"MultiPlan" are MultiPlan Corporation and its consolidated subsidiaries;
"MultiPlan Parent" are to Polaris Parent Corp., a Delaware corporation;
"non-income taxes" includes personal property taxes, real estate taxes, sales and use taxes and franchise taxes which are included in costs of services and general and administrative expenses;
"other expenses, net" represents miscellaneous non-recurring income, miscellaneous non-recurring expenses, gain or loss on disposal of assets, impairment of other assets, gain or loss on disposal of leases, tax penalties, and non-integration related severance costs;
"Payors" are our customers and potential customers, which include large national insurance companies, Blue Cross and Blue Shield plans, provider-sponsored and independent health plans, third party administrators, bill review companies, Taft-Hartley plans, self-insured employers, federal and state government sponsored health plans and other entities that pay medical bills related to the commercial healthcare, government, workers' compensation and auto medical markets;
"PIK Interest" are to interest paid through an increase in the principal amount of the outstanding Senior Convertible PIK Notes or through the issuance of additional Senior Convertible PIK Notes;
"PIPE Warrants" are to the warrants to purchase Churchill's Class A common stock issued in connection with the Common PIPE Investment, on terms identical to the terms of the Private Placement Warrants, other than the exercise period that started on November 7, 2020, the exercise price which is $500.00 per share and the redemption feature that exists for all holders of the PIPE warrants;
"Private Placement Warrants" are to warrants issued to the Sponsor in a private placement simultaneously with the closing of the Churchill IPO and the Working Capital Warrants whose terms are identical to the Private Placement Warrants;
"Public Warrants" are to the Company's warrants sold as part of the units in the Churchill IPO (whether they were purchased in the Churchill IPO or thereafter in the open market);
"Reverse Stock Split" are to the 1-for-40 reverse stock split of the Common Stock effected on September 20, 2024. As a result of the Reverse Stock Split, every forty (40) shares of common stock either issued and outstanding or held as treasury stock were combined into one new share of common stock. The par value of new shares remained the same at $0.0001 per share.
"Revolver B" are to the revolving credit facility in conjunction with Term Loan B and maturing on August 24, 2026;
"贊助商"指的是Churchill Sponsor III, LLC，一家特拉華州的有限責任公司，及其關聯公司m. Klein and Company, LLC，一家特拉華州的有限責任公司，以及其關聯公司，在這些公司中，Certain的Churchill董事和高級職員持有會員權益；
"Sponsor Note" are to the unsecured promissory note issued by the Company to the Sponsor in an aggregate principal amount of $1,500,000. The Sponsor converted the unpaid balance of the Sponsor Note into Working Capital Warrants in connection with the Closing;
"Term Loan B" are to a term loan payable borrowed on August 24, 2021 in the amount of $1,325.0 million with a group of lenders due and payable on September 1, 2028;
(1)Shares, common stock and additional paid-in capital have been retroactively adjusted for all periods presented to reflect the one-for-forty (1-for-40) reverse stock split that became effective on September 20, 2024. See Note 1 General Information and Basis of Accounting.
Unaudited Condensed Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
Nine Months Ended September 30, 2024
Common Stock Issued(1)
Additional Paid-in Capital(1)
Accumulated Other Comprehensive Loss
Retained
Deficit
Treasury stock(1)
Total Shareholders’ Equity
Shares
Amount
Shares
Amount
Balance at beginning of period
16,695,207
$
2
$
2,348,570
$
(11,778)
$
(499,307)
(487,223)
$
(128,363)
$
1,709,124
Stock Incentive Plans
155,564
—
19,673
—
—
—
—
19,673
Tax withholding related to vesting of equity awards
—
—
(3,355)
—
—
—
—
(3,355)
Loss arising during the period on Interest rate swaps
—
—
—
(5,130)
—
—
—
(5,130)
Reclassification adjustments for gains included in net loss (interest expense)
—
—
—
4,446
—
—
—
4,446
Repurchase of common stock
—
—
—
—
—
(255,636)
(10,370)
(10,370)
Issuance of common stock in connection with employee stock purchase plan
63,285
—
1,040
—
—
—
—
1,040
Net loss
—
—
—
—
(1,507,866)
—
—
(1,507,866)
Balance at end of period
16,914,056
$
2
$
2,365,928
$
(12,462)
$
(2,007,173)
(742,859)
$
(138,733)
$
207,562
(1)Shares, common stock and additional paid-in capital have been retroactively adjusted for all periods presented to reflect the one-for-forty (1-for-40) reverse stock split that became effective on September 20, 2024. See Note 1 General Information and Basis of Accounting.
Nine Months Ended September 30, 2023
Common Stock Issued(1)
Additional Paid-in Capital(1)
Accumulated Other Comprehensive Loss
Retained Deficit
Treasury stock(1)
Total Shareholders’ Equity
Shares
Amount
Shares
Amount
Balance at beginning of period
16,657,259
$
2
$
2,330,509
$
—
$
(347,800)
(677,935)
$
(192,169)
$
1,790,542
Stock Incentive Plans
27,409
—
13,357
—
—
—
—
13,357
Tax withholding related to vesting of equity awards
—
—
(461)
—
—
—
—
(461)
Stock consideration paid for BST acquisition
—
—
—
—
$
(59,810)
539,716
79,024
19,214
Gains arising during the period on Interest rate swaps
—
—
—
936
—
—
—
936
Reclassification adjustments for gains included in net income (interest expense)
—
—
—
(554)
—
—
—
(554)
Repurchase of common stock
—
—
—
—
—
(309,293)
(13,140)
(13,140)
Net loss
—
—
—
—
(60,306)
—
—
(60,306)
Balance at end of period
16,684,668
$
2
$
2,343,405
$
382
$
(467,916)
(447,512)
$
(126,285)
$
1,749,588
(1)Shares, common stock and additional paid-in capital have been retroactively adjusted for all periods presented to reflect the one-for-forty (1-for-40) reverse stock split that became effective on September 20, 2024. See Note 1 General Information and Basis of Accounting.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
We are a leading provider of data-driven cost management solutions that deliver transparency and promote fairness, quality and affordability to the U.S. healthcare industry. Through our proprietary data and technology platform, we provide out-of-network cost management, payment and revenue integrity, data and decision science, business-to-business healthcare payments and other services to the payors of healthcare, which are primarily health insurers and their administrative-services-only platforms, self-insured employers, federal and state government-sponsored health plans (collectively "Payors") and other health plan sponsors (typically through their health plan administrators), and, indirectly, the plan members who are the consumers of healthcare services.
Throughout the notes to the unaudited condensed consolidated financial statements, unless otherwise noted, "we," "us," "our", "MultiPlan", and the "Company" and similar terms refer to MultiPlan and its subsidiaries.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements of MultiPlan Corporation have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Certain information and disclosures required by accounting principles generally accepted in the United States (GAAP) for complete consolidated financial statements have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of MultiPlan Corporation and the notes thereto, included in the Company’s 2023 Annual Report. In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair statement of the Company’s financial position as of September 30, 2024 and December 31, 2023, and its results of operations and cash flows for the three and nine months ended September 30, 2024 and 2023 have been included.
Reverse Stock Split
On September 20, 2024, the Company effected a one-for-forty (1-for-40) reverse stock split of its Class A common stock (the "Reverse Stock Split"). At a special meeting of stockholders held on September 9, 2024 (the “Special Meeting”), the Company's stockholders approved a Reverse Stock Split with a ratio of not less than 1-for-15 and not greater than 1-for-40, with the exact ratio and effective time of the Reverse Stock Split, if any, to be determined by the Company’s board of directors at any time within one year of the date of the Special Meeting. On September 10, 2024, the board of directors approved the Reverse Stock Split with a ratio of 1-for-40. The Company's common stock commenced trading on a reverse split-adjusted basis on September 23, 2024.
As a result of the Reverse Stock Split, every forty (40) shares of common stock issued and outstanding or held as treasury stock were combined into one new share of common stock. The Reverse Stock Split did not impact the number of authorized shares of common stock or affect the par value of the common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to receive fractional shares of common stock received their pro-rata portion of the net proceeds obtained from the aggregation and sale by the exchange agent of the fractional shares resulting from the Reverse Stock Split (reduced by any customary brokerage fees, commissions and other expenses).
References to common stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, share data, per share data and conversion rates with respect to convertible notes and related information contained in the unaudited condensed consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the Company's estimates. Estimates are periodically reviewed in light of
changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, revenue recognition, recoverability of long-lived assets, goodwill, valuation of Private Placement Warrants and Unvested Founder Shares, valuation of stock-based compensation awards and income taxes.
Segment Reporting
Operating segments are defined as components of an entity for which separate financial information is available and regularly reviewed by the chief operating decision maker. The Company manages its operations as a single segment for the purposes of assessing performance and making decisions. The Company's singular focus is being a leading provider of data-driven cost management solutions that deliver transparency and promote fairness, quality and affordability to the U.S. healthcare industry.
In addition, all of the Company's revenues and long-lived assets are attributable to operations in the United States for all periods presented.
Revenue Recognition
Disaggregation of Revenue
The following table presents revenues disaggregated by services and contract types:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Revenues
Network-Based Services
$
46,153
$
56,828
$
138,031
$
171,171
PSAV
32,883
40,441
95,752
122,679
PEPM
12,038
14,055
37,447
43,384
Other
1,232
2,332
4,832
5,108
Analytics-Based Services
157,704
158,414
477,693
462,275
PSAV
146,772
147,748
444,145
438,508
PEPM
9,031
8,786
27,610
21,008
Other
1,901
1,880
5,938
2,759
Payment and Revenue Integrity Services
26,638
27,562
82,755
83,943
PSAV
26,518
27,461
82,419
83,635
PEPM
120
101
336
308
Total Revenues
$
230,495
$
242,804
$
698,479
$
717,389
Percent of PSAV revenues
89.4
%
88.8
%
89.1
%
89.9
%
Percent of PEPM revenues
9.2
%
9.5
%
9.4
%
9.0
%
Percent of other revenues
1.4
%
1.7
%
1.5
%
1.1
%
Due to the nature of our arrangements, certain estimates may be constrained if it is probable that a significant reversal of revenue will occur when the uncertainty is resolved. For our percentage of savings contracts, portions of revenue that are recognized and collected in a reporting period may be returned or credited in subsequent periods. These credits are the result of Payors not utilizing the discounts that were initially calculated, or differences between the Company’s estimates of savings achieved for a customer and the amounts self-reported in the following month by that same customer. Significant judgment is used in constraining estimates of variable consideration and is based upon both customer-specific and aggregated factors that include historical billing and adjustment data, customer contractual terms, and performance guarantees. We update our estimates at the end of each reporting period as additional information becomes available. There have not been any material changes to estimates of variable consideration for performance obligations satisfied prior to the nine months ended September 30, 2024.
The timing of payments from customers from time to time generates contract assets or contract liabilities, however these amounts are immaterial in all periods presented.
As part of our surprise billing services, we help our clients for federal disputes take claims through an independent dispute resolution ("IDR") process and we pay IDR fees on their behalf. IDR fees include an administrative fee to cover the costs for administration of the IDR process; and an Independent Dispute Resolution Entity ("IDRE") fee to cover dispute resolution services. These IDR fees are then collected from either our clients or the IDREs, depending on the outcome of the dispute.
