Q1 2021 Multiplan Corp Earnings Call
Yeah.
Good day and thank you for standing by welcome to the multi play on Corporation first quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need the press star one on your telephone if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your Speaker today, Sean I guess it may.
A V P of Investor Relations. Thank you. Please go ahead.
Thank you Casey good morning, and welcome to multi plans first quarter 2021 earnings call. Joining me today is Mark payback, Chairman and Chief Executive Officer, Dale White President of the pair of markets and David Redmond, Chief Financial Officer.
This call is being webcast and can be accessed through the investor Relations section of our website at www dot markedly on dotcom.
During our call we will refer to the supplemental slide deck that is available on the investor of relations portion of our website along with the first quarter 2021 earnings press release issued earlier this morning.
We will refer to the supplemental slide deck during our discussion. This morning before we begin I would like to remind you that our remarks and responses to questions may include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those stated or implied by forward looking statements due to risks and uncertainties associated with our business, which are discussed in the risk factors included in our annual report on form 10-K for the fiscal year ended December 31, 2020, and other documents filed or to be filed by the F with the SEC.
Such forward looking statements represent management's expectations beliefs and forecast based on assumptions and information available as of the day of this call.
While we may elect to update such forward looking statements at some point in the future. Please note that we assume no obligation to do so.
Certain financial measures, we will discuss on this call on non-GAAP financial measures. We believe that providing these measures helps investors gain a more helpful and complete understanding of our financial results and is consistent with how management views of our financial results.
A reconciliation of these non-GAAP financial measures to the most comparable GAAP measure to the extent the available without unreasonable effort is available in the earnings press release and in the slides included in the Investor Relations portion of our company's website.
And now I would like to turn our call over two of our Chief Executive Officer, Mark the payback Mark.
Thank you Shawn and welcome everyone. Let me join the welcoming you to our first quarter of 2021 earnings call.
The ongoing public health crisis, we hope everyone is staying healthy and safe.
Like to thank our stockholders for their continued support.
Most people into the long history of delivering returns for investors as the private company and I'm pleased to say that in our first few quarters as the public company. We've continued to deliver solid operating results.
This quarter's results of the test even in the face of an accelerated pressure related to the COVID-19 pandemic our business continues to perform.
As a testament to the multi plans many competitive advantages this day.
Detailed on page three of our supplemental slide deck, you start with our unique operating assets and a relentless focus on operational excellence that allows us to configure and reconfigure our resources to create lasting value for our customers their members and ourselves.
Assets underpin, our leading position with the payer customers many of whom view us as a strategic partner, we are operationally embedded in our customers' workflow and processes.
Very limited customer turnover low.
On tenured relationships and ongoing opportunities to increase the level of scope of services, we provide to them and turn of the strength of these relationships underpins our durable financial model, which features persistent and recurring revenues of high revenue retention rates high EBITDA margins and attractive the conversion of EBITDA out of free cash flow.
And finally, our financial strength to support the strategic investments, we've made to grow our business and drive further value for our customers, establishing the virtuous cycle both of them.
Revenue on EBITDA for the first quarter were in line with Q4, 2020 and with the expectations. We communicated earlier this year as shown on page four of our supplemental slide deck in the first quarter total revenues were $254 9 million.
Presenting of the increased one 1% over the prior year first quarter and a decrease of 0.2 tenths of 1% from Q4 2020.
These revenues were achieved despite modest typical Q1 seasonal softness and the effects on our claim receipts related to COVID-19 case trends, which surged at the end of the fourth quarter of 2020 and remained elevated through the first quarter of 2021.
Turning to page five of the supplemental slide deck adjusted EBITDA for the first quarter was 191 point.
$1 million.
The decrease of two 5% from Q1 of 2020, a decrease of 2% from Q4 of 2020 EBITDA margin. In Q1, 2021 was 75% down from Q4 of 2020, which was 76, 4% approximately 1% of the decline was attributable.
For the lower incremental margins on newly acquired businesses HST and discovery.
And there was primarily due to additional public company costs and some selected investments in sales and information technology.
Business continues to exhibit strong cash flow conversion with Q1 2021 cash flow from operations of $170 9 million increase of 16%.
Q1, 2020 cash flow from operations of $147 4 million and the strongest operating cash flow quarter for multi plan ever.
Our confidence for the business remains strong even through the pandemic, we enhanced our services and continued to provide exceptional customer service, which has led to strong customer retention, while we expect COVID-19 to continue to affect our business through much of this year and the impact on our revenues remains difficult to precisely forecast we are optimistic.
Stick that the worst of the pandemic is behind us.
We are hopeful the adverse effects of COVID-19 will recede somewhat as the year progresses. We believe we have sufficient visibility to provide an outlet for the full year 2021, which was included in this mornings press release, which Dave will discuss momentarily.
Multi plans unique operating assets, which include $1 2 million provider network for.
The primary data and algorithms a team of more than 350 negotiators of capacity for high throughput claims processing and our enterprise level of platform equip us with the unmatched scale and scope of services and position us to develop and implement customized solutions that help our customers identify and address opportunities to make health care more affordable.
Biddable efficient and fair.
We continue to be excited about our plans for 2021 and beyond.
Strategically engage with their customers in the planning and implementing service offerings that generate meaningful reductions in the cost of health care of our customers sustain their competitive positioning and improve their performance and support our growth at the company.
