Change Healthcare (CHNG) 4 Feb 212021 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Change Healthcare, Inc.

Third Quarter Fiscal Year 2021 Earnings Conference Call. I would now like to hand the conference over to your host today, Evan Smith, Head of Investor Relations. Please go ahead.

Thank you, operator. to fiscal earnings December XXXX, welcome third for XX, and of quarter which morning, Change call Healthcare's the XXXX. Good ended on President Eliasson, today CEO; Officer. President joined by de Financial Change I'm Neil and Chief and Healthcare's Change Healthcare's Fredrik Executive Vice Crescenzo, and

remarks a quarter, presentations will Neil formal followed be given IR in remarks Neil. The provide by will the business the be financial the then Fredrik questions. update, taking with closing posted First, of and results which website. referenced pending a the not will OptumInsight, provide on review is for the from will we Also, transaction

Moving on Slide now. X to

we'll measures www.changehealthcare.com. in appropriate, want Investor presentation. the available measures GAAP financial to the of the appendix included our to I Relations slides begin, or which company's the and the are any earnings release Change the our assumes detail by included differ no the several to in earnings results of call section that our financial are conference we obligation may Before by that conference non-GAAP release the SEC to filings. at from statements the for that supplemental statements. Please would the more in results discussed update refer and the law, reasons business. comments Reconciliations evaluate website accompanying as Actual required are remind non-GAAP materially copies where comments for suggested Healthcare financial information. you to remind everyone accompanying call in I supplemental to of like today's also slides include note measures forward-looking in Except forward-looking

Neil. turn X. to over moving now I'll Neil? Slide the Now call to

morning, Thank everyone. you, Evan. Good

improvement Change insights the positive customers provide impact our as COVID-XX sequential growth business performance everyone lives, I execution was across completed Healthcare's innovation our health I accelerate our in review will we remains sales care opportunities. our safe trends continued While driven initiatives well activity hope delivering platform. third into by on and successes, new the strategic as and our expands in to which in will our and utilization healthy. to Today, quarter, ongoing value to I and continues daily

price get receive over June the provide and with IPO January share over per XXXX. half calendar common on Under some and represents price to of share the on be a quarter, of combination $XX premium on into terms OptumInsight Change an announced regulatory premium XX, stockholder the pending approximately conditions, XX% I we $XX.XX on the satisfaction to for is approximately Change subject customary cash Before of stock XXXX the details closing the me the consideration which is the Healthcare share in each agreement, shareholders closing you currently of XXXX let of expected will transaction, January background applicable completed of including The in The of Healthcare of the second the which and X, XX% approvals. stock. X. receipt

customers the to operational care share experience serve unite capabilities union performance. everyone comprehensive to and connectivity in better decision, of technologies, this health in those enabling resulting payment and key workflow sense technologies companies serving more mission The importantly, common a health improving and they effectively We Change financial care. possible. opportunity analytics, provide capabilities makes health connections will and better X focused and by We support clinical experiences outcomes combined and brings lower innovative processes, the brings and are simplify capabilities, system. and and technology across with clinical modern expertise, and a clinical and the excited administrative clinical, connect for administrative Healthcare urgency costs. service values, Optum core our robust more on extensive at advanced and

to Now on let the move quarter. me

In improvement value demand saw focused we across driven into our and customers future, increased deliver we care and to further all the investments including increased underlying customer X conviction bookings aligned today activity, in supports utilization, our and the with health addition by for market's the evolution. to segments. our capabilities This

care, of also administrative care costs, mandates is There compliance acceleration virtual interoperability and outcomes as organizations, a there transparency an pharmacy advances While Medicare These underlying reduce business forward meet value-based due remains health sector as finally, uncertainty of help care both new payer the performance for direct total risk-sharing multiple well fronts. care positive implemented convergence value-based for and Advantage, to which includes The in experience. XXXX, in increased simplify of and innovations result ACOs, including care advances helping unemployment contracting continued Medicare we include increased care program, cost an and our payment the under and rules the and levels Medicare as being initiatives, the in continued remain arrangements. models COVID-XX medical in more the CMS' trends as decrease including on Hospital to of and improve on some data and move to private new and health of or surrounding price accountable model, mix new analytics clients And Home programs. builds and distributed need market improve there's models. services, consumer

