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MultiPlan (MPLN) - 2023 Q3 - Quarterly Report

Part I Financial Statements This section presents the unaudited condensed consolidated financial statements for MultiPlan Corporation as of September 30, 2023, and for the three and nine-month periods then ended, including balance sheets, statements of income, shareholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies and events such as the acquisition of BST Unaudited Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2023, shows total assets of $7.06 billion, a decrease from $7.37 billion at year-end 2022, primarily due to a reduction in cash and cash equivalents, while total liabilities also decreased to $5.31 billion from $5.58 billion, mainly from a reduction in long-term debt, and goodwill increased to $3.83 billion following the BST acquisition Condensed Consolidated Balance Sheet Data (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $101,320 | $334,046 | | Goodwill | $3,829,002 | $3,705,199 | | Total assets | $7,057,819 | $7,371,104 | | Liabilities & Equity | | | | Long-term debt | $4,557,978 | $4,741,856 | | Total liabilities | $5,308,231 | $5,580,562 | | Total shareholders' equity | $1,749,588 | $1,790,542 | Unaudited Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income The company reported a net loss of $24.1 million for Q3 2023, a significant reversal from a net income of $19.7 million in Q3 2022, with the nine-month net loss at $60.3 million compared to a net income of $77.2 million in the prior year, driven by lower revenues and higher interest expense, partially offset by a gain on debt extinguishment Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $242,804 | $250,453 | $717,389 | $838,627 | | Operating income | $39,519 | $36,399 | $121,170 | $250,803 | | Net (loss) income | $(24,145) | $19,736 | $(60,306) | $77,226 | | Net (loss) income per share - Diluted | $(0.04) | $0.03 | $(0.09) | $0.12 | Unaudited Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity decreased from $1.79 billion at the start of 2023 to $1.75 billion by September 30, 2023, primarily driven by a net loss of $60.3 million and stock repurchases totaling $13.1 million, partially offset by stock-based compensation and stock consideration issued for the BST acquisition - For the nine months ended September 30, 2023, key changes to shareholders' equity included a net loss of $60.3 million, $13.4 million in stock-based compensation, and the repurchase of common stock for $13.1 million28 - Stock consideration of $19.2 million was paid for the BST acquisition, which involved issuing 21,588,652 shares of Class A common stock2848 Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operating activities was $144.0 million, a significant decrease from $344.7 million in the prior-year period, while investing activities used $218.4 million, largely for the BST acquisition ($140.9 million), and financing activities used $158.5 million, mainly for the repurchase of notes ($135.0 million) and treasury stock ($13.1 million), resulting in a net decrease in cash of $232.9 million Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $144,018 | $344,675 | | Net cash used in investing activities | $(218,449) | $(78,920) | | Net cash used in financing activities | $(158,514) | $(12,314) | | Net (decrease) increase in cash | $(232,945) | $253,441 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide detailed explanations for the financial statements, highlighting key events such as the acquisition of Benefits Science LLC (BST) on May 8, 2023, for $160.1 million, resulting in $123.8 million of goodwill, the entry into $800 million of interest rate swaps to hedge floating-rate debt, the repurchase of $184.0 million of its 5.750% Notes (recognizing a $46.9 million gain), and the initiation of a $100 million share repurchase program, spending $13.1 million to date - On May 8, 2023, the Company acquired 100% of Benefits Science LLC (BST) for $160.1 million, consisting of $140.9 million in cash and $19.2 million in stock, adding $123.8 million to goodwill485153 - During the nine months ended September 30, 2023, the Company purchased and cancelled $184.0 million of its 5.750% Notes, resulting in a recognized gain on extinguishment of $46.9 million6365 - In September 2023, the Company entered into interest rate swap agreements with a total notional value of $800 million to convert a portion of its floating-rate debt to a fixed-rate basis58 - On February 27, 2023, the Board approved a $100 million share repurchase program, and as of September 30, 2023, the Company has spent $13.1 million to repurchase its Class A common stock88 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 14.5% year-over-year revenue decrease for the nine-month period ended September 30, 2023, attributing it to lower revenues across all service lines, particularly a 16.5% drop in Analytics-Based Services due to contractual rate changes, while the company acquired BST to enhance its data analytics capabilities, and despite revenue pressure, Q3 2023 operating income increased due to significantly lower G&A expenses, with the company actively managing its capital structure through debt repurchases and a share buyback program Company Overview MultiPlan is a data analytics and technology solutions provider for the U.S. healthcare industry, focusing on reducing medical costs and improving payment accuracy for payors, offering three categories of services: Analytics-Based, Network-Based, and Payment and Revenue Integrity, and serving as an intermediary for payors, employers, plan members, and providers, identifying approximately $17.0 billion in potential medical cost savings in the first nine months of 2023 - The company's services are categorized into Analytics-Based Services, Network-Based Services, and Payment and Revenue Integrity Services101 - For the nine months ended September 30, 2023, the company's services identified approximately $17.0 billion in potential medical cost savings102 Results of Operations For the nine