Derivatives
Interest Rate Swap Agreements
The Company is exposed to interest rate risk on its floating-rate debt. In September 2023, the Company entered into interest rate swap agreements to effectively convert some of its floating-rate debt to a fixed-rate basis. The Company entered into these agreements to reduce the variability of the cash flows in interest payments associated with the Company’s floating-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows.
The Company elected to apply the hedge accounting rules in accordance with authoritative guidance for the agreements entered into during the twelve months ended December 31, 2023. Changes in the fair value of interest rate swap agreements designated as cash flow hedges are recorded as a component of accumulated other comprehensive income within stockholders’ equity and are subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects "Earnings".
Stock-Based Compensation
In 2024, the Company began granting a new type of award via the 2020 Omnibus Incentive Plan, in the form of employee performance stock units ("PSUs"). The PSUs vest approximately three years after grant if certain performance metrics are met, as follows: 50% of the PSUs may be earned based on the Company’s relative total stockholder return (“RTSR”) over the measurement period from January 1, 2024 to December 31, 2026 compared to the Russel 2000, and 50% of the PSUs may be earned based on the cumulative revenue from January 1, 2024 to December 31, 2025.
The fair value assigned to PSUs is determined using the market price of the Company’s stock on the grant date for the performance based awards, i.e. the revenue PSUs, and by using a Monte Carlo simulation for the market based awards, i.e. the RTSR PSUs. Stock-based compensation costs associated with awards with a performance condition are re-assessed each reporting period based upon the estimated performance attainment on the reporting date until the performance conditions are met. The ultimate number of shares of common stock that are issued to an employee is the result of the actual performance of the Company at the end of the performance period compared to the performance targets and ranges from 0% to 150% of the initial PSU grant.
The Monte Carlo simulation model uses the same input assumptions as the Black-Scholes model to determine the expected potential ranking of the Company against the Russel 2000, i.e. the probability of satisfying the market condition defined in the award. Expected volatility in the model was estimated based on the volatility of historical stock prices over a period matching the expected term of the award. The risk-free interest rate is based on U.S. Treasury yield constant maturities for a term matching the expected term of the award.
Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as compensation expense for employee awards, net of forfeitures, over the applicable requisite service period of the stock award using the straight-line method for awards with only service conditions. The Company recognizes forfeitures as they occur.
Certain assumptions used are subjective and require significant management judgment, and include (i) the risk-free rate, (ii) volatility, (iii) the expected term, and (iv) our assessment of actual performance in comparison to the targets set in the awards. Changes in these assumptions can materially affect the estimate of the grant date fair value of the PSUs and ultimately compensation expenses.
New Accounting Pronouncements Issued but Not Yet Adopted
ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), which provides enhanced disclosures about significant segment expenses. The standard also enhances interim disclosure requirements and provides new segment disclosure requirements for entities with a single reportable segment. The standard is effective for public companies for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective adoption is required for all prior periods presented. Early adoption is permitted. The amendments under ASU 2023-07 relate to financial disclosures and its adoption will not have an impact on the Company's results of operations, financial position or cash flows. The Company is currently evaluating the effect that implementation of this standard will have on the Company's disclosures. The Company will adopt ASU 2023-07 for the annual reporting period ending December 31, 2024 and for interim reporting periods thereafter.
ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). This standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The standard is effective for public business entities for annual periods beginning after December 15, 2024, with early adoption permitted, and may be applied either prospectively or retrospectively for all prior periods presented. The Company is currently evaluating the impact of this disclosure.
On May 8, 2023, the Company acquired 100 percent of Benefits Science LLC ("Benefits Science Technologies" or "BST"), a Texas limited liability company offering next generation data and advanced analytics services for $160.1 million, net of acquired cash, consisting of $140.9 million in cash and $19.2 million in Company Class A common stock. This acquisition adds enhanced data and analytics capabilities to our existing services.
The BST acquisition was accounted for as a business combination using the acquisition method of accounting. As a result of the BST acquisition and the application of purchase accounting, BST's identifiable assets and liabilities were adjusted to their fair market value as of the acquisition date. For income tax purposes, the acquisition of BST is treated as the acquisition of partnership interests. The resulting intangible assets are amortizable for income tax purposes.
Following the consummation of the transactions, the Company entered into separately recognized transactions with key employees and service providers of BST who are employed or engaged by the Company and are eligible to participate in a long-term incentive and retention program. Pursuant to this incentive and retention program, cash payments will be made to such participant if: (i) subject to limited exceptions, such participant remains employed or engaged by the Company through the date of payment; and (ii) certain threshold, target and maximum annual recurring revenue targets relating to the business of BST are met over three to five years. The aggregate potential cash payments under this plan if the target annual recurring revenue targets are achieved was $66.0 million at inception and $52.5 million to participants remaining as of September 30, 2024, with additional aggregate potential cash payments if the maximum annual recurring revenue targets are achieved of up to $16.5 million at inception and $13.1 million to participants remaining as of September 30, 2024. If a minimum threshold as a percentage of target annual recurring revenue is not achieved, no cash payments will be due. The Company will account for the incentive payments as post-combination compensation costs.
The following table summarizes the consideration transferred to acquire BST and the amounts of identified assets acquired and liabilities assumed at the acquisition date:
(in thousands)
Total consideration
$
160,827
Cash and cash equivalents
673
Trade accounts receivable, net
2,053
Prepaid expenses
204
Property and equipment, net
57
Operating lease right-of-use assets
1,129
Other assets
46
Other intangibles, net(1)
35,700
Accounts payable
(717)
Other accrued expenses
(938)
Operating lease obligation, short-term
(150)
Operating lease obligation, long-term
(1,033)
Total identifiable net assets
37,024
Goodwill
$
123,803
(1)Includes client relationships of $19.2 million with a remaining useful life of 20 years, technology of $15.5 million with a remaining useful life of 7 years, and non-compete agreements of $1.0 million with a remaining useful life of 5 years. The weighted average remaining useful life of the acquired intangibles subject to amortization is 14 years.
The results of operations and financial condition of BST have been included in the Company's consolidated results from the date of acquisition.
In connection with the BST acquisition, the Company incurred transaction costs. The transaction costs have been expensed as incurred and these amounts totaling $0.1 million and $6.9 million for the three and nine months ended September 30, 2023, respectively, are included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of loss and comprehensive loss. No transaction costs were incurred during the three and nine months ended September 30, 2024.
Unaudited Pro Forma Financial Information
The following represents pro forma effects of the BST acquisition as if it had occurred on January 1, 2022. The pro forma net loss includes: (1) an increase in amortization of intangible assets of $3.0 million related to added amortization expense associated with intangible assets acquired in the acquisition; and (2) the addition of $11.3 million of transaction costs incurred, together with the income tax effects on (1) through (2). These pro forma results are not necessarily indicative of the results that would have occurred if the acquisition occurred on the first day of the period presented, nor does the pro forma financial information purport to present the results of operations for future periods. The following information for the year ended December 31, 2022 is presented in thousands:
As of each balance sheet date, other intangible assets consisted of the following:
September 30, 2024
December 31, 2023
(in thousands)
Weighted-average amortization period
Gross Carrying Amount
Accumulated Amortization
Net Carrying Value
Gross Carrying Amount
Accumulated Amortization
Net Carrying Value
Customer relationships
15 years
$
4,197,480
$
(2,300,824)
$
1,896,656
$
4,197,480
$
(2,090,703)
$
2,106,777
Provider network
15 years
896,800
(497,226)
399,574
896,800
(452,386)
444,414
Technology
6 years
21,850
(8,069)
13,781
21,850
(5,455)
16,395
Trade names
9 years
2,670
(1,107)
1,563
2,670
(919)
1,751
Trade names
Indefinite
54,500
—
54,500
63,000
—
63,000
Non-compete
5 years
1,000
(280)
720
1,000
(130)
870
Total
$
5,174,300
$
(2,807,506)
$
2,366,794
$
5,182,800
$
(2,549,593)
$
2,633,207
Goodwill for the three and nine months ended September 30, 2024 and 2023 was as follows:
(in thousands)
2024
2023
Beginning balance, January 1
$
3,829,002
$
3,705,199
Loss on impairment
(516,350)
—
Ending balance, March 31
$
3,312,652
$
3,705,199
Acquisitions
—
124,157
Loss on impairment
(553,701)
—
Ending balance, June 30
$
2,758,951
$
3,829,356
Purchase price adjustment
$
—
(354)
Loss on impairment
$
(355,811)
—
Ending balance, September 30
$
2,403,140
$
3,829,002
The goodwill arose from the acquisition of the Company in 2016 by Holdings, the HST acquisition in 2020, the DHP acquisition in 2021 and the BST acquisition in 2023. The carrying value of goodwill was $2,403.1 million and $3,829.0 million as of September 30, 2024 and December 31, 2023, respectively.
During the three months ended March 31, 2024
We concluded that the significant declines in our stock price and market capitalization during the month of March 2024 represented a triggering event and therefore performed an impairment assessment of goodwill and indefinite-lived intangible assets as of March 31, 2024.
The estimated fair value of our indefinite-lived trade names was less than their carrying value and as a result a loss on impairment of $2.7 million was recorded during the three months ended March 31, 2024.
The quantitative assessment of our goodwill as of March 31, 2024 indicated that the estimated fair value of the reporting unit was less than its carrying value, and as a result a loss on impairment of $516.4 million was recorded during the three months ended March 31, 2024.
The loss on impairment of goodwill and intangible assets was primarily due to the use of a higher discount rate in response to significant declines in our stock price and lower EBITDA multiples. There were no material changes in the forecasted revenues and expenses utilized in the analysis compared to November 1, 2023.
The Company incurred a goodwill impairment charge of $516.4 million in the first quarter of 2024. Of this impairment charge, $490.2 million is permanently nondeductible for income tax purposes resulted in an income tax expense of $103.0 million. The impairment charge is treated as a discrete item for the three months ended March 31, 2024, which impacted our effective tax rate versus our statutory tax rate.
We concluded that the significant declines in our stock price and market capitalization during the three months ended June 30, 2024, along with revised forecasts, represented triggering events and therefore performed an impairment assessment of goodwill and indefinite-lived intangible assets as of June 30, 2024.
No impairment was recorded for our indefinite-lived trade names during the three months ended June 30, 2024 as their fair value exceeded their carrying value.
The quantitative assessment of our goodwill as of June 30, 2024 indicated that the estimated fair value of the reporting unit was less than its carrying value, and as a result a loss on impairment of $553.7 million was recorded during the three months ended June 30, 2024.
The loss on impairment of goodwill was primarily due to the use of lower projected cash flows, lower EBITDA multiples and the use of a higher discount rate in response to the estimation uncertainty of our cash flow projections.
The Company incurred a goodwill impairment charge of $553.7 million during three months ended June 30, 2024. Of this impairment charge, $522.1 million is permanently nondeductible for income tax purposes resulted in an income tax expense of $109.6 million. The impairment charge is treated as a discrete item for the three months ended June 30, 2024, which impacted our effective tax rate versus our statutory tax rate.
During the three months ended September 30, 2024
We concluded that the continued declines in our stock price and market capitalization during the three months ended September 30, 2024, along with the revised forecasts in connection with establishing a new capital structure as further described in Note 5 Long-Term Debt, represented triggering events and therefore performed an impairment assessment of goodwill and indefinite-lived intangible assets as of September 30, 2024.
