Edited Transcript of CHNG.OQ earnings conference call or presentation 4-Jun-20 12:00pm GMT

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Thank you, Evan. Good morning, everyone, and I expect everyone is safe and well. The shock of COVID-19 above ChanGE Healthcare and the U.S. health anxiety system is clearly at the forefront of everyone's mind, which is why we plot ought expend the greater isolate of this shout discussing its shock and the actions we dine taken ought uphold our customers and partners.

As you'll hear when we publication our hard fourth belt operation and our views above FY '21, the principle strengths of our impartial position, middle franchises and our innovation engine, across with prudent econmic manaGEment, dine served us healthful at this unprecedented shock. Alongside handling the immediate challenGEs from COVID-19, we dine continued ought innovate and amplify our middle franchises ought quicken our growth coming out of this crisis.

As the emergency unfolded at February, we initiated our affair continuity systems and established a clean put of priorities, which we communicated widely and consistently. First, we focused above protecting the health and well-being of our team members. Second, we focused above our customers by communicating proactively and frequently, introducing new products and services that greet their now-urGEnt needs cottage continuing ought innovate at our middle franchises and providing guidance above how ought aid their affair operations. Third, we took the actions needed ought uphold affair continuity at our econmic and operational objectives. And fourth, we maintained our concentrate above our transformation along new produce development, automation and advancing our platform.

Given our IntelliGEnt Healthcare Network sits at the middle of the U.S. health anxiety system, we had early warning signals about the latent shock of COVID. And that allowed us ought accept the actions I impartial described above a timely basis. at the middle of March, we started ought visit a riddle dropoff at definite elective procedures, specifically at our eligibility and claims volume and at specialties though dental. Subsequently, we started ought visit a sequence across other specialties though we moved along the second half of March.

As you can visit from the list above glide 5, we saw a continued negative trend at April, which started ought even off and showed early signs of recovery at May. We used to wish though elective procedures go ought vacant up across the talk we will visit incremental improvement at these trends and our performance. cottage we dine seen the econmic torture these declines dine caused our provider customers, overall, the government uphold and the effective econmic manaGEment we assist them with see ought be staving off the more dire consequences though most providers.

Now I'll briefly highlight our econmic operation though the year, then supply some color above our affair activity at the contemporary belt also though actions we dine taken ought further innovation cottage executing above initiatives ought improve our operating performance. I'm pleased ought illustrate we closed out the fiscal year with another healthful belt though both solutions revenue and adjusted EBITDA, even with a minute shock from COVID-19 at March.

During the fourth quarter, we continued ought drive liberate cash flow, delivering above $300 million at liberate cash jog though the year, ahead of our preceding expectations. This demonstrates our genius ought murder above our strategic initiatives and send organic growth across our chief franchises, further the transformation of our RCM Services and Enterprise imaging businesses and murder above operational excellence ought farther improve margins and liberate cash flow. Additionally, new affair trends at the fourth belt continued ought be positive, exceeding our interior bookings tarGEts though the year with definite trends at new bookings at our Enterprise imaging and RCM Services businesses. Within RCM Services, definite trends continued at our averaGE advantage rates and concord size.

Let me now supply some color above concord wins across the affair at the fourth quarter. at our Payment Accuracy business, we last ought advantage multimillion-dollar deals, including with 2 chief Blues plans. at our imaging business, we added 2 new logos, displacing 2 of our larGEst competitors. Increasingly, provider organizations count that with our cloud-native solutions' flexibility and simple upgrades, this can be the final imaging system migration they can ever need. And at our RCM Services business, we last ought dine success selling it ought Hospitals and aggregators, winning multimillion-dollar deals.

Now at the first quarter, despite the challenGEs of COVID-19, many customers last ought groan contracts, specially at our payer business, cottage during including providers buying our imaging solutions, decision uphold software, RCM technique and RCM Services. Many of these customers were excited about the new offerings we announced during the quarter, some of which I'll briefly mention at a little minutes. at addition, subsequent ought the fourth quarter, we continued ought murder above our tactic ought fuel innovation and long-term growth and completed the acquisition of eRx Network and PDX. These 2 leaders at the delivery of electric solutions ought the pharmacy industry extend our come ought more than 59,000 pharmacies at the U.S. The combined portfolio of pharmacy network and Software & Analytics solutions will uphold faster, more integrated development and cross-selling opportunities.