months ended September 30, 2023, total revenues decreased 14.5% to $717.4 million from $838.6 million in the prior-year period, driven by a 16.5% drop in Analytics-Based Services revenue and a 10.3% fall in Network-Based Services revenue, primarily due to contractual rate changes with customers, while costs of services increased by 16.5%, and G&A expenses fell 17.6% due to lower transaction costs, leading to a 51.7% decrease in operating income for the nine-month period Revenues by Service (in thousands) | Service | Nine Months 2023 | Nine Months 2022 | Change % | | :--- | :--- | :--- | :--- | | Network-Based Services | $171,171 | $190,903 | (10.3)% | | Analytics-Based Services | $462,275 | $553,334 | (16.5)% | | Payment and Revenue Integrity | $83,943 | $94,390 | (11.1)% | | Total Revenues | $717,389 | $838,627 | (14.5)% | - The decrease in Analytics-Based Services revenues for the nine months was primarily due to contractual rate changes with customers, contributing to a $98.1 million decrease in PSAV revenues for that segment140 - General and administrative expenses for the nine months decreased by $23.1 million (17.6%), mainly due to a $23.3 million reduction in transaction-related expenses compared to the prior year147 Non-GAAP Financial Measures The company uses EBITDA, Adjusted EBITDA, and Adjusted EPS as key non-GAAP metrics to evaluate performance, with Adjusted EBITDA for the nine months ended September 30, 2023, at $461.2 million, down from $607.2 million in the prior-year period, and Adjusted EPS for the same period at $0.18, a significant decrease from $0.39 in 2022, as these measures exclude items like amortization, stock-based compensation, and transaction expenses to provide a view of core business performance Non-GAAP Reconciliation Highlights (in thousands, except per share data) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Net (loss) income | $(60,306) | $77,226 | | Adjusted EBITDA | $461,202 | $607,214 | | Adjusted net income | $116,662 | $248,343 | | Adjusted EPS | $0.18 | $0.39 | Liquidity and Capital Resources As of September 30, 2023, the company had $107.6 million in cash and cash equivalents and $442.1 million available under its revolving credit facility, with key uses of cash during the first nine months of 2023 including $140.9 million for the BST acquisition, $135.0 million for debt repurchases, and $13.1 million for share repurchases, and the company believes its current liquidity is sufficient for the next twelve months, with total long-term debt standing at $4.56 billion - As of September 30, 2023, the company had cash and cash equivalents of $107.6 million and $442.1 million of availability under its revolving credit facility160 - Significant cash outflows in the first nine months of 2023 included the acquisition of BST ($140.9M), repurchase of 5.750% Notes ($135.0M), and purchase of treasury stock ($13.1M)162170171 - The company was in compliance with all debt covenants as of September 30, 2023, with a consolidated first lien debt to consolidated EBITDA ratio of 3.63 times184185 Quantitative and Qualitative Disclosures About Market Risk The company states there have been no material changes in its market risks since the disclosures in its 2022 Annual Report, with the primary market risk exposure relating to interest rate fluctuations on its variable-rate debt, which it has partially hedged with interest rate swaps - As of September 30, 2023, there were no material changes in the market risks described in the company's 2022 Annual Report197 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of September 30, 2023, with no material changes to the internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - Management concluded that as of September 30, 2023, disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, and reported in a timely manner199 - There has been no change in internal control over financial reporting during the nine months ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, the Company's internal control200 Part II - Other Information Legal Proceedings The company reports that the previously disclosed Delaware Stockholder Litigation related to its de-SPAC transaction has been fully resolved, with a settlement of $33.75 million, paid by the company and its insurers, approved by the court on February 28, 2023, and becoming final, and other ongoing legal matters are not expected to have a material adverse effect on the company's financial condition or results of operations - The Delaware Stockholder Litigation was fully resolved following a court-approved settlement of $33.75 million, which was paid by the company and its insurers206207 Risk Factors The company states there have been no material changes to the risk factors that were previously disclosed in Item 1A of the Company's 2022 Annual Report - There have been no material changes during the nine months ended September 30, 2023 to the risk factors previously disclosed in the Company's 2022 Annual Report209 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company did not repurchase any shares of its Class A common stock during the third quarter of 2023, and subsequent to the quarter, on November 8, 2023, the Board extended the existing $100 million share repurchase program through December 31, 2024, with $13.1 million repurchased to date under the program, leaving $86.9 million authorized for future repurchases - The Company did not repurchase shares of its Class A common stock during the three months ended September 30, 2023210 - On November 8, 2023, the Board extended the Company's current $100 million share repurchase program through December 31, 2024, with $86.9 million remaining under the authorization215 Exhibits This section lists the exhibits filed with the Form 10-Q, which include the certifications by the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and the Inline XBRL financial data files - The exhibits filed with the report include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Rules and financial statements formatted in Inline XBRL218