Q2 2021 R1 RCM Inc Earnings Call
Good day, and thank you for standby and welcome to the R word RCM second Poddar from 'twenty 1 earnings call.
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Good morning, everyone and welcome to the call certain statements made during this call maybe considered forward looking statements pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, and particular any statements about our future growth plans and performance, including statements about our strategic and cost saving initiatives our liquidity position.
Both opportunities and our future financial performance.
Our forward looking statements.
These statements are often identified by the use of words, such as anticipate believe estimate expect intend design May plan project would and similar expressions or variations investors are cautioned not to place undue reliance and such forward looking statements. All forward looking statements made on today's call involve risks and uncertainties.
While we may elect to update these forward looking statements at some point and the future and we have no current intention of doing so except to the extent required by applicable law, our actual results and outcomes could differ materially from those included and these forward looking statements as a result of various factors, including but not limited to the potential impacts of the COVID-19 pandemic and the factories at this.
Cost under the heading risk factors.
Annual report and our latest form 10-K, and it related to report on form 10-Q.
We will also be referencing non-GAAP metrics on this call for a reconciliation of the non-GAAP amounts mentioned to their equivalent GAAP amounts.
Please refer to our press release now I'd like to turn the call over to Joe.
Thanks, Jeff Good morning, everyone and thank you for joining us and.
I'm pleased to report strong results for the second quarter with revenue of $353.4 million and adjusted EBITDA of $78.8 million driven by continued operational execution by our team as well as contribution from our technology investments over the past 5 quarters, our team's remarkable commitment and engagement has helped.
And our customers navigate unprecedented challenges and delivered outstanding results along the way.
We've been able to demonstrate the strength of our value proposition and expanded recognition of our once brand with providers and I'd like to extend a big Thank you to everyone on the team for their continued dedication and driving this performance our investments and automation and Digitization are all sorts of starting to yield meaningful sustainable results, we are exceeding our final.
Targets driven in large part by a contribution from cost savings generated by automation as well as higher incentive fees due to improvement in customer performance metrics, such as denials and they are days. These technology investments are also resonating well with prospective customers evidenced by continued growth from our sales pipeline given.
And given the strong ongoing performance along with a steady recovery and patient volumes, we are raising our 2021guidance. We now expect revenue for the year to range from 1.46 to $1.$4.8 billion up from our prior expectation of $1.41 billion to $1.46 billion and we expect.
Adjusted EBITDA of $330 million to $340 million up from our prior range of $315 million to $330 million.
Technology is increasingly becoming a significant differentiator when it comes to our value proposition I'd like to devote some time on today's call to discuss automation and patient experience. We have been consistently focused on these 2 areas as we feel strongly they present, an opportunity to fundamentally transform our industry by substantially reducing the process.
Acreage that causes latency and inefficiency across revenue cycle operations today.
From our vantage point there are over 100 breakpoints at the process interfaces between the patient provider payer and host system when interacting with the revenue cycle. For example, referring providers usually have no visibility into a rendering provider schedule patients are provided with inaccurate estimates of out of pocket pocket costs.
We're not at all billing statements are not delivered in a timely manner. The list goes on and on.
The friction at these breakpoints leads to patient frustration higher administrative costs and yield loss for providers. The complexity of this problem is routinely underestimated by point solutions and technology vendors with Siloed views into a sub process of the revenue cycle and even when technology is deployed into sub processes. It often never.
Reaches its full potential because the accompanying operational change management is typically under resource and much of this friction is pervasive across both fee for service and value based models.
The only way to rectify these breakpoints at scale is by engineering and end to end process from the ground up with linkages into the various revenue cycle sub processes. This is what we did and the period leading up to 2018, we systematically standardized processes at every point along the way we integrated our core technology across workflows.
<unk> and care settings, we understood we could not afford to compartmentalize anything in order to drive transformational change.
The results of our approach as a scaled technology platform complemented by deep revenue cycle and domain expertise.
Our track record is unparalleled and the industry over the last 5 years, we have onboard and more than 35 billion and NPR implemented our technology and over 170 hospitals and 1100 practice locations and clinics.
Rationalized over 603rd party vendors.
Floyd 200, plus standard methods and a standardized texture of and measurement system across the global footprint.
Developed acquired and integrated technology to digitize virtually every patient touch point with the revenue cycle processes.
And with technology integrated cross workflows and processes standardized and 2018, we launched an effort to systematically automate manual processes and our operations. Our automation center of excellence is dedicated to uncovering opportunities for automation and developing innovative solutions that improve revenue cycle performance for our customers and.
And 3 years, we have developed routines to automate more than 50 million manual tasks. We are very encouraged with the accelerated pace of developing new automation and <unk>.
Equating to roughly 10 million new tasks per quarter in 2021 at the same time, our backlog of tasks process map for future automation has grown to approximately $60 million from 45 million last quarter as we've got covered new opportunities.
We are accomplishing this growth through the continued scaling of existing automation across new customers and delivering innovative new solutions. Our initial efforts centered around robotic process automation or R. P. However to digitize the wide range of complex processes founder and provider organizations, we realized we need more than just.