We are investing in our business to drive growth. This includes the our investments in machine learning and artificial intelligence to identify more clinical aberrations to leverage data to generate incremental cost savings for health care payers as well as the recent acquisitions of HST in discovery, the integration of HST into our analytics based solution offering.
It's well underway and our cross selling activities are already beginning to yield positive results.
Our acquisition of discovery closed at the end of February we are excited about the complementary capabilities. The transaction adds for a payment and a revenue integrity service offerings. We are working hard to leverage the discoveries deep expertise and relationships to us.
Spanned our footprint in the government payer markets as well as in addressing payment integrity issues within the payers and our clients in network claims in summary, we're off to an excellent start in 2021, we are encouraged by the underlying trajectory of our business. We believe we are poised to resume our growth as the ongoing COVID-19 pandemic debates.
Business conditions return to normal.
Finally, I would like to express my appreciation for those of whom are continued success depends that includes our customers for their enduring trust and partnership and of more than 200 outstanding multiplayer colleagues whose per <unk>.
This effort make it possible to create the value of that keeps the company.
Flooring and our customers' loyalty.
With that I'd like to turn the call over to Darryl White President of of payer markets will provide a business update.
Yes.
Thank you Mark and good morning, everyone.
Echo Mark's enthusiasm about our Q1 2021 results on optimism for the year ahead of COVID-19 starts to abate. Despite the winter surge in COVID-19 cases in the downward pressure on elective procedures and non emergency treatments and despite the COVID-19 driven change in our case and our claim mix to lower.
Claims we grew revenues by one 1% compared to the same quarter last year, our last pre COVID-19 quarter.
We have continued to grow our claims charges volume despite pandemic conditions.
As shown on page eight of the slipped the supplemental slide deck in Q1, 2021, we processed about $29 billion on claim charges up about 11% over Q1, 2020, which had no COVID-19 impact at <unk>.
Just under $5 billion on potential savings identified for clients in Q1.
2021, there were nearly identical to the prior year Q1, Despite a 15, 5% drop in the average charge per commercial health claims.
These results were possible because we continue to adapt our services to ensure we deliver value to our customers.
The lower average charge per claim has been driven by the day night by the dynamics of COVID-19 some of which are illustrated on paying net page nine of our supplemental slide deck. For example on our last earnings call I cited a tenfold increase in testing claims between the mid 2020 and Youre at.
Q1, 2021, so on another 95% increase in COVID-19 testing claims over Q4.
COVID-19 treatment claims were up 65% in Q1 2021 over Q4 2020.
Telehealth claims remained elevated and were up 11% over the prior quarter.
The average COVID-19 test claim runs around $190. The average COVID-19 treatment claimed runs less than $700 and the average telehealth claim average is about $375.
We also saw an influx of vaccine claims in Q1 growing to over 100000 in Q1.
Recall that our receipt of claims typically lags the date of medical services by approximately six to eight weeks.
We anticipate that our mix of vaccine related claims will grow dramatically in the coming months and these run only about $45 per claim.
Even with vaccine volume pushing average charges per claim down we expect some abatement in the COVID-19 headwinds as the year progresses as rising vaccination rates help normalized capacity in the health care system demand for elective procedures and the utilization of non emergent services.
Apart from COVID-19, the health care industry is facing other headwinds through many of the offered debt, though many of these provide opportunities for multi plant.
These include market consolidation CMS policy developments that impact Medicare advantage and pressure on payers can meet interoperability and transparency requirements.
Each of these present opportunities each of these present opportunities for multi plan to capitalize on our solutions breath.
Execute on the extent component of our three part growth strategy and increase our penetration.
On adjacent market segments.
Surprise Bill legislation also presents opportunities to strategically partner with our customers well.
While regulators are continuing and continuing to work through the specifics the legislation introduces significant complexity and we continue to be in dialogue with our customers to explore how they will achieve compliance by leveraging multi plant strengths deep analytics flexible service components and <unk>.
The customization.
Our ability to enable customers to quickly comply with these types of regulatory action helps further the depth of our relationship and embed multi plant technology and customer workflows. We continue to believe that this legislation is less likely to have a material impact on multi plans overall business.
Our growth strategies in full swing.
Since going public last year, we have added to our products. We expanded our sales resources stepped up our development roadmap and invested in technologies that drive value for our customers.
Our integrations of HST and discovery are ahead of the expectation and we are seeing the acceleration of growth at both companies as they leverage multi plants client relationships and distribution.
We have over 100 sales account management and marketing professionals focused on growth, including over 25 with specific responsibility for identifying and closing new business and supported by more than 40 relationship managers. This includes health care of veteran Andrew cone hired this year.
As our chief revenue Officer.
And we've begun partnerships and artificial intelligence and machine learning that will unlock material savings for our customers.
In the years to come.
I'm happy with the progress we've made in our first two quarters as a public company.
But even more excited about the many growth opportunities we are pursuing.
We have highlighted some of these opportunities on page 10 of the supplemental slide deck.
For example on.
For the enhancement component of our strategy, we have six machine learning initiatives underway, including two with a data analytics partner and another 10 that we're consenting.
These initiatives span across multi planned solution categories and deliver both increased savings and operational efficiencies. One of the models deployed mid last year has already delivered $1 $5 million and net new customer value through February.
Under the enhanced strategy. We've also completed our of deploying over 25 service enhancements to increase the identified savings or service level agreements with another 20 in the concept stages.
At the center of the strategy component to extend our value in underserved markets are the acquisitions of HST and discovery.
HST has strengthened our analytics based services category with value driving health plan services that deliver significant new value for third party administrators and health plans and the small to midsize group market through brokers and consultants.