The estimated fair value of our indefinite-lived trade names was less than their carrying value and as a result a loss on impairment of $5.8 million was recorded during the three months ended September 30, 2024.
The quantitative assessment of our goodwill as of September 30, 2024 indicated that the estimated fair value of the reporting unit was less than its carrying value, and as a result a loss on impairment of $355.8 million was recorded during the three months ended September 30, 2024.
The loss on impairment of goodwill and intangible assets was primarily due to the use of lower projected cash flows and lower EBITDA multiples.
The Company incurred a goodwill impairment charge of $355.8 million during three months ended September 30, 2024. Of this impairment charge, $332.0 million is permanently nondeductible for income tax purposes and resulted in an income tax expense of $69.7 million. The impairment charge is treated as a discrete item for the three months ended September 30, 2024, which impacted our effective tax rate versus our statutory tax rate.
Impairment losses are included in Loss on impairment of goodwill and intangible assets in the accompanying unaudited condensed consolidated statements of loss and comprehensive loss. No impairment was recorded in the three and nine months ended September 30, 2023.
In the quantitative impairment test of goodwill performed in the three months ended September 30, 2024, we calculate the estimated enterprise fair value of the reporting unit using (i) a discounted cash flow analysis, (ii) forecasted EBITDA trading multiples for comparable publicly traded companies and (iii) historical EBITDA multiples for comparable acquisitions, giving equal weight to the three approaches. Assumptions used in the discounted cash flow analysis include forecasted revenues, forecasted expenses, the terminal growth rate and the discount rate. The fair value measurements are based on significant unobservable inputs, and thus represent Level 3 inputs. Following the goodwill impairment the carrying value of this reporting unit equaled its fair value as of September 30, 2024. Therefore, if business conditions or expectations were to change materially, it may be necessary to record further impairment charges in the future.
4. Derivative Financial Instruments
The Company is exposed to interest risk on its floating rate debt. On September 12, 2023, the Company entered into interest rate swap agreements with a total notional value of $800 million to effectively convert a portion of its floating rate debt
to a fixed-rate basis. The interest rate swap agreements are effective August 31, 2023 and mature on August 31, 2026. The Company entered into these agreements to reduce the volatility of the cash flows in interest payments associated with the Company's floating rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company's interest rate swaps are highly effective at offsetting the changes in cash outflows and therefore designated as cash flow hedging instruments.
The Company records derivatives on the balance sheet at fair value, as described in Note 7 Fair Value Measurements. The gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings.
The following table represents the activity of cash flow hedges included in accumulated other comprehensive loss for the periods presented:
(in thousands)
2024
2023
Balance as of January 1
$
(11,778)
$
—
Unrealized gain recognized in other comprehensive income before reclassifications
6,963
—
Reclassifications to interest expense
1,579
—
Balance as of March 31, net of tax
$
(3,236)
$
—
Unrealized gain recognized in other comprehensive income before reclassifications
593
—
Reclassification to interest expense
1,522
—
Balance as of June 30, net of tax
$
(1,121)
$
—
Unrealized (loss) gain recognized in other comprehensive income before reclassifications
(12,686)
936
Reclassification to interest expense
1,345
554
Balance as of September 30, net of tax
$
(12,462)
$
382
The Company recognized gains related to the cash flow derivatives of $1.3 million and $4.4 million during the three and nine months ended September 30, 2024, respectively, and $0.6 million during the three and nine months ended September 30, 2023. The gains are recognized within interest expense in the accompanying unaudited condensed consolidated statements of loss and comprehensive loss.
The following table represents the fair value of derivative assets and liabilities within the condensed consolidated balance sheets:
(in thousands)
Fair Value at September 30, 2024
Fair Value at December 31, 2023
Derivatives designated as cash flow hedging instruments:
As of September 30, 2024, and December 31, 2023, long-term debt consisted of the following:
Key Terms
September 30, 2024
December 31, 2023
(in thousands)
Character
Priority
Maturity
Coupon
Term Loan B
Term Loan
Senior Secured
9/1/2028(1)
Variable(2)
$
1,285,250
$
1,295,188
5.50% Senior Secured Notes
Notes
Senior Secured
9/1/2028
5.50%
1,050,000
1,050,000
5.750% Notes
Notes
Senior Unsecured
11/1/2028
5.750%
979,827
979,827
Senior Convertible PIK Notes
Convertible Notes(3)
Senior Unsecured
10/15/2027
Cash Interest 6.00%, PIK Interest 7.00%
1,253,890
1,275,000
Finance lease obligations, non-current
Other
Senior Secured
2024-2029
3.38% - 20.31%
93
15
Long-term debt
4,569,060
4,600,030
Less: current portion of long-term debt
(13,250)
(13,250)
Discount - Term Loan B
(7,938)
(9,331)
Discount – Senior Convertible PIK Notes
(15,175)
(18,833)
Less: debt discounts, net
(23,113)
(28,164)
Debt issuance costs - Term Loan B
(4,320)
(5,079)
Debt issuance costs - 5.50% Senior Secured Notes
(9,613)
(10,933)
Debt issuance costs - 5.750% Notes
(8,519)
(9,871)
Less: debt issuance costs, net
(22,452)
(25,883)
Long-term debt, net
$
4,510,245
$
4,532,733
(1)Beginning December 31, 2021 and quarterly thereafter, we will repay a principal amount of the Term Loan B equal to 0.25% of the initial aggregate principal of $1,325.0 million. These scheduled principal repayments may be reduced by any voluntary or mandatory prepayments made in accordance with the credit agreement.
(2)Interest on Term Loan B and Revolver B is calculated, at MPH's option, as (a) Term SOFR (or, with respect to the term loan facility only, 0.50%, whichever is higher), plus the applicable SOFR adjustment, plus the applicable margin, or (b) the highest rate of (1) prime rate, (2) the federal funds effective rate, plus 0.50%, (3) the Term SOFR for an interest period of one month, plus the applicable SOFR adjustment, plus 1.00% and (4) 0.50% for Term Loan B and 1.00% for Revolver B, in each case, plus an applicable margin of 4.25% for Term Loan B and between 3.50% and 4.00% for Revolver B, depending on MPH's first lien debt to consolidated EBITDA ratio. The interest rate in effect for Term Loan B was 9.57% as of September 30, 2024.
(3)The Senior Convertible PIK Notes are convertible into shares of the Company's Class A common stock based on a $520.00 conversion price, subject to customary anti-dilution adjustments.
During the nine months ended September 30, 2024, the Company purchased and cancelled $21.1 million of the Senior Convertible PIK Notes. The repurchases resulted in the recognition of a gain on extinguishment of $5.9 million during the nine months ended September 30, 2024, which are included in gain on extinguishment of debt in the accompanying unaudited condensed consolidated statements of loss and comprehensive loss. No repurchases were made during the three months ended September 30, 2024.
As of September 30, 2024 and December 31, 2023, the Company was in compliance with all of the debt covenants. See our discussion of Debt Covenants and Events of Defaultprovided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
On September 10, 2024, the Company announced that it is exploring ways to ensure its capital structure enables the Company to operate as efficiently and sustainably as possible and is in discussions with several MultiPlan debt holders to establish a capital structure that will help the Company facilitate its transformation into a data and technology-forward company focused on improving transparency, quality, and affordability in healthcare.
6. Private Placement Warrants and Unvested Founder Shares
The Company classifies the Private Placement Warrants and Unvested Founder Shares as a liability on its unaudited condensed consolidated balance sheets as these instruments are precluded from being indexed to our own stock given the terms allow for a settlement that does not meet the scope of the fixed-for-fixed exception in Accounting Standards Codification 815.
The Private Placement Warrants and Unvested Founder Shares were initially recorded at fair value on the date of consummation of the Transactions and are subsequently adjusted to fair value at each subsequent reporting date. The fair value of the Unvested Founder Shares and unvested Private Placement Warrants is obtained using a Monte Carlo model and the fair value of the remaining Private Placement Warrants is obtained using a Black Scholes model, together referenced as the "option pricing" model. The Company will continue to adjust the liability for changes in fair value for the founder shares until the earlier of the re-vesting or forfeiture of these instruments. The Company will continue to adjust the liability for changes in fair value for the Private Placement Warrants until the warrant is equity classified.
Effected for the Reverse Stock Split, there are 476,717 Private Placement Warrants and 310,102 Unvested Founder Shares outstanding as of September 30, 2024.
As of September 30, 2024 and December 31, 2023, the fair value of the Private Placement Warrants and the Unvested Founder Shares were:
(in thousands)
September 30, 2024
December 31, 2023
Private Placement Warrants
$
1
$
183
Unvested Founder Shares
$
—
$
294
For the three and nine months ended September 30, 2024, the change in fair values was primarily due to the change in expected term and the decrease in the price of the Company's Class A common stock over that period. The accompanying unaudited condensed consolidated statements of loss and comprehensive loss include (gains) losses related to the change in fair value of the Private Placement Warrants and Unvested Founder Shares for the three and nine months ended September 30, 2024 and 2023 as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Private Placement Warrants
$
(44)
$
(763)
$
(182)
$
143
Unvested Founder Shares
(43)
(1,364)
(294)
124
(Gain) loss on change in fair value of Private Placement Warrants and Unvested Founder Shares
$
(87)
$
(2,127)
$
(476)
$
267
7. Fair Value Measurements
Fair value measurements are based on the premise that fair value represents an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following three-tier fair value hierarchy has been used in determining the inputs used in measuring fair value:
•Level 1 — Quoted prices in active markets for identical assets or liabilities on the reporting date.
•Level 2 — Inputs, other than quoted prices in active markets (Level 1), that are observable for the asset or liability, either directly or indirectly.
•Level 3 — Unobservable inputs in which there is little or no market data, which require the entity to develop its own assumptions.
Certain financial instruments which are not measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable and accounts payable, which approximate fair value due to their short-term nature. The financial instrument that potentially subjects the Company to concentrations of credit risk consists primarily of accounts receivable.
Cash and cash equivalents as of December 31, 2023 included money market funds of $20.0 million, which were valued based on Level 1 measurements using quoted prices in active markets for identical assets. Cash and cash equivalents as of September 30, 2024 did not include money market funds.
As of September 30, 2024 and December 31, 2023, the Company's carrying amount and fair value of long-term debt consisted of the following:
September 30, 2024
December 31, 2023
(in thousands)
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Long-term Debt:
Term Loan B, net of discount (includes current portion)
$
1,277,312
$
966,925
$
1,285,857
$
1,243,424
5.50% Senior Secured Notes
1,050,000
758,100
1,050,000
946,050
5.750% Notes
979,827
480,115
979,827
805,418
Senior Convertible PIK Notes, net of discount
1,238,715
854,713
1,256,167
869,268
Finance lease obligations
93
93
15
15
Total Long-term Debt
$
4,545,947
$
3,059,946
$
4,571,866
$
3,864,175
We estimate the fair value of long-term debt using quoted prices in active markets. As such, this is considered a Level 1 fair value measurement.
Recurring fair value measurements
The Private Placement Warrants and Unvested Founder Shares are measured at fair value on a recurring basis. The fair value of these instruments was determined based on significant inputs not observable in the market which would represent a level 3 measurement within the fair value hierarchy. The Company uses an option pricing simulation to estimate the fair value of these instruments.
