Claritev Corp annual report, FY2021

SEC Filing Summary

Filing: Form 10-K for the fiscal year ended December 31, 2021, filed February 25, 2022. The supplied filing identifies the registrant as MultiPlan Corporation (NYSE: MPLN), not Claritev Corp.; the company-name discrepancy should be verified. The filing reports full-year results rather than a separately presented 2021 fourth-quarter period.

Business Context and Reporting Period

MultiPlan provides analytics-based, network-based, payment-integrity and revenue-integrity services to healthcare payors, including insurers, self-insured employers, third-party administrators and health plans. Its network included more than 1.2 million healthcare providers at December 31, 2021. Services identified approximately $21.7 billion of potential medical cost savings during 2021.

The company operates as a single U.S. segment. The February 26, 2021 acquisition of Discovery Health Partners expanded payment- and revenue-integrity capabilities. The 2021 results also include a full year of HST, acquired in November 2020.

Financial Performance and Key Metrics

Metric	2021	2020	Change
Revenue	$1,117.6 million	$937.8 million	19.2% increase
Operating income (loss)	$386.1 million	$(131.8) million	Improved by $517.9 million
Net income (loss)	$102.1 million	$(520.6) million	Improved by $622.6 million
Basic EPS	$0.16	$(1.11)	Improved
Adjusted EBITDA	$838.3 million	$706.3 million	18.7% increase
Adjusted EPS	$0.57	$0.48	18.8% increase
Net cash from operating activities	$404.7 million	$377.4 million	7.2% increase

Revenue by service was $278.5 million from Network-Based Services, $709.3 million from Analytics-Based Services and $129.9 million from Payment and Revenue Integrity Services. Approximately 93% of revenue was based on percentage of savings achieved, making revenue sensitive to claims volume, savings rates, customer utilization and subsequent billing adjustments.

Reported operating margin was approximately 34.5% in 2021, compared with a negative margin in 2020. Adjusted EBITDA margin was approximately 75.0%, compared with 75.3% in 2020. The filing cautions that non-GAAP measures exclude interest, taxes, capital expenditures, working-capital needs, stock-based compensation and other items and may not be comparable with other companies.

Cash Flow, Debt and Liquidity

• Cash, cash equivalents and restricted cash were $188.4 million at December 31, 2021, including $3.1 million of restricted cash.
• Cash flow used in investing activities was $228.4 million, including $149.7 million for the DHP acquisition and $84.6 million for property, equipment and software development.
• Cash flow used in financing activities was $114.7 million, including $100.0 million of share repurchases and debt refinancing activity.
• Total debt, excluding $1.8 million of letters of credit, was $4.97 billion in principal amount; long-term debt, net of discounts and issuance costs, was $4.88 billion.
• Debt consisted primarily of $1.30 billion of Senior Convertible PIK Notes, $1.30 billion of 5.750% Notes, $1.05 billion of 5.50% Senior Secured Notes and approximately $1.32 billion of Term Loan B.
• The company had $450.0 million of revolving-credit capacity, reduced by $1.8 million of outstanding letters of credit. The revolver matures in 2026, while Term Loan B and the 5.50% Senior Secured Notes mature in 2028 and the convertible notes mature in 2027.
• The weighted average cash interest rate was 4.6% at year-end. Term Loan B carried an interest rate of 4.75% at December 31, 2021 and is variable-rate debt tied to LIBOR or an alternative benchmark.
• Management stated that available cash, operating cash flow and revolver capacity should provide sufficient liquidity for the next twelve months and the long term, but noted dependence on future operating performance and financing availability.