<unk> has added a number of new services that expanded our payment integrity category now named payment and revenue integrity services.
With these new services come significant new relationships and services targeting government sectors like Medicare advantage and Medicaid as well as services that delivered value for a payers in network claims.
Integration and go to market strategies for both acquisitions are well underway. In fact, we've already have closed on 16, new employer groups with over 13000 covered lives, adding value driven health plan services expected to generate over $2 million of new revenues annually.
We were also awarded the coordination of benefits and subrogation business for a blues plan, we share with discovery with annual revenues over three and a half million dollars and we have a pipeline of several deals in late stages for a variety of payment and revenue integrity services.
Also under our extend the strategy we are in the early stages of Conceptive the number of potential new services that bundle, our core capabilities in new and interesting ways and capitalize on some of the headwinds turn tailwind that I mentioned earlier.
It's a little early to talk about the east, but suffice to say they leverage our data and analytic assets as well as the breadth of our existing services.
We've also made solid progress with the expand component of that off of our strategy, which is more transformational in nature, we have been working to build the pipeline of potential partnerships and our acquisitions in areas that evolve multi plant into a platform company, serving not just payers, but also the providers they work with.
And even the consumers they serve.
We're exploring ideas with several such companies.
And finally, we are laser focused on driving growth in our core business. For example, among our larger customers. We have over 20 revenue generating initiatives underway and we've converted 10 health plan customers into the three year deals for bundled services.
Even more exciting we were recently awarded a prepayment integrity services contract for a large regional plans in network and Medicare advantage claims, which we will deploy beginning later this year when fully implemented we expect this business to generate an additional $10 million to $15 million in <unk>.
Revenues annually.
We're also a finalist for a national network access by a large plan.
In summary, I'm very pleased with the organic and inorganic steps, we have taken to continue evolving to meet the changing needs of the marketplace and our customers multi plan has a long history of leveraging both small acquisitions and service quality enhancements to transform our business and the value it.
Creates in 2009 2009, many of you remember that multi plan was largely of network based company with over 90% of our revenues derived from network based services today, approximately 70% of our revenues come from our analytics based in Cayman and revenue integrity services.
Which we have developed over the past eight years, our customers. Both appreciate and depend on this track record of providing innovative new services.
The pandemic has changed our claims mix for now.
But the activity level across all of our target markets makes it clear it hasnt altered the our ability to stay focused and to deliver consistent and growing value to our customers with that I'll turn it over to Dave who will talk about our financials.
Thank you Dale and good morning, everyone I'm going to spend the majority of my time. This morning discussing our guidance for 2021.
But first let me add a few comments about Q1 2021 as Mark said earlier first quarter revenues were up one 1% over prior year quarter.
Down 2% over Q4 2020 and in line with expectations, we communicated earlier this year.
The contribution from HST and discovery revenues were down approximately $5 million sequentially, which we believe for driven entirely by the effects of COVID-19 and typical Q4, the Q1 seasonality in our business as we've previously communicated.
As we have communicated also our revenues lagged the date medical services are provided by about six to eight weeks on average and as a result of elevated COVID-19 case levels. During November December January continued to affect our claim mix in our revenues throughout the first quarter.
We estimate the COVID-19 related revenue impact in Q1, 2021 was approximately $18 million to $22 million up from our estimated impact of $12 million to $16 million that we communicated relative to Q4 2020, we estimate the COVID-19 related adjusted EBITDA impact of that 18 to 22.
Yeah.
In Q1, 2021 was approximately $16 million to $18 million.
Of the $18 million to $22 million in Q1 of COVID-19 impact, we estimate $5 million to $6 million of the impact was related to our network based revenues. Among other dynamics. We believe this reflects the combination of COVID-19 dynamics on our workers comp and auto business.
Which is driven by lower volume from employees not of players not at full capacity and less hard on travel or P. P. M. Revenues also driven by unemployment trends as small to mid sized companies and on our primary network fee for service business, especially related to reduced travel outside the members network coverage.
We estimate approximately $9 million to $10 million of the COVID-19 impact was related to our analytics service line revenues predominantly driven by mix of volume changes in the health care delivery as Dale as previously discussed we estimated for the 5 million of of the impact is related to our payment and revenue integrity service lines driven by a lower mix.
And volume of surgical emergency Department and anesthesia clients. The total estimated impact of $18 million to $22 million for Q1 2021, primarily reflects trends we are seeing in our claim to receipt and does not include the indirect costs of COVID-19 on business conditions, such as delayed in phone patients.
Longer sales cycle due to limited in person interactions.
The first quarter adjusted EBITDA expenses were $63 $8 million in line with the expectations. We communicated earlier this year and included operating expenses for a full quarter of HST and a partial quarter of discovery the increase of $8 million over Q1 2021 was.
Predominantly for millions of additional public company costs and $4 million of growth initiatives, including costs associated with HST and discovery acquisition.
The increase of $4 million over Q4 expense, primarily reflects $3 million related to growth initiatives, including discovery in HST and an incremental $1 million of public company costs. In Q1 2021 over Q4 2020, our annual run rate of public company cost is approximately $20 million.
The combination of stable revenues and the aforementioned expense items resulted in adjusted EBITDA of $191 1 million for the first quarter compared to $195 9 million in Q1 2020, our last pre COVID-19 quarter and $1 95 in Q4 2020, EBITDA margin was 75% of.
