Business Context and Reporting Period
The submitted filing is MultiPlan Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The request identifies Claritev Corp, but the filing names MultiPlan Corporation, formerly Churchill Capital Corp III, as the registrant. MultiPlan provides healthcare analytics, network-based, payment-integrity and revenue-integrity services to U.S. healthcare payors and operates as a single segment.
The October 2020 business combination was accounted for as a reverse recapitalization. Prior-period results reflect the historical MultiPlan business and have been retrospectively adjusted for the transaction’s share exchange ratio.
Financial Performance and Position
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $276.3 million | $206.9 million | $531.1 million | $458.9 million |
| Operating income | $89.8 million | $20.3 million | $172.1 million | $107.9 million |
| Net loss | $46.9 million | $56.2 million | $1.1 million | $58.8 million |
| Operating cash flow | Not separately provided | Not separately provided | $204.4 million | $191.9 million |
| Adjusted EBITDA | $205.3 million | $149.8 million | $396.4 million | $345.7 million |
- Revenue increased 33.5% year over year in the second quarter and 15.7% for the first six months. Analytics-Based Services grew 39.5% and 19.6%, respectively; Payment and Revenue Integrity Services grew 46.0% and 24.3%.
- Second-quarter operating margin was approximately 32.5%, compared with 9.8% in the prior-year quarter. Six-month operating margin was approximately 32.4%, compared with 23.5%.
- Second-quarter net margin was approximately negative 17.0%; six-month net margin was approximately negative 0.2%. Net income before taxes was $3.2 million for the six-month period, but a $41.2 million non-cash increase in warrant and unvested-founder-share liabilities contributed to the reported net loss.
- Adjusted EPS was $0.17 for the quarter and $0.28 for the six months, compared with $0.09 and $0.26, respectively. Adjusted measures exclude, among other items, amortization, stock compensation, transaction costs and warrant-related fair-value changes.
- Cash and cash equivalents were $148.0 million at June 30, 2021, compared with $126.8 million at December 31, 2020. The company reported $450.0 million of undrawn revolving-credit availability.
- Operating cash flow of $204.4 million exceeded capital expenditures and capitalized software purchases of $36.8 million, but investing cash flow was negative $180.9 million primarily because of the $149.7 million cash acquisition of Discovery Health Partners, or DHP.
- Net debt was approximately $4.7 billion based on $4.9 billion of carrying-value long-term debt and $148.0 million of cash. Debt consisted principally of a $2.341 billion Term Loan G, $1.300 billion of 5.750% senior notes and $1.300 billion of senior convertible PIK notes. The reported annualized weighted-average cash interest rate was 4.5%.
- Interest expense declined 25.6% in the quarter and 27.8% for the six months, primarily because of the $369.0 million Term Loan G prepayment and refinancing at lower rates.
Material Changes Versus the Prior Comparable Period
- Revenue benefited from the lifting of COVID-19 restrictions on medical services and from HST and DHP acquisitions, which contributed $11.7 million of second-quarter revenue and $18.9 million for the six months.
- Medical charges processed increased to $56.7 billion from $49.6 billion, while potential medical cost savings increased to $9.9 billion from $9.0 billion for the six months. The company changed its reporting methodology in the second quarter to exclude certain claims that distorted underlying trends.
- Cost of services declined 14.5% in the quarter and 12.9% for the six months, largely because prior-year stock-based compensation was substantially higher. Excluding stock-based compensation, cost of services increased 11.5% and 6.4%, respectively.
- General and administrative expense increased 10.7% in the quarter and 24.5% for the six months, driven by acquisition integration, public-company insurance, professional fees and DHP-related transaction costs.
- DHP was acquired on February 26, 2021 for $151.8 million in cash, including $108.2 million of preliminary goodwill. Management stated that DHP’s effect on consolidated revenue and earnings was not material through June 30.
- Adoption of ASU 2020-06 on January 1, 2021 recombined the convertible notes’ liability and equity components, increasing reported long-term debt by approximately $297.9 million and increasing beginning retained earnings by $6.0 million.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide explicit quantitative revenue, earnings or cash-flow guidance. Management expects cash generated from operations and revolving-credit capacity to fund working capital, capital expenditures and other requirements for at least the next twelve months, subject to business and financing conditions.
- COVID-19 continued to negatively affect results, although to a lesser extent than in 2020. Future impacts remain uncertain because of variants, healthcare utilization, government restrictions and broader economic conditions.
- Private placement warrants and unvested founder shares are classified as derivative liabilities. Their fair value increased by $81.6 million in the second quarter and $41.2 million for the six months, producing non-cash losses that can materially fluctuate with the company’s stock price and valuation assumptions.
- The company was involved in consolidated Delaware stockholder litigation concerning the 2020 transactions and a separate putative securities class action. It had not recorded a contingency accrual for the Kong lawsuit because a potential loss could not reasonably be estimated. The company stated that ordinary-course litigation and regulatory matters were not expected to have a material adverse effect, but outcomes remain uncertain.
- Two material weaknesses in internal control over financial reporting remained unremediated as of June 30, 2021: insufficient accounting resources and insufficient formal accounting policies, procedures and controls for public-company reporting, including debt and equity accounting. Management continued remediation efforts.
- The company has significant customer concentration: two customers represented 35% and 20% of 2020 revenue. Loss of a major customer could materially affect results.
- Debt agreements contain restrictive covenants and LIBOR-based interest provisions. The company reported compliance with all debt covenants and a consolidated first-lien debt-to-EBITDA ratio of 2.90 times at June 30, 2021, while continuing to assess the transition from LIBOR.
Facts Investors Should Verify
- Confirm the issuer identity and ticker because the filing is for MultiPlan Corporation, not Claritev Corp.
- Assess whether revenue growth from normalized healthcare utilization and acquisitions is sustainable after COVID-19 comparisons become less favorable.
- Reconcile GAAP losses with Adjusted EBITDA and Adjusted EPS, particularly the effect of non-cash warrant fair-value changes and substantial amortization.
- Review debt maturities, conversion terms, cash-versus-PIK interest elections and covenant requirements, including the 2023 maturity of Term Loan G and the revolving facility.
- Monitor the Delaware stockholder litigation, Kong securities action and any related legal accruals or disclosure changes.
- Track remediation and testing of the two material weaknesses in internal controls.
- Evaluate customer concentration, acquisition integration, potential savings realization and the effect of the revised medical-claims reporting methodology.