Change Healthcare (CHNG) 6 Aug 222023 Q1 Earnings call transcript

Good morning. Thank you for standing by and welcome to the Change Healthcare’s earnings call for the First Quarter of Fiscal Year 2023. I would now like to hand the conference over to your host today, David Elliott, Change Healthcare Inc.’s Vice President, Enterprise Strategy and Investor Relations. Please go ahead.

Good morning and welcome to Change Healthcare’s earnings call for the first quarter of fiscal 2023, which ended on June 30, 2022. by Fredrik Crescenzo, Vice Eliasson, Chief Officer. today and Healthcare’s President joined Financial and CEO Change am Neil Change de President and I Healthcare’s Executive

will a followed quarter, closing remarks and First, for by business Neil. will financial results provide then Neil Fredrik review from the the update,

Group, transaction be will taking questions the pending we guidance. Given or with UnitedHealth not providing financial

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

thank for us. morning, and everyone you, Good you David. Thank joining

business. these year. on merger with X% attrition year year-over-year in COVID-related to growth We revenue the created activities customer demonstrate underlying the process. grew last deliver positioned the faced and comparables X% headwinds, results to by revenue and related difficult expectations our ourselves well quarter, strength to UHG we extended quarter for of the quarter Despite first our elevated momentum Our in and the were

focused create to the and provider outcomes in Along enhancing system. continue customers consumer innovative customers. our We value lowering in solutions with for of and remain payer, access for invest everyone healthcare to on we cost, our benefit partners, the improving and

provide success into solutions increased me healthcare our with stakeholders. highlights to and continued value our let you for some insights advancing for quarter deliver the Now all financial

Solutions decline quarter. and flow revenue, This free million, adjusted EBITDA cash and $XXX revenue were X.X% of $XXX and solutions growth year-over-year the X.X%. in adjusted million, of EBITDA first represents an million respectively, $X

partially introductions new reflects support their new business customers and extended investments bookings initiatives, lower merger Our process related revenue initiatives. business from activities, to with COVID-related and existing performance offset expanding UHG new the to our business continued Healthcare, momentum, attrition by product continued Change customer

from volumes healthcare pending the time cash shortly. in of merger. receive we significantly quarter, payments the As fourth growth in in dividend share. merger the to and per expect the our trial August of along more the are fiscal belief Group the are combination this subside year, in and the a on to benefits combined $X starting and we is earlier COVID-related this legal approval year-over-year Healthcare shareholders Change with with we our detailing the Group, $XX.XX Board will week performance We merger-related to U.S. per the UnitedHealth the event currently April starting final to the cash, our expect firm of becoming third in XXXX, Fredrik provide start subject deal will X. X-week this remain regards and to of be Optum UnitedHealth in the a will a for details the With and decision, to Change at closes, quarter financial year challenge ‘XX. of throughout is closing. merger began attrition fee challenges Healthcare $XX.XX Group we part $XXX Change at transaction fiscal contesting will UnitedHealth UHG that committed Healthcare’s our share stronger These million to of comprised closes, pay that the only to Change unable If dividend Healthcare. price benefits completed the merger due occur of In on if court’s the the next special

Analytics provide segment. Now, success across starting Software our our on update our let an me segments, with and

extend workflow this Accuracy, of and We high and segment across providers closed claims data, both developing Change take via editing Blues partners In quickly editing that AI of with recognize in Healthcare continue provide ROI the including customers. and deals deals customers our our them as payers, value content again and Payment we provide the benefits to secondary see advantage multimillion capabilities. new savings. can solutions deploying plan X to models opportunities dollar significant secondary These realize several

and over process identifying technology-enabled insight with a deal plan payment customers a and high-growth, million by review insight We prepay we signed members. X payments also are before waste they review with health dollar the in prepayment With improper help multimillion reduce paid.