The quarter versus 77, 7% in the prior year quarter and 76, 4% in Q4, 2020, again, largely reflecting increases in public company costs and lower incremental margins from our acquired businesses as discovery in HST, having investing heavily to <unk>.
Drive product development growth as well as the fact that they are generally a lower margin business.
Moving on to our 2021 guidance.
As noted in our press release this morning, and on page 11 of the supplemental slide deck for full year 2021, we expect revenues of approximately one point of <unk> 4 billion to $1. One zero billion does include revenues of in 2021 of approximately $50 million to $55 million from our recent acquisitions of discovery in Hs.
Our revenue guidance assumes a smaller but still significant impact from COVID-19 in 2021 than we had in 2020, if you remember the impact in 2020 was.
We estimated between 100 per $120 million, we have methodically work through a variety of assumptions and built those into the range of guidance I've mentioned, a few moments ago, but obviously given the nature of multi plans business COVID-19 forecasting the COVID-19 impact is at best an estimation, we are anticipating the COVID-19 impact.
In Q2 will be substantially similar to that of Q1 2021 of $18 million to $22 million given the lagged effect of Q1 COVID-19 trends on our revenues. When you look out to Q3 and Q4 of 2021, we are hopeful for some of the effects of COVID-19 on our results will subside, but it's quite likely the impact will still be.
Meaning for our annual guidance reflects estimated quarterly COVID-19 related revenue impact of $18 million to $22 million per quarter, or <unk> $72 million to $88 million annually and an estimated COVID-19 related adjusted EBITDA impact of between $16 million to $20 million per quarter, or <unk> $64 million to $80 million annually.
Which is consistent with our estimated COVID-19 impact in Q1 'twenty.
'twenty, one that I previously mentioned move.
Moving to adjusted EBITDA on page 11 of the supplemental deck and in the press release. This morning. We noted we expect adjusted EBITDA for 2021 of approximately $750 to $790 million, our adjusted EBITDA expectations incorporate approximately $10 million to $12 million of additional investment in the business for 2021.
As previously communicated primarily around the it spend.
Clothing machine learning and artificial intelligence expansion of our sales force as well the other.
The other initiatives.
We expect these investments to keep all of our solutions portfolio and deliver incremental savings and functionality to our customers and we believe they will yield meaningful returns for multi play on overtime, but will not necessarily generate material revenues during 2021.
The combination of revenue and adjusted EBITDA guidance.
Imply a 2021 and adjusted EBITDA margin in the low 70 range, a few percentage points lower than what it has.
It has been historically, reflecting the increased public company costs the affirmation.
Investments in the business and lower incremental margins from the acquired businesses of discovery in the HST as.
As the pace of investing.
Moderator and as the effects of COVID-19 of receipt in revenues growth and we fully integrate HST in discovery, we anticipate exiting the year on a higher adjusted EBITDA margin trajectory the OE.
We're expecting over the next couple of quarters for 2020. One we expect operating cash flow of approximately 380% of $420 million. This of course is all.
Derived from all other assumptions and estimates just discussed as a reminder, due to interest and tax payment timing Q1, and Q3 tend to be our higher cash flow quarters. As previously communicated we expect depreciation of approximately $60 million to $65 million for 2021, we expect the amortization of intangibles.
Approximately $340 million to $345 million for 2021, we expect interest expense of approximately $2 50 to $2 60 in 2021, and we expect our cash interest costs in 'twenty, one to be approximately $70 million less than it was in 2020, we expect stock based compensation of 10 to 20.
For 2021 as previously communicated we expect an effective tax rate for 2021 of 25% to 28% and we expect Capex for 2021 of roughly $75 million to $80 million as outlined on page 12 of the supplemental slide deck and in the press release. This morning for Q2 2021.
We anticipate revenue of $260 of $275 million and adjusted EBITDA of $185 million to $200 million.
This includes the COVID-19 related revenue impact of approximately $20 million as previously discussed and of COVID-19 related adjusted EBITDA impact of approximately $18 million similar to what we had in Q1 2021 with that I will turn it back to Mark for his for closing comments Mark.
Thanks, Dave Thanks, Dale before we begin the Q&A I'd like to reinforce that we're very excited about the future. We are making solid progress against our growth strategy. The integrations of our recent acquisitions are on pace and poised to bear fruit and we continue to execute by focusing on operational excellence I couldnt be prouder of about how the company has managed to go.
Of it so far in one of the pandemic isn't quite behind us yet.
We're well positioned to drive growth and success as we move through the year.
Okay, operator, let's open it up the for them for our questions.
Certainly thank you as a reminder to ask a question you on each press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
And your first question here comes from the line of Josh Raskin from Nissan Research. Please go ahead. Your line is now open.
Hi, Thanks, good morning, everyone.
First question just on the factors that are leading to the ramp in revenues for the remaining three quarters sort of of the annualized <unk>.
And imply some growth in the guidance for the rest of the year.
So the first question would be sort of what's the ramp there it sounds like the COVID-19 headwinds kind of the same throughout it and then and then part of that would be not seeing of similar ramp in EBITDA. So should we just assume that's a ramp up in investments against the new revenue or is the new revenue coming in at low margin you just sort of help us with that dynamic as well.
Sure.
The ramp go ahead Mark first.
Why don't why don't you speak to the initiatives in terms of selling more business to existing customers and also the additional of new customers and then Dave can talk about the the.
The investments.
In the company to fuel additional growth.
Sure.
Absolutely Mark Thanks, Josh.
<unk> multi planning well enough for that.
