Claritev Corp Q4 FY2023 earnings call

• Progress in 2023: Transformed business, partnered with Echo Health, reduced debt by repurchasing/repaying $222 million face value in 2023, identified $22.9 billion of potential medical cost savings.
• Fourth quarter results: Revenues $244.1 million, adjusted EBITDA $156.8 million (up 3% sequentially), adjusted EBITDA margin 64.2% (up 150 basis points from prior quarter).
• 2024 growth plan objectives: Lead next gen claims processing, advance HST employer solution, deepen core services value proposition, enhance Data & Decision Science Services. Examples include Balance Bill Protection adding ~19,000 lives with $6M+ revenue expected in 2024, Itemized Bill Review service adding 5 customers with $5M annualized revenues, No Surprises Act compliance efforts with NSA Insights portal and rules based claims processing, and advancements in Data & Decision Science Services like PlanOptix products.

Fourth quarter 2023 revenues were $244.1 million, up about $1.3 million from the prior quarter (0.5%) and up 1.3% from Q4 2022. Full year 2023 revenues were $961.5 million, down 11% from the prior year. By service line: Relative to Q3 2023, network based revenues declined 8.1% ($4.6 million). Excluding BST contribution, fourth quarter consolidated revenues were $240.3 million, up slightly from prior quarter. Full year 2023: network based revenues declined 8.9%, analytics based revenues declined 12.3%, and Payment and Revenue Integrity revenues declined 6.9%. These declines were largely due to contract renewals with larger customers in 2023 and drop in COVID-related claim savings.

• 2024 revenue guidance: Anticipates $1.0 billion to $1.03 billion, growing ~4% to 7% from full year 2023. Breakdown by segments: Core out-of-network 150-300 basis points, Payment and Revenue Integrity 50-75 basis points, HST platform 100-150 basis points, Data and Decision Science 100-150 basis points, B2B Healthcare Payment 10-25 basis points.
• Adjusted EBITDA guidance: $630 million to $650 million.
• Q1 2024 guidance: Revenues $235 million to $250 million, adjusted EBITDA $150 million to $160 million.
• Capital allocation: Priorities on investing in business for growth, with bulk of incremental capital generation allocated to debt retirement in near-term.

• Industry disruption related to healthcare cyber incident: Causing delays in claim submissions upstream, impact on volumes and revenues downstream not yet determined.

Q: Hi, thanks, good morning. So the chart on the 2024 revenue bridge was very helpful. It looks like your core out-of-network processing is still the biggest growth driver, call it, $15 million or $30 million -- $15 million to $30 million of growth. Can you tell us what the out-of-network segment impact was in 2023 in terms of how much of a detractor that was and then were any other buckets net negative in 2023?

A: Well, I think in 2023, one of the biggest overarching headwinds was the contract renewals, that was about a 9% headwind if memory serves. And that washed across all of our products, which are essentially in the core and then payment integrity for the most part. So the compare is a little bit different. I think what you might say is in our core out-of-network business against the core base, it's about closer to 200 basis points to 400 basis points of growth, which is a little bit below our ambition we put out at Investor Day, but pretty consistent. And so we've got a clean compare this year. I would kind of look at it that way, Josh. And then what we've got is a series of layers of some of the new growth drivers like HST and Data and Decision Science that are going to add to that.

Q: Okay. And then just last one from me, Dale. You mentioned curated networks as a potential future opportunity. And I'm curious, if you could just give us some examples or maybe a little bit more of what that means. Is that geographically based? Is that sort of segment based? Is that a specific type of customer or chronic disease? I'm just curious what curated networks look like?

A: Yes. I think that -- it's a great question. The curated network concept is focused on bringing the best providers to the table from a cost and quality perspective and managing the utilization through that provider. It's not necessarily based by clinical specialty, Josh. It's more based on looking at that instead of having a large all-inclusive network, it's really zeroing in on those providers who can deliver on cost and on quality and provide the best clinical outcomes for employers and the best cost outcomes for employers. That's our plan. It is geographic specific, meaning we're going to target certain markets as opposed to doing something nationally, but we're going to zero in on those markets where we believe there is opportunity and demand and interest for a network like that.

Q: Hey, this is Luis on for Daniel Grosslight. I just had a question on your corpus guide. You mentioned back in your Investor Day that you're making about like 4% to 5% medical cost inflation annually. How does this year's guide compared to and how should we think about that?

A: I think we have been longer -- I think we think about the longer term as kind of 4% to 5%. I think near-term we're not even expecting that inside our guide. And one of the reasons why it just lags, there's a big set of renewals coming up throughout the healthcare ecosystem over the course of the next year where things have started to tick upwards, but we haven't seen the full effect of that. So, I would say we're conservative on healthcare inflation. We're also conservative on utilization. I would just comment on the utilization front. And pretty consistently, we saw an uptick in the first half and continued normalization throughout the year kind of to a new level. We did not bake in our guidance any material upswing in utilization. And I think that's consistent with what we're seeing from the hospitals, et cetera, which is some good year-over-year compares, but I'm not sure from a labor perspective, from a capacity perspective, they have room for another dramatic uptick. So I think we're being pretty conservative on both of those components.