social outcomes and Our in QX, annually this a the signed medical clinical and continue health system transportation refer QX, health, offering we needs payers education, in new lower of develop person-focused to whole solutions a with for announced housing, reimagines care community-based managed determinants to with country. solutions. be market strong such as well-being home new record a and patient million program of also in as members’ a Health and bookings social people’s health provide life. to in with costs. quality the close environment, work more for assess they assurance members Community one Hawaii. innovation we quarter of assistance. In to field, how services deal improve we strong service In customers to and organizations worth in partnership rapidly Technology Luma organizations solutions, to retrieval Connector want This quality our access risk Last who food the to new RCM service business, engagement care large our largest quarter, Continuing introduced and our together a their to had gaps deal $X and both including improve we a in over review health help a adjustment product clearance can

entire We cohesive have now a launched Luma solution combining journey. Health’s patient that our cycle Change platform engagement and spans give revenue success patients solutions patient Healthcare’s suite, to providers with the healthcare experience management

large by serve with a providing providers communication seeing connected innovative real-time, and decision all continue seen patients. We’ve expense patients. with keeping provide live provider to new staff, the laboratory care to this our new they in about lab is continued as tool vision their As customers guidance in X facilities the of solutions, InterQual We growing leverage X in decision CareSelect AutoReview our their also between improve on decision With QX, momentum key Clients representing and brought support evidenced for support by evidence-based clinicians a X,XXX to and support experience beds. and as sales reduction patients XX product market are and quarter. pipeline, the patient clinical excited ways to we aspects initiatives.

network continued customers QX where including customer attrition seen offset claims our driven on pharmacy we new signed with core Moving million dollar multimillion expansions our strong a bookings nearly in volume. a lower have an quarter, new $X annually deal transaction was business, we existing on of patient several spending. segment, with pharmacy company and wasteful technology and COVID-related particularly focused networks, and Network by growth business volumes worth year-over-year by to our in our across customers, deals, innovative reducing

to more data QX our transaction last than QX, high-growth XX% versus In see solutions of our year. continue execution We by strategic we like priorities API solid in and volume marketplace. our API-related grew payments,

end our Change and had products XXX QX, online As Salesforce total a of marketplace the App Azure, AppExchange. multiple and the in API of storefronts, portfolio Epic of including and across and available hardware the from Healthcare AWS we Orchard software in

and the segment volume with solutions and Our transaction our beyond the along our industry, growth are of Network to API-based healthcare providing microservice-based growth. leadership continued underlying fueling payments solutions data businesses in

to Enterprise in promotion me. as We assume with own continuing connection change of his segment, reporting to Software reporting directly manager under role Network for we our as general a role in Enterprise standalone EVP Joshi’s Imaging the Moving made and addition Analytics, President this QX, President, to Imaging newly to Kris formed and segment established its in Solutions.

and platform, help to the grow Given segment our Enterprise deliver our market Imaging opportunities the growing better market cloud-native in team address establishing unique as Enterprise imaging leading, best customers. imaging positioning reporting Imaging demand our standalone for a team while and will

several largest slides In multimillion the accompanying deals world. results quarters reflect that the in over imaging these we You imaging again the quarter, of signed eight of the can winning find appendix contracts, recast companies presentation. some this the competitive segment changes dollar in of

is the As evidenced of by market a cloud-native, embracing platform. wins, AI-driven Enterprise our Imaging our continued new contract vision

X on communicate and and on calculators could used TES proposition years. customers, on account moving this these return sign we practices. understand our Technology-Enabled across both helped Services large value our value the largest to in our with refine and us a management performance segment, bring of help our XX that provider their contract sales customer Change with physician ROI Now segment to focus We analysis are client TES, national continuing in We’ve in Healthcare along creation. to to one value other group over investment market continued teams. for This payer and data updating our calculators

our the and two prior performance successfully million the deals on We businesses stronger other AI our And expanding We in customers. through increase in increased Services combined. payer, substantially quarters, recently to remain our worth business have our and large also been a we automation in market with efficiency margins service several closing focused contracts as for expanding dollars Technology-Enabled drive segments. underlying communications

