Business Context and Reporting Period
The provided filing is MultiPlan Corporation’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. The request identifies Claritev Corp, but the filing names MultiPlan Corporation, ticker MPLN. MultiPlan provides healthcare cost-management, data analytics, payment integrity, revenue integrity and preferred-provider-network services to U.S. healthcare payors. It operates as one segment.
The October 2020 merger with Churchill Capital Corp III was accounted for as a reverse recapitalization. Prior-period share and earnings-per-share information was retrospectively adjusted for the transaction.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $288.2 million | $223.5 million | $819.3 million | $682.4 million |
| Operating income (loss) | $104.5 million | $(199.5) million | $276.5 million | $(91.6) million |
| Net income (loss) | $78.2 million | $(288.4) million | $77.1 million | $(347.2) million |
| Basic EPS | $0.12 | $(0.69) | $0.12 | $(0.84) |
| Adjusted EBITDA | $218.4 million | $165.5 million | $614.8 million | $511.3 million |
| Adjusted EPS | $0.14 | $0.12 | $0.42 | $0.37 |
| Operating cash flow | Not separately provided | Not separately provided | $371.4 million | $332.3 million |
Revenue increased 28.9% in the quarter and 20.1% year to date. The filing attributes growth to higher claims volumes, easing COVID-19 restrictions, existing-customer growth, and the HST and DHP acquisitions. Analytics-Based Services increased 39.6% in the quarter and 26.2% year to date; Payment and Revenue Integrity Services increased 41.3% and 30.0%, respectively.
Approximate operating margins were 36.2% in Q3 2021 and 33.7% for the nine months ended September 30, 2021. Approximate net margins were 27.1% and 9.4%, respectively. These improvements were substantially affected by the absence of the unusually large 2020 stock-based compensation expense associated with the pre-merger Class B Unit awards.
Cash and cash equivalents were $225.1 million at September 30, 2021, compared with $126.8 million at December 31, 2020. Nine-month investing cash outflow was $201.2 million, including $149.7 million for the DHP acquisition and $57.2 million for capital expenditures and capitalized software. Financing cash outflow was $71.8 million, including $61.1 million of treasury-stock purchases.
Debt, Liquidity and Capital Allocation
- Net long-term debt was $4.893 billion at September 30, 2021, compared with $4.578 billion at December 31, 2020.
- Debt consisted principally of a $1.325 billion Term Loan B, $1.050 billion of 5.50% Senior Secured Notes, $1.300 billion of 5.750% Notes and $1.300 billion of Senior Convertible PIK Notes.
- On August 24, 2021, the company refinanced and repaid the $2.341 billion Term Loan G. The new Term Loan B matures in 2028, and the $450 million revolving facility matures in 2026. The refinancing generated a $15.8 million loss on extinguishment of debt.
- Revolver availability was $450.0 million, and management stated that cash, operating cash flow and borrowing capacity should meet requirements for at least the next twelve months.
- The consolidated first-lien debt-to-EBITDA ratio was 2.68 times at September 30, 2021, and the company reported compliance with its debt covenants.
- The board authorized repurchases of up to $250.0 million through December 31, 2022. The company had repurchased $61.1 million of shares by September 30, 2021.
Material Changes Versus the Prior Comparable Period
- Operating income improved from a loss of $199.5 million to income of $104.5 million in Q3 and from a loss of $91.6 million to income of $276.5 million for the nine-month period.
- Net income improved by $366.6 million in Q3 and $424.4 million year to date.
- Costs of services declined 69.8% in Q3 and 47.4% year to date, primarily because 2020 included $108.8 million and $126.7 million, respectively, of stock-based compensation.
- General and administrative expense declined 78.3% in Q3 and 53.0% year to date, also primarily reflecting the reduction in merger-related Class B Unit compensation. Excluding stock-based compensation and transaction costs, general and administrative expense increased 65.4% in Q3 and 62.5% year to date.
- Interest expense decreased 17.9% in Q3 and 24.7% year to date, reflecting prior debt refinancing and repayment activity, partly offset by the new capital structure.
- The company recognized a $76.6 million Q3 gain and $35.5 million year-to-date gain from changes in the fair value of private-placement warrants and unvested founder shares. These non-cash gains are volatile and tied primarily to the company’s share price.
- Medical charges processed increased to $88.7 billion from $75.0 billion, and potential medical cost savings increased to $16.0 billion from $13.7 billion for the nine-month periods. The company changed its methodology in Q2 2021 to exclude certain claims that distorted core trends.
Guidance, Outlook, Commentary and Risks
The filing does not provide specific quantitative revenue, earnings or EBITDA guidance. Management expects liquidity to be sufficient for at least the next twelve months, but future liquidity depends on operating performance, customer demand, debt service requirements and access to financing.
- COVID-19 continued to negatively affect results, although the impact was less severe than in 2020 as vaccination rates increased and restrictions on medical services eased. Future effects remain uncertain, including from variants, healthcare utilization and governmental responses.
- Two customers accounted individually for 35% and 20% of 2020 revenue, creating material customer-concentration risk.
- Key risks include customer loss, pricing pressure, competition, provider-network contraction, healthcare regulation, cybersecurity and privacy events, integration of acquisitions, and the ability to service substantial indebtedness.
- Debt instruments include LIBOR-based rates; the company was evaluating the effect of the transition to alternative reference rates beyond 2023.
- MultiPlan reported material weaknesses in internal control over financial reporting as of September 30, 2021. The weaknesses related to insufficient accounting resources and formal accounting policies and controls for public-company reporting, including debt and equity accounting. Management stated that no material misstatement resulted for the quarter, but remediation was not complete.
- The Delaware Stockholder Litigation relating to the Churchill transaction remained pending, with motions to dismiss under advisement. The company stated that it could not reasonably estimate a potential loss and had recorded no contingency accrual. A separate federal securities action was voluntarily dismissed without prejudice in September 2021.
- The company acquired DHP for approximately $151.8 million in cash on February 26, 2021. DHP’s impact on reported revenue and earnings was not material through September 30, 2021, although acquired HST and DHP revenue totaled $31.3 million for the nine months.
Most Important Facts for Investors to Verify
- Confirm the issuer identity because the filing is for MultiPlan Corporation, whereas the request names Claritev Corp.
- Assess recurring operating performance separately from the unusually large 2020 stock-based compensation charges and the 2021 non-cash warrant and founder-share fair-value gain.
- Review debt maturities, interest-rate exposure, covenant calculations and the terms of the Senior Convertible PIK Notes, including potential dilution from conversion.
- Evaluate customer concentration and the sustainability of claims volumes, potential savings and percentage-of-savings revenue.
- Monitor COVID-19 effects, acquisition integration, DHP’s contribution, and the company’s methodology change for medical charges and potential savings.
- Track remediation of the material weaknesses in internal controls.
- Follow the Delaware Stockholder Litigation and any potential financial or governance consequences.