's gotta be significantly higher than that but.
Is going forward and underlying where we are right now is that four to six.
Mass, but a pandemic, but as we move forward, we certainly expect something greater than that over the long term.
Okay, So fiscal 22.
Your combo see some good topline growth and then.
Just with <unk> I know there had been some planned attrition are we going to be fully pass that as we enter into physical 22. Thanks.
Yes, the plan nutrition, we're actually passed already the additional attrition that we announced I think on our.
Third quarter.
<unk> release was that we have one large customer that is going to leave US does it really is impacting the second half of the year and I only leaving us in one part of this we still have a lot of other relationship with the customer, but it's impacting the services business here starting in the second half predominantly.
And so we will have that drive on the on the test business itself, but obviously, we hope that new growth and other things that were doing there, we'll at least partially offset that impact going forward.
Okay. Thanks very much.
Our last question comes from that I have Steven for cocoa from Rock Research Cervantes open.
Thanks for the question.
I just have a couple of quick questions here, one could you give us the.
Revenue benefit in the corner from acquisitions, <unk> and pdx.
Sure the benefit from those two was $17 million in the quarter.
And obviously in SMA, we had a negative impact because of the connect analytics sale of about 11. So the overall the impact on revenue was about $6 million favorable.
Okay, and secondly could you you helped me understand the $55 million purchase accounting adjustment on the Mckesson exit it reduced revenues with the offset I presume was an increase to deferred revenues.
How does that work and how will that impact your results going forward.
Well, so just to step back the purchase of Cat. It was really something that was necessary by the Mckesson exit where we know merged health changed healthcare ink with the change health care LLC and as part of that you'd go through the purchase accounting and in that process, we had to write down our deferred revenue.
U.
And so we had the impact of this year is $129 million, we've outline that it was 55 and the first quarter 39 in the second quarter going down to 24, and a third and 11 in the fourth quarter is really scheduled out and then there's about $9 million to $10 million in the first half of next year.
It was really.
As a result of the fact that with the.
[noise] transaction was never infatuated from a purchase accounting perspective until they exited because it was set up in the tax free nature.
When was the original merger happen three years ago, and so we're going through that here at this point. So it really does that impact adjusted EBITDA.
And it really doesn't impact the kind of the cash flow generation of the company ratio perform.
Okay, but if it's $55 million was a reduction of revenues what was the offset.
The offset in.
In the front revenue.
Set up as part of the goodwill and the way that the purchase accounting was setup overall on the balance sheet.
And you can see that cashless statement as well if you look at it year over year the difference.
Okay. Thank you very much.
There are no further questions at this time please continue.
Alright, well, thanks, I'll have you for calling in.
Again, we're very pleased with the services and quality of our service and continuity of our service we've been able to provide our customers doing this very trying time for the U S. Healthcare system also the way our team members were able to continue to innovate there and it's very difficult period for everybody.
And the United States and around the World. So we're going to continue to provide innovation and value to our customers. We're fortunate to have the financial stability in performance that you've seen in Q1 and we now are described for cute too as well. So we will continue to work hard on behalf of our customers in the industry and we'll look forward to keeping in touch with many of you during the.
Quarter, and then seeing you on our Q2 earnings call. So thank you very much.
Decent Christenings conference call, Thank California, shining you'll be all disconnect. Okay.
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