MultiPlan Sees Uptick In Utilization But Revenue Growth Is A Challenge (NYSE:MPLN)

A Quick Take On MultiPlan

MultiPlan Corporation (NYSE:MPLN) provides data analytics and technology-enabled services to various healthcare-related segments in the United States.

I previously wrote about MPLN with a neutral Hold outlook on contracting revenue in a stabilizing market.

The firm has created a new service division with its Data and Decision Science group.

However, given the continued expected top line revenue contraction in 2023 and an apparently full valuation of the stock at its present level, my outlook on MultiPlan Corporation remains a neutral Hold.

MultiPlan Overview And Market

New York-based MultiPlan provides a variety of data analytics, cost management and revenue integrity capabilities to the commercial healthcare, property & casualty healthcare and government healthcare sectors.

The company is led by CEO Dale White, who joined the firm in 2004 and had previously held senior roles at BCE Emergis, The Alternare Group and Ethix National.

MultiPlan’s primary offerings include these capabilities:

• Surprise billing

• Data and Decision Science

• Payment and revenue integrity

• Network-based services

• Analytics-based services.

The firm seeks new customers via its direct sales and business development teams and through partner referrals.

According to a 2023 market research report by Grand View Research, the global market for healthcare analytics was estimated at $35.3 billion in 2022 and is forecasted to reach $166.5 billion by 2030.

This represents a forecast CAGR of 21.4% from 2023 to 2030.

The primary reasons for this forecasted growth are the growing demand for healthcare analytics solutions from market participants as they face higher costs, challenging patient engagement and difficulty hiring and retaining qualified personnel.

The chart below shows the historical and projected future growth trajectory for the U.S. healthcare analytics market from 2020 to 2030.

Major competitive or other industry participants include:

• McKesson

• Optum

• IBM

• Oracle

• SAS Institute

• IQVIA

• Verisk Analytics

• Elsevier

• Medeanalytics

• Truven Health Analytics

• Veradigm

• Cerner Corporation.

MultiPlan’s Recent Financial Trends

Total revenue by quarter has dropped, as has operating income, per the chart below:

Gross profit margin by quarter has trended lower in recent quarters; Selling and G&A expenses as a percentage of total revenue by quarter have varied more recently:

Earnings per share (Diluted) have deteriorated markedly, as the chart shows here:

(All data in the above charts is GAAP.)

In the past 12 months, MPLN’s stock price has fallen 33.85% vs. that of Centene Corporation’s (CNC) drop of 19.68%:

For balance sheet results, the firm ended the quarter with $89.8 million in cash and equivalents and $4.6 billion in total debt, of which $13.3 million was categorized as the current portion due within 12 months.

Over the trailing twelve months, free cash flow was $107.2 million, during which capital expenditures were $101.4 million. The company paid $18.0 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For MultiPlan

Below is a table of relevant capitalization and valuation figures for the company:

Click to enlarge

(Source – Seeking Alpha.)

A discounted cash flow (“DCF”) calculation based on the firm’s trailing twelve-month free cash flow per share is shown below:

The calculation suggests the stock may be fully valued at its present price of $1.70 per share.

Commentary On MultiPlan

In its last earnings call (Source – Seeking Alpha), covering Q2 2023’s results, management’s prepared remarks highlighted its continued transformation efforts to make the company a more product-centric organization while investing in new service lines.

Management also wants to “utilize [its] cash flow to improve [its] capital structure” and views its results as “stabilizing” through the first half of 2023.

However, on a year-over-year basis, total revenue for Q2 2023 fell by 18.0%, and gross profit margin dropped by 7.6%.

Selling and G&A expenses as a percentage of revenue rose by 0.5%, while operating income fell 58.2% to $41.5 million.

The company’s financial position is in need of substantial improvement, with little cash compared to high ($4.6 billion) debt but reasonably strong free cash flow.

Analysts asked leadership questions on the topics of health plan traction, revenue expectations and outlook and utilization and claims volumes.

Management responded that there is strong demand across payers for its recently-acquired BST (Benefits Science Technologies) system and that it expects to launch an “array of products” later in 2023.

On revenue guidance, leadership believes it has good visibility into the remainder of 2023. For 2024, it is seeing tailwinds from capacity increases and medical inflation but may experience margin headwinds then.

As for utilization and claims volume, it is seeing an uptick in outpatient and inpatient surgeries while office visits remain stable. NSA claims are growing with increases in post-payment negotiations and arbitration cases.

Looking ahead, 2023 full-year topline revenue is expected to drop by 9.6% versus 2022.

If achieved, this would represent a higher revenue decline rate versus 2022’s decline rate of 3.4% over 2021.

A potential upside catalyst to the stock could include increasing healthcare utilization rates and adoption of its new Data and Decision Science offerings.

However, given the expected top line revenue contraction in 2023 and the apparent full valuation of the stock at its present level, my outlook on MultiPlan Corporation is a neutral Hold.