Debt throughout the year, we derive additional revenue through through three primary sources. One is is the continued the can.
<unk> work with our existing customers.
On the initiatives throughout the year that helped drive additional savings and value for our customers and ultimately revenue for the company too.
It's through the acquisition of new logos on new business, so customers that we don't have.
And our suite of customers today.
And the become new customers of the company and thirdly.
It's I'll say, it's more inwardly look looking on edge working on are making in enhancing our current suite of services and I think as you heard in my comments, we have a number of initiatives underway.
For a service initiatives underway that either through machine learning or efforts that we have internally too.
To better I'll call operational initiatives that helped drive monetization of claims and improve our savings rates all of them helped to fuel.
Our growth.
Dave.
Sure.
Hey, Josh Thanks, Thank you for the questions I think two things.
Impact the first of all on the growth rate in revenue.
Independent of HST, and BHP, which we estimate to be 50% to $55 million of revenues next year, we basically have a quarter over quarter of growth rate of one 5% to 2%, which annualize into the 5% to 6% single digit growth.
Of that we have historically had independent of COVID-19, we believe that the initiatives the Dale and Mark of talked about will drive those numbers higher hopefully in subsequent years.
The impact on EBITDA.
Is primarily driven by the two acquisitions the <unk>.
Two acquisitions on a combined basis have on EBITDA.
Run rate in 2021 of something in the high Twenty's.
And the HP, which is the biggest factor, which only was included for one month in Q1, and we will have obviously three months of nature of the other quarters really has an EBITDA margin at the time, we acquired them.
Of something in the high teens to roughly 20% so that does drive a little bit of the the reduction in EBITDA margins. So that as you look at.
Where we are in the out quarters.
Debt margin suffers a little bit and as we said we are investing probably.
$10 million to $12 million incremental.
Investments that we may not see a lot of revenue this year about five to six millions of dollars of that is in it including artificial intelligence and machine learning, which we believe will of continued to provide additional services to our customers and revenues as we develop.
That data about $3 million to $4 million on our sales force, which day all has talked about and a few other expenses, but Josh I think when we talk later today, we'll walk through that.
Little bit more granularity with you.
That's perfect and just.
Go ahead, Mark deck, we've factored in $18 million to $22 million of COVID-19 impact quarter on quarter and the EBITDA of 16 to 18, if COVID-19 subside.
Subsides in the latter half of the year that will drive that will drive additional revenues and additional EBITDA as well as you know.
And then just the second question if you sort of think about the same store results and I know that's tough to do but sort of thinking about the same book of business with the same customer.
Are you seeing changes in sort of out of network usage or percentage of claims that go out of network relative to maybe pre COVID-19 2019.
And are you seeing better penetration of analytic services into those accounts.
Do you want to comment on the on the customer customer utilization of our services and trends in the not punctuate that.
Yes, I think it's.
It's.
I think Josh you asked about the percentage of.
The network utilization I think as I alluded to earlier, we continue to see.
And the increase in the in the percentage of <unk>.
The amount of dollars debt.
Through our customers Youre right its hard to predict but but.
In Q1, 2021, we processed about $29 billion on claim charges, which were up almost 11% over Q1, 2020, which was the last pre COVID-19 quarter.
So we continue to we continue to deepen our relationships with our customers. We continue to look at ways to expand our our relationship with our existing customers through the through the services through networks through analytics on through payment and payment of revenue integrity and now with.
The addition of HST and discovery, we have additional tools in our and our service and our service portfolio to reach out to those same customers on potentially new customers and we're delighted with some of the examples I gave you of new sales, where we're able to we saw.
Sound of large regional health plan.
To deploy later this year for for prepayment of payment integrity and and through discovery.
We were able to discovery services. Another example, we were able to we signed a contract for.
For coordination of benefits on subrogation services, the that's over a $3 million to $4 million. So I think we're pleased with the with what we're seeing across our customer base.
Yeah.
Analytical business is large it's foot footprint significantly because not only is it now payment integrity. It's revenue integrity and also subrogation that coordination of benefits of we can bring a more comprehensive suite of analytical services to our two of our payer customers and increased reliance on those capabilities.
On basin of which is the data database of charging claims data.
Wired over these many decades.
Just with the addition of with the addition of discovery marks right, we've widened our payment integrity footprint and historically multi plan.
It was a prepayment focused company with the addition of discovery services, we now extend our reach into the post payment.
Post payment world.
And and broadened our suite.
And you know to include things like.
For the coordination of benefits Subrogation, Medicare premium restoration E. R. <unk> D premium restoration of on other services, which enrich which enrich our payment integrity on revenue integrity offerings.
Great. Thanks, guys.
Your next question comes from the line of Daniel gross.
The city. Please go ahead your line is now open.
Hi, guys congrats on the quarter on thanks for taking the question here I wanted to go back to the the COVID-19 impact this year of around $80 million at the midpoint.
You know you mentioned <unk> will be similar to <unk>, which makes sense given the lag, but a little surprised that you expect the same impact on the back half of the year can you put a little finer point on the cadence of the impact in the back half of this year and what assumptions, you're making around testing to allow for higher acuity visits as we get into June and beyond and.
And if you could provide a breakdown by segment in the back half of it would be very helpful. Thanks.
Good day.
For the analytics.
Sure as we said Daniel we think Q2 based on what we've seen so far and obviously were.
