Q1 2022 Change Healthcare Inc Earnings Call
On June 30th 2021 I'm joined today by Neil de Crescenzo change Healthcare's, President and CEO and Frederick Elias in change Healthcare's, Executive Vice President and Chief Financial Officer.
Measures are included in our earnings release, and the appendix to the supplemental slides accompanying this presentation I want to remind everyone that copies of our earnings release and the supplemental slides accompanying this conference call are available on the rest of relations section of our website at Ww Dot change health care Dot com with that I'll turn the call over to Neil Neil.
Thank you Ed and good morning, everyone.
We're off to a strong start for the year as a result of the increased activity across the health care system and the continued success with our enterprise sales initiatives, new product introductions and new business implementations.
I'm also proud that we continue to be recognized for our innovation and collaboration having recently been selected as Google cloud healthcare industry solutions partner of the year.
Now let me provide you with some financial highlights for the quarter and insight into our continued success advancing our platform to deliver increased value for all healthcare stakeholders, including payers providers partners and consumers.
First a quick review of the quarter.
Solutions revenue and adjusted EBITDA were $817 million and just under $83 million respectively.
Our strong performance reflects improved health care market utilization as well as continued positive momentum in our customers expanding their business with change healthcare, new product introductions and new business initiatives.
We remain confident in our ability to deliver strong performance as we move through the remainder of the year, while continuing to make significant investments across the platform and executing on our transformation initiatives in our test segment.
Fredrik will provide more color on financial performance in a moment.
In regards to the pending transaction with U H G. I am pleased with the efforts of the teams on progressing the regulatory review and developing plans for a successful integration.
We look forward to continuing to work diligently in coordination with U H G to provide the necessary information requested by the Doj and completing the transaction.
Now, let me provide an update on our success across our segments.
Within our network segment, we saw increased volumes, resulting from improved underlying health care utilization new business wins continued growth in our API related transaction volume and double digit growth in both our BTB payments and data solution businesses.
Furthermore, we continue to see opportunities for growth as evidenced by the signing multimillion dollar contracts in both our medical network and payment solutions businesses.
1 area I would like to focus on is our pharmacy solutions business, including the Rx in Pdx acquisitions, we closed last year, which are both exceeding our expectations.
Our comprehensive pharmacy solution suite includes network and data solutions capabilities as well as pharmacy management software and RCM solutions.
Last year, we introduced the net Rx claims billing and consumer engagement solution for pharmacies.
This enables pharmacies to easily processed and receive reimbursement for COVID-19 tests within their regular workflow.
As easily as they build for prescriptions in flu shots.
As expected, we have and will continue to see significant volumes from this solution.
Furthermore, we are seeing additional opportunities for our Rx assist solution, which addresses critical needs of both pharmacies and patients.
Our emphasis is a dynamic co pay assistance and messaging platform, helping deliver real time prescription savings and educational messaging to patients described initial prescriptions increased long term medication adherence and brand loyalty.
We continue to innovate and expand our capabilities in our pharmacy business, which will support further demand and growth.
During the quarter. We also advanced the change health care marketplace spanning medical network decision support data solutions and interoperability solutions to help per comply with the CMS patient access and interoperability rule.
The change healthcare marketplace now offers 82, 8 die and marketplace products, providing solutions to power revenue cycle management payment and medical network workflows.
We processed approximately 250 million API transaction in the first quarter and are now processing over 80 million API transactions per month.
Moving to our software and analytics segment.
We are seeing opportunities across this segment as payers and providers take advantage of change healthcare as high ROI solutions that leverage our unique insights AI models and workflow capabilities for.
For example in enterprise imaging during the quarter, we signed a multimillion dollar contracts, including 1 of the largest in the company's history.
Contract in excess of $10 million in annual revenue.
Getting this customer's confidence for our largest vendors in the industry, including this customer's incumbent vendor.
Let me provide some color on a notable win that demonstrates the strength of our solutions the enormous untapped cross selling opportunity that exists in our current client base.
And the value being created by our enterprise sales team.