The Company records derivatives on the balance sheet at fair value, which represents the estimated amounts it would receive or pay upon termination of the derivative prior to the scheduled expiration date. The fair value is derived from model-driven information based on observable Level 2 inputs, such as SOFR forward rates.
Non-recurring fair value measurements
We also measure certain non-financial assets at fair value on a nonrecurring basis, primarily goodwill and long-lived tangible and intangible assets, in connection with periodic evaluations for potential impairment. We estimate the fair value of these assets using primarily unobservable inputs and, as such, these are considered Level 3 fair value measurements. There were impairment charges of $361.6 million and $1,434.4 million for goodwill and long-lived intangible assets for the three and nine months ended September 30, 2024, respectively, and none for the three and nine months ended September 30, 2023.
Our non-marketable equity securities using the measurement alternative are adjusted to fair value on a non-recurring basis. Adjustments are made when observable transactions for identical or similar investments of the same issuer occur, or due to impairment. These securities are classified as Level 2 in the fair value hierarchy because we estimate the value based on valuation methods using the observable transaction price at the transaction date. At September 30, 2024, the carrying amount of these alternative investments, recorded under Other assets, net in the unaudited condensed consolidated balance sheets, was $15.0 million. There were no write-ups due to observable price changes or write-downs due to impairment in the current period.
The Company has certain irrevocable letters of credit used to satisfy real estate lease agreements for three of our offices in lieu of security deposits in the amount of $1.8 million outstanding as of September 30, 2024 and December 31, 2023. The Company also has an irrevocable letter of credit to satisfy the obligations of a captive insurance subsidiary in the amount of $6.1 million outstanding as of September 30, 2024 and December 31, 2023.
Claims and Litigation
The Company is a defendant in various lawsuits and other pending and threatened litigation and other adversarial matters as well as regulatory investigations, all of which have arisen in the ordinary course of business. While the ultimate outcome with respect to such proceedings cannot be predicted with certainty, the Company does not believe they will result, individually or in the aggregate, in a material adverse effect upon our financial condition, results of operations, or cash flows.
On July 11, 2024, we settled litigation filed in 2014 in which a dialysis company alleged that an entity we acquired in 2011 was liable for certain payments owed to the dialysis provider. As a result of this settlement, we have received $9.8 million of recoveries from insurers in the three months ended September 30, 2024, and on October 7, 2024, we completed the settlement payment.
For example, and relating to litigation on the basis of alleged violation of antitrust laws, the Company has been named in numerous federal lawsuits, including putative class action lawsuits, asserting that, among other things, the Company is conspiring with commercial health insurance payors to suppress out of network reimbursements in violation of applicable antitrust law. These lawsuits were initially filed in various venues, including the Southern District of New York, the Northern District of Illinois, and the Northern District of California, naming the Company and, in certain cases, certain payors, as defendants. The lawsuits have now been centralized in the Northern District of Illinois pursuant to a transfer order issued by the federal Judicial Panel on Multidistrict Litigation and assigned to the Honorable Matthew F. Kennelly. The Court has ordered consolidated complaints to be filed by November 18, 2024, with motion to dismiss briefing to follow. We believe these lawsuits are without merit and intend to vigorously defend the Company.
We accrue for costs associated with certain contingencies, including, but not limited to, settlement of legal proceedings, regulatory compliance matters and self-insurance exposures when such costs are probable and reasonably estimable. Such accruals are included in accrued legal contingencies on the accompanying unaudited condensed consolidated balance sheets. In addition, we accrue for legal fees incurred in defense of asserted litigation and regulatory matters as such legal fees are incurred. To the extent it is probable under our existing insurance coverage that we are able to recover losses and legal fees related to contingencies, we record such recoveries concurrently with the accrual of the related loss or legal fees. Significant management judgment is required to estimate the amounts of such contingent liabilities and the related insurance recoveries. In our determination of the probability and ability to estimate contingent liabilities and related insurance recoveries we consider the following: litigation exposure based on currently available information, consultations with external legal counsel, adequacy and applicability of existing insurance coverage, appeal bonds or similar instrument posted, and other pertinent facts and circumstances regarding the contingency. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved; and such changes are recorded in the accompanying unaudited condensed consolidated statements of loss and comprehensive loss during the period of the change and appropriately reflected in accrued legal contingencies on the accompanying unaudited condensed consolidated balance sheets.
9. Shareholder's Equity
On February 27, 2023, the Board approved a repurchase program, authorizing, but not obligating, the Company's repurchase of up to an aggregate amount of $100.0 million of its Class A common stock from time to time through December 31, 2023. On November 8, 2023, the Board extended the repurchase program through December 31, 2024. As of September 30, 2024, the Company has spent $25.6 million, including commissions, for the repurchase of its Class A common stock as part of this program using cash on hand, of which $10.4 million was spent during the nine months ended September 30, 2024. No repurchases were made during the three months ended September 30, 2024.
On May 8, 2023, the Company issued stock consideration of 539,716 shares of Company Class A common stock for the acquisition of BST.
The following table sets for the weighted average number of shares outstanding and the computation of basic and diluted net loss per share, retroactively adjusted to reflect the Reverse Sock Split for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except number of shares and per share data)
2024
2023
2024
2023
Numerator for earnings per share calculation
Net loss
$
(391,450)
$
(24,145)
$
(1,507,866)
$
(60,306)
Denominator for earnings per share calculation
Weighted average number of shares outstanding – basic
16,143,520
16,161,095
16,139,523
16,096,395
Weighted average number of shares outstanding – diluted
16,143,520
16,161,095
16,139,523
16,096,395
(Loss) Income per share – basic and diluted:
Net loss per share – basic
$
(24.25)
$
(1.49)
$
(93.43)
$
(3.75)
Net loss per share – diluted
$
(24.25)
$
(1.49)
$
(93.43)
$
(3.75)
For the three and nine months ended September 30, 2024 and September 30, 2023, potentially dilutive securities were excluded from the calculation of diluted net loss per share, as their effect would have been anti-dilutive given the Company's losses incurred. Therefore, the weighted average number of shares outstanding used to calculate both basic and diluted net loss per share is the same.
11. Related Party Transactions
The accompanying unaudited condensed consolidated statements of loss and comprehensive loss include related party expenses of $23 thousand and $82 thousand for the three and nine months ended September 30, 2024 and $78 thousand and $233 thousand for the three and nine months ended September 30, 2023. These expenses are associated with a software license from Abacus Insights, Inc., as well as customer service software and captive management services from companies controlled by Hellman & Friedman LLC.
The accompanying unaudited condensed consolidated balance sheets include prepaid expenses of $6 thousand and $36 thousand from related parties as of September 30, 2024 and December 31, 2023, respectively.
25
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto contained elsewhere in this Quarterly Report and together with the information included in the Company’s 2023 Annual Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties; the results described below are not necessarily indicative of the results to be expected in any future periods. References to common stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, share date, per share data and conversion rates with respect to convertible notes and related information have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.
All statements other than statements of historical fact included in this Quarterly Report including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects as well as estimates of industry growth for the next quarter and beyond. When used in this Quarterly Report, words such as “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology represent forward-looking statements that include matters that are not historical facts. They may appear in a number of places throughout this Quarterly Report and these forward-looking statements reflect management’s expectations regarding our future growth, results of operations, operational and financial performance and business prospects and opportunities. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting our business. Factors that may impact such forward-looking statements include:
•loss of our customers, particularly our largest customers;
•interruptions or security breaches of our information technology systems and other cybersecurity attacks;
•the impact of reduced claims volumes resulting from a nationwide outage by a vendor used by our customers;
•the ability to achieve the goals of our strategic plans and recognize the anticipated strategic, operational, growth and efficiency benefits when expected;
•our ability to enter new lines of business and broaden the scope of our services;
•the loss of key members of our management team or inability to maintain sufficient qualified personnel;
•our ability to continue to attract, motivate and retain a large number of skilled employees, and adapt to the effects of inflationary pressure on wages;
•trends in the U.S. healthcare system, including recent trends of unknown duration of reduced healthcare utilization and increased patient financial responsibility for services;
•effects of competition;
•effects of pricing pressure;
•our ability to identify, complete and successfully integrate acquisitions;
•the inability of our customers to pay for our services;
•changes in our industry and in industry standards and technology;
•our ability to protect proprietary information, processes, and applications;
•our ability to maintain the licenses or right of use for the software we use;
•our inability to expand our network infrastructure;
26
•our ability to obtain additional financing;
•our ability to pay interest and principal on our notes and other indebtedness;
•lowering or withdrawal of our credit ratings;
•adverse outcomes related to litigation or governmental proceedings;
•inability to preserve or increase our existing market share or the size of our preferred provider organization networks;
•decreases in discounts from providers;
•pressure to limit access to preferred provider networks;
•the loss of our existing relationships with providers;
•changes in our regulatory environment, including healthcare law and regulations;
•the expansion of privacy and security laws;
•heightened enforcement activity by government agencies;
•the possibility that we may be adversely affected by other political, economic, business, and/or competitive factors;
•changes in accounting principles or the incurrence of impairment charges;
•our ability to remediate any material weaknesses or maintain effective internal controls over financial reporting;
•other factors disclosed in this Quarterly Report; and
•other factors beyond our control.
The forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on our business. There can be no assurance that future developments affecting our business will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors referred to under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report or as described in our 2023 Annual Report. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Company Overview
MultiPlan is a leading provider of data-driven cost management solutions that deliver transparency and promote fairness, quality and affordability to the U.S. healthcare industry. Through our proprietary data and technology platform, we provide out-of-network cost management, payment and revenue integrity, data and decision science, business-to-business healthcare payments and other services to the payors of healthcare, which are primarily health insurers and their administrative-services-only platforms, self-insured employers, federal and state government-sponsored health plans (collectively "Payors") and other health plan sponsors (typically through their health plan administrators), and, indirectly, the plan members who are the consumers of healthcare services.
Although the end beneficiary of our services are employers and other plan sponsors and their health plan members, our direct customers are typically Payors, including Payors providing administrative services only, third-party administrators ("TPAs"), who go to market with our services to those end customers. We offer these Payors a single interface to our services, which are used in combination or individually to reduce the medical cost burden on their health plan customers, by lowering the per-unit cost of medical services incurred, managing the utilization of medical services, and increasing the likelihood that the services are reimbursed without error and accepted by the provider. We are a technology-enabled service provider and transaction processor and do not deliver health-care services, provide or manage healthcare services, provide care or care management, or adjudicate or pay claims.