Partway through Q2 now it will be pretty similar to Q1, we don't have enough visibility yet that we're prepared to move our guidance numbers on Q3, and Q4, we're hopeful and optimistic that COVID-19 will decline in those quarters, but what we wanted to give you what we've built into our guidance in Q3 and Q4, so that as.
The different people have different opinions of what COVID-19 should or should not be we can adjust that accordingly, but at this point in time and is a relatively new company, we wanted to be a little bit cautious on our guidance.
And make sure that we are.
Fully understand what what the impact will be the last thing we want to do is over promise and under deliver.
And that basically drove us to the decision of using a relatively flat COVID-19 impact across the quarters.
But what we wanted to do is totally disclose that to you so everybody understood.
Debt.
That's coming from.
Of that $20 million is basically as I said.
Probably five to six of that is in our network business a lot of that is workers' comp P. P M and.
Our fee for service, what we call our travel network, obviously people travel less out of their primary regional area.
That.
That pretty much has continued and we haven't seen we don't expect that to move a lot appreciably.
About $9 million to $10 million of that number is in our analytics business.
This is primarily driven by out of network claims most of most particularly in anesthesia and Ed.
Emergency Department and ASC that continues to move.
A little bit and we're hopeful that it will move but its very its very fragmented across the country.
Florida, those numbers seem to be moving a little bit more on the right direction and they are saying in California, or Illinois, or New York. So you know we've kind of maintained the level of where we are and in our payment integrity business also to a great extent, that's driven by those out of network claims and those unique specialties like E D.
Anesthesia and.
Hum.
Tori surgery center so.
<unk>.
Cool.
We've had a lot of debate internally and we've decided that we'd rather kind of flatline that COVID-19 impact and explain it fully to you. So we can all.
Half of that discussion when we talk individually and talk with the analysts but we.
We werent yet prepared to move our guidance numbers based on that especially in the last day. If you look if you look at the guidance.
The $750 to 790 factors in the COVID-19 impact, if we're being overly cautious and COVID-19 abates more quickly you can see there'll be there could be a meaningful increase in revenue and corresponding EBITDA, if we're being overly cautious in the last half of the year.
Yep understood Alright, I appreciate that and I just wanted to get your thoughts on surprise billing legislation being implemented in 2022 I know you've previously mentioned that Theres a lot of moving pieces here. So do you think this can actually be implemented at the beginning of 2022 and have you started to see any changes in provider but.
In preparation for the new regulations.
Dan why don't why don't we why don't you step back and just do a quick summary of the surprise billing legislation as it has been passed and then on update on the rulemaking process, where it is as of today.
Daniel it's of Great. It's a great question because it is hard it is to believe that we're six months from it.
<unk> implemented it as a.
And as I think you saw from the the headlines. This week there is still the bait taking place at the even at the legislative level on on parts of the process and and.
And we still don't have we still don't have the interim final rules.
But the hopeful we're hopeful that will come soon.
At least before July one and I think the plan is to give.
To get the the impacted stakeholders an opportunity to comment on those although I know CMS.
The nature HHS has been reaching out has reached out to folks along the way.
Look at the today.
I think in a quick summary, I think everyone knows surprise bill protects consumers from receiving balance bills when they when they seek emergency care and.
And the other routine of ancillary services related to the emergency care and or if there's some transported by an ambulance or or when they receive ancillary non emergency care.
The statute the statute has I'll say critical inflection points along the way it's the identification of a surprise bill it's the calculation of <unk>.
Whats called the qualified payment amount, which for the most part is the that the insurance companies media and contracted rate.
The payment.
It's been it's been limiting that members co share.
To what that number would have otherwise had to pay had that provider bid in the network provider. That's the third liability by by law is capped to that amount.
There is an opportunity.
For the planned at its discretion to make eight on offered to our provider if that providers unhappy with that payment that the.
The law of Ford's both the payer and the provider a 30 day window for payers and providers to negotiate and but at the same time if negotiations fail, there's a process for.
And didn't dependent the dispute resolution and that last pieces.
Is the piece that I think is the.
Is under debate.
The debate now the arbitration I think the as everyone knows calls for.
Baseball style arbitration, which means the arbiter of must choose either of the amount of sought by the provider for soft by the payer and the debate going on now is that when the law was the first past initially passed Congress added several other factors for consideration in that arbitration process, including things like the training of the provider of the complexity.
The case, the acuity of the case to.
For the extent there were prior contract rates things like that and now everyone is debating whether the <unk>, which was originally I think the intended to be the primary consideration of the arbitration.
It's being debated whether now each of those factors should be of equal weight.
I think regardless of how the issue of bringing it home regardless of how this issue is ultimately resolved.
For for is ultimately resolved for us.
It gives us an opportunity the street strategically partner with our customers and as I had mentioned the legislation and introduces just the heck of a lot of complexity to the billing and payment process and we are in deep dialogue with our customers to explore.
How the will achieve compliance at every inflection point and the surprise bill of process.
Including the arbitration process by by by leveraging our strengths and our solutions.
Yes.
I'd add footnotes.
One is that the rule, making process has identified a lot of complexity in terms of how you administer the program that complexity.
An increase for alliance by our per customers on multi plan.
Number one.
The number two is that prior to arbitration. There is there is an independent of dispute resolution component a negotiation that current multi plan has historically done at a state and federal level and we will continue to.
To do that and three as a result of the complexity of arbitration if in fact and negotiation of it cannot be consummated again. The early indications is that much of that will be outsourced to our capability as well. So we believe that it will have no material impact on our business and could be could be an enhancement of the overtime once the rulemaking.