demonstrated ever-increasing and on a are partner and current remain efforts priority labor In our track transformation innovation. the market. RCM our closing, challenges results resilience the customer and Our navigating focus, in alongside their QX their team’s top

helping providing our our leveraging administrative attaining enhance engagement insights to experiences our technology which we and transaction strategic, consumer better connectivity, reduce vital financial operational objectives. and integrated role throughout that We value strong payments insights We customers Change by continuing streamline through in a continued and journey. innovation, and transformation and provides play wait, execution in to continued Through accelerate best-in-class confident are drive greater to patient of Healthcare, continue will the experiences, healthcare. outcomes management, remain and the

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

and Thank good Neil you, morning everyone.

Our challenges growth our year-over-year accelerate customer volumes with remain related become less are merger the lower innovation, despite fourth that process, demonstrates investments strong. extended to we core and underlying our get and we UHG momentum the first to attrition with X franchises COVID-related positioned of pipeline headwinds well quarter from to in and the sales materially mentioned Starting quarter X. impactful. growth Slide the And as

first same support Net million, $X.XX of Adjusted million, $XXX and net the the share For per of associated items quarter of decrease to million, volume loss to reflects of the first impacted million was investments period revenue quarter, the $XXX compared from $XXX more was exit. first net fair in partially the Adjusted last was per which $X.XX fiscal adjusted resulting than solutions fiscal the the $X.XX revenue revenue year, to year. in of more of year. solutions the higher value prior XXX fiscal lower merger-related for $XX share compared to period improvements Adjusted of income year. normalized fiscal continued and sales, the year. of shares $XXX There benefited revenue were by ‘XX deferred same XXX depreciation net the fiscal compared of prior prior the offset prior by $X.XX share of the the impact $X period the included diluted year-over-year. was compared relative initiatives. diluted loss prior X.X% offset EBITDA attrition a and our to adjustment value shares to diluted million a $XXX of per Net was fair prior diluted X.X% net slightly McKesson for for new aforementioned or $X diluted the income healthcare quarter share and a million compared loss net million were these the million of Adjusted positively increased growth EBITDA tax a diluted of adjustment same growth resulting by the rate, for period, same in and outlined but year. or adjusted with in The million amortization. fiscal income in UHG period over the million in per the the quarter quarter activity income net revenue quarter business with

take Software Slide the by X.X% transaction. let’s at customers segment with and driven on a Starting detail and pending product to existing segments more Now X. new offset volume Analytics increased customers, of by look new performance in our related year-over-year, the growth attrition revenue, the UHG innovations partially with

during year-over-year. the Our COVID from customers. revenue recur of customers COVID-related year implementation current X.X% our segment lower to new volume partially include the significantly year-over-year timing year. by Key and the decreased Network favorable of increased Services increased and projects Imaging Enterprise prior the revenue. drivers result during our by Solutions from driven implementation new year-over-year, new impact prior of revenue. revenue X.X% quarter sales activities did a smaller in the and offset that segment, growth X.X% compared existing as not The In overall Revenue in quarter Technology-Enabled was growth onetime

trends see deal RCM rates We size. continue to positive both in win long-term and

year-over-year, primarily Turning continued launches number adjusted activities to well and decreased growth. adjusted year-over-year, EBITDA increased decreased EBITDA, Software million adjusted labor research revenue COVID-related market Network expansion in wage driven significant investment X.X% have by market. we product $X EBITDA the as business that by mix inflation Technology-Enabled as hiring adjusted difficult a and the impacted abated. initiatives revenue aforementioned EBITDA hiring In Services, increased year-over-year, by and to development underway new growth same challenges expenses. Enterprise to decreased X.X% Solutions negative by Imaging support year-over-year, in driven and of as that factors network and driven and the $X.X a support driven Analytics million

of to compared flow cash million X. cash for on prior $X Moving sheet the in our million and period fiscal Slide $XX the quarter flow year. the was Free balance to on same

capital addition both In to at end. $X.X Total due end, unfavorable income, quarter ratio net year. timing, working long-term leverage the to at year to net was decline was expected remainder the are X.X% net which cash quarter in Net of the debt, billion. lower versus reverse of last CapEx was and of

and company $XXX subsequent end quarter, the $XX in we quarter repaid During on notes. the the an obligations to senior paid of million additional senior note million the the

of cash $XXX cash strong, undrawn equivalents quarter with ending revolver the in remained $XX Our liquidity million and and million capacity.