Material Changes Versus the Prior Comparable Period

• Revenue increased 19.2%, driven by higher claim volumes, higher savings rates, improved claim mix as COVID-19 restrictions eased, and acquired revenue. DHP and HST contributed $44.4 million of acquired revenue in 2021 versus $2.0 million in 2020.
• Analytics-Based Services revenue grew 25.6% and Payment and Revenue Integrity Services revenue grew 27.5%; Network-Based Services revenue grew 2.7%.
• Operating results benefited significantly from the absence of the unusually high 2020 stock-based compensation expense associated with the 2020 business combination. Stock-based compensation declined to $18.0 million from $406.1 million.
• Interest expense declined 20.3% to $267.5 million following prior refinancing and debt repayment activity.
• On August 24, 2021, the company refinanced Term Loan G with a new $1.325 billion Term Loan B and issued $1.05 billion of 5.50% Senior Secured Notes. The transaction generated a $15.8 million loss on debt extinguishment.
• The company repurchased approximately $100.0 million of Class A common stock under a program authorizing up to $250.0 million through December 31, 2022.
• Management reported that two previously disclosed material weaknesses in internal control over financial reporting were remediated during 2021. Management and PwC concluded that internal control was effective at December 31, 2021.

Guidance, Outlook, Risks and Unusual Items

The filing does not provide quantitative 2022 revenue, earnings or cash-flow guidance. Management expects demand for cost-management and payment-accuracy services to benefit from medical-cost inflation, increasing healthcare utilization, aging demographics and growth in insured populations. The company also intends to enhance existing products, expand into adjacent payor markets and pursue acquisitions.

• COVID-19 continued to negatively affect results in 2021, although less severely than in 2020. Future effects remain uncertain because of variants, healthcare utilization, government actions and economic conditions.
• Customer concentration is material: the three largest customers represented approximately 34%, 19% and 10% of 2021 revenue. Contracts may generally be terminated with relatively short notice, and the loss or reduced utilization of a major customer could materially reduce profitability.
• Leverage is substantial, variable-rate debt creates interest-rate exposure, and debt agreements impose restrictions on additional borrowing, distributions, asset sales, investments and other corporate actions. A 100-basis-point change in Term Loan B rates would affect annual interest expense by approximately $13.2 million.
• The company is exposed to the expected discontinuation of LIBOR and has not yet quantified the ultimate effect of the transition to replacement reference rates.
• The No Surprises Act became effective January 1, 2022. Its reimbursement and independent dispute-resolution requirements may affect MultiPlan’s surprise-billing services, customer relationships, compliance costs and business model. Related regulations were subject to legal challenges.
• Healthcare privacy, cybersecurity, fraud-and-abuse, network-access, fee-splitting, corporate-practice-of-medicine and state licensing requirements create regulatory and litigation exposure.
• Goodwill was $4.36 billion and other intangible assets were $3.29 billion at year-end. No impairment was identified in the 2021 review, but future underperformance or adverse market conditions could produce material impairment charges.
• Private placement warrants and unvested founder shares were recorded as liabilities totaling $74.0 million and generated a $32.6 million non-cash gain from changes in fair value during 2021.
• CEO Mark Tabak resigned effective January 31, 2022 and was succeeded by Dale White; Tabak remained chairman.

Most Important Facts for Investors to Verify

• Confirm whether the requested issuer is MultiPlan Corporation or Claritev Corp., because the supplied filing is for MultiPlan Corporation.
• Reconcile the strong reported profitability and Adjusted EBITDA with approximately $4.97 billion of debt, $267.5 million of interest expense and $231.0 million of cash interest paid.
• Review customer concentration, renewal terms and claims-volume trends, particularly for the three largest customers.
• Assess the sustainability of revenue growth after the post-COVID recovery and the inclusion of HST and DHP.
• Evaluate exposure to LIBOR transition, rising interest rates, debt covenants and refinancing requirements.
• Review the conversion and dilution potential of the $1.3 billion Senior Convertible PIK Notes, 58.5 million warrants and 12.4 million unvested founder shares.
• Monitor implementation and legal developments under the No Surprises Act and related state regulations.
• Review the company’s variable-consideration revenue estimates, which PwC identified as a critical audit matter, and the valuation of warrant and founder-share liabilities.