Process has been fully defined.
Daniel you add for you asked us for a comment around the.
Do it.
About it starting on that it's supposed to start January one 2022, do we think there'll be a delay it's all speculation at this point clearly theres debate, taking place clearly the rulemaking process has to come out with an appropriate comment period.
Depending on the significance of those changes I don't think there'll be a delay I think there'll be some relief given.
Again speculation relief, given two payers or <unk> providers as the process moves forward throughout 2022, but I would doubt seriously theres a delay on the implementation.
Understood I appreciate all of the color guys. Thanks.
Thanks.
Your next question comes from the line of Andrew <unk> from Goldman Sachs. Please go ahead of your line is now open.
Hey, guys solid quarter on guidance.
Thanks for taking my questions here.
Two on my looking at your second quarter guidance, even assuming similar kind of COVID-19 impact as of <unk>.
And sort of sequential impact of discovery in <unk> versus <unk>.
There's still some upside sequentially to hit the midpoint and the high end of your guidance range. So I'm just wondering if you're seeing that there are any new initiatives that are actually supposed to kick in.
Starting on <unk> that may not have been reflected in <unk> and whether there should also be run rate for the rest of the year. Thank you.
Dave you want to speak to guidance for sure I think what's happening Andrew to some extent is some initiatives that were a little bit slow with some of our <unk>.
Customers.
We have a little bit more visibility that they appear to be kicking in as you look at kind of excluding HST and discovery.
We're on what I'll call.
Based multi plant, we're up about 2% Q2 over Q1 and as far as the midpoint of our guidance.
That is really.
Our customers are moving a little faster in Q2 than they did in Q1, we hope that trend will continue and we're starting to see some of that growth but.
The proof will be in the pudding, but we felt comfortable enough to move that number a little bit if you take.
2% or one 5% quarter over quarter, that's about <unk>.
6% to 8% annually.
And that's what we have historically belief is our core.
Non COVID-19 organic revenue growth.
Alright, great. Thanks, and then you also outlined some initiatives that are in the works, but haven't taken effect yet.
You haven't seen the revenues from those yet is there any way to think about what the.
I guess for for initiatives that are sort of at the end, but havent quite kicked in yet.
Is there any way to think about the total revenue impact of those initiatives and whether that would be more impactful to fiscal year 2022.
Or if you're going to start seeing some of the impact from the revenue initiatives in two age this year. Thank you.
Well I'll, let the I'll talk a little bit about initiatives.
Think debt a lot of those initiatives will not have a material impact as we said on our.
On our earnings call in 2021, although we think there'll be some in Q3 and Q4.
As we look out into 2022, obviously, we hope.
And are optimistic those initiatives will have double digit impact, but we really haven't been able to quantify exactly and we don't really want to talk about 'twenty. Two at this point given we're still dealing with a lot of COVID-19 right now, but we feel very good about those initiatives and they should generate meaningful growth in 2022.
Yeah, I would just add.
Obviously.
We're in the unique position of being able to implement initiatives throughout the year with our customer base and on.
Obviously the two.
If you're implementing the initiatives early in the year you have the opportunity of D D to have more impact.
As you as you get further out in the year, all things being equal that impact will be less in the current year and more in the subsequent year.
So as we I think I mentioned, the large plan, where we're launching prepayment the payment integrity. Later this year the impact it will have some impact this year, but the lion's share of the revenue.
<unk> will be going forward in 2022.
The footnote to that is the objective here is the we have a number of initiatives in flight under contract in the process of being implemented the goal is to get them implemented in 2021 until we get a full 12 month run in 2022 and beyond and then add enhancements to that.
These are true.
Additional developments or other other services that we can we can add on to those capabilities. The best case study to date would be the.
Would be in the payment and revenue integrity, where we had a we had of we had we had a footprint in paint and the payment.
Payment integrity and with the addition of the addition of H of discovery, we now can do revenue integrity as well as supplement that with subrogation see the be once we're already in in flight.
Yeah, and as I mentioned I think we can.
Operationally throughout the year across all of our solutions, whether that's our network.
Or analytics or payment integrity.
We will implement initiatives throughout the year to help us monetize more claims and and drive additional savings and value to our customers and as they come to fruition, whether that that's adding new analytical factors to our payment integrity program or modifying something in our analytics methodology.
The good news is once those initiatives are implemented.
Clients are able to take advantage of.
Of the enhancement almost right away and we're able to drive savings and value on those boats continue to happen.
Periodically throughout the throughout the year.
Heavily invested in machine learning artificial intelligence to accelerate the development and application of those analytics to drive additional savings.
Okay.
And young from Barclays. Please go ahead. Your line is now open.
Thanks for taking the question.
You mentioned some cost on a lot of cross selling opportunities with HST discovery.
Well on talked about a few.
The deals that you've signed so far on does the guidance include any other pipeline opportunities and could you talk about the sizing of what's in the type of timeline of moving the pipelines you've got the new generation.
Do you want to talk a little bit more granularity about the pipeline and then we can we can quantify that.
Yes, the pipeline the pipeline is a combination of of.
A couple of things right, it's looking at its cross selling Hs Ts and the discoveries services into.
Into the market and so it was taking advantage of the payer relationships that we have and using that to drive.
Distribution and sales identify opportunities on new opportunities.
Across our existing customer base.
Mentioned HST.
Through the the opportunities for us to sell into the third party administrator.
Market.
And through.
Through brokers and consultants and we're already have seen the effect of that with.