and X Healthcare's a be AI using in In AI in life for that Poised Cycle. end-to-end addition, cycle recent also in report we findings today, nearly Revenue development using AI capacity revenue national some the the Change were expected X/X to solutions of programs. found study entitled cycle study Transform: of doctors encouraged providing significant opportunity The while are all years, recommissioned a to it by

to providers there Healthcare's continue increase will solutions denial revenue As insights; providers of payers and Change AI including: accuracy; begin prediction to gains, services. claims and improving the from platform of integrated for clinical demand care operational and These clinical end-to-end significant opportunity strategically, more use cycle; is more. reduction; level an and financial, trends for

shifts them Our helps efficiency; market interoperability streamline platform consumer and payments; coverage; greater improve enable navigate engagement. enhance for all participants; in

an the new business for among The performance improvement well financial quarter continued customer and reflected our highlight as strength our quarter. and franchises utilization briefly extensive I'll core implementations as base. in our in Now

million, the EBITDA and produced of solutions earnings million, flow $X.XX of $XXX share of team per revenue cash adjusted $XXX during free diluted adjusted Our share $XXX of million quarter. per

Fredrik loan financial During our $XXX following our the quarter, B. of on we provide detail million more also remarks. repaid my performance term will

while going Our forward. third structure cost focus sales and enterprise to continue results on our accelerate continued growth our performance our efforts quarter across innovation our platform, we optimize demonstrate and to

our our me on new business payer business, like Now new front. solutions high our all see transaction an and success our we on service resulting suite. e-commerce Connected Consumer initial well growth update value-added in Health traction from to segment, volumes the our electronic Within attachment continued volumes API-related new provide increased as from network let continue as

well role to areas We and suite, are our solutions several claims. our with health Connected processes. health health sales choices from in mid play innovative companies across solutions large as as to momentum eligibility building as care focused digital well new digital as new improve on and our their more allows patients which in health and Health interoperability systems and of AI-driven like initiatives included a administrative active care API health business personalized Consumer This

with who opportunities, more with processes, pipeline solid in a organizations consumerism in RFP addressing of the either in have or health contracting are care. We rise

the with and BXB business, payers country During the with X interoperability including comply XX and over solutions management, processed are and data third providing we volume solutions per XX our to We million health access in cloud-based of transactions in to in increased existing business, leading addition continue company. servicing API interoperability that we continues the now fast-growing, spanning quarter, XX help payers almost transactions and payments worth to medical marketplace, launched offers lives products management network, annually organization to a the over revenue In grow. power Healthcare million new and benefits rule. in dollars patient marketplace well nearly the solutions expand one Change medical with contracts our SaaS payments several Healthcare Change as processing decision and The million network quarter a now API support, API volumes products, services million and workflows. to largest the customers, XXX the month, CMS platform as integrated cycle

our Moving continue we unique to and our Software with & our AI to data, expand risk large payers business, In with segment. quality models Analytics capabilities. a workflow adjustment ROI better solutions business by offering our in

dollar a we area during quarter, signed agreements support for solutions As the X payers. this result, in to multi-million multiple

Change with continued a Healthcare's innovation. our and EMRs, accuracy payment and continue auto opportunities. with Support the of in new the Advisor leading earlier capabilities, also workflow, more advance combined InterQual business result and bringing integration intelligence drive review By our Connect We to Coding as continue to Decision

quarter, a further in States. multi-million As our our the we payers and pipeline have the the In in Imaging result, United our to several advancing signed largest signed dollar enterprise agreements Enterprise continue with the during grow some we several business, new deals, of imaging position market.

several multi-million enterprise size, imaging X within In contracts, with again East. complete including Middle win we to government grow average and group multi-million expand end-to-end addition in core leading sales dollar customer our solution a business, new success we and to with positive closing closed base, agencies pipeline RCM continue dollar our deals. a hospital the bookings, Services In in deal and ongoing rates our for trends

of with existing IDNs and services including a patient one with in sign academic extending this New the relationship to large centers, with to our mid- deals medical deal nation's premier continue York, large-scale groups We organization. hospital access

them X billing customers, insight providing and including coverage added Midwest pay. significant smart also capabilities, laboratory We services, broad

