Claritev Corp Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Travis Dalton emphasized the need for better financial performance, noting the company's commitment to clients but acknowledging financial results haven't been consistent. He highlighted progress in updating the value proposition, added key talent (e.g., Senior Vice President of Corporate Affairs, Chief Data Scientist), rounded out 41 KPIs, and made progress on product development and partnerships. Notable initiatives included identifying 15 new product ideas and over 30 enhancements, and closing a provider client with BenInsights and predictive risk models.
• Jim Head detailed revenue and expense trends, noting second quarter revenues fell below guidance due to revenue yield volatility and slower new product sales. He discussed volume growth in build charges and identified potential savings, but revenue yield declined. Adjusted EBITDA expenses increased year-over-year but decreased sequentially due to tight expense controls.

Segment Performance

• Network-based revenues: Declined 20% year-over-year. Sequentially, network-based revenues decreased 0.9% from Q1 '24, driven by softness in complementary network and Property and Casualty businesses.
• Analytics-based revenues: Grew 5.6% year-over-year. Sequentially, essentially flat, with strength in Data iSight offset by softness in NSA volumes. Excluding a $3.8 million contribution from BST (reported in analytics-based revenues), consolidated revenues were down.
• Payment and Revenue Integrity revenues: Declined 5.3% year-over-year. Sequentially, declined 1.4%, driven by softness in Prepayment Clinical Negotiation, offset by strong growth in post-paid portfolio.

Guidance

• Revised full-year 2024 revenue guidance: $935 million to $955 million (down from prior $1.0 billion to $1.03 billion) due to sluggish core business growth and slower new product sales.
• Adjusted EBITDA guidance: $580 million to $595 million. Third quarter guidance: Revenues $230 million to $245 million, adjusted EBITDA $140 million to $155 million.
• Attrition headwind: Approximately 3% headwind to revenues in 2025 due to a program change with a large client, expected to constrain growth until mid-2025.

Risks

• Media scrutiny: Ongoing challenge requiring proactive engagement with stakeholders.
• Legal claims: Believed to be without merit, but an attempt to misuse the law that could impact prices.
• Environmental challenges: Clearinghouse destruction impacted claims flows through April and May.
• New product traction: Slower commercial adoption of new products than anticipated.

Question and Answer

Q: Guidance for the second half and EBITDA decline A: Jim Head said the second half has modest revenue growth in the core with caution on new sales, and costs are relatively fixed with some investments, being judicious on costs while maintaining future investments.

Q: Slower commercial traction on new products A: Jerry Hogge stated conversion to revenue from new products is taking longer, but the pipeline is robust.

Q: 3% revenue headwind in 2025 A: Jim Head and Travis Dalton explained it's a strategic program change with one large client, not a trend, and core assets are hard to replicate.

Q: Revenue yield volatility A: Jim Head explained yield shifts, client credits, and volume picking up, with yield starting to come together but still some volatility.

Q: Capital structure and debt A: Jim Head said the company has time, liquidity, and flexibility, and is thoughtful about capital structure, not forced to act hastily.

Q: Long-term outlook and execution A: Jerry Hogge and Travis Dalton discussed core business stability, product execution, and new product market potential, emphasizing better execution on marketing and sales.

Q: Large payer program detail A: Jim Head and Travis Dalton said it's a strategic decision, not a trend, with core assets providing a competitive advantage.

Q: Program attrition notice and modular engagements A: Jim Head said no volume commitment, good visibility, and it's not a contractual issue.

Q: Volume growth drivers A: Jim Head said same-store sales, healthcare demand, and inflation are driving volume, with throughput and price increases across the board.

Q: 2025 revenue outlook with attrition headwind A: Jim Head said yield is expected to settle, volume trend is positive, but too early to set full 2025 guidance as visibility improves later