Claritev Corporation (CTEV) Earnings Call Transcript & Summary

Thank you. Thank you. You can go once the elevator music goes off. There we go. Good morning, everyone. John Swob, managing director, head of healthcare technology at Morgan Stanley, delighted to have you in the room and, importantly, I'm delighted to have Travis Dalton, Doug Garis up here on stage, with Claire Taffe. So, thanks guys for coming. Great, yes. Beautiful day in New York, and we appreciate everyone that's participating in the Morgan Stanley Global Healthcare Conference. I figure we kick things off with the easy question, which is, give us a little bit of a thumbnail sketch of what Clarative is today and what you've seen over the two years now that you've been at the company?

Yeah, thanks, John. Appreciate it. Hey, everybody. I'm Travis, CEO. I took over in March 2024. It's been an interesting ride. Yes, I just, look, healthcare is an interesting spot. I've been in it for 27 years now or so. It seems simple. You have plan design. If you're an employee, you enroll, you get service. A claim is produced and payment is made. Seemingly a simple thing to do. Lots of problems inside of that, right? So massive amount of complexity, there's cost issues, there's fraud, waste, and abuse, there's lack of transparency in pricing, there's regulatory complexity that's pretty monstrous. And so there's a tremendous amount of churn inside of that process. But on the macro of things, I think it's, our view is that, you know, we see costs remaining elevated in healthcare. What a revelation that is. We think costs will continue to remain elevated. Employers are going to be under a lot of pressure over time. Utilization likely to be stable, but yet shifting venues of care. Care is largely shifting in many ways outside of what you call the four walls into urgent cares, ASCs, behavioral health, at home, different venues of care. Self-funded plans likely to be steady with unemployment remaining relatively steady, and regulatory complexity high. Now what do we do? So, you know, painting the picture of that kind of environment, the words I'm going to use are not the words most people use to describe us, but I think it's what we actually do. So we provide access to care. We do that with a 1.4 million provider network. So employers and employees are covered by our network in a predictable way with access to care. We provide protection to employees and consumers of care with our out-of-network solutions, including the work we do with NSA. We provide efficiency in an inefficient situation that I've described through payment revenue integrity with fraud, waste, and abuse solutions and capabilities that we detect those things. And then ultimately we bring back insightful insights into pricing and other transparency so decisions can get made in a reasonable way. And so at the core, everything the company does is actually aimed at the endpoint of healthcare, which is the consumer, the employee, right? It's not always framed that way, or hasn't been, because the channels you have to sell through in healthcare obscure the endpoint of actually the recipient of the product or service. And so that's how we view what we do. And every day we get up and think about that endpoint and the needs of that. And so really bringing insight to an opaque market is important, and that consumer protection. And we work across the continuum. We've got 50 million or so members that use some form of our service, so we've got a pretty scaled operation. But fundamentally, at the core, that's what we do, affordability, transparency, and access.

Makes sense. And for decades, you've been embedded in the fabric of the ecosystem as a core infrastructure layer. Given that, could you expand a bit on your Vision 2030 as well? And certainly it's been great to see what I think you've described as '26 is the way up, leading into the way forward in '27. Where are you and what's on the near-term roadmap on that vision? Yeah.

As I said, I joined in March of 2024, and the company had been four or five years of declining revenues. A lot of people said, why did you take this job? You know, I actually viewed a wildly underutilized asset, a set of assets that I thought weren't just to serve one single vertical, which would be the payer market, but could be used across, excuse me, other vertical markets. And so horizontal assets across multiple vertical markets. And so to get to a place where we could really accelerate growth, which we're starting to do, we've had five quarters of growth in a row now, year over year. We had to have a plan. And so the plan was, let's embark on what I would say was a multi-year journey. And I like to name things, I think narratives work, get behind stories. And so we came up with this idea of a Vision 2030, but really it was the 2024 was. So, getting our systems in place, getting better insights into the business and the forecasting tools, recruiting a world-class management team, and restructuring a pile of debt for our customers or a multi-year basis to give us a little bit of time. So that was foundational. '25 we called the turn. We said we're going to turn the company, we're going to start that turn. That was really predicated on building new markets. So '25 was focused on, we launched an international business, the TPA business, services businesses. We moved into the public sector vertical and direct to provider. So we signed a large deal last year with one of the largest health systems in the U.S. direct. Those weren't things that company was associated with prior. So opening up those new markets were important for us, quote-unquote, the turn, we actually returned to growth last year, which was I would say at least 18 months sooner than I thought we might. So I was pleased with the execution. And then this year we called the way up, which is aggressive execution of that plan, which includes a massive technology modernization that we started in 2024. Embarked on a transformation plan in 2024 to improve all, modernize all of our technology, create a data mesh where we could use data and information to go forward. So you add all that up, foundation's there. We started to make, quote-unquote, the turn and build momentum. This year we've returned to growth. And we think we're really well positioned against those tailwinds of healthcare that I just mentioned. But we think we're, I don't know. I know we're well positioned, relevant to an AI future. We're using AI today. We've got over 30 agents in use. We're performing really well in NSA in certain areas against our competition, and it's because we've got data and knowledge and people to do that. And so, if you add all that up again, the reasons to believe are many. We said earlier in the year that we had a stretch goal of $100 million of sales. I think we'll achieve that by the end of this quarter. So we're selling and the strategy is showing up and working. Doug can go into some of the financial elements, but returning to free cash flow, and really moving forward in new markets, new logos, etc. So we're pleased with our progress, but it's been done in a...