27
The Company, primarily through its operating subsidiary, MultiPlan, Inc., offers its solutions nationally through a range of service lines, which include:
•Analytics-Based Services reduce medical cost through data-driven algorithms and insights that detect claims over-charges and either negotiate or recommend fair reimbursement for out-of-network medical costs using a variety of data sources and pricing algorithms. Our Analytics-Based Services claim pricing services are generally priced based on a percentage of savings achieved. Also included in this category are services that enable lower cost health plans that feature reference-based pricing either in conjunction with or in place of a provider network. These services are generally priced at a bundled PEPM rate;
•Network-Based Services reduce medical cost by providing access to contracted discounts with healthcare providers with whom Payors do not have a contractual relationship, through our expansive network of over 1.4 million healthcare providers, which forms one of the largest independent preferred provider organizations in the United States. Our Network-Based Services are priced based on either a percentage of savings achieved or at a per employee/member per month fee. This service category also includes customized network development and management services for Payors seeking to expand their network footprint using outsourced services. These services are generally priced on a per provider contract or other project-based price;
•Payment and Revenue Integrity Services reduce medical cost through data, technology, and clinical expertise deployed to identify and remove improper and unnecessary charges before or after claims are paid, or to identify and help restore premium dollars underpaid by CMS for government health plans caused by discrepancies with enrollment-related data. Payment and Revenue Integrity Services are generally priced based on a percentage of savings achieved; and
•Data and Decision Science Services reduce medical costs through a next generation suite of solutions that apply modern methods of data science to produce descriptive, predictive, and prescriptive analytics that enable customers to optimize decision-making about plan design and network configurations and to support decision-making to improve clinical outcomes, plan performance, and competitive positioning. We formed this new service category in the second quarter of 2023 and accelerated its development through the acquisition of BST. Data and Decisions Science Services are generally priced based on a subscription, licensing, or per-member-per month basis.
•Additionally, in 2023 the Company entered into a partnership agreement with ECHO Health, Inc., which through a joint marketing and services agreement adds payment processing of healthcare provider claims as well as payments made to other service providers.
We believe our solutions provide a strong value proposition to Payors, their health plan customers and healthcare consumers, as well as to providers. Overall, our service offerings aim to reduce healthcare costs in a manner that is orderly, efficient, and fair to all parties. In addition, because in most instances the fee for our services is linked to the savings we identify, our revenue model is aligned with the interests of our customers. For the nine months ended September 30, 2024 and September 30, 2023 and year ended December 31, 2023, our comprehensive services identified approximately $18.3 billion, $17.0 billion, and $22.9 billion in potential medical cost savings, respectively.
Reverse Stock Split
On September 20, 2024, the Company effected a one-for-forty (1-for-40) reverse stock split of its Class A common stock (the "Reverse Stock Split"). At a special meeting of stockholders held on September 9, 2024 (the “Special Meeting”), the Company's stockholders approved a Reverse Stock Split with a ratio of not less than 1-for-15 and not greater than 1-for-40, with the exact ratio and effective time of the Reverse Stock Split, if any, to be determined by the Company’s board of directors at any time within one year of the date of the Special Meeting. On September 10, 2024, the board of directors approved a Reverse Stock Split with a ratio of 1-for-40. The Company's common stock commenced trading on a reverse split-adjusted basis on September 23, 2024.
As a result of the Reverse Stock Split, every forty (40) shares of common stock either issued and outstanding or held as treasury stock were combined into one new share of common stock. The Reverse Stock Split did not impact the number of authorized shares of common stock or affect the par value of the common stock. No fractional shares were issued in connection
28
with the Reverse Stock Split. Stockholders who were otherwise entitled to receive fractional shares of common stock received their pro-rata portion of the net proceeds obtained from the aggregation and sale by the exchange agent of the fractional shares resulting from the Reverse Stock Split (reduced by any customary brokerage fees, commissions and other expenses).
References to common stock, warrants to purchase common stock, options to purchase common stock, restricted stock units, share data, per share data and conversion rates with respect to convertible notes and related information contained in the unaudited condensed consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.
Factors Affecting Our Results of Operations
Medical Cost Savings
Our business and revenues are driven by the ability to lower medical costs through claim savings for our customers. The volume of medical charges associated with those claims is a primary driver of our ability to generate claim savings.
The following table presents the medical charges processed and the potential savings identified across our products and revenue streams, including PEPM and PSAV, for the periods presented:
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
(in millions)
2024
2023
%
2024
2023
Commercial Health Plans
Medical charges processed
$
20,515
$
18,495
10.9%
$
58,661
$
55,644
5.4%
Potential medical cost savings
$
6,010
$
5,462
10.0%
$
17,238
$
16,080
7.2%
Potential savings as a % of charges
29.3
%
29.5
%
29.4
%
28.9
%
Payment & Revenue Integrity, Property & Casualty, and Other
Medical charges processed
$
24,186
$
23,991
0.8%
$
72,821
$
69,644
4.6%
Potential medical cost savings
$
348
$
319
9.1%
$
1,029
$
930
10.6%
Potential savings as a % of charges
1.4
%
1.3
%
1.4
%
1.3
%
Total
Medical charges processed
$
44,701
$
42,486
5.2%
$
131,482
$
125,289
4.9%
Potential medical cost savings
$
6,358
$
5,781
10.0%
$
18,267
$
17,010
7.4%
Potential savings as a % of charges
14.2
%
13.6
%
13.9
%
13.6
%
Medical charges processed represent the aggregate dollar amount of claims processed by our cost management and payment and revenue integrity solutions in the period presented. The dollar amount of the claim for the purposes of this calculation is the dollar amount of the claim prior to any reductions that may be made as a result of the claim being processed by our solutions.
Potential medical cost savings represent the aggregate amount of potential savings in dollars identified by our cost management and payment and revenue integrity solutions in the period presented. Since certain of our fees are based on the amount of savings achieved by our customers, and our customers are the final adjudicator of the claims and may choose not to reduce claims or reduce claims by only a portion of the potential savings identified, potential medical cost savings may not directly correlate with the amount of fees earned in connection with the processing of such claims.
Components of Results of Operations
Revenues
We generate revenues from several sources including: (i) Network-Based Services that process claims at a discount compared to billed fee-for-service rates and by using an extensive network, (ii) Analytics-Based Services that use our leading and proprietary information technology platform to offer customers solutions to reduce medical costs, and (iii) Payment and Revenue Integrity Services that use data, technology, and clinical expertise to identify improper, unnecessary and excessive charges. Payors typically compensate us through either a PSAV achieved or a PEPM rate. Approximately 90% of revenue for the year ended December 31, 2023 was based on a PSAV achieved rate.
29
Costs of Services (exclusive of depreciation and amortization of intangible assets)
Costs of services (exclusive of depreciation and amortization of intangible assets) consist of all costs specifically associated with claims processing activities for customers, sales and marketing, and the development and maintenance of our networks, analytics-based services, and payment and revenue integrity services. Two of the largest components in costs of services are personnel expenses and access and bill review fees. Access and bill review fees include fees for accessing non-owned third-party provider networks, expenses associated with vendor fees for database access and systems technology used to reprice claims, and outsourced services. Third-party network expenses are fees paid to non-owned provider networks used to supplement our owned network assets to provide more network claim savings to our customers.
General and Administrative Expenses
General and administrative expenses include corporate management and governance functions composed of general management, legal, treasury, tax, real estate, financial reporting, auditing, benefits and human resource administration, communications, public relations, billing, and information management. In addition, general and administrative expenses include taxes, insurance, advertising, transaction costs, and other general expenses.
Depreciation Expense
Depreciation expense consists of depreciation and amortization of property and equipment related to our investments in leasehold improvements, furniture and equipment, computer hardware and software, and internally generated capitalized software development costs. We provide for depreciation and amortization on property and equipment using the straight-line method to allocate the cost of depreciable assets over their estimated useful lives.
Amortization of Intangible Assets
Amortization of intangible assets includes amortization of the value of our customer relationships, provider network, technology, and trademarks which were identified in valuing the intangible assets in connection with the June 6, 2016 acquisition by Hellman & Friedman Capital Partners VIII, L.P. and its affiliates, as well as the subsequent acquisitions of BST, HST and DHP by the Company.
Loss on Impairment of Goodwill and Intangible Assets
A loss on impairment is recorded in connection with the quantitative impairment testing of our goodwill and indefinite-lived intangibles and is performed annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and their fair value is less than their carrying value.
Interest Expense
Interest expense consists of accrued interest and related interest payments on our outstanding long-term debt and amortization of debt issuance costs and discounts.
Interest Income
Interest income consists primarily of bank interest.
Gain on Extinguishment of Debt
The Company recognizes a gain on extinguishment of debt for the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt.
Gain (Loss) on change in fair value of Private Placement Warrants and Unvested Founder Shares
The Company re-measures, at each reporting period, the fair value of the Private Placement Warrants and Unvested Founder Shares. The changes in fair value are primarily due to the change in the stock price of the Company's Class A common stock and the passage of time over that period.
Income Tax Benefit
Income tax benefit consists of federal, state, and local income taxes.
30
Non-GAAP Financial Measures
We use EBITDA, Adjusted EBITDA, and Adjusted EPS to evaluate our financial performance. EBITDA, Adjusted EBITDA, and Adjusted EPS are financial measures that are not presented in accordance with GAAP. We believe the presentation of these non-GAAP financial measures provides useful information to investors in assessing our financial condition and results of operations across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our financial operating results of our core business.
These measurements of financial performance have important limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, they may not be comparable to other similarly titled measures of other companies. Some of these limitations are:
•such measures do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•such measures do not reflect changes in, or cash requirements for, our working capital needs;
•such measures do not reflect the significant interest expense, or cash requirements necessary to service interest or principal payments on our debt;
•such measures do not reflect any cash requirements for any future replacement of depreciated assets;
•such measures do not reflect the impact of stock-based compensation upon our results of operations;
•such measures do not reflect our income tax (benefit) expense or the cash requirements to pay our income taxes;
•such measures do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
•other companies in our industry may calculate these measures differently from how we do, limiting their usefulness as a comparative measure.
In evaluating EBITDA, Adjusted EBITDA, and Adjusted EPS, you should be aware that in the future we may incur expenses similar to those eliminated in the presentation.
EBITDA, Adjusted EBITDA, and Adjusted EPS are widely used measures of corporate profitability eliminating the effects of financing and capital expenditures from the operating results. We define EBITDA as net loss adjusted for interest expense, interest income, income tax (benefit) expense, depreciation, amortization of intangible assets, and non-income taxes. We define Adjusted EBITDA as EBITDA further adjusted to eliminate the impact of certain items that we do not consider to be indicative of our core business, including other expenses, net, (gain) loss on change in fair value of Private Placement Warrants and Unvested Founder Shares, transaction related expenses, (gain) loss on debt extinguishment, (gain) loss on investments, loss on impairment of goodwill and intangible assets, and stock-based compensation. See our unaudited condensed consolidated financial statements included in this Quarterly Report for more information regarding these adjustments. Adjusted EBITDA is used in our agreements governing our outstanding indebtedness for debt covenant compliance purposes. Our Adjusted EBITDA calculation is consistent with the definition of Adjusted EBITDA used in our debt instruments.
Adjusted EPS is used in reporting to our Board and executive management and as a component of the measurement of our performance. We believe that this measure provides useful information to investors because it is the profitability measure we use to evaluate earnings performance on a comparable year-to-year basis. Adjusted EPS is defined as net loss adjusted for amortization of intangible assets, stock-based compensation, transaction related expenses, (gain) loss on debt extinguishment, (gain) loss on investments, other expense, (gain) loss on change in fair value of Private Placement Warrants and Unvested Founder Shares, loss on impairment of goodwill and intangible assets, and tax effect of adjustments to arrive at Adjusted net income divided by our basic weighted average number of shares outstanding.