And <unk>, we therefore started complementing our RPI effort with additional capabilities to expand the universe of automated processes. These.
These additional capabilities include optical character recognition natural language processing expert rules and machine learning workflow integration and analytics that can be leveraged independently or collectively to solve automation challenges and manage their digital workforce collectively I would characterize this capability set as intelligent.
Automation, which is significantly more advanced than R. P a alone.
The improved value proposition, we can convey to customers and the margin benefit we retained from automation is profound and we've started to see it flow through to our numbers and we plan to continue to invest heavily in this area. The combination of our deep revenue cycle expertise scaled footprint control over the processes and cutting edge technology are all.
Critical and enabling the success, we've had with automation and.
And with workflow standardized and our automation Foundation and place. The next step of our journey has been focused on empowering the patient experience by enabling self service revenue cycle is typically the first and last step of a health care episode and patients can experience significant dissatisfaction and their revenue cycle touch points to give you a sense of these <unk>.
<unk> and redundant activities at a typical 1 billion dollar revenue health system before contract and with our 1 there are approximately 750000 and phone calls and 700000 paper statements sent out annually and more than 300 employees and local patient access functions.
Even after adjusting for varying degrees of deployment maturity and rationalization across our customer base. We estimate the manual and redundant activities are as follows 15 million annual phone calls, including an average of 3 and a half calls per patient pre service.
5000, onsite patient access and employees and 25 million annual paper statements. The magnitude of this inefficiency and administrative burden placed on the patient is massive and represents a significant opportunity for value creation going forward.
We fundamentally believe there are 2 primary reasons for the significant amount of redundant administrative tasks first is the fragmentation of technology solutions currently deployed within the industry second are the organizational silos that exist across key revenue cycle functions that result, and duplicative activities and poor execution.
R..1 is at a distinct advantage to be positioned to deliver our current and future customers and exceptional patient experience due to our deep domain expertise and commitment to process and technology integration and and the line contracting model. These unique attributes have fueled our conviction and to invest and build the most comprehensive patient.
Variance platform and the market.
Our platform is designed to empower consumers to access and afford care quickly and simply be a digital self service. For example, we can take and inbound order. The first signal of demand for a patient in need and in real time automate authorization rules clearance price quoting scheduling and on boarding this can take days.
Out of the cycle time stressful phone calls out of the experience and wasted dollars out of the expense ledger and that our scale the potential impact to all stakeholders is enormous and.
Just to provide 1 example, and our work with memorial Hermann we're working to deliver the first phase and a digital front door capability spanning their hospital based own physician affiliated and retail ambulatory care sites with the focus of system wide schedule and our commitment is to enable a seamless care journey for consumers.
A big step forward for the organization.
Our recent acquisition of visit pays as a further proof point of our commitment to developing the most comprehensive patient centric platform for the industry.
Let me recap some of the value drivers underpinning the acquisition.
Integrating visit pay establishes us as a leader and consumer payments health care consumer that is arguably the largest and most inefficiently managed liability and our services economy as.
As we seek to solve high value problems to create a competitive advantage for providers, we can't think of a better space for disruptive innovation and believe we will be rewarded well for our investments on consumer payments visit pay also advances our technology platform with a robust AI ready dataset for digitizing and personalize.
And the patient experience, which will enable us to further reduce administrative expense and improve affordability of health care.
In addition to visit pays impressive standalone growth trajectory. We are also already and detailed planning phases of a broader more robust deployment and adoption of visit pay technology across a broad share of our installed base for all the reasons stated previously.
While it's only been a few weeks since we completed the acquisition. We are very encouraged with the increased interest from our core target market of ideas and who are looking to create a best in class digital patient experience to fit the needs of the communities they serve.
We expect to formally launch our comprehensive solution at HIMSS next week and plan to hold an investor event. Later this year to allow the investment community to get a firsthand look at the deep capabilities, we have developed.
To round out our technology discussion I'd like to highlight our announcement yesterday appointing chase treat her on as our new Chief Technology and digital officer. She brings a wealth of expertise and creating digital solutions that drive higher value experiences. He joins us from MGM resorts, where he was senior Vice President and Chief Technology Officer Rich.
Possible for setting the overall technology vision and executing upon all technology investments and M&A activity previously he developed the next generation of applications and cloud services that ultimately powered Starbucks modal mobile order and pay offerings.
We're very excited to have Shay join the R..1 team.
And his contributions will be instrumental and shaping our vision.
Now I'd like to turn to our activity on the commercial front, where we continue to see strong demand for our solutions, our messaging and value proposition are resonating well and prospective customers are increasingly recognizing the superior outcomes, we can deliver VR experience and technology. Our end to end pipeline remains very active and has grown over Q1.
With a healthy progression of activities, leading up to contract and.
The type of health systems, we're engaged with and active discussions from the spectrum, a large for profit and non for profit health systems as well as academic medical centers and hospital based physician groups. The tone of our ongoing discussions is very encouraging and gives us a high degree of confidence and signing 4 billion and new end to end NPR under management.
