Business Context and Reporting Period
The filing is a Form 10-K for MultiPlan Corporation, not Claritev Corp, covering the fiscal year ended December 31, 2020, including fourth-quarter results. MultiPlan provides technology-enabled healthcare cost-management, analytics, provider-network, payment-integrity and related services to payors in the United States. The company completed its reverse recapitalization with Churchill Capital Corp III on October 8, 2020 and acquired HST on November 9, 2020. HST contributed immaterial revenue and earnings through year-end.
- Network included more than 1.2 million providers and identified approximately $18.8 billion of potential medical cost savings in 2020.
- The two largest customers represented approximately 35% and 20% of annual revenue, respectively.
Financial Performance and Key Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $937.8 million | $982.9 million | Down 4.6% |
| Operating income/(loss) | $(131.8) million | $368.2 million | Down $500.0 million |
| Net income/(loss) | $(520.6) million | $9.7 million | Down $530.3 million |
| Basic and diluted EPS | $(1.11) | $0.02 | Declined |
| Adjusted EBITDA | $706.3 million | $750.4 million | Down 5.9% |
| Operating cash flow | $377.4 million | $284.3 million | Up 32.7% |
| Capital expenditures and software development | $70.8 million | $66.4 million | Up $4.4 million |
Revenue comprised $271.3 million from Network Services, $564.7 million from Analytics-Based Services and $101.8 million from Payment Integrity Services. Network Services declined 13.8%, Analytics-Based Services increased 0.6% and Payment Integrity Services declined 4.7%.
Operating margin was approximately negative 14.1%, compared with 37.5% in 2019. Net margin was approximately negative 55.5%, compared with 1.0% in 2019. Reported results were heavily affected by $406.1 million of stock-based compensation, $334.7 million of intangible-amortization expense, $103.0 million of debt-extinguishment losses, $31.7 million of transaction-related expenses and a $12.2 million investment loss. Adjusted EBITDA margin was approximately 75.3%, compared with 76.4% in 2019, but this non-GAAP measure excludes significant expenses and should not be viewed as a substitute for GAAP earnings.
Cash and cash equivalents were $126.8 million at December 31, 2020, compared with $21.8 million at December 31, 2019. Investing cash outflows were $210.8 million, including $140.0 million for HST and $70.8 million for capital expenditures and software development. Financing cash outflows were $61.6 million after substantial debt refinancing and repayment activity.
Debt, Liquidity and Capital Structure
- Gross debt, excluding $1.8 million of letters of credit, was $4.94 billion at December 31, 2020; net carrying value was $4.58 billion.
- Debt consisted principally of a $2.34 billion Term Loan G, $1.30 billion of 5.750% Senior Notes due 2028 and $1.30 billion of Senior Convertible PIK Notes due 2027.
- The company redeemed its $1.56 billion of 7.125% Notes and approximately $1.18 billion of Senior PIK Notes, and prepaid $369.0 million of Term Loan G during 2020.
- The revolving credit facility was increased from $100.0 million to $450.0 million and was undrawn at year-end, other than outstanding letters of credit that no longer reduced availability.
- Weighted-average cash interest rate was approximately 4.9% at year-end, compared with 6.3% at December 31, 2019. Interest expense was $335.6 million, down from $376.3 million.
- Management stated that available cash, operating cash flow and revolver capacity should provide sufficient liquidity for at least the following twelve months, subject to operating performance and financing-market conditions.
Material Changes Versus the Prior Comparable Period
- COVID-19 reduced elective procedures, non-essential medical services and customer claim volumes, driving the 4.6% annual revenue decline. Network Services were particularly affected.
- Profitability deteriorated sharply because of transaction-triggered stock-based compensation, higher transaction costs and debt-extinguishment losses.
- Stock-based compensation was $406.1 million in 2020, including $405.8 million associated with the accelerated vesting of legacy Class B Units upon the Transactions.
- The company became publicly listed and issued 132.05 million shares in the Common PIPE Investment for $1.30 billion of gross proceeds and $1.30 billion of Senior Convertible PIK Notes for $1.2675 billion of proceeds after original issue discount.
- Quarterly revenue and net loss were $255.3 million and $(173.3) million, respectively, in the fourth quarter of 2020, compared with $246.4 million and $11.8 million of net income in the fourth quarter of 2019. Fourth-quarter operating loss was $(40.2) million.
- The company adopted the current expected credit loss standard and other accounting updates in 2020 without a material reported impact.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide formal revenue, earnings or EBITDA guidance. Management’s strategy is to enhance existing products, extend penetration in underperforming customer segments and expand into adjacent services through technology, analytics, cross-selling and acquisitions.
- COVID-19 effects remain uncertain and may continue to affect healthcare utilization, claim volumes, customer membership, collections, liquidity and acquisition integration.
- Customer concentration is significant, and contracts may be terminated or renewed on less favorable terms. Loss of either major customer could materially affect results.
- The company operates with substantial leverage, variable-rate debt, restrictive covenants and debt maturities concentrated in 2023 and beyond. A 100-basis-point increase in Term Loan G rates would increase annual interest expense by approximately $23.4 million.
- LIBOR transition may affect borrowing costs and debt agreements after 2023.
- Healthcare regulation, including the No Surprises Act, state out-of-network payment rules, HIPAA, privacy and security requirements, may require operational changes or increase compliance costs.
- Management reported two material weaknesses in internal control over financial reporting relating to public-company accounting resources and formal accounting policies and controls, particularly for debt and equity arrangements. The weaknesses were not remediated as of December 31, 2020.
- A putative securities class action, Verger v. MultiPlan Corporation et al., remained pending after another related action was voluntarily dismissed. The company could not estimate a potential loss and recorded no contingency accrual.
- The company acquired Discovery Health Partners for approximately $154.0 million in cash on February 26, 2021; purchase accounting was incomplete as of the filing date.
Investor Verification Checklist
- Confirm that the filing entity is MultiPlan Corporation and reconcile it to the requested Claritev Corp identifier.
- Assess recurring operating performance excluding, but also in conjunction with, the unusually large stock-based compensation, amortization, transaction and debt-refinancing items.
- Verify customer concentration, renewal terms and claim-volume trends after COVID-19-related utilization disruptions.
- Review debt maturities, cash-versus-PIK interest elections on the convertible notes, variable-rate exposure, covenant headroom and 2023 refinancing requirements.
- Track remediation of the two material weaknesses and any subsequent financial-reporting adjustments.
- Evaluate the financial and integration effects of the HST and subsequent Discovery Health Partners acquisitions.
- Monitor the pending securities litigation, regulatory developments under the No Surprises Act and potential privacy or cybersecurity liabilities.