31
The following table presents a reconciliation of net loss to EBITDA and Adjusted EBITDA for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Net loss
$
(391,450)
$
(24,145)
$
(1,507,866)
$
(60,306)
Adjustments:
Interest expense
81,792
84,300
245,119
250,203
Interest income
(1,245)
(1,505)
(2,722)
(7,110)
Benefit for income taxes
(27,220)
(6,875)
(76,715)
(14,977)
Depreciation
22,572
19,586
65,372
56,693
Amortization of intangible assets
85,971
85,971
257,913
256,724
Non-income taxes
515
669
1,623
1,672
EBITDA
$
(229,065)
$
158,001
$
(1,017,276)
$
482,899
Adjustments:
Other expenses, net(1)
1,517
521
2,584
759
Integration expenses
850
891
1,994
2,722
Change in fair value of Private Placement Warrants and unvested founder shares
(87)
(2,127)
(476)
267
Transaction-related expenses
—
269
—
8,105
Gain on extinguishment of debt
—
(10,129)
(5,913)
(46,907)
Loss on impairment of goodwill and intangible assets
361,612
—
1,434,363
—
Stock-based compensation
6,818
4,835
19,829
13,357
Adjusted EBITDA
$
141,645
$
152,261
$
435,105
$
461,202
(1) "Other expenses, net" represent miscellaneous non-recurring income, miscellaneous non-recurring expense, gain or loss on disposal of assets, impairment of other assets, gain or loss on disposal of leases, tax penalties, and non-integration related severance costs.
____________________
Material differences between MultiPlan Corporation and MPH for the three and nine months ended September 30, 2024 and September 30, 2023 include differences in interest expense, income taxes, change in fair value of Private Placement Warrants and Unvested Founder Shares, gain on extinguishment of debt, and stock-based compensation.
For the three and nine months ended September 30, 2024, interest expense for MultiPlan Corporation was higher than MPH by $19.9 million and $59.6 million, respectively, due to interest expense incurred by MultiPlan Corporation on the Senior Convertible PIK Notes. For the three and nine months ended September 30, 2023, interest expense for MultiPlan Corporation was higher than MPH by $20.1 million and $61.2 million, respectively, due to interest expense incurred by MultiPlan Corporation on the Senior Convertible PIK Notes.
The change in fair value of Private Placement Warrants and Unvested Founder Shares, gain on extinguishment of debt, and stock-based compensation (excluding the employee stock purchase plan) are recorded in the parent company MultiPlan Corporation and not in the MPH operating company and therefore represent differences between MultiPlan Corporation and MPH.
In the three and nine months ended September 30, 2024, EBITDA expenses for MultiPlan Corporation were lower than MPH by $0.6 million and $1.9 million, respectively, primarily due to insurance premiums paid to our captive insurance company, net of related captive insurance company costs, which are eliminated in the consolidated financial reporting of MultiPlan Corporation. In the three and nine months ended September 30, 2023, EBITDA expenses for MultiPlan Corporation were lower than MPH by $1.0 million and $3.0 million, respectively, primarily due to insurance premiums paid to our captive insurance company, net of related captive insurance company costs, which are eliminated in the consolidated financial reporting of MultiPlan Corporation.
32
The following table presents a reconciliation of net loss to Adjusted EPS for the periods presented:
(in thousands, except share and per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net loss
$
(391,450)
$
(24,145)
$
(1,507,866)
$
(60,306)
Adjustments:
Amortization of intangible assets
85,971
85,971
257,913
256,724
Other expenses, net
1,517
521
2,584
759
Integration expenses
850
891
1,994
2,722
Change in fair value of Private Placement Warrants and unvested founder shares
(87)
(2,127)
(476)
267
Transaction-related expenses
—
269
—
8,105
Gain on extinguishment of debt
—
(10,129)
(5,913)
(46,907)
Stock-based compensation
6,818
4,835
19,829
13,357
Loss on impairment of goodwill and intangible assets
361,612
—
1,434,363
—
Estimated tax effect of adjustments
(29,724)
(20,334)
(87,925)
(58,059)
Adjusted net income
$
35,507
$
35,752
$
114,503
$
116,662
Weighted average shares outstanding – Basic(1)
16,143,520
16,161,095
16,139,523
16,096,395
Net loss per share – basic
$
(24.25)
$
(1.49)
$
(93.43)
$
(3.75)
Adjusted EPS
$
2.20
$
2.21
$
7.09
$
7.25
(1)Shares, common stock and additional paid-in capital have been retroactively adjusted for all periods presented to reflect the one-for-forty (1-for-40) reverse stock split that became effective on September 20, 2024. See Note 1 General Information and Basis of Accounting of the Notes to the unaudited condensed consolidated financial statements included in this Quarterly Report for additional information.
Factors Affecting the Comparability of our Results of Operations
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods and may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.
Cyberattack on U.S. Healthcare Infrastructure
In first quarter 2024, there was a cyberattack on a critical piece of the U.S. healthcare infrastructure from a data security breach that disrupted claims flows upstream from our services. We believe this delayed the receipt of certain medical claims and contributed to lower medical claims volumes in first, second, and third quarter of 2024.
BST Acquisition
On May 8, 2023, the Company acquired BST, a company offering a next generation suite of solutions that apply modern methods of data science to produce descriptive, predictive and prescriptive analytics that enable customers to optimize decision-making about plan design and network configurations and to support decision-making to improve clinical outcomes, plan performance, and competitive positioning.
The results of operations and financial condition of BST have been included in the Company's consolidated results from the date of acquisition. Acquired expenses from the acquisition of BST are included in costs of services and general and administrative expenses for the three and nine months ended September 30, 2024.
33
Debt Repurchase and Cancellation
During the nine months ended September 30, 2024, the Company repurchased and cancelled $21.1 million of the Senior Convertible PIK Notes, resulting in the recognition of a gain on debt extinguishment of $5.9 million, representing the difference between the purchase price including associated fees and the net carrying amount of the extinguished debt.
During the nine months ended September 30, 2023, the Company repurchased and cancelled $184.0 million of the 5.750% Notes, resulting in the recognition of a gain on debt extinguishment of $46.9 million, representing the difference between the purchase price including associated fees and the net carrying amount of the extinguished debt.
In the year ended December 31, 2023, the Company repurchased and cancelled $184.0 million of the 5.750% Notes and $25.0 million of the Senior Convertible PIK Notes, resulting in the recognition of a gain on debt extinguishment of $46.9 million and $7.1 million, respectively. This gain on debt extinguishment represents the difference between the purchase price including associated fees and the net carrying amount of the extinguished debt.
Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023
The following table provides the results of operations for the periods indicated:
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
(in thousands)
2024
2023
$
%
2024
2023
$
%
Revenues
Network-Based Services
$
46,153
$
56,828
$
(10,675)
(18.8)
%
$
138,031
$
171,171
$
(33,140)
(19.4)
%
Analytics-Based Services
157,704
158,414
(710)
(0.4)
%
477,693
462,275
15,418
3.3
%
Payment and Revenue Integrity Services
26,638
27,562
(924)
(3.4)
%
82,755
83,943
(1,188)
(1.4)
%
Total Revenues
$
230,495
$
242,804
$
(12,309)
(5.1)
%
$
698,479
$
717,389
$
(18,910)
(2.6)
%
Costs of services (exclusive of depreciation and amortization of intangible assets shown below)
60,825
60,949
(124)
(0.2)
%
182,271
174,806
7,465
4.3
%
General and administrative expenses
37,725
36,779
946
2.6
%
107,133
107,996
(863)
(0.8)
%
Depreciation expense
22,572
19,586
2,986
15.2
%
65,372
56,693
8,679
15.3
%
Amortization of intangible assets
85,971
85,971
—
0.0
%
257,913
256,724
1,189
0.5
%
Loss on impairment of goodwill and intangible assets
361,612
—
361,612
NM
1,434,363
—
1,434,363
NM
Operating (loss) income
(338,210)
39,519
(377,729)
NM
(1,348,573)
121,170
(1,469,743)
NM
Interest expense
81,792
84,300
(2,508)
(3.0)
%
245,119
250,203
(5,084)
(2.0)
%
Interest income
(1,245)
(1,505)
260
17.3
%
(2,722)
(7,110)
4,388
61.7
%
Gain on extinguishment of debt
—
(10,129)
10,129
NM
(5,913)
(46,907)
40,994
87.4
%
(Gain) loss on change in fair value of Private Placement Warrants and Unvested Founder Shares
(87)
(2,127)
2,040
(95.9)
%
(476)
267
(743)
278.3
%
Net loss before taxes
(418,670)
(31,020)
(387,650)
NM
(1,584,581)
(75,283)
(1,509,298)
NM
Benefit for income taxes
(27,220)
(6,875)
(20,345)
295.9
%
(76,715)
(14,977)
(61,738)
412.2
%
Net loss
$
(391,450)
$
(24,145)
$
(367,305)
NM
$
(1,507,866)
$
(60,306)
$
(1,447,560)
NM
_____________________
NM = Not meaningful
34
Revenues
Revenues decreased by $12.3 million, or 5.1%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. This decrease in revenues was due to the decrease in Network-Based Services revenues of $10.7 million, the decrease in Analytics-Based Services revenues of $0.7 million, and the decrease in Payment and Revenue Integrity Services Revenues of $0.9 million during this time period.
Revenues decreased by $18.9 million, or 2.6%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. This decrease in revenues was due to the decrease in Network-Based Services revenues of $33.1 million and the decrease in Payment and Revenue Integrity Services revenues of $1.2 million, offset by the increase in Analytics-Based Services revenues of $15.4 million during this time period, as explained below.
Network-Based Services revenues decreased $10.7 million, or 18.8%, in the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. Approximately $4.1 million of the decrease was primarily related to customer and program attrition, and approximately $6.6 million of the reduction was from lower medical savings on PSAV claims received from customers and substitution of Analytics-Based Services in lieu of Network-Based Services. These factors contributed to the decrease in Network-Based Services PSAV revenues of $7.6 million, the decrease in PEPM network revenues of $2.0 million, and the decrease in other network revenues of $1.1 million.
Network-Based Services revenues decreased $33.1 million, or 19.4%, in the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. Approximately $12.3 million of the decrease was primarily related to customer and program attrition, and approximately $20.8 million of the reduction was from lower medical savings on PSAV claims received from customers and substitution of Analytics-Based Services in lieu of Network-Based Services. Medical savings were impacted by reduced claims volumes from a cyberattack at a major claims clearinghouse, which disrupted claims flows across the healthcare industry and ultimately downstream to our platform. These factors contributed to the decrease in Network-Based Services PSAV revenues of $26.9 million and the decrease in PEPM network revenues of $5.9 million and the decrease in other network revenues of $0.3 million.
Analytics-Based Services revenues decreased by $0.7 million, or 0.4%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. This decrease in revenue was primarily due to the decrease in Analytics-Based Services PSAV revenues of $1.0 million primarily related to customer and program attrition, offset by the increase in revenue from the increase in medical savings on PSAV claims. This decrease in PSAV revenues was offset by the increase in PEPM and other revenues of $0.3 million. Acquired revenues from BST increased by $0.4 million during this period.
Analytics-Based Services revenues increased $15.4 million, or 3.3%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. This increase in revenues was primarily due to the increase in Analytics-Based Services PSAV revenues of $5.6 million as a result of increases in medical savings on PSAV claims, and the increase in PEPM and other revenues of $9.8 million, including an increase in acquired revenues of $5.9 million from the acquisition of BST.