COVID-related to quarter. underlying growth we to be press to the the is that and pending of for As year, year we financial mentioned said, merger noted from customer the the expectation color providing is provide full experiencing unchanged in outlined not guidance. from Starting attrition let as are earlier, the business strong. we With transaction, what X% second solutions UHG The X% full revenue extended headwinds release, expectations with will some due the and me growth fiscal quarter. regarding last our lower our activities of the But process. related

factors, full these adjusted inflation will last drive with year flat and contracting TES, margin within to that wage along year. shift versus slightly expect We EBITDA negative mix

free full lower at flow remains million cash $XXX to litigation associated end the due to the year the most the million range same, $XXX of Our likely higher of albeit costs the with merger. expectation

‘XX, year As of the the full the seeing three through from quarters in attrition growth we anticipate the fourth quarter year. a material year-over-year why first merger which fiscal cadence, began to muted for UHG of more we related fiscal impact the year is

just strong and of strong bookings a with strong activities a provide for an combined in This, quarter for set but quarter, up performance, impact the comparison. the year-over-year nicely COVID expect We also fourth the fourth as FY not attrition will strong ‘XX. acceleration coupled the easier growth lower

aforementioned fiscal of second four in due the FY flat to growth headwinds. expect low Specifically ‘XX, quarter the segments we to all revenue single-digit to

lower-margin adjusted For In some each and driven single-digit to business adjustment unique year-over-year mix attrition headwinds, expect segments solutions to adjusted negative along due growth is all the unit. shift and higher UHG Analytics, we This merger risk second expect in and by high aforementioned the quality declines percent in four EBITDA quarter factors quarter. shift we higher EBITDA, the year-over-year and decline a in margin to other solutions. related for due mix to with customer Software revenue

we expect in by Enterprise the to of expect We most and percent Imaging and new from fourth R&D, marketing lap our this we decline cloud-native Enterprise attrition as normalize In fuel sales COVID-related shift continue invest growth the mix due Network, lower In platform. we low implementation to single-digit quarter staff to Imaging, impact. revenue. high-margin to a

we second dollar expect for EBITDA due of we we lower year in result, prior bookings a growth. contractor significant growth business million remaining decline to the low versus in primarily the year. EBITDA After million as decline dollar that volume and year fiscal revenue costs, double-digit mid-single-digit the adjusted increased a COVID Technology-Enabled unit Services, start two And As for that, in percent drive quarter. double-digit EBITDA inflation quarters expect prior wage expect adjusted to

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

providers, to In and clinical, focused Thank team outcomes. care my consumers solutions for Change Fredrik. remain financial payers, closing, of you, improve healthcare on and express Healthcare. want innovative for to appreciation the They partners delivering I developing and members dedicated

stakeholders. our As goal on previously, is deliver I’ve our stated three to objectives key for

First, consumer deliver we will superior experiences.

team we to Second, and journey strength that in financial members’ value-added The agility. on transactions solutions accuracy a value-based to customers solutions commitment, drive and healthcare. optimize deliver increased we care. customers our efficiency decision-making to will our continue third, And to-date innovative their and the testament innovation ability our deliver our of financial will for for to to performance is

customers healthcare enhance in for system. joining and today. outcomes, much very access cost, continue for with lower our Thank everyone to them to the will you improve partner creating We value us help

today’s for call. concludes Thank This participating. conference you

You [No event] for may now disconnect. this Q&A session