I'll now influence above ought our response actions and outlook related ought COVID-19. The disperse of COVID-19 and the supicion about its trajectory at the United States has driven lower health anxiety utilization without a corresponding expand at spending or transactions from COVID-19-related interventions. though we dine often made clear, a piece of our affair is tied ought overall volumes of activity and spending at the health anxiety industry. And therefore, we dine been negatively impacted by this industry trend. cottage health anxiety activity is resuming, this unprecedented downturn led us ought little actions that we took ought mitigate its shock above our affair and assist our customers during this crisis.

To guarantee our affair continuity and the safety and welfare of our team members, we quickly moved our employees ought occupation from home, shifted ought a virtual parliament environment, suspended total noncritical affair tour and expanded telehealth and COVID-related PTO coveraGE ought total employees. at conjunction with academic, government and private inquiry efforts, we immediately began ought employ our data ought monitor, manaGE and inquiry COVID-19. though example, we are contributing ought a registry that provides de-identified data though what is expected ought ultimately be about each COVID-19 patient, allowing researchers ought learn how the illness is spreading, which population groups are most vulnerable and how effective proposed treatments are. This service is liberate though government and academic researchers. house upon the relationships we established with this work, we dine also signed 2 significant commercial agreements though ongoing projects with little more being negotiated.

With our customers, we maintained frequent detailed communications and moved ought virtual implementations, even though COVID-19 has caused near-term dislocation at their staffing. though this will no offset the total shock at fiscal year 2021 from delayed implementations, it places us at a healthful post ought uphold our customers amid the supicion and volatility that they total admit will be with us though some time. We dine seen virtually no canceled implementations ought date.

From an offerings perspective, we expanded or accelerated little initiatives and solutions across our platform that met our customers' new or newly urGEnt needs. permit me grant you some examples of these offerings that are helping our clients occupation with their unexpected challenGEs. though the department of Health at one of the larGEst states at the United States, ChanGE Healthcare rolled out a COVID-19 ordering and testing service amid clinics at 67 counties across the condition and one of the leading commercial lab companies, total within 24 hours. Both the condition and the commercial lab corporation dine praised our team though this unprecedented rapid and high-quality rollout.

Our Technology-Enabled Services team is working closely with the New York city department of Health and curious Hygiene above clinical triaGE services. We are utilizing our credential nursing cane though the city's COVID-19 paid time off initiative, which helps New Yorkers obtain access ought unemployment benefits if they are unable ought work, if they dine been exposed ought COVID-19, are poor or caring though someone who is.

After gaining insights into the long-term needs though analytical data sets from our occupation with chief researchers, public health officials and other experts, we launched our COVID-19 Analytic data Sets, a service which uses de-identified COVID-19 claims data ought explore illness sequence and the efficacy of treatment at genuine time and is liberate though qualified researchers. contemporary data above COVID-19 is largely limited ought static reports that arrest the quantity of new cases, overall cases, deaths and cases by GEography and, cottage useful, offers limited insights into actual illness sequence above time or the effectiveness of interventions above a timely basis.

We wish the expand at telehealth services ought be a eternal chanGE at health anxiety delivery. cottage during the haste and magnitude of the expand was a challenGE though many providers and telehealth platform providers. ought assist with these telehealth services, we launched a put of virtual anxiety enablement solutions, including engaGEment, econmic manaGEment and workflow products and services. We are now engaGEd with above 150 telehealth platform providers. Our telehealth Medical eligibility and claims package can be build above our API & Services Connection and purchased via the AWS Marketplace. Our telehealth lab orders, results and ePrescribe package can be build above our API & Services Connection and will immediately be added ought the AWS Marketplace.

The rapid expansion of virtual health anxiety underscore the acute need though clinicians above the front lines ought be capable ought quickly access the patient's health record, regardless of where that patient previously received care. With our partners, including the CommonWell Health Alliance, we are enabling digital access ought tens of millions of patient records during the COVID-19 emergency ought assist improve anxiety coordination and health outcomes nationwide. The DoD and VA dine also indicated a future interoperability expansion, including a connection ought CommonWell this year, farther expanding this significant satisfy of fighting COVID-19 and improving anxiety coordination GEnerally.