Payment and Revenue Integrity Services revenues decreased by $0.9 million, or 3.4%, for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. This decrease was primarily in our pre-payment lines of business, offset by increases in our post-payment and revenue integrity lines of business. The decrease in Payment and Revenue Integrity Services was primarily in our PSAV revenues which declined by $0.9 million.
Payment and Revenue Integrity Services revenues decreased by $1.2 million, or 1.4%, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. This decrease was primarily in our pre-payment lines of business, offset by increases in our post-payment and revenue integrity lines of business. The decrease in Payment and Revenue Integrity Services was primarily in our PSAV revenues which declined by $1.2 million.
35
Costs of Services (exclusive of depreciation and amortization of intangible assets)
Personnel expenses including stock-based compensation
50,924
50,949
(25)
0.0
%
154,464
147,602
6,862
4.6
%
Access and bill review fees
5,772
4,698
1,074
22.9
%
15,343
14,497
846
5.8
%
Other costs of services
4,129
5,302
(1,173)
(22.1)
%
12,464
12,707
(243)
(1.9)
%
Total costs of services
$
60,825
$
60,949
$
(124)
(0.2)
%
$
182,271
$
174,806
$
7,465
4.3
%
The decrease in costs of services of $0.1 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, was primarily due to net expense decreases in miscellaneous other costs of services that are not individually material, offset by increases in access and bill review fees, primarily in claims processing expenses. BST contributed $1.8 million to total costs of services for the three months ended September 30, 2024, as compared to $1.2 million for the three months ended September 30, 2023.
The increase in costs of services of $7.5 million, for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, was primarily due to increases in personnel expenses of $6.9 million related to year-over-year increases in employee headcount, compensation, and stock-based compensation, including increases in personnel costs from the acquisition of BST of $2.9 million, offset by reductions in fringe benefit expenses.
BST contributed $6.8 million to total costs of services in the nine months ended September 30, 2024, as compared to $2.3 million for the nine months ended September 30, 2023.
General and Administrative Expenses
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
(in thousands)
2024
2023
$
%
2024
2023
$
%
General and administrative expenses excluding stock-based compensation and transaction-related expenses
$
32,847
$
33,198
$
(351)
(1.1)
%
$
93,298
$
90,474
$
2,824
3.1
%
Stock-based compensation
4,878
3,312
1,566
47.3
%
13,835
9,417
4,418
46.9
%
Transaction-related expenses
—
269
(269)
(100.0)
%
—
8,105
(8,105)
(100.0)
%
Total general and administrative expenses
$
37,725
$
36,779
$
946
2.6
%
$
107,133
$
107,996
$
(863)
(0.8)
%
The increase in general and administrative expenses of $0.9 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023 was primarily due to the increase in stock-based compensation of $1.6 million. The decrease in general and administrative expenses excluding stock-based compensation and transaction-related expenses, of $0.4 million was primarily due to a $6.8 million increase in capitalized software development and decreases in miscellaneous other expenses that are not individually material, partially offset by increases in personnel expenses excluding stock-based compensation of $4.1 million and increases in professional fees of $2.4 million.
BST contributed $1.1 million to total general and administrative expenses for the three months ended September 30, 2024, as compared to $4.4 million for the three months ended September 30, 2023. This decrease in BST general and administrative expenses is primarily due to increases in capitalized software development and to reductions in BST acquired general and administrative expenses and transfers of certain expenses to costs of services as BST is integrated into the organization.
The increase in general and administrative expenses of $0.9 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023 was primarily due to the decrease in transaction costs of $8.1 million, partially offset by increases in stock-based compensation of $4.4 million and increases in other general and administrative expenses excluding stock-based compensation and transaction-related expenses of $2.8 million. This $2.8 million increase was primarily due to increases in personnel expenses, excluding stock-based compensation, of $18.8 million, increases in
36
professional fees of $6.3 million, and increases in equipment lease and maintenance expenses of $3.0 million, partially offset by increases in capitalized software development of $24.6 million, and decreases in other net general and administrative expenses of $0.8 million that are not individually material.
The increase in personnel expenses of $18.8 million primarily related to year-over-year increases in employee headcount, compensation, and related fringe benefits, including increases in BST personnel expenses of $3.5 million.
BST contributed $3.4 million to total general and administrative expenses in the nine months ended September 30, 2024, as compared to $5.9 million for the nine months ended September 30, 2023. This decrease in BST general and administrative expenses is primarily due increases in capitalized software development and to reductions in BST acquired general and administrative expenses and transfers of certain expenses to costs of services as BST is integrated into the organization.
Depreciation Expense
The increases in depreciation expenses of $3.0 million, or 15.2%, and $8.7 million, or 15.3%, for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023, were due to purchases of property and equipment, including internally generated capitalized software, partially offset by assets that were written-off or became fully depreciated in the period.
Amortization of Intangible Assets
The increase in amortization of intangible assets for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 was primarily due to the acquisition of BST and the intangibles acquired in the transaction.
Loss on Impairment of Goodwill and Intangible Assets
For the three and nine months ended September 30, 2024, in connection with quantitative impairment testing performed on our goodwill and indefinite-lived intangibles, we recorded a loss on impairment of goodwill and indefinite-lived intangibles of $361.6 million and $1,434.4 million, respectively. The loss on impairment of goodwill and intangible assets was primarily due to the use of lower projected cash flows and lower EBITDA multiples.
Interest Expense
The decrease in interest expense of $2.5 million and $5.1 million, for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023 were primarily due to reductions in interest expense due to the swap rate agreements reducing our total interest on the Term Loan B for the three and nine months ended September 30, 2024, and to a lower debt balances primarily due to the repurchase and cancellation of our 5.750% Notes in 2023 and Senior Convertible PIK Notes in 2023 and 2024. Our annualized weighted average cash interest rate decreased by 0.18% across our total debt in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.
As of September 30, 2024, our long-term debt was $4,510.2 million and included (i) a $1,272.0 million Term Loan B, excluding the current portion of Term Loan B of $13.3 million, (ii) $1,050.0 million of 5.50% Senior Secured Notes, (iii) $979.8 million of 5.750% Notes, (iv) $1,253.9 million of Senior Convertible PIK Notes, and net of (v) a discount on Term Loan B of $7.9 million, (vi) a discount on Senior Convertible PIK Notes of $15.2 million, and (vii) debt issue costs of $22.5 million.
As of December 31, 2023, our long-term debt was $4,532.7 million and included (i) a $1,281.9 million Term Loan B, excluding the current portion of Term Loan B of $13.3 million, (ii) $1,050.0 million of 5.50% Senior Secured Notes, (iii) $979.8 million of 5.750% Notes, (iv) $1,275.0 million of Senior Convertible PIK Notes, and net of (v) a discount on Term Loan B of $9.3 million, (vi) a discount on Senior Convertible PIK Notes of $18.8 million, and (vii) debt issue costs of $25.9 million.
As of September 30, 2024 and September 30, 2023, our total debt had an annualized weighted average cash interest rate of 6.79% and 6.97%, respectively. As of December 31, 2023, our total debt had a weighted average cash interest rate of 6.83%.
Interest Income
The decreases in interest income of $0.3 million and $4.4 million for the three and nine months ended September 30, 2024, respectively, as compared to the three and nine months ended September 30, 2023 were primarily due to less interest earned on interest bearing bank accounts resulting from lower average invested cash and cash equivalents balances.
37
Gain on extinguishment of debt
During the nine months ended September 30, 2024, the Company repurchased and cancelled $21.1 million of the Senior Convertible PIK Notes, resulting in the recognition of a gain on debt extinguishment of $5.9 million, representing the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt.
During the nine months ended September 30, 2023, the Company repurchased and cancelled $184.0 million of the 5.750% Notes, resulting in the recognition of a gain on debt extinguishment of $46.9 million, representing the difference between the purchase price including associated fees and the net carrying amount of the extinguished debt.
Change in fair value of Private Placement Warrants and Unvested Founder Shares
The Company re-measures the fair value of the Private Placement Warrants and Unvested Founder Shares at each reporting period. From December 31, 2023 to September 30, 2024, the fair value of the Private Placement Warrants decreased by $0.2 million and the fair value of the Unvested Founder Shares decreased by $0.3 million. The decrease was primarily due to the decrease in the stock price of the Company's Class A common stock and the passage of time over that period.
Benefit for income taxes
Net loss before income taxes for the three months ended September 30, 2024 of $418.7 million generated a benefit for income taxes of $27.2 million. Net loss before income taxes for the three months ended September 30, 2023 of $31.0 million generated a benefit for income taxes of $6.9 million.
Net loss before income taxes for the nine months ended September 30, 2024 of $1,584.6 million generated a benefit for income taxes of $76.7 million. Net loss before income taxes for the nine months ended September 30, 2023 of $75.3 million generated a benefit for income taxes of $15.0 million.
The effective tax rate for the nine months ended September 30, 2024 differed from the statutory rate primarily due to stock compensation expense, limitations on executive compensation, non-deductible goodwill impairment, and state taxes. The effective tax rate for the nine months ended September 30, 2023 differed from the statutory rate primarily due to stock-based compensation expense, non-deductible mark-to-market liability, non-deductible transaction costs due to the BST acquisition and state tax expense.
Liquidity and Capital Resources
As of September 30, 2024, we had cash and cash equivalents of $97.2 million, which includes restricted cash of $10.6 million. As of September 30, 2024, we had $442.1 million of loan availability under the revolving credit facility. As of September 30, 2024, we had four letters of credit totaling $7.9 million of utilization against the revolving credit facility. Three letters of credit are used to satisfy real estate lease agreements for three of our offices in lieu of security deposits in the amount of $1.8 million as of September 30, 2024 and December 31, 2023. The Company also has an irrevocable letter of credit to satisfy the obligations of a subsidiary in the amount of $6.1 million as of September 30, 2024 and December 31, 2023.
On February 27, 2023, the Board approved a share repurchase program authorizing the Company to repurchase up to $100.0 million of its Class A common stock from time to time in open market transactions. The repurchase program was effective immediately and expires on December 31, 2024. As of September 30, 2024, the Company has repurchased its Class A common stock as part of this program using cash on hand for an aggregate amount of $25.6 million including commissions, of which $10.4 million was spent during the nine months ended September 30, 2024.
Our primary sources of liquidity are internally generated funds combined with our borrowing capacity under our revolving credit facility. We believe these sources will provide sufficient liquidity for us to meet our working capital and capital expenditure and other cash requirements for the next twelve months and a least through the current maturities of our debt starting in 2027. We may from time to time at our sole discretion, purchase, redeem, or retire our long-term debt, through tender offers, in privately negotiated or open market transactions or otherwise. We plan to finance our capital expenditures with cash from operations. Furthermore, our future liquidity and future ability to fund capital expenditures, working capital, and debt requirements are also dependent upon our future financial performance, which is subject to many economic, commercial, financial, and other factors that are beyond our control, including the ability of financial institutions to meet their lending obligations to us. If those factors significantly change, our business may not be able to generate sufficient cash flow from operations or future borrowings may not be available to meet our liquidity needs. We anticipate that to the extent we require additional liquidity as a result of these factors or in order to execute our strategy, it would be financed either by borrowings under our senior secured credit facilities, by other indebtedness, additional equity financings, or a combination of the foregoing. We may be unable to obtain any such additional financing on reasonable terms or at all.