In the very short time with 16, new employer groups and over 13000 lives that will over time right now over the year as those groups are implemented.
We'll expect to see them generate.
I think around about $2 million of new revenues.
Revenues annually.
So and thirdly, we're bundling our products right. We have a we're now looking at.
We're in the early stages, but we're bundling our products and bundling are all of our products together in the enable to reach out to our customers.
On a much more strategic way.
The exciting thing for us in part is that instead of being simply a wholesaler or the services. We now can be we can now can the.
<unk> services through the broker community and also the direct retail to the end user and employer.
Well, so theres multiple distribution channels, which will again will accelerate our growth and expand expand revenue.
For the company and again leading to.
Gross margins in a high conversion to the cash flow, which has historically been the signature of this company.
Okay.
I'm just just on M&A, despite a bit more recent volatility on the market might be generally heard the market remains a bit frothy of use of available space. How you think about the extend and expand portion of the your strategy and well targets largely be bolt on so much of it was just for you.
Discovery or would the fairly large acquisitions still be on the car to you. Thanks.
We're very disciplined in terms of our M&A activity and we'll look we'll look at all opportunities and determine which ones would be accretive and how we could best integrate them into the multi plans infrastructure.
The take them.
The market as we deploy our capital to fuel you'll supplemental growth through M&A.
Okay. Thanks.
Okay.
Okay.
Okay.
Thank you.
Just a couple of quick ones for me can you just given update on customer concentration of really just curious if there's any material changes.
Year over year.
And I believe the last time, we talked.
Noted there was a transition at.
At least of a portion of your customers from network based services to analytics based services.
I was wondering if that trend continued into the.
The first half of 2021.
Theres been no material change from.
Q4 of 2020 to Q1 of 2021.
You need the regard.
As it relates to the network based services to analytics space surfaces and customer concentration.
Debt.
The transition from network analytics has slowed.
That kind of hit a peak over the last couple of years.
A lot of that had to do with certain types of claims E. D was one of those types of claims.
Basically that has leveled off some.
As we look at our complimentary of group network business.
And as Mark said are our top customer percentage is not of.
Not really changed over an extended period of time.
Okay, and then staying with the analytics based services have you seen more payers change the.
Utilization of your offerings within there say moving.
Towards the markup of markdown referenced based pricing versus using charge based on cost base.
Yeah.
I haven't I haven't seen the I haven't seen any material changes in behavior have you.
You broke up on me say that again.
Yeah within analytics based services have you seen.
Payers change for the solutions the leverage of yours. So I can say for example, moving towards markup of markdown.
From say charge based on cost base revenue referenced based pricing services.
I think the focus I agree with Mark I mean, we haven't really seen a significant change over the pad from last year to this year.
Of the payer and the.
The payers the focus on.
On managing their costs and in using cost based.
The cost base methodologies, which they typically do write the they're using either our cost base in some cases the abuse charge based methodologies, we depending on on the <unk>.
Preference of the client, but I haven't really seen.
A material change now when you get the surprise billing and the arbitration, it's going to be part of the arbitration process.
Is the arbiter can't consider the providers build charge for the usual and customary charge and at the same time, they can't consider rates paid by Medicare Medicaid or any other government program.
So it narrows that bad debt window of what the debt with the orbiter can use to to the rule.
During that arbitration process like Theyre trying to balance it out.
Okay useful. Thank you and last question for me as it relates to a payment and revenue integrity services.
With the majority of the growth that you saw there just due to the discovery acquisition and then as it relates to the acquisition just curious how your client reception has been.
To the revenue offerings that debt discovery brings to the to the division.
Yes, I can I can answer that the the growth as it was it's not entirely through the through discoveries programs. It's a combination of of what we call the multiply on historical payment integrity.
The opportunities.
And in fact.
One of the opportunities I mentioned in my remarks was focused on the prepayment payment integrity algorithms that.
That multi plans program is based on.
And so that was the entire entirely multi client <unk>.
Relative to the discovery of the reception has been great.
And.
And.
It's been terrific, we're very excited about the <unk>.
The addition of discoveries services.
Particularly.
Premium restoration.
The premium restoration for Medicare advantage on the RSR D that as an opportunity.
Most of what we do is to help clients manage their claims expense.
In this case this is an opportunity for Medicare advantage plans to identify instances where the.
The payment to them is incorrect and.
To correct it in and change the revenue that they.
<unk> received from CMS.
Instances, where the payment to them.
Rand was incorrect and so that's that's a revenue opportunity for the plan and.
And we're very excited and the reception by our clients has been very favorable and obviously, we're just getting started.
In terms of being on debt as of late February but.
But we're very excited about the.
The expansion of our suite.
The introduction of the customers the wins the discovery already has and in the pipeline we're building.
Great.
The answer to your question based on page seven of the slides, where our revenue is basically 28 three in Q1 'twenty seven one in Q4 and $26 eight in Q1 last year that increase is principally discovery.
Okay perfect. That's what was asking thank you very much and best of luck going forward.
Yes. Thank you.
You can see very clearly that.
We have operationalized, our three part of growth strategy, you see by virtue of we've enhanced our existing product offerings, we've extended those product offerings into adjacent markets such as Medicare advantage is the classic case study and we're working very aggressively to identify service opportunities to be able to provide service.
Services for the other constituents, who we serve the provider community and the and the patient community consistent with our enhance extend and expand strategy.
Articulated previously.
Today's conference call. Thank you for participating.
Yeah.
Yes.