in a structured way, it's not luck. Vision, strategy, plan, execution. Very simple. Showed up a bit with hair on fire situation and the foundation is the foundation there. I do want to unpack some of those metrics, but quickly before I do, you've called Clarative a billion-dollar, 60% EBITDA margin company no one's heard of, and you've been a big proponent of getting the brand out there both for investors, but just as importantly and probably more importantly with clients and the ecosystem. How do you think about brand and that importance?

Yeah, that's a good question. Look, the first thing that I think about every day is actually not the brand, it's our clients. So, you know, if there's a problem to solve and you have relevant answer alternatives to that problem, that's a good basis to start from. We have real products that work really well. You look at all the narrative that's been around the company that I inherited in some ways, or showed up right when I started, the narrative is pretty different than what the company actually does. And it's clear that we do something real and meaningful in healthcare, because the company has turned and grown inside of a difficult macro narrative. And so I think that that's the most important thing, is that we care about our clients. And secondly, brand, there is an element of brand that matters. I mean what people think and how you're perceived matters and matters to investors. The story matters. All of that is relevant. And I think, look, when I used the words earlier, I think there was a big mistake, a Let's put it like this, the company was not positioned in the way that I think it should have been in terms of talking, you know, the best kept secret in healthcare, there are no secrets in healthcare. So the first thing I said when I came here was, we're going to be about radical transparency, not secrets, right? So just shifting the mindset and then embarking on a brand program where we relaunch the company in an earned way, not just with new colors, was important. And then ultimately the words matter. And like I said, access, transparency, integrity, cost and protection, that's actually what we do. But we get picked at for one thing, which is the out-of-network business, and a lot of people are just pissed that we do that. Okay, well I think it's the right thing to do. And so, I use a simple example. I mean, you look at out of narrative, and out of network, everyone can relate to this. You're on vacation with your family, child gets a splinter, you take them down to a venue of care, you get the splinter removed, you think that's a couple hundred dollar item, you fast forward, you realize, oh, that was out of network, a claim comes through, that claim's for $10,000. We catch that and we go, hey, that doesn't look right. We evaluate that against publicly available data sources. We work with the employer that has parameters on what they're willing to accept or not. And we negotiate that with the provider into what would be a reasonable outcome. That's a real example. We actually do that. I don't impute motive, I don't impute that someone that on purpose or not. It could have been a bad coding. It could have been improperly submitted. Doesn't matter. What matters is you get to the right place ultimately. And when you're talking about billions and billions of claims a year, you're going to have things like that that are anomalies or inefficient in that system. And so largely what we do is deal with examples like that all the time. And when you put it into a simple term, I'm yet to meet anyone at a dinner party or otherwise who doesn't say, well, that sounds like a pretty good thing to do. That's actually what we do. And with NSA, that's a government-mandated program that we support.

So push on that. Instead of just being upset, what are you going to do about it? You already do, whether No Surprises Act or related in some ways, IDR, the where the industry is going and your core role. Talk a bit more about how the NSA, but also importantly important growth driver IDR is helping how you're playing in that.

For sure. You know, it's a big part of what we do. It's a big part of our growth areas. And it's not just at the national level. I mean, state surprise bill is also something that's not talked about a lot, but we do very well in that. And so, to me, being able to be productive in that area has to do with the total of who we are and what we do. We have a lot of smart people that know how healthcare works. We've got a lot of data and information and we've applied our priorities to that space. And so you add that up and we've performed on average about 8 points better than anybody else relevant to the outcomes that we get. The key thing about, that's I think somewhat misunderstood about the NSA or IDR process is that there's a lot of steps that happen before you get to an IDRE. So the first thing is, is that an eligible claim? We can evaluate that quickly. The second thing is, can that go to the network? Yes or no. The third thing is, can we negotiate that? Yes or no. The fourth thing is, is there a QPA that you could attach to that? And then the last step of that is the IDR process. And so the vast majority of that really gets handled in an appropriate way prior to prior to going to IDR. That said, there's a very real thing that happens there. And we think we're doing, we do well there, but providing, providers win a lot more than payers do. And so I do think there's still work to be done to improve performance, and we think we can do that, but it's a critical component of healthcare right now, and there's a lot of narrative around it.

On those steps, what makes you unique with respect to your connