MultiPlan (MPLN) - 2022 Q1 - Quarterly Report

Glossary This section provides definitions of key terms and abbreviations used throughout the financial report Part I. Financial Information This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of income and comprehensive income, statements of shareholders' equity, and statements of cash flows, along with their accompanying notes, for MultiPlan Corporation for the three months ended March 31, 2022 and 2021 Unaudited Condensed Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and equity, at specific reporting dates Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $350,830 | $185,328 | | Total current assets | $454,775 | $319,257 | | Total assets | $8,275,768 | $8,220,407 | | Total current liabilities | $201,968 | $141,908 | | Total liabilities | $5,884,292 | $5,875,737 | | Total shareholders' equity | $2,391,476 | $2,344,670 | - Cash and cash equivalents increased significantly from $185.3 million at December 31, 2021, to $350.8 million at March 31, 2022. Total current liabilities increased by $60.1 million, primarily due to increases in accrued interest and accrued taxes[18] Unaudited Condensed Consolidated Statements of Income and Comprehensive Income This statement outlines the company's financial performance, detailing revenues, expenses, and net income over a specific period Unaudited Condensed Consolidated Statements of Income and Comprehensive Income (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :-------------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Revenues | $298,046 | $254,864 | +16.9% | | Operating income | $116,636 | $82,265 | +41.8% | | Net income | $43,978 | $45,877 | -4.1% | | Net income per share – Basic | $0.07 | $0.07 | 0% | | Net income per share – Diluted | $0.07 | $0.07 | 0% | - Despite a 16.9% increase in revenues and a 41.8% increase in operating income, net income decreased by 4.1% year-over-year, primarily influenced by changes in the fair value of Private Placement Warrants and unvested founder shares, and higher interest expense[21] Unaudited Condensed Consolidated Statements of Shareholders' Equity This statement tracks changes in the company's equity, reflecting net income, share issuances, and other comprehensive income - Total Shareholders' Equity increased from $2,344.67 million at the beginning of Q1 2022 to $2,391.48 million at the end of Q1 2022. This increase was primarily driven by net income of $43.98 million and an increase in additional paid-in capital of $2.83 million, partially offset by tax withholding related to equity awards[23] Unaudited Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities for the reporting period Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Operating activities | $194,937 | $170,907 | +14.1% | | Investing activities | $(24,165) | $(162,398) | +85.1% | | Financing activities | $(5,270) | $(232) | -2171.6% | | Net increase in cash | $165,502 | $8,277 | +1899.4% | | Cash at end of period | $350,830 | $135,032 | +159.8% | - Net cash provided by operating activities increased by 14.1% year-over-year. Net cash used in investing activities significantly decreased due to the absence of a large acquisition comparable to the DHP acquisition in the prior year. Net cash used in financing activities increased primarily due to Term Loan B repayments and taxes paid on vested share awards[25] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and supplementary information for the figures presented in the primary financial statements 1. General Information and Basis of Accounting This note describes the company's business, significant accounting policies, and the impact of external factors like the COVID-19 pandemic - MultiPlan is a provider of data analytics and technology-enabled solutions focused on reducing medical costs and improving payment accuracy for U.S. healthcare payors[28] - The company manages its operations as a single segment, with all revenues and long-lived assets attributable to operations in the United States[33][35] - COVID-19 continued to negatively impact revenues in Q1 2022 due to non-COVID claims not yet reaching pre-pandemic levels, though to a lesser extent than in 2020 and 2021[32] Revenues Disaggregated by Services (in thousands) | Service Type | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Network-Based Services | $68,624 | $69,365 | | Analytics-Based Services | $196,118 | $157,160 | | Payment and Revenue Integrity Services | $33,304 | $28,339 | | Total Revenues | $298,046 | $254,864 | 2. Long-Term Debt This note details the composition, terms, and interest rates of the company's long-term debt obligations Long-Term Debt Composition (in thousands) | Debt Instrument | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Term Loan B | $1,318,375 | $1,321,688 | | 5.50% Senior Secured Notes | $1,050,000 | $1,050,000 | | 5.750% Notes | $1,300,000 | $1,300,000 | | Senior Convertible PIK Notes | $1,300,000 | $1,300,000 | | Finance lease obligations, non-current | $49 | $71 | | Long-term debt, net | $4,878,386 | $4,879,144 | - The interest rate for Term Loan B was 4.76% as of March 31, 2022, with quarterly principal repayments equal to 0.25% of the initial aggregate principal[40][41] 3. Private Placement Warrants and Unvested Founder Shares This note explains the valuation methodologies and fair value changes of private placement warrants and unvested founder shares - The fair value of Private Placement Warrants decreased by $8.7 million and unvested founder shares decreased by $4.0 million during the three months ended March 31, 2022. This decrease was primarily due to a reduction in expected stock volatility and the passage of time[44] - These instruments are classified as liabilities and are adjusted to fair value at each reporting date using option pricing models (Monte Carlo and Black Scholes models)[41][43] 4. Fair Value Measurements This note describes the fair value hierarchy and methods used to measure financial instruments on a recurring basis Fair Value of Long-Term Debt (in thousands) | Liability | Carrying Amount (March 31, 2022) | Fair Value (March 31, 2022) | | :-------------------------------- | :------------------------------- | :-------------------------- | | Term Loan B, net of discount | $1,305,939 | $1,270,026 | | 5.50% Senior Secured Notes | $1,050,000 | $1,008,420 | | 5.750% Notes | $1,300,000 | $1,177,800 | | Senior Convertible PIK Notes, net of discount | $1,273,289 | $968,336 | | Finance lease obligations | $49 | $49 | | Total Liabilities | $4,929,277 | $4,424,631 | - The fair value of long-term debt as of March 31, 2022, was obtained using Level 1 fair value measurements (quoted prices in active markets)[47] - The Private Placement Warrants and unvested founder shares are measured at fair value on a recurring basis using Level 3 inputs (unobservable inputs) via an option pricing simulation[51] 5. Commitments and Contingencies This note discloses the company's legal proceedings, potential liabilities, and other contractual commitments - The Company is a defendant in various lawsuits and regulatory investigations, including the Delaware Stockholder Litigation related to the Transactions, but does not believe they will result in a material adverse effect[54][55] - On January 3, 2022, the Chancery Court dismissed the Company from the Delaware Stockholder Litigation, which is proceeding against the Churchill Defendants who have contractual indemnification rights[55] 6. Basic and Diluted Earnings Per Share This note presents the calculation of basic and diluted earnings per share, considering the impact of potentially dilutive securities Basic and Diluted EPS | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net Income | $43,978 | $45,877 | | Weighted average shares outstanding – Basic | 638,497,587 | 655,113,523 | | Weighted average shares outstanding – Diluted | 639,015,094 | 655,113,653 | | Net income per share – basic | $0.07 | $0.07 | | Net income per share – diluted | $0.07 | $0.07 | - Basic and diluted earnings per share remained flat at $0.07 for both the three months ended March 31, 2022, and 2021. Anti-dilutive instruments, including warrants and Senior Convertible PIK Notes, were excluded from the diluted EPS calculation[58] 7. Related Party Transactions This note outlines transactions with entities controlled by related parties, including revenues, expenses, and outstanding balances Related Party Transactions (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenues | $643 | $567 | | Total expense | $(612) | $(955) | | Accounts payable (period end) | $2,015 | $2,297 | - Related party transactions include purchasing PPO network services, recognizing revenue for network use, obtaining insurance, and reimbursing expenses with companies controlled by Hellman & Friedman LLC[60] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of MultiPlan Corporation's financial condition and results of operations for the three months ended March 31, 2022, compared to the same period in 2021, including an overview of the business, factors affecting results, and a discussion of non-GAAP financial measures Cautionary Note Regarding Forward-looking Statements This section highlights the inherent uncertainties and risks associated with forward-looking statements, advising caution to readers - The report contains forward-looking statements reflecting management's expectations, beliefs, and forecasts, which are subject to various risks and uncertainties[64][66] - Key risk factors include the impact of COVID-19, potential loss of major customers, competitive pressures, changes in regulatory environment, and the ability to integrate acquisitions[65] Company Overview This section provides a summary of MultiPlan's business, its service offerings, and its role in the U.S. healthcare industry - MultiPlan is a leading provider of data analytics and technology-enabled solutions in the U.S. healthcare industry, aiming to reduce medical costs and improve payment accuracy for payors[67] - The company offers three service categories: Network-Based Services, Analytics-Based Services, and Payment and Revenue Integrity Services[70] - For the three months ended March 31, 2022, MultiPlan's services identified approximately $5.6 billion in potential medical cost savings[68] Uncertainty Relating to the COVID-19 Pandemic This section discusses the ongoing effects of the COVID-19 pandemic on the company's revenues and operational environment - COVID-19 continued to negatively impact revenues in Q1 2022, as medical charges on non-COVID claims had not yet returned to pre-pandemic levels, though the impact was less severe than in prior periods[73] - Most of the company's approximately 2,400 employees continue to work remotely[72] Factors Affecting Our Results of Operations This section identifies key drivers and trends influencing the company's financial performance, such as medical charges processed Medical Charges Processed and Potential Savings (in millions) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Medical charges processed | $31,692.1 | $27,777.2 | +14.1% | | Potential medical cost savings | $5,627.8 | $5,159.6 | +9.1% | - The increase in medical charges processed includes higher medical charges and related savings for COVID-19 services (testing, treatment, vaccines) in Q1 2022 compared to Q1 2021[74] Components of Results of Operations This section breaks down the various revenue and expense components that contribute to the company's overall financial performance - Revenues are generated from Network-Based, Analytics-Based, and Payment and Revenue Integrity Services, typically compensated through a percentage of savings (PSAV) or per-employee-per-month (PEPM) rate[79] - Costs of services primarily consist of personnel expenses and access and bill review fees, while general and administrative expenses cover corporate functions, taxes, and transaction costs[80][81] - Interest expense includes accrued interest on long-term debt and amortization of debt issuance costs and discounts. Changes in fair value of Private Placement Warrants and unvested founder shares are remeasured each period, primarily due to stock price and volatility changes[84][86] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, such as Adjusted EBITDA and Adjusted EPS, to their most comparable GAAP measures - MultiPlan uses EBITDA, Adjusted EBITDA, and Adjusted EPS as non-GAAP financial measures to evaluate performance by excluding items not indicative of its core business[89][91][92] Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $43,978 | $45,877 | | EBITDA | $231,969 | $224,026 | | Adjusted EBITDA | $225,406 | $191,061 | Reconciliation of Net Income to Adjusted EPS | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $43,978 | $45,877 | | Adjusted net income | $100,080 | $74,756 | | Adjusted EPS | $0.16 | $0.11 | Factors Affecting the Comparability of our Results of Operations This section explains significant events, including acquisitions and debt refinancings, that impact the comparability of financial results across periods - The acquisition of Discovery Health Partners (DHP) on February 26, 2021, strengthened MultiPlan's payment integrity services, contributing $8.7 million in revenue in Q1 2022 compared to $2.9 million in Q1 2021[97][98] - Debt refinancings on August 24, 2021, involved issuing new senior secured credit facilities (Term Loan B, Revolver B, and 5.50% Senior Secured Notes) to repay Term Loan G, increasing the annualized weighted average cash interest rate by 0.6% in Q1 2022[99][119] - Stock-based compensation expense increased from $1.0 million in Q1 2021 to $3.1 million in Q1 2022, reflecting new awards under the 2020 Omnibus Incentive Plan[105] Results of Operations for the Three Months Ended March 31, 2022 and 2021 This section provides a comparative analysis of the company's revenues, costs, and net income for the three-month periods ended March 31, 2022 and 2021 Key Financial Results (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :---------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total Revenues | $298,046 | $254,864 | $43,182 | 16.9% | | Network-Based Services Revenues | $68,624 | $69,365 | $(741) | (1.1)% | | Analytics-Based Services Revenues | $196,118 | $157,160 | $38,958 | 24.8% | | Payment and Revenue Integrity Services Revenues | $33,304 | $28,339 | $4,965 | 17.5% | | Total costs of services (exclusive of depreciation and amortization) | $47,072 | $39,730 | $7,342 | 18.5% | | General and administrative expenses | $32,588 | $31,996 | $592 | 1.9% | | Operating income | $116,636 | $82,265 | $34,371 | 41.8% | | Interest expense | $71,445 | $63,717 | $7,728 | 12.1% | | Change in fair value of Private Placement Warrants and unvested founder shares | $(12,741) | $(40,375) | $27,634 | 68.4% | | Net income | $43,978 | $45,877 | $(1,899) | (4.1)% | - Total revenues increased by 16.9%, primarily driven by a $37.4 million increase from higher medical charges processed and a $5.8 million increase from the DHP acquisition. Analytics-Based Services saw the largest growth at 24.8%[108][112] - Costs of services increased by 18.5% due to higher personnel expenses, including stock-based compensation and DHP-related compensation. General and administrative expenses rose slightly by 1.9%, influenced by increased personnel and integration expenses, offset by lower transaction costs[113][114][115] - Interest expense increased by 12.1% due to higher interest rates and the August 2021 debt refinancing. The change in fair value of Private Placement Warrants and unvested founder shares resulted in a gain of $12.7 million in Q1 2022, compared to a larger gain of $40.4 million in Q1 2021[119][122] Liquidity and Capital Resources This section assesses the company's cash position, debt obligations, and ability to generate sufficient cash to meet its operational and financial needs - As of March 31, 2022, the company had $350.8 million in cash and cash equivalents and $448.2 million available under its revolving credit facility, which was extended to August 24, 2026[124] - The company believes its primary sources of liquidity (internally generated funds and revolving credit facility) will be sufficient for the next twelve months[125] Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $194,937 | $170,907 | | Investing activities | $(24,165) | $(162,398) | | Financing activities | $(5,270) | $(232) | - Cash flows from operating activities increased by $24.0 million (14.1%) year-over-year, primarily due to an increase in non-cash items and changes in net working capital. Investing activities used significantly less cash due to the absence of a major acquisition like DHP in the prior year[128][129][132] - The company was in compliance with all debt covenants as of March 31, 2022, and December 31, 2021[147] - Three customers individually accounted for 34%, 19%, and 10% of revenues for the year ended December 31, 2021, indicating a concentration risk[153] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there were no material changes to the market risks previously disclosed in the company's 2021 Annual Report as of March 31, 2022 - No material changes in market risks were identified as of March 31, 2022, compared to the disclosures in the 2021 Annual Report[157] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - The company's principal executive officer and principal financial and accounting officers concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022[159] - There were no material changes in internal control over financial reporting during the three months ended March 31, 2022[160] Part II - Other Information This part includes disclosures on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The company is involved in various lawsuits, including a class action related to the Transactions, but does not anticipate a material adverse effect on its financial condition. The company was dismissed from the Delaware Stockholder Litigation in January 2022 - The company is a defendant in various lawsuits and regulatory investigations, but believes they will not have a material adverse effect on its financial condition or results of operations[162] - The company was dismissed from the Delaware Stockholder Litigation on January 3, 2022, with the case proceeding against the Churchill Defendants[163] Item 1A. Risk Factors There were no material changes to the risk factors previously disclosed in the company's 2021 Annual Report during the three months ended March 31, 2022 - No material changes to the risk factors previously disclosed in the Company's 2021 Annual Report occurred during the three months ended March 31, 2022[165] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its Class A common stock during the three months ended March 31, 2022, under its $250 million share repurchase program Share Repurchase Activity (in thousands, except share data) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased | | :-------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------- | :--------------------------------------------------- | | January 1 - 31, 2022 | — | $— | — | $150,000 | | February 1 - 28, 2022 | — | — | — | — | | March 1 - 31, 2022 | — | — | — | — | | Total | — | $— | — | $150,000 | - The company did not repurchase any shares of its Class A common stock during the three months ended March 31, 2022. A share repurchase program authorizing up to $250 million was approved on August 27, 2021, with $150 million remaining as of January 31, 2022[167] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report, including employment agreements, stock award agreements, certifications, and XBRL financial information - Exhibits include employment agreements, stock award agreements under the 2020 Omnibus Incentive Plan, certifications (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL financial information[168] Signature This section contains the official signatures certifying the accuracy and completeness of the report