The expansion of telehealth reimbursement and new condition mandates caused by COVID-19 resulted at an overwhelming dash of new policies, many with never-before-seen nuances that required rapid comprehension and implementation. Our enterprise illustrate teams and network implementation teams helped health plans and providers manaGE the sometimes daily policy chanGEs with rapid content updates and real-time analytics, including new payment codes. Our immediate implementation of COVID-19 codes enabled timely and accurate payments though providers above the front lines of fighting COVID-19.

While health anxiety payers dine been less severely impacted by COVID-19 than many providers, our payer customers brainstormed with us ought become up with new products that could enable them ought reallocate their property though they occupation with the unexpected challenGEs from COVID-19. Payers prominent that they needed ought go developing solutions ought approve with the recently issued CMS patient Access and Interoperability rule, which comes into constrain above January 1, 2021. They knew that ChanGE Healthcare had worked closely with industry leaders across the health anxiety ecosystem also though the federal aGEncies ought age this new mode ought making patient data available using industry criterion APIs.

So toGEther with our customers, we designed and dine now launched our Connected Consumer Health interoperability APIs ought enable health plans ought quickly and securely face the deadline though the CMS patient Access and Interoperability rule. Our innovative solution significantly reduces the cost, complexity and deployment barriers ought empower payers ought rapidly face CMS's regulatory requirements cottage farther advancing the belief amid health plans and their members with improved data security. ought uphold our customers and the industry, ought grant them more access ought patient data at the middle of the COVID-19 challenGEs, we are providing our APIs though liberate ought our health plot customers.

Given health anxiety providers' econmic and operational challenGEs, we also launched a new service, the ChanGE Healthcare National Payments Connector. This one-stop solution dramatically accelerates providers' street ought a paperless affair with a only enrollment delivering connectivity ought 100% of U.S. payers. This new service includes the electric transmission of claims attachments also though the receipt of digital payments from any payer at the United States. at addition ought eliminating costly, manual, paper-based processes, this solution allows providers' administrative cane ought occupation from family cottage accelerating payments, 2 urGEnt priorities amid providers that dine emerGEd during the COVID-19 crisis.

Our insights into the software and service components of patient access also though our deep and long-standing relationships with customers at those areas helped us create and send new innovative patient access solutions. Utilizing our virtual front desk capabilities, we rolled out a new touchless waiting room though our customers. This digital patient access service allows patients ought remotely restrain at though their appointments, end forms and register above their private device. when the clinic is ready, they are appropriately directed inside the office or Hospital ought receive their trial or procedure ought assist guarantee that social distancing practices are followed.

So though you can see, based above the feedback we dine heard from our customers about these new innovative offerings, we wish continued ask from both providers and payers though solutions that diminish their dependency above labor, improve efficiency and create a more flexible and distributed infrastructure ought guarantee patient access ought data and anxiety and enhanced engaGEment, specially during a epoch of volatility and uncertainty.

Now permit me become the shout above ought Fredrik, who will publication our econmic operation and the initiatives we dine taken ought strengthen our liquidity and price structure also though supply our econmic outlook. Fredrik?

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Fredrik J. Eliasson, ChanGE Healthcare Inc. - Executive VP & CFO [4]

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Thank you, Neil. Good morning, everyone. I am identical pleased ought illustrate a healthful fourth belt and first fiscal year though a public company, achieving our goals ought send underlying growth across total 3 segments, including the shock of the previously disclosed planned concord exits at our RCM Services affair and the transformation of our imaging business. at addition, we last ought occupation diliGEntly above our strategic objectives. And subsequent ought the year-end, we divested our favour at the majority of the Connected Analytics businesses and acquired both the eRx Network and PDX businesses, supporting our long-term growth objectives.

So starting above glide 7. at the fourth belt of fiscal 2020, below ASC 606, solutions revenue was $787 million, which was slightly above our expectations, despite a $6 million negative shock from COVID-19. compatible with our preceding guidance, ASC 606 negatively impacted revenue at our Software & Analytics division by $12 million, offset by a $2 million definite shock at our Technology-Enabled Services division though the quarter.

Adjusted EBITDA was $264 million, which was negatively impacted by the previously mentioned revenue shock from ASC 606 cottage during partially offset by a $6 million favorable shock above commissions and new concord setup costs though a originate of the new accounting standard. Adjusted net earnings was $133 million and adjusted net earnings per diluted unit was $0.42.

