Company Looks to the Future

Credit Suisse https://www.credit-suisse.com hosted Change Healthcare (CHNG) management https://changehealthcare.com to include Neil de Crescenzo, CEO, Fredrik Eliasson, Chief Financial Officer, and Evan Smith, SVP of Investor Relations at a virtual meeting with investors.

Management thinks FY 22 is likely to be a strong year, assuming that COVID is in the past. The company sees FY 22 (beginning April 1, 2021) as a strong year, partly because of the lower base in FY21, but also the strategic initiatives that CHNG has been putting in place to accelerate growth.

CHNG has taken a moderately severe and conservative approach on how the company will progress throughout FY21. CHNG in looking at real time data in medical network activity, notes that the trend in FY1Q seems to reflect a quicker comeback then what they expected. However, management is also cautioned not to get ahead of the data as there some states have seen increasing hospitalizations of COVID cases.

While CHNG has been active in M&A recently, paying down debt remains a priority for the company going forward. The company will also continue to reinvest in the business (~7% of solutions rev). Given the lowered EBITDA expectations in FY21, CHNG now expects to hit their leverage target of 4.0x in FY22.

CHNG’s Software & Analytics (S&A) Segment includes a diverse set of businesses such as Network and Financial Management, Risk Adjustment Quality & Engagement, Decision Support, Revenue Cycle Technology, and Enterprise Imaging.

S&A has been relatively shielded from COVID-related headwinds given that 75% of the business is subscription based. However, the remaining 25% which is contingency/renewal based, is expected to be down ~35% based on declines in healthcare volume. Management does expect the S&A segment to return to pre-COVID level growth given the subscription nature of the business.

The company’s Network Solutions Segment is indexed to the utilization or volume of healthcare activity. About 25% of the business in PMPM is subscription-based while the remaining ~75% is based on volume. The Networks Solutions Segment is made up of Networks, B2B Payments, Data Solutions, and most recently eRx Network and PDX.

The Technology Enabled Services (TES), Segment is primarily built around the company’s RCM Services business which makes up around 60% of segment revenue and is contingency based. CHNG’s RCM Services business is made up of about 70% physician practices and 30% hospitals. The remaining businesses within TES include Communications and Payment Services and Payer Services. However, CHNG is expecting their RCM Services business to be down ~40% and their CPS business to be down 25% in FY1Q.

As for the surge in telehealth visits, management notes that the company is looking at the potential for portions of healthcare volumes in FY21 to recover, as well as volumes permanently moving over to telehealth.

According to CHNG, customers, hospital CEOs, and CMOs have indicated about 25% of visits can be served through telehealth interactions and may do so permanently with some stakeholders coming up with a higher percentage of visits. Although some of the volume has shifted to telehealth, CHNG’s business model is thought to continue to benefit no matter the site of care.

CHNG sees an explosion in need especially among smaller telehealth platform providers and among more specialized vendors which is why the company has rolled out some additional solutions at advantageous pricing.

Overall, management believes the interest level and the willingness of customers to invest in virtual technologies/capabilities has increased due to the permanent changes that have been created by COVID-19.

For more information and to provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.

 

 

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