38
Cash Flow Summary
The following table is derived from our unaudited condensed consolidated statements of cash flows:
Nine Months Ended September 30,
(in thousands)
2024
2023
Net cash flows provided by (used in):
Operating activities
$
141,029
$
144,018
Investing activities
$
(87,689)
$
(218,449)
Financing activities
$
(37,666)
$
(158,514)
For the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023
Cash Flows from Operating Activities
Cash flows from operating activities decreased by $3.0 million, or 2.1%, primarily due to lower earnings once adjusted for non-cash items, partially offset by favorable changes in working capital. Changes in our working capital requirements reflect the increase in accrued taxes and the decrease in the current value of our cash flow derivatives, partially offset by an increase in our trade receivables and other assets.
Cash Flows from Investing Activities
Net cash used in investing activities decreased $130.8 million, or 59.9%, as compared to the prior-year period, primarily due to the acquisition of BST during the prior-year period.
Cash Flows from Financing Activities
Net cash used in financing activities decreased $120.8 million, or 76.2%, as compared to the prior-year period, primarily due to lower repurchases of debt instruments by $120.1 million.
Term Loans and Revolvers
On August 24, 2021, MPH issued new senior secured credit facilities composed of $1,325.0 million of Term Loan B and $450.0 million of Revolver B.
Interest on Term Loan B and Revolver B is calculated, at MPH's option, as (a) Term SOFR (or, with respect to the term loan facility only, 0.50%, if higher), plus the applicable SOFR adjustment, plus the applicable margin, or (b) the highest rate of (1) the prime rate, (2) the federal funds effective rate, plus 0.50%, (3) the Term SOFR for an interest period of one month, plus the applicable SOFR adjustment, plus 1.00% and (4) 0.50% for Term Loan B and 1.00% for Revolver B, in each case, plus an applicable margin of 4.25% for Term Loan B and between 3.50% and 4.00% for Revolver B, depending on MPH's first lien debt to consolidated EBITDA ratio. The interest rate in effect for Term Loan B was 9.57% as of September 30, 2024.
Prior to July 1, 2023, the London Interbank Offered Rate was used to calculate the interest on Term Loan B and Revolver B.
The Company is exposed to interest rate risk on its floating rate debt. On September 12, 2023, the Company entered into interest rate swap agreements with a total notional value of $800.0 million to effectively convert a portion of its floating rate debt to a fixed-rate basis of 4.59% as a weighted-average across the three swaps. The interest rate swap agreements are effective August 31, 2023 and mature on August 31, 2026. The Company entered into these agreements to eliminate or reduce the volatility of the cash flows in interest payments associated with the Company's floating rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. The Company's interest rate swaps are highly effective at offsetting the changes in cash outflows and therefore designated as cash flow hedging instruments. The blended rate for Term
39
Loan B factoring in the effect of the interest rate swap agreements was 9.41% as of September 30, 2024 and 9.53% as of December 31, 2023.
Term Loan B matures on September 1, 2028 and Revolver B matures on August 24, 2026.
We are obligated to pay a commitment fee on the average daily unused amount of our revolving credit facility. The annual commitment fee rate was 0.50% at September 30, 2024 and 0.50% at September 30, 2023. The fee can range from an annual rate of 0.25% to 0.50% based on our consolidated first lien debt to consolidated EBITDA ratio, as defined in the agreement.
Senior Notes
On October 8, 2020, the Company issued $1,300.0 million in aggregate principal amount of Senior Convertible PIK Notes. The Senior Convertible PIK Notes were issued with a 2.5% discount with a maturity date of October 15, 2027.
The Senior Convertible PIK Notes are convertible into shares of Class A common stock based on a $520.00 conversion price, subject to customary anti-dilution adjustments. The interest rate on the Senior Convertible PIK Notes is fixed at 6% in cash and 7% in kind, and is payable semi-annually on April 15 and October 15 of each year.
On October 29, 2020, the Company issued $1,300.0 million in aggregate principal amount of the 5.750% Notes. The 5.750% Notes are guaranteed on a senior unsecured basis jointly and severally by the Company and its subsidiaries and have a maturation date of November 1, 2028. The 5.750% Notes were issued at par. The interest rate on the 5.750% Notes is fixed at 5.750%, and the interest is payable semi-annually on May 1 and November 1 of each year.
On August 24, 2021 MPH issued $1,050.0 million in aggregate principal amount of 5.50% Senior Secured Notes with a maturation date of September 1, 2028. The interest rate on the 5.50% Senior Secured Notes is fixed at 5.50%, and is payable semi-annually on March 1 and September 1 of each year. The 5.50% Senior Secured Notes are guaranteed and secured as described below under "Guarantees and Security".
During the nine months ended September 30, 2024, the Company repurchased and cancelled $21.1 million of the Senior Convertible PIK Notes, resulting in the recognition of a gain on debt extinguishment of $5.9 million.
During the nine months ended September 30, 2023, the Company repurchased and cancelled $137.8 million of the 5.750% Notes, resulting in the recognition of a gain on debt extinguishment of $46.9 million.
Debt Covenants and Events of Default
We are subject to certain affirmative and negative debt covenants under the debt agreements governing our indebtedness that limit our and/or certain of our subsidiaries' ability to engage in specific types of transactions. These covenants limit our and/or certain of our subsidiaries' ability to, among other things:
•incur additional indebtedness or issue disqualified or preferred stock;
•pay certain dividends or make certain distributions on capital stock or repurchase or redeem capital stock;
•make certain loans, investments, or other restricted payments;
•transfer or sell certain assets;
•incur certain liens;
•place restrictions on the ability of its subsidiaries to pay dividends or make other payments to us;
•guarantee indebtedness or incur other contingent obligations;
•prepay junior debt and make certain investments;
•consummate any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or dispose of all or substantially all of its business units, assets or other properties; and
•engage in transactions with our affiliates.
40
Certain covenants related to the 5.50% Senior Secured Notes will cease to apply to the 5.50% Senior Secured Notes if such notes have investment grade ratings from both Moody’s Investors Service, Inc. and S&P Global Ratings.
The Revolver Ratio is such that, if, as of the last day of any fiscal quarter of MPH, the aggregate amount of loans under the revolving credit facility, letters of credit issued under the revolving credit facility (to the extent not cash collateralized or backstopped or, in the aggregate, in excess of $10.0 million) and swingline loans are outstanding and/or issued in an aggregate amount greater than 35% of the total commitments in respect of the revolving credit facility at such time, the revolving credit facility will require MPH to maintain a maximum first lien secured leverage ratio of 6.75 to 1.00. Our consolidated first lien debt to consolidated EBITDA ratio was 3.82 times, 3.63 times, and 3.70 times as of September 30, 2024, September 30, 2023, and December 31, 2023, respectively.
As of September 30, 2024 and December 31, 2023 we were in compliance with all of the debt covenants.
The debt agreements governing the senior secured credit facilities, the 5.750% Notes and the 5.50% Senior Secured Notes contain customary events of default, subject to grace periods and exceptions, which include, among others, payment defaults, cross-defaults to certain material indebtedness, certain events of bankruptcy, material judgments, in the case of the debt agreements governing the senior secured credit facilities and the 5.50% Senior Secured Notes, failure of a guarantee on the liens on material collateral to remain in effect, in the case of the debt agreements governing the senior secured credit facilities, any change of control. Upon the occurrence of an event of default under such debt agreements, the lenders and holders of such debt will be permitted to accelerate the loans and terminate the commitments, as applicable, thereunder and exercise other specified remedies available to the lenders and holders thereunder.
On September 10, 2024, the Company announced that it is exploring ways to ensure its capital structure enables the Company to operate as efficiently and sustainably as possible and is in discussions with several MultiPlan debt holders to establish a capital structure that will help the Company facilitate its transformation into a data and technology-forward company focused on improving transparency, quality, and affordability in healthcare.
See the footnotes to the EBITDA and Adjusted EBITDA reconciliation table provided above under “Non-GAAP Financial Measures” for material differences between the financial information of MultiPlan and MPH.
Guarantees and Security
All obligations under the debt agreements governing the senior secured credit facilities and the 5.50% Senior Secured Notes are unconditionally guaranteed by MPH Acquisition Corp. 1, the direct holding company parent of MPH, and each existing and subsequently acquired or organized direct or indirect wholly owned U.S. organized restricted subsidiary of MPH (subject to certain exceptions). All such obligations, and the guarantees of such obligations, are secured, subject to permitted liens and other exceptions, by a first priority lien shared between the senior secured credit facilities and the 5.50% Senior Secured Notes on substantially all of MPH’s and the subsidiary guarantors’ tangible and intangible property, and a pledge of all of the capital stock of each of their respective subsidiaries.
Critical Accounting Policies and Estimates
In preparing our Unaudited Condensed Consolidated Financial Statements, we are required to make judgments, assumptions, and estimates, which we believe are reasonable and prudent based on the available facts and circumstances. These judgments, assumptions and estimates affect certain of our revenues and expenses and their related balance sheet accounts and disclosure of our contingent liabilities. We base our assumptions and estimates primarily on historical experience and consider known and projected trends. On an ongoing basis, we re-evaluate our selection of assumptions and the method of calculating our estimates. Actual results, however, may materially differ from our calculated estimates, and this difference would be reported in our current operations.
For a detailed description of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our 2023 Annual Report. For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” in our 2023 Annual Report.
Customer Concentration
Three customers individually accounted for 25%, 22% and 8% of revenues for the year ended December 31, 2023. The loss of the business of one or more of our larger customers could have a material adverse effect on our results of operations. For further discussion on our customer concentration, please refer to Item 1A. “Risk Factors” in our 2023 Annual Report.
41
Recent Accounting Pronouncements
See Note 1 General Information and Basis of Accounting of the Notes to the unaudited condensed consolidated financial statements included in this Quarterly Report for additional information.
Quantitative and Qualitative Disclosure About Market Risk
See Item 3. Quantitative and Qualitative Disclosure about Market Risk below.
Internal Controls Over Financial Reporting
For further information on the Company’s internal controls over financial reporting see Item 4. Controls and Procedures.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to our 2023 Annual Report and in particular Item 7A.“Quantitative and Qualitative Disclosure about Market Risk” therein. As of September 30, 2024, there were no material changes in the market risks described in our 2023 Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Company’s principal executive officer and principal financial and accounting officer, the Company conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Based on this evaluation, our principal executive officer and principal financial and accounting officers have concluded that, as of September 30, 2024, our disclosure controls and procedures were designed at a reasonable assurance level and were effective to provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officers, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected.
例如，在基於涉嫌違反反壟斷法的訴訟中，公司已被列入多起聯邦訴訟，包括假定的集體訴訟，聲稱公司與商業健康保險支付方密謀壓制違反適用反壟斷法的網絡外賠償。 這些訴訟最初在多個地點提起，包括紐約南區、伊利諾伊州北區和加利福尼亞州北區，起訴公司，並在某些情況下，起訴某些支付方作爲被告。 根據聯邦多區訴訟法庭發佈的轉移命令，這些訴訟現已集中在伊利諾伊州北區，並分配給尊敬的Matthew F. Kennelly法官。法庭已命令在2024年11月18日前提交合並的投訴，並隨後進行動議駁回的書面辯論。我們認爲這些訴訟沒有依據，並打算全力捍衛公司。