Now moving ought our results below ASC 605 though comparative purposes above glide 8. though the fourth quarter, below ASC 605, solutions revenue was $797 million compared ought $778 million at the preceding year. Overall growth at revenue was 2.4%, which included a negative shock of $12 million from planned concord eliminations at our Technology-Enabled Services business; year-over-year shock related ought optimization of our Connected Analytics business; and $6 million owing ought COVID-19. Excluding the shock of these items, solutions revenue growth used to dine been 5.5% though the quarter.

Adjusted EBITDA though the belt was $269 million compared ought $257 million at the identical epoch of the preceding year. Adjusted EBITDA border though a percentaGE of the solutions revenue though the belt of fiscal 2020 was 33.8% compared ought 33% final year. Improvement at adjusted EBITDA and related border improvements muse the incremental revenue growth and operational synergies, offset by COVID-19 shock and continued growth investment ought uphold our enterprise sales, Enterprise imaging and new produce development and launch activities.

Net loss though the belt was $108 million, resulting at a net loss of $0.34 per diluted unit, compared with net earnings of $38 million and net earnings of $0.15 per diluted unit, respectively, though the fourth fiscal belt of 2019. though isolate of the McKesson exit, additional NOLs are now available though ChanGE Healthcare ought utilize. And the creation of the associated tax receivable treaty created a onetime shock above our P&L this belt of $164 million.

Adjusted net earnings was $134 million, resulting at adjusted net earnings of $0.42 per diluted unit compared with adjusted net earnings of $126 million or $0.50 per diluted unit, respectively, though the fourth fiscal belt of 2019. Adjusted net earnings reflects the improvement at adjusted EBITDA, lower favour expend and lower tax rate. This was partially offset by higher amortization expend related ought strategic and integration CapEx. The per unit results also grant result ought the IPO with 320 million diluted units notorious at the fourth belt of fiscal 2020 compared ought 253 million fully diluted units at the identical epoch of the preceding fiscal year.

Now let's accept a see at more detail at the operation of our segments above glide 9. Once again, we are using the preceding accounting standard, ASC 605, ought supply a more meaningful year-over-year comparison. Starting with revenue, the Software & Analytics division grew 2.8% year-over-year. Growth at our Software & Analytics division was driven by healthful operation at our chief franchises, though Payment Accuracy, decision uphold and danger adjustments. Results were partially impacted by a previously disclosed strategic assessment and optimization of our Connected Analytics affair and the transition at our imaging affair ought a cloud-based Enterprise imaging solution. at addition, at the quarter, we experienced a $3 million COVID-19 shock mostly owing ought occupation timing.

Our Network Solutions revenue increased by 8.6% year-over-year. Key drivers embrace a onetime passenger settlement of $7 million also though growth from implementation of new customers and data solutions, payments and increased impartial penetration at Medical network, partially offset by lower dental and Medical network volumes of $2 million resulting from COVID-19. at our Technology-Enabled Services segment, our overall revenue declined 1.3%. This includes $12 million of planned concord eliminations and a negative $2 million shock from COVID-19. Excluding the planned attrition, revenue growth was 4% though the quarter. though fiscal year 2020, planned attrition was $53 million, at row with our expectations, delivering revenue growth though the total year, excluding the planned attrition of 2.9%.

Turning ought adjusted EBITDA. Software & Analytics grew 2.2% year-over-year. The results were driven by revenue growth, across with operational synergies and price initiatives related ought the Connected Analytics business, partially offset by investments ought uphold AI initiatives and the Enterprise imaging transformation also though COVID-19 impact, though I mentioned earlier.

Network Solutions adjusted EBITDA increased 6.4% at the quarter, driven again by the growth at the data and B2B payment solutions and continued volume growth across the network. The growth at our Medical network was partially offset by the COVID shock I mentioned also though increased investment ought uphold new produce launches and impartial expansion opportunities and the integration of additional network capabilities. at Technology-Enabled Services, adjusted EBITDA increased nearly $1 million owing ought the efficiency gains from automation and productivity initiatives, offset by increased costs associated with our repositioning initiatives also though a $3 million COVID-19 impact.

Moving above ought cash jog and our remains sheet above glide 10. liberate cash jog was $121 million though the 3 months ended March 31, 2020, compared ought negative $18 million at the preceding year. Adjusted liberate cash jog was $157 million compared ought $42 million at the fourth fiscal belt final year. though the total fiscal year, liberate cash jog was $335 milli