With 1 of the largest payers in the country. We won several million dollar plus annual contract value deal for a number of our solutions, including Dx GAAP advisor a decision analytics solution, which helps prospectively close risk GAAP supporting higher plan risk scores reimbursement and revenue.
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Risk view, our risk adjustment software platform used to understand risk score trends and opportunities, which helps drive financial results and optimize its targets for appropriate risk adjusted reimbursement.
Current retrieval and clinical review, our 1 stop solution for medical records retrieval coding an abstraction for health care payers now wants to increase incremental revenue and quality ratings.
Customer noted that aren't services NLP capabilities and service quality was well Bihar above others.
And in payment accuracy this customer.
<unk> expanded our coordination of benefits offerings into a new large regional market.
Now moving to our technology enabled services segment.
And our RCM services business as we have stated before our approach enables us to improve patient access and experience optimize reimbursement management as well as provide optimal payment solutions.
As a result, we continue to expand our pipeline in gross bookings with continued positive trends in both average deal size and win rates and ongoing success with independent and hospital based physician practice groups.
We continue to expand existing customer relationships as well as signed new customers looking to leverage change healthcare's breadth capabilities.
In addition, as investors, who have followed us know well we remain focused on transforming our RCM business to add greater value for our customers as well as significantly improving our profitability to drive value for our investors.
As Frederic will discuss in greater detail, we remain on track with our $60 million transformation initiative and expect tests profitability to continue to improve sequentially as we progress through the fiscal year.
In our communications and payment services for Cps business, our focus and commitment to innovation and excellence, including our ongoing rollout of our digital first initiatives any.
Ambles us to secure a multimillion dollar contract with 1 of the largest players in the country.
This has further solidified our relationship with this customer by providing our unique innovative solution at scale and enabling them to improve efficiency enhance quality and reduce costs.
In closing, we continue to execute on our strategic operational and financial objectives.
With continued innovation, we are providing greater value by leveraging technology and insights to reduce administrative waste streamline and accelerate payments and enhanced consumer engagement drive better experiences and outcomes throughout the patient journey.
We remain confident that change healthcare's platform.
Which provides best in class productivity transaction management insights and integrated experiences.
We'll continue to play a central role in helping our customers through the continuing transformation of health care.
Now, let me turn the call over to Fredrik, who will review our financial performance better.
Thank you Neal and good morning, everyone.
The first quarter results demonstrate the underlying strength of our business and continued investment across the platform to support future growth and improve our operating performance.
Starting with slide 6 for the first quarter solutions revenue was $817 million, including a deferred revenue adjustment of $4 million as part of the fair value adjustments associated with the Mckesson exit.
$648 million in the same period of the prior fiscal year, which included a $55 million per value adjustments.
We continue to see positive momentum in our business in both bookings and pipeline activity across all 3 segments.
Solutions revenue for the current period reflects a $6.5 million net favorable impact from acquisitions and divestitures when compared to the first quarter of fiscal 2020.1 day.
Quarter was positively impacted by volume recovery and new sales volume across all 3 segments.
Net of the impact of deferred revenue and a net revenue related to acquisitions and divestitures in each period solutions revenue increased 16, 6% a solid foundation as we start fiscal 'twenty 'twenty 2.
Net loss for the quarter was $4 million, resulting in a net loss of 1 cents per diluted share compared with net loss of $59 million or <unk> 18 cents per diluted share for the same period of the prior fiscal year.
Adjusted EBITDA for the quarter was $283 million compared to $197 million in the same period or the prior fiscal year.
Adjusted EBITDA reflects the items I outlined related to the revenue as well as the continued optimization of our cost structure.
Adjusted net income was $133 million, resulting in adjusted net income of 41 cents per diluted share compared with adjusted net income of $81 million or 25.
For diluted share for the first fiscal quarter of the prior year.
There were 323 million diluted shares in the first quarter of fiscal 'twenty, 2 compared to 320 million diluted shares in the same period of the prior fiscal year.
Now, let's take a look in more detail at the performance of our segments on slide 7.
Starting with revenue the software analytics segment increased by 7.3% year over year, However, adjusting for the $50 million impact of the connected analytics and capacity management divestitures revenue not software analytics segment increased 11, 7% over the prior year.
Our network solutions revenue increased 46, 7% year over year, which includes $22 million in revenue from acquisitions.
Excluding the impact of acquisitions network revenue grew 35, 8% in the quarter.
Key drivers include the return to normal health utilization growth from implementation of new customers and continued double digit growth in our data solutions and b to b payment businesses.
We also benefited from increased API, driven volumes as well as COVID-19 vaccine related volume.
You know technology enabled services segment overall revenue increased 21% year over year, primarily as a result of volume recovery in new sales.
<unk> services business continues to be strong with revenue increasing from prior year levels.
Underlying growth also includes new business implementations across our service portfolio.
Our RCM turnaround efforts remain on track and we continue to see positive long term trends in both RCM win rates and deal size.
Turning to adjusted EBITDA software analytics increased 11, 4% year over year, including the impact of the divestitures, we continue to effectively manage our costs to drive productivity and to offset the impact of divestitures.
Network solutions adjusted EBITDA increased 55, 3% in the quarter, driven primarily by underlying growth across the network and the acquisition of <unk> in Pdx.
<unk> also include our continued investments to support the significant number of new product launches and market expansion initiatives, we have underway.
In technology enabled services adjusted EBITDA growth in the quarter was driven primarily by revenue growth and continued optimization of our cost structure. In addition, we continue to make solid progress on our RCM services transformation and the implementation of an accelerated and enhanced transformation program, we announced last.
Yeah absolutely.
Indicated last quarter this value creation initiatives will allow us to continue increasing customer innovation, while driving productivity and fixed cost efficiencies.
Moving on to cash flow and our balance sheet on slide 8.3.
Free cash flow for the quarter was $44 million compared to $102 million in the same period of the prior fiscal year that's from them.
Minder the prior year quarter includes the positive impact of deferring approximately $36 million of interest in payroll tax payments, which we have previously disclosed. In addition, the current period reflects more normalized working capital relative to the prior year as health care utilization rebounded.
Our liquidity remains strong ending the quarter with $109 million of cash and cash equivalents and $779 million in undrawn revolver capacity.
Total long term debt net of cash at end of quarter was under $4.7 billion net leverage ratio was $4.7 at quarter end.
Subsequent to the end of the quarter the company repaid an additional $30 million in loan facility obligations.
As noted in our press release due to the pending transaction, we will not be providing financial guidance.
That said I wanted to provide some color on the expected cadence for the remainder of fiscal 'twenty 2 given the year over year impact from Covid M&A activity and a previously disclosed large contract contraction into yes.
As in previous years Q2 is anticipated to be the trough quarter for the year in terms of both revenue and adjusted EBITDA as a reminder, in M&A the timing of annual delivery under certain multiyear contracts positively impacts revenue in Q1.
In addition, we will continue to be impacted by the sale of capacity management in Q3 of the prior year.
In tests, we will still be impacted by the large contract contraction, which will anniversary in the second quarter of this year and in network.
We are anticipating some trail off of vaccine related revenue in Q2, and the remainder of the year, which benefited our Q1 fiscal 'twenty 2 results.
Overall for the remainder of the year, we expect strong sequential improvement over Q2 <unk>.
Benefits from underlying new business trends in implementations and impact for my test transformation initiative.
Now with that let me turn it back over to Neal for his closing comments.
Thank you Fredrik.
In closing change healthcare remains focused on developing and delivering innovative and transformative solutions for care providers health care payers, our channel partners and consumers to improve clinical financial and care outcomes.
I have stated previously our goal is to deliver on 3 key objectives for our stakeholders.
First we will deliver superior consumer experiences.
Second we will drive increased efficiency and accuracy for financial transaction in health care.
And third we will deliver solutions that optimize decision, making for our customers on their journey for value based care.
The strength of our financial performance and the ability to continue to deliver innovative value added solutions to our customers is a testament to the commitment dedication and forward thinking of our employees across the organization.
We will continue to partner with our customers to help them lower cost enhance access and improve outcomes, creating value for everyone in the health care system.