MultiPlan (MPLN) - 2021 Q3 - Quarterly Report

Part I. Financial Information Financial Statements MultiPlan Corporation's unaudited condensed consolidated financial statements as of September 30, 2021, reflect $8.28 billion in total assets and a $77.1 million net income for the nine months, marking a significant turnaround Condensed Consolidated Balance Sheet Data (Unaudited) | (in thousands) | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $225,140 | $126,755 | | Total current assets | $306,182 | $208,859 | | Goodwill | $4,364,705 | $4,257,335 | | Other intangibles, net | $3,370,204 | $3,584,184 | | Total assets | $8,278,793 | $8,283,577 | | Liabilities & Equity | | | | Total current liabilities | $167,162 | $112,498 | | Long-term debt | $4,893,255 | $4,578,480 | | Total liabilities | $5,923,457 | $5,725,716 | | Total shareholders' equity | $2,355,336 | $2,557,861 | | Total liabilities and shareholders' equity | $8,278,793 | $8,283,577 | Condensed Consolidated Statements of Income (Loss) (Unaudited) | (in thousands, except per share data) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Revenues | $819,348 | $682,419 | | Operating income (loss) | $276,520 | $(91,616) | | Net income (loss) | $77,142 | $(347,242) | | Net income (loss) per share – Diluted | $0.12 | $(0.84) | Condensed Consolidated Statements of Cash Flows (Unaudited) | (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $371,426 | $332,309 | | Net cash used in investing activities | $(201,197) | $(150,329) | | Net cash (used in) provided by financing activities | $(71,844) | $0 | - On February 26, 2021, the Company acquired Discovery Health Partners (DHP) for a total cash consideration of $151.8 million, adding $108.2 million in goodwill and $41.1 million in other intangible assets[52][54] - On August 24, 2021, the company refinanced its debt by issuing $1.325 billion of Term Loan B and $1.05 billion of 5.50% Senior Secured Notes to repay $2.341 billion of Term Loan G, resulting in a $15.8 million loss on extinguishment of debt[61][63] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong nine-month 2021 performance to increased claims volumes and acquisitions, resulting in 20.1% revenue growth and a shift to $77.1 million net income, supported by debt refinancing and a share repurchase program Results of Operations Comparison | ($ in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Change % | | :--- | :--- | :--- | :--- | | Total Revenues | $819,348 | $682,419 | 20.1% | | Operating income (loss) | $276,520 | $(91,616) | 401.8% | | Net income (loss) | $77,142 | $(347,242) | 122.2% | - Revenue growth was driven by increased claims volumes from reduced COVID-19 restrictions, growth from existing customers, and acquired revenues from DHP and HST totaling $31.3 million for the nine months ended September 30, 2021[162] - The significant improvement from operating loss to income was primarily due to a massive reduction in stock-based compensation expense, which was $13.2 million in the first nine months of 2021 compared to $299.6 million in the same period of 2020, largely tied to a one-time liquidity event from the 2020 Transactions[156][158][160] - The company initiated a $250 million share repurchase program on August 27, 2021, and had already repurchased $61.1 million of its Class A common stock by September 30, 2021[182] Non-GAAP Reconciliation: Adjusted EBITDA | (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net income (loss) | $77,142 | $(347,242) | | Adjusted EBITDA | $614,750 | $511,262 | Quantitative and Qualitative Disclosures About Market Risk As of September 30, 2021, the company reports no material changes to the market risks previously disclosed in its 2020 Annual Report on Form 10-K - As of September 30, 2021, there were no material changes in the market risks described in the company's 2020 Annual Report[214] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to ongoing material weaknesses related to accounting resources and formal policies, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to ongoing material weaknesses[216] - The material weaknesses identified include an insufficient number of resources with appropriate public company accounting knowledge and a lack of sufficient formal accounting policies, procedures, and controls for public company financial reporting[217] - Remediation efforts are underway, including hiring a Chief Accounting Officer and VP of Internal Audit, engaging a professional services firm, and developing key controls, but the material weaknesses were not considered fully remediated as of the report date[219][221] Part II - Other Information Legal Proceedings The company reports the voluntary dismissal of a securities class action lawsuit and ongoing stockholder litigation in Delaware, with no contingent liability recorded as of September 30, 2021 - The securities class action lawsuit, In re MultiPlan Corporation Securities Litigation, was voluntarily dismissed by the lead plaintiff on September 14, 2021[226] - The company is a defendant in the In Re MultiPlan Corp. Stockholders Litigation in Delaware, which alleges breach of fiduciary duty concerning the 2020 Transactions, with a motion to dismiss under advisement by the court[227] - The company has not recorded a contingent liability accrual for these legal matters as of September 30, 2021, as a potential loss cannot be reasonably estimated[228] Risk Factors A new material risk factor highlights the volatility in reported financial results due to the fair value remeasurement of Private Placement Warrants and unvested founder shares as derivative liabilities - A new risk factor has been added concerning the accounting treatment of Private Placement Warrants and unvested founder shares as derivative liabilities[230] - These liabilities must be remeasured to fair value each quarter, with changes in value recorded in the income statement, which can cause significant fluctuations in quarterly earnings based on factors like the company's stock price[230][231] Unregistered Sales of Equity Securities and Use of Proceeds The company initiated a $250 million share repurchase program in August 2021, repurchasing 10,009,831 shares for approximately $61.1 million by September 30, 2021 - On August 27, 2021, the company announced a share repurchase program authorizing up to $250 million of its Class A common stock through December 31, 2022[233] Share Repurchase Activity (Q3 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Program | Dollar Value (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Sep 1-30, 2021 | 10,009,831 | $6.10 | Repurchase Program | $61,060 | | July 1-31, 2021 | 32,556 | $7.26 | Employee Transactions | $236 | Exhibits This section lists key legal and financial documents filed as exhibits with the Form 10-Q, including new debt agreements and executive compensation amendments - Lists key legal and financial documents filed with the report, including new debt agreements (Indenture and Credit Agreement) and executive compensation amendments[236]