<unk> and 2021.
And the second quarter, we made progress towards this goal with the addition, and bad acts as an operating partner customer and Med next is a national network of pre Natal neonatal and pediatric providers equating to approximately $1.5 billion and net patient revenue we.
We are honored to have been selected by Med next after a competitive evaluation process and look forward to delivering value to their providers and customers. We believe the driving factors behind the med and access decision where similar to factors. We have discussed in the past comprehensive technology and integration with the host EHR a dedicated deployment function.
And captivity owned global shared services and a track record of results and value. We have delivered for other customers onboarding activities at <unk> commenced immediately after contract announcements and we are well underway with our major onboard and work streams.
In addition to Mad Max Onboarding activities are also progressing well and life point and July we commenced onboarding of phase 3 of the life point business, we contracted last year and to date, we have welcomed over 800 employees from Knight point to R..1 phase 1, which we started onboarding and January is nearing completion, and we are more than 60% along the way for phase 2.
Which commenced in April.
We remain on track to and complete all Onboarding activities by mid 2022, and we're pleased with the pace of progress and value we are delivering for life point.
In closing we are very optimistic about the prospects of our business and are on a strong footing to execute on the opportunity ahead of US we strongly believe that our end to end offering which brings together expert process knowledge experience and technological differentiation is a winning model for providers and difficult to replicate with the investments we've made.
And we believe we have the highest quality lowest cost platform to manage provider revenue and we continue to build on this strong foundation.
Now I'd like to turn the call over to Rachel.
Thank you Joe and good morning, everyone. We're pleased to report another strong quarter with revenue of $353.4 million up 12, 3% year over year and.
And EBITDA was $78.8 million up 27% year over year.
Adjusted EBITDA margin for the quarter was 22, 3% up 160 basis points from 27% and Q2, 2020, driven largely by higher and empathy.
Reviewing the results in more detail net operating fees of $285.2 million declined 1% year over year, primarily due to COVID-19 related volume pressure, which was partially offset by revenue from new customers.
Experienced our highest peak of Covid related volume pressure on our net operating fees and Q3.2020. This pressure. However is still reflected in our second quarter results.
And a sequential quarterly basis, net operating fees, where candidly really flattish due to continued COVID-19 related volume pressure at some of our customers and the December 2020 to February 2021 time frame.
Incentive fees at $37.5 million were up $36.2 million over the prior year and $8.5 million sequentially, driven by strong operational execution and <unk>.
And the fees, which are based on current quarter customer performance metrics and index to recent cash collection and that's more heavily impacted by Covid and related volume pressure in Q2, 2020 and showed marked improvement and this quarter and other revenue of $30.7 million increased $5.1 million year over year and $3.2.
And sequentially driven by growth from Sci and recovery and condition and advisory services volume.
The non-GAAP cost of services and Q2 was $254.5 million compared to $229.8 million last year up $24.7 million driven by incremental costs associated with network and the onboarding of like point.
Our automation and Digitization efforts continued to drive efficiencies and despite the onboarding costs related to life point non-GAAP cost of services as a percentage of revenue declined by 100 basis points year over year.
Non-GAAP SG&A expenses of $20.1 million were up 2.6% year over year, primarily driven by travel and support costs related to new commercial and contracting activity.
Adjusted EBITDA for the quarter was $78.8 million up $13.5 million R..27% year over year. This increase was largely due to higher incentive fees and our automation effort, which is driving productivity and enhancing our margin growth.
Lastly, we incurred $9.8 million and other costs in Q2 down $8.2 million year over year, primarily due to a decline and M&A related costs and lower real estate rationalization costs.
Turning to the balance sheet.
Cash and cash equivalents at the end of June were.
$164.9 million compared to $103.5 million at the end of March we.
We generated $82.5 million and cash from operations and Q2, driven by strong adjusted EBITDA and positive working capital during the quarter and we expect our free cash flow conversion profile measured as cash from operations less capital expenditures as a percentage of adjusted EBITDA to improve in 2021.
And to 2020 due to focused working capital management, and moderation and strategic and other expenses.
These expenses were higher last year due to increased M&A activity COVID-19 related costs and real estate rationalization.
With the completion of the visit day acquisition on July 1 we amended our senior credit facilities to fund a portion of the acquisition and to allow flexibility for future capital needs.
On July 1 with $820 million or $330 million of availability under the new revolving credit facility.
Net debt was approximately 680 million after taking into account cash paid for a portion of the acquisition.
Our liquidity position is significantly stronger following the refinancing and <unk>.
<unk> $470 million and total liquidity as of July 1 versus $194 million before this refinancing.
Turning to our financial outlook, given our strong performance and the first half and if recovery and patient volume and we now expect 2021 revenue of 1.46 to 1.48 billion up from our prior guidance range of $1.41214, 6 billion, representing a $35 million increase at the midpoint of the range it.
We are raising our adjusted EBITDA guidance to $330 million to $340 million up from our prior range of $315 million to $303 million, representing a $12.5 million increase at the midpoint of the range at all.
And our updated revenue guidance reflects an expectation of patient volume modestly above 95% relative to 2019 pre COVID-19 level.
These stronger volumes to flow through and more prominently in our Q4 net operating fees.
Narrowing our GAAP operating income guidance to a range of $135 million to $145 million due to higher depreciation and amortization expense. Following the visit day acquisition as well as higher stock based compensation expense tied to employee share Awards and the addition of new employees and disappears.
We expect costs related to strategic initiatives and severance and other items to come in below the range of our previous guidance, partly offsetting the incremental expenses.
Lastly, our updated guidance incorporates a $10 million and as the pay revenue contribution, but minimal Q H 'twenty, 1 does it pay EBITDA contribution.
To round out our guidance discussion.
Net revenue and adjusted EBITDA in Q3, and Q4 to trend higher sequentially consistent with prior years, however, with a relatively stronger Q4, teekay recovering COVID-19 volume discussed earlier.
In closing I'm proud of our team's continued strong execution, notably reflected and our incentive fee revenue delivery adjusted EBITDA growth and strong cash flow from operations.
With a solid start to the first half of the year and continued momentum and the business. We look forward to executing against our updated 2000 and 'twenty 1 guidance of $1.4 6 to 1.48 billion and revenues and $330 million to $340 million and adjusted EBITDA.
Now I'll turn the call over to the operator for Q&A.
Operator.
As a reminder to ask the question you will need to press star 1 on your telephone and so we do.
Who are your question press the pound key please standby and will be compiled the commodity roster.
Your first question comes from the line of Charles Li Please state Your company. Your line is open.
Hey, guys, it's actually James on for Charles.
Can we talk about our patient volumes currently.
And I remember when we last spoke in late June I would imagine that patient volumes were above 95% and pre COVID-19, obviously guidance assumes.
And the 90% to 95% previously assumed.
And talking about how patient volumes have trended recently and any impact or and anticipated impact from the delta variant to our patient volumes.
Yes, James This is Joe Thanks for your question.
The first thing the first thing is we as we unpack a bit what we're seeing on patient volumes.
1 <unk>.
Remind.
And the way our business works I'm going to comment on on a leading indicator of patient volumes, what we're seeing and actually what we look at is what's called gross gross charges posted.
Which is a future proxy for cash that we're going to collect now as you know well our base fee is indexed off the cash we collect and there was about a 4 to 5 month lag.
Depending on the payer dynamics and the customer dynamics in that in that cycle so to speak.
But but indexing off that leading indicator.
In the past 60 days and looking forward.
We are encouraged with patient volumes and we see them above that 95% upper bound that we had previously referenced now that will show up and our net operating fees, a little bit and Q3.
But as we look to Q4 and even into 2020..2 we will see the flow through of that volume. So that you know that's the dynamic we're seeing right now as referenced on the call. When you look at our Q2 results on net operating fees that net operating fee is actually I'm looking at volumes from the December Jan.
And you were a February timeframe billing volumes, if you will and so that was a time period, where we were in the second wave or a wave of COVID-19.
That had that had depressed volume so that's a little bit of the dynamic I think the most important thing is looking forward based on.
Leading indicators on volumes that we're seeing right now and have been seeing for the past couple of months. We are very encouraged and that is trending above the 95 per cent in aggregate level. We have some care settings that are above pre COVID-19 I would say E. D is still a lagging, albeit it is improving quite nicely.
From the start of the year.
Relative to the Delta variant it's really.
It's really hard.
For me to have any concrete predictions and the only thing I would say is we.
And we aren't seeing any material change and and.
And volume activity and we're looking at this as you would expect us to.
Quite quite closely on a very frequent basis.
Okay.
And also you've reiterated the conviction and the 4 billion new NPR target this year with continued growth and our sales pipeline.
And maybe you could characterize the opportunities and the later stages for US and also the visit visit pay serve some blue chip health systems, like guys and girls and Texas Health resources have you started any dialogues with some of the visit pay customers regarding serving them as.
Their end to end Rev cycle management partner.
Yeah, Let me comment first on our end to end pipeline and just some of the.
Dynamics or some of the items that underpin our confidence and then I'll go to visit a PE.
And then and pipeline is up nicely in the quarter since last quarter and as you'll remember it was up quite nicely year to date and our last update so we're encouraged by that pipeline and the activity and the market continuing to grow in aggregate.
If you look at some of the later stage opportunities 1 of the things that is encouraging for me, it's very balanced in terms of the archea types of systems that we are in late stage discussions with we have a healthy amount of for profit system that continues to be and.
And area, we think we compete well into and and we have a very material amount and non for profit.
And then on a smaller scale, but there is activity and the academic and market. So I think what you're what we're seeing is the applicability of our model and our value prop is resonating with the broader market.
If you look at our coverage meeting what amount of of pipeline activity do we have are in late stages against what's our remainder in terms of guidance. We are very very pleased with the coverage ratio, we have and the <unk>.
I don't think I would say.
James as you know, we typically see a fair amount of activity and May and we typically see a fair amount of activity art acceleration and some of our late stage.
Items coming out of August and and I would expect.
And that cadence to be similar.
Similar this year so again.
Both short term.
And we're very encouraged in line with the comments I provided and then longer term.
And given.
The limited penetration and I say that and a positive sign and sort of the significant amount of market that is still a captive and we're very very encouraged.
From the end and pipeline, we are seeing nice movement on our modular book of business and our physician offering so as you saw it and our other revenue are modular.
Revenue was up nicely and we continue to see healthy progression and those discussions and 1 of the things. That's encouraging for me is it has a much more patient experience technology orientation.
To that along those lines and then specific to visit paid listen.
We're only a few weeks since we've closed to that acquisition and we've been and are positioned to.
Formally engage in partnership with <unk>, the CEO of visit pay and his team.
And that short period of time I am very encouraged by.
By the opportunity for us to complement the strategic dialogue and further differentiate the visit pay platform and their pipeline, which is very significant and as you said it and 1 of the things we like about this business it's targeted at the large idea items.
And then where are equally excited about some of the discussions we've had along the lines of potential expansion.
And to some of the broader capabilities that we offer together and they are currently contracted base. It's early and those discussions you know I wouldnt characterize them.
And as as overly developed or overly advance just given kind of the limited time since we've closed that deal.
But nonetheless, it's very encouraging from our from our vantage point.
Okay. Thank you.
Thanks James.
Yeah.
Your next question is from.
And with Keybanc Your line is open.
Hello, and thank you.
And you hear me.
We can hear me and John Great Wonderful, yes. So there was a lot of conversation around incentive fees being higher than you.
And I expected it seems to be driven by a lot of the investments you've made it and automation and Digitization, which you commented on so going forward is this going to be something that's going to be different in your P&L is there a way to think about what that incentive fee revenue line should look like over the next 4.
And 4 to 8 quarters.
Yeah, we.
The first thing I would say is is our our view is that incentive fee.
A line item on revenue.
Is earned and under Writable, what I mean by that is so long as we don't degrade and performance and the way our operation works once we achieve sort and the performance levels.
We feel confident.
And we're in a position to maintain and work on improving off of those so.
So I think it's that incentive fee revenue always for us.
And has been a component of our value prop and a component of our economics that we plan around.
And that was a.
A factor if you'll remember at the start of the year. In addition to automation and technology investments and there's some inherent linkage between those in terms of us looking out over the long term and.
And having a degree of conviction on increasing our profitability targets.
And that we communicated previously and the other thing I would say is as this has been a very conscious priority as we've transitioned work as we optimize the footprint and as we've gotten our technology deployed what youre seeing is a very logical progression of our operating model and and and.
Conscious with intent by US the next lever we look to pull on this journey is to is to see the benefits on performance and and I'm encouraged that we're seeing that that's frankly, the expectation we had of our operating team.
And and that team has put a lot of effort and planning and and and and deploying accountability Oh.
Around those expectations.
So that's how we think about it.
And I think over time.
And what what I would expect us to.
Continue this dialogue with investors.
And and and continue to see progression and in this line item of our of our pricing.
Okay, and then maybe my follow up question separate topic life point seems to be on track in terms of where you're at and deployments but.
There's a broader MPR opportunity at life point. So I guess question number 1 would be any update there when you might you know if you.
And do well and the first tranche with low point to get the second tranche and and.
And obviously there have been some media reports about light point, Mckee and acquisition of Kindred and and other other things.
What is kind of RCM support behavioral house and post acute care I don't know if I recall you talking about those gross.
And health care.
Yeah, Let me start with Yeah, let me start with some with the last.
Last question first.
Absolutely have and our current contracted book of business.
All of those specialties post acute behavioral home health et cetera, those are all.
Components of R.
Large IDM customers and so we have a referenced the bowl.
Oh demonstrated installed base that that can contribute to any evaluation.
That is done whether it be by life point or any other customer and the market and if you look at our pipeline we have.
Other <unk>.
Providers in those specialties that we're actively engaged and with.
I'm not going to comment specifically and I think you can appreciate why.
And on pending announced.
Uh huh.
M&A activity by life point, but what I will say and it has been our strong focus is ensure that we deliver a high quality deployment on phase 1 and.
And that's what we can control and I am very encouraged with our progress there and I would expect I would expect and and I would.
And you'll hold our teams accountable that overtime that should evolve favorably for us and that relationship with life point.
But again, the most important thing for us.
And is serving the contracted book of business very well and I think we're doing that.
Gotten good feedback from life point and.
And I would say the the other thing that we're very focused on.
Is is just demonstrating our Texas technologies flexibility in terms of the myriad.
The amount of host systems that we are able to connect into and that's a that's a key priority for us and on that front and it's also going very well.
Great. Thank you. Thank you so much.
Tom.
Yeah.
Your next question is from Stephanie Davis with first.
They're Inc. Your line is open.
Hi, guys congrats on the quarter and I have a few questions on this call.
<unk>.
And first off I, just wanted to tell a little bit more about the integration of the acquisition identifier and where does it have to chalk where are you a binding and merchant processing relationship.
So let me and integration of the acquisition now now it's relatively as I said before relative and I'm not sure and sort of how that time, but that being said the.
And the teams are fully spun up and and let me take a step back from a from a integration strategy standpoint, Ken Ive and half the CEO of visit pay and founder of the company is going to work directly for me that team I want to have a direct line into that team via cash.
Because I do think to your point Stephanie there is some very interesting and disruptive moves we can make as we look at the.
Payment ecosystem and merchant processing is definitely a component of that looking forward and I just want to make sure. We've got a lot of focus and empowering the visit PE team.
To play offense from their area of domain expertise. So we're going to we're going to have.
And <unk> count work directly for me, we don't want to disrupt the momentum he has in.
In the.
And the market and we also want to kind of empower him and give him a long leash.
2 to invest in and what we think is a quite interesting opportunity to disrupt and inefficient.
And process.
And in health care payments today.
So with that being said our primary focus has been in 2 areas..1 is making sure and the commercial channel. We're very coordinated and I think it's a positive is a lot of the discussions we're having with prospective customers. There is a parallel discussion that visit pace, having with those same cost.
Tumors on a niche or a component of the technology architecture, So Gary long, our chief commercial officer in partnership with tenant they've gone through a very systematic.
Planning exercise.
2.2.
And to optimize our joint commercial efforts I'm encouraged with that and then the other area is.
The full deployment of the visit pay platform into our contracted book of business and what I'll, what I'll remind you. Stephanie is when you look at that the reason that is such a significant priority for us it's it represents.
A high amount of synergy capture that we contractually control and and those synergy levers and in 3 areas.
Let me reference how many paper statements we have going out every year. We think we can get digital adoption on the payment process to 75% and we think it's almost a 1 for 1 offset and just for.
Eliminating that inefficiency and that cost the second thing is right. After we get digital adoption at that level, we significantly reduce the amount of inbound phone calls by patients who don't understand their bills a significant amount of cost we carry today to manage that.
Inefficiency and the third thing is driving the patient yield and.
And the incentive fees, we earn when we improve patient and yield. So when you think about those 3 levers applied across our 42 billion of contracted business and the synergies that we should control and we should have a high degree of confidence and executing our very significant and I estimate those atmel.
Surety to be you know.
And well above the 2022 EBITDA, we expect from visit pay which we had referenced previously at around $7 million to $8 million. So so that's the primary focus for us what I would say Stephanie as Kent is starting the process.
To really understand.
The payment ecosystem. He has a number of relationships with merchant processors as well as the other players and that ecosystem.
We're engaged and with our customers to understand kind of what are the boundary conditions, they would be comfortable with us operating in or changing and.
And at a headline level, we do think there is a significant amount of inefficiency and we can bring to market just given.
The integrated <unk>.
Contract and the nature of that we have.
A disruptive move on on that payment ecosystem, but we don't feel like.
We have to.
And that's something that we can put a fair amount of thought into and execute with confidence looking forward.
And a follow up to that then with the idea that merch and acquiring and basically that's beyond the tech having a sales arm and have you found and leveraging your core sales force beyond and visit day sales force you can really sell that and a client or how they don't want they can upsell opportunity.
I would I would say I would say, we havent yet Stephanie really started to think about that part of the process.
The merchant acquisition.
Right now we.
Got so much commercial activity that we're trying to cover.
And our core offering that just a function of time and a function of capacity. We've had you know.
All hands on deck, so to speak just to serve.
That portion of our business, but I would think over time again, and I'm going to really lean on the visit pay expertise.
As they as they spend time unpacking, the opportunity set and where can we really.
Add value have a right to play be confident.
And that that we can do something better than the current market participants if we see those factors play out we absolutely.
And would think about it.
Expanding capabilities sets are extending capabilities sets, but I think it's a bit early right now for us.
Understood. Thank you Ken.
Thanks, Stephanie.
Your next question is from.
Sure.
From Bank of America. Your line is open.
Good morning, Thanks for thanks for having me on the call.
Yeah, it's great to have you and Mike. Thank you.
And I appreciate the color so far Joe I wanted to go back from some of the commentary you had made on the automation.
Work that you've done so far and thinking through the accelerated spending that you have accelerated programming as you think about taking almost a halftime break and looking at what you've accomplished vs. What you have going forward.
And then any pitfalls that you've seen with clients as you implement and some of these automation capabilities all of these automated tasks and <unk>.
As you go have clients as part of that.
Mapping on a go forward basis asked you to do more of that you didn't already have within your own roadmap.
Hum.
I think as we.
As we reflect on what have we learned.
Along the way I think 1 of the things that's.
And that we have to understand the potential of this technology.
From my from my Vantage point, if you think about the.
The operation and the demographics of our operation and the applicability is massive of this technology and the long term implications are really really exciting for us.
And I think for the customers, we serve that being said.
The monitoring maintenance management of the automation routines and the.
And the attention to detail on synchronization of systems change management is a very important component and I think thats and thats, probably the biggest thing that and partnership with our customers.
We've learned and and and we've built capability around.
So that that.
That's what I would highlight along those things, Michael and and I'm pleased to report.
We've got a very very sophisticated automation monitoring and change management.
System of operation in place and that's probably been in place for probably about the past 6 to 8 quarter, So pretty early and our journey we recognized that.
And that requirement.
I don't know so much if we've you know for sure we have a collaboration with customers and and we jointly identify areas of opportunity what what I would say for US is is more critical that that gets fully resource it's not actually I mean, the technology development is.
His key very important and and <unk>.
Has to be and focus, but I would say equally if not more important is the business analysts and and this is the people that understand and.
At a very detailed level the current state process and are able to work hand in hand with our technologists.
And to define a new and different way using automation and to run that current state process and it's never as simple as hey, I have a board that is replacing 1 for 1 tasks that were done before these processes inevitably end up.
And some hybrid theirs and their future state Theres some annual activities there is different.
Technology levers, whether it's R. P. A R others that I referenced on the call that have to get strung together to really.
Achieve the intended outcome and so 1 of the things that I think has has.
Contributed to our acceleration is the fact that we have so much domain expertise because we operate the current state at scale today and.
And we have those resources ready only available to.
And to sit down.
And map and define the opportunity set and you see that I I'm I'm very very encouraged.
And that as we've increased our manual tasks that are automated.
Looking forward, our backlog is increasing of future opportunity to automate and I think that's a direct function of <unk>.
1 expanding the technology levers, but but also just our operators being.
Able to continue that progression.
Of the of the manual analysis, and and continuing to identify ways to automate those so those are some of the things that I think for us have been key takeaways E. R.
And we're 3 years into this so so we have a fair amount of.
Experience, we're working from.
That's definitely helpful. Joe and just 1 other question going back to bed next obviously this is a strong deal win that you announced after the last quarter you mentioned the competitive dynamics of the contract as you think about this maybe as a precursor for the execution on the rest of the late stage pipeline has anything changed in terms of the.
<unk> dynamics, the RFP process because of Covid is there anything else from a tiny implementation perspective, you mentioned the dynamics to guarantee the incentive fees, but anything else that you're seeing that's different in terms of what prospects are asking you to bring to the table when you're pitching for new business.
I don't know if it's necessarily different as a result of COVID-19. The only thing the only thing I guess I would highlight as.
And as if I, if I opened the aperture if I open the time aperture off.
Over the past 3 years.
What we are seeing is a higher propensity.
For customers to be comfortable to engage in and operating partnership where there is a transition of control.
And and they're there they're very focused on the.
And the cost efficiency component of the value prop as part of that transition of control. We definitely are seeing that trend now.
We feel great about our competitive position global scale Cigna.
Significant investment of technology that started sometime ago and all of those things contribute to.
2 R. R. What we think is a very.
A strong competitive advantage on on and on the cost of our platform and.
And kind of how we're able to convey that and our value prop. The other thing I would say Michael is technology fragmentation or said differently. The agility of the revenue cycle to respond to changes and the environment coming out of Covid. That's a theme that we're seeing and playing through and that manifests itself for.
Us and.
Hey, listen.
How can we simplify the vendor base, how can we simplify the technology architecture and the interfaces to the host systems.
Which will allow better visibility and better agility to respond to market changes and those market changes could be strategic changes. So our customers are making and in terms of care settings or strategies on on payment models or they could be environmental changes.
And that are not really controllable.
As COVID-19 or are other dynamics. So those are the 2 things I would highlight.
As we look at activity today with customers.
Great. Thanks, so much Jeff Thanks, Michael.
Again, if you would like to ask a question press star 1 on your telephone.
We have a question from Sean.
And with RBC capital markets. Your line is open.
Thanks.
And maybe.
The key ex solutions and.
Joe You mentioned, the 3 levers of value those can drive when deployed.
Ill quantify a little more the white space that exists for those and your existing footprint.
And maybe if we could bring it down to something that's simple.
If you have a client that isn't using <unk> solutions and you were to implement all of them, including now what visit pay brings and what.
What would that do to the revenue and EBITDA profile of that contract would that be something.
Something like a 20%, 30% revenue enhancement and something much greater than that to EBITDA. Maybe if you can just kind of help dimension that a little bit more for us.
So if you think that's let's think about the PX levers and our currently contracted book of business and and we're very focused with our with our PX platform. We are very focused on the use case, where where providers want to partner with us.
And they want to fully integrate from order referral through scheduling.
Through intake and clearance and through payment. Okay. So so that that's where we're directing our internal efforts are for use cases or customer personas.
And that feels strongly for them to get a differentiated outcome they need to.
Work with a partner and do the heavy lifting to integrate those process flows and integrate those process flows across the workflow or the process and fully integrated across all the care settings. When you look at that use case.
What what youre not going to see Shaun we contract by and large.
Day, 1 all the scope we can contract as you know, we sit down with that customer and and we strive to achieve the maximum day 1 scope definition, we can get so we want scheduling we want intake we want.
The coding and H I am operations and all the way through payment. So as you think about the applicability of this PX platform and that commercial model, we're not going to see a huge increase in revenue because the revenue is already contracted and scope, but what we are going to see is it flow through on the on the profit.
<unk> ability and and some things that I would throw out that are proxies for the impact that would have.
We think 50% of at least 50% of the inbound phone calls where patients are picking up a phone and calling a call center and how that could be a call center, our scheduling call center that could be a pre registration call center that could be a payment and call Center R. R.
A redundant or duplicative not necessary at a minimum we think that should be and expectation. We have on our teams who are using the technology solution. We are building.
We think the majority of pre service and counters and scheduling operations should over time get to that 75% threshold on self service enabled where we're empowering the patient or we're empowering the referring physicians office to <unk>.
Schedule out of their technology and have a patient and never leave a primary care visit without a scheduled appointment for for their next.
For the next episode of care and whatever care setting that may be I talked about payment and we think 75% of statements going out today should be digitized and enabled.
On a self service basis, so when you roll all that up and you look at kind of the cost that sits today.
And these various functions.
I think the opportunity set is quite significant and we think.
There's more than enough inefficiency to work with where we can convey a very strong value prop to the providers and.
And at the same time, we can also earn and appropriate.
Return for the technology investments, we have made and we intend to make going forward.
Okay. That's great. That's very helpful. Thank you and then.
And then maybe going back to the guidance increase if we exclude visit pay from both revenue and EBITDA range does it imply that margins on the incremental revenue and be very high.
Can you just help frame price is is this the benefit of operating leverage as this is a bigger mix of incentive fees. You mentioned earlier some lift from the tech investments are you delaying some spending and investments maybe just if you could talk about the drop through.
Actually we you know if if if I if I, if I unpack our euro a bit.
We've.
We've authorized increased tech investment over the course of this year above what we had originally budgeted. So when you look at when you look at our raise on guidance.
It's net of us investing more than we had planned at the start of the R. So none of it is related to a slowdown.
Throttling of of investment so to speak.
And what you're really seeing through I think there's 2 dynamics 1 the incentive fees are flowing through a very high margin because the marginal cost we invest to improve performance.
Not a 1 for 1 theres very good leverage in that and generally.
When we're moving the needle on incentive fees.
As I said before youre seeing the progression of us getting the improved outcomes.
Following the deployment of our technology and that's what we expect from our operators and I think so I think it's a very logical progression.
Progression associated with our business model and then the other thing you are seeing is and the other revenue line as I mentioned before some of those modular solution or the modular solutions that are really driving that growth are more technology oriented and so you're seeing that margin flow through as well.
Okay.
Great. Thank you again.
Thanks, Sean and.
And with that.
We've got 1 more question from from Baird I think.
Yes, we have a question from Vikram Purser Bolton with RW Baird. Your line is open.
Yeah. Thanks for taking the questions I guess first I'd be curious just given the recent news flow around just COVID-19 volumes and adult for Varian and I'm. Just curious if do you think there is any potential for that to impact the sales cycles that prospective customers and your pipeline or the onboarding timelines of your existing customers would be curious to hear about and how youre thinking about that and the current environment.
I don't think it'll book I don't think it'll impact the Onboarding timelines are current customers just given kind of the momentum those.
Deployments have.
And.
It's hard for me to tell it what I would say is we're not seeing any correlation.
And and we would see that pretty real time of customers.
Whether we have site visit set up with prospective customers are we have meetings on the books, we would start to see those get pushed out or or whatnot, and and we're not seeing any of that and based on the based on the tone and and.
The dialogue we're having.
With prospective customers and pipeline I don't get the sense that.
And that that we're going to see a.
A bunch of movement, that's correlated to Delta now.
We're learning every day kind of.
And how this evolves and so that could change, but but based on right now no no changes to our deployment I would expect again just based on the inertia and that's in place behind those activities on our side and on the customer side.
And and we Havent seen any indications that there could be.
Ladies and commercial discussions we're having.
Okay, Great and then just a follow up on your comments around automation and you talked about the increased backlog and past that our math from future growth now just curious if there's any update to your expectation around the timing or magnitude of EBITDA contribution that can come from that automation process and the coming years.
No updates right now I think we feel very comfortable with.
Some of the indications we've put out for 2022.
Around kind.
Kind of the impact we expect on EBITDA from automation.
And I would say.
The progression, we are seeing and the and the uptick in backlog.
And is.
He is very much aligned with with what we expected and what underpinned our kind of future long term view on kind of a.
Adjusted EBIT and EBITDA margins on our business model, which we put out at the start of this year as well. So again I think it just bodes well for for kind of some of those.
References points that we've we've communicated previously, but no updates to those reference points right now.
Okay.
Okay, great. Thank you.
Thank you very much.
And there are no further questions at this time now I'll turn the call back over to Joe from Dan.
Thank you Mary for all your help moderating the call and thanks, everybody for joining us today as referenced we're pleased with our performance and the first half half and the and the continued momentum and the business and and we look forward to updating you on future calls and ongoing process. So thanks again for all of your participation and Mary I think we can close the call.
No.
Thank you.
Today's call. Thank you for participating you may now.
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