RCM strengthened Services in our for and the wins FY underlying foundation new supporting 'XX. Our growth performance, our the further transformation

executed During strengthen our on performance. to business and accelerate the we growth quarter, also and our initiatives

initiative. we to data-science-as-a-service Management continued And advance we divested business. Capacity our our First, second,

that of links services; we de-identified health on they little household help more people's ethnicity, and patient patient and continued verticals: organizations have national we set accordance and Healthcare's data our to explore claims life these. with correlations of sciences. circumstances The risk receive. between decision support business, care such to status across course, Let in To with de-identified stability, me characteristics how SDoH of the as Change clinical life and resulting Analytics is, Analytics solution, resource further a level, Health provide targeted factors education regulations. The the financial both In of double-digit geodemographic growth, connects affect the all factors momentum during insurers social our reveal financial outcomes. Social housing determinants data-science-as-a-service is to quarter, privacy sciences; science of color outcomes. data care media health, systems, lives an the Determinants launched HIPAA innovative a resource

Mellon Carnegie with present Delphi Research addition Group, complete, Delphi's enhanced COVIDcast COVIDcast conjunction announced Change multidimensional picture pandemic of and impact. from in addition, we COVID-XX University's indicators. The claims more of real-time In the of Healthcare to launch the COVID-XX de-identified a its allows

Moving the on to we quarter. completed divestiture in the strategic that

Management our Healthcare strategy with During business the the quarter, million. The to concentrate of through achieve primary divested power we $XX.X for areas Change that aligned customers Capacity our business our the our best platform. the sale outcomes the for of on

So, to in consumers. providers we on operational innovation, execute objectives. we greater Through financial value our providing to are continue and payers, continued closing, and

how. me describe Let

to we help reduce the transition value-based support providers, burden care and For care. administrative

patients, Change the while payers, reducing central transformation. network remain role in throughout and continue platform, this management a best-in-class which health improve more comprehensive Healthcare's confident drive view costs. will of through risk For that patient processes helping and play for and and insights to transaction our we outcomes to health better experiences provides experiences And management, outcomes journey. enable operational a we connectivity, We integrated customers care

me turn will Fredrik? our the performance. to Now Fredrik, over review let financial who call

underlying third believe to levels strong of continued catch-up you, activity a deferred demand Neil. in underscoring procedures. we the trend and role central more to play the towards quarter, result in improve I'm as care the the morning, previously visits health and happy health quarter. recovery of Good Thank everyone. the normal system report We some activity was care throughout a

we solutions. across underlying platform, the see including mentioned, Neil newly sales As introduced continue strength in positive to market our reception efforts our for

Slide Let Starting fiscal provide to details me our of with quarterly move for the quarter more of now third 'XX. on X. performance

the revenue fiscal quarter, deferred third was million value million, compared adjustment part to solutions fair the the period with prior For in million $XX as the associated same a of year. revenue of including exit $XXX of adjustments McKesson the $XXX

segments. all pipeline We see momentum continue positive our across with X to bookings in business and activity

from outlined deferred of income quarter impact which new the declined X.X%. $X.XX income net million net net million, the $XXX compared share $XXX million negatively net with which fiscal income income same divestitures of resulting the an COVID-XX well for Adjusted X quarter a for net year. revenue of impacted prior period approximately of the incremental and reflects units was to revenue revenue I current There XXX essentially per $X.XX quarter. each segments. diluted XXX of the realization all of million rates. $XXX interest was to Adjusted was diluted were $X.XX the 'XX the was offset as prior year. the $XX.X fiscal quarter $X.XX adjusted in of increase third diluted our noted for also divestiture and year. resulting third the year. divestitures, EBITDA in per adjusted items impact of as share fiscal volume outstanding impact diluted on to Management the EBITDA negative of compared Net the EBITDA, reduction earlier, of Adjusted the related shares compared result same solutions net in as for diluted year-over-year prior related acquisitions in diluted average well per quarter favorable business The per the unit Net income for net revenue prior quarter of by and the in acquisitions in revenue a Capacity was the lower or in $XX as adjusted million December income from million period expense as in Solutions $X.X income the million reflects period unit interest of quarter with synergy reflects $X period, flat the $XX the million, lower Adjusted or with in including of the across the closed by million, pandemic and sales X. as debt partially from a million benefit the fiscal

Slide a take revenue, let's performance Analytics X. declined Starting Now of look by more the year-over-year. on segments X.X% at detail in with Software & our segment the

impact Capacity & prior single due in imaging million Our Revenue mid- a for offset the nonsubscription essentially segment after single-digit to $XX with of was adjusting and primarily with in subscription-based year grew Connected divestitures. digits, low Software flat decrease contingency-based in our the Management solutions solutions was the COVID-XX. Analytics legacy our Analytics which businesses, our

revenue XX.X% million which Solutions $XX from year-over-year, increased in revenue Network Our includes acquisitions.

new revenue of include Excluding implementation Key the drivers impact acquisitions, quarter. growing network data of payments grew X.X% in from digits. solutions BXB the in double both our customers and growth business,

businesses. and from API-driven Healthcare reduced result expansion the resulting from We volumes. new revenue for a the COVID-XX and Change Services of as network disclosed our X.X% certain customer customers the slightly volumes primarily and print declined in segment, volumes year-over-year, Services overall communication with In market to existing activities increased also related of impact that from and previously lower RCM our increased benefited Technology-Enabled opportunities solutions and new

of we Services new year activity saw with also RCM customer, implementations business this portfolio. across includes prior with X line sequentially, service improving revenue the our impact business in Underlying levels. the Excluding growth

RCM efforts we rates RCM trends continue see positive on remain Our and deal in turnaround track, size. and both to long-term win

Turning to EBITDA. adjusted

Analytics Software decreased year-over-year. & X.X%

we driven impact to and and market of have the print launches previously to able acquisition declined PDX. the from EBITDA network include to COVID-XX COVID-XX communications in across and In the we EBITDA of to investments business adjusted adjusted eRx make Network of initiatives Results While investment driven new by the underway. related our divestitures. support the the product Services, continuing by the were impact effectively volumes customer quarter, increased support Imaging significant our in XX% initiatives primarily Technology-Enabled quarter, primarily the growth transformation, and of Enterprise offset lower slightly businesses. partially XX.X% cost number our and the Solutions AI to underlying expansion the and also in to continued manage and contraction disclosed of

accelerated In transformation of and run enhanced we the XX on quarter. a continue Services of cost transformation million on We months. and anticipate our over announced next approximately the we program our make rate implementation $XX progress addition, to savings great basis RCM last

we driving continue us customer while As allow will quarter, initiative to increasing last indicated productivity. value-creation innovation this

in balance last Moving Overall million quarter $XXX third X. our year improved has on business Slide to increased was cash million Free quarter cash the flow was and year. capital year. on Adjusted of cash to the sheet cash compared outlook. confidence to our $XXX fiscal performance period for fiscal the our and in free working flow flow the full $XXX prior million million compared in $XXX flow same stronger

strong, cash $XXX Total undrawn long-term which liquidity under ratio debt, of quarter the ending quarter. equivalents end. revolver X.Xx of and cash term the Credit $XXX end, in of and Our includes net at million slightly agreement leverage million obligations remained in loan cash with quarter's quarter during billion, million repayment was the capacity. at net $XXX over was $X.X

As noted be at previously we note pending quarter the end the will in due year the remain unchanged. of guidance. not to I transaction, the would the press assumptions we second providing though provided full release, 'XX fiscal that

Now his for over closing to it that, Neil let me comments. with back turn

you, Fredrik. Thank

innovative the to their am and proud years, has several our and and dedication worked past transformative care care can patients care of contributions. diligently providers, in what for health I and to care to and financial thrive. accomplished. system everyone employees incredibly our work, am that grateful hard company in I so And clinical, Change the Over has solutions Healthcare develop improve order deliver payers health for outcomes

the combination Healthcare of navigate to provider with together demonstrates, to cost, for remain access chapter team the as value and Change members, I realize when As the long-term customers outcomes. to to This will the OptumInsight, environment you. mark our new and teams will deliver. helping continue payer as bringing future benefits well this serve, of consumers. an the Change highly-complementary customers Thank cultures we Healthcare, communities enhance increased lower transaction that current dedication them and we that completed, and value deliver exciting we will the quarter Thanks and the to start and continue deliver value opportunities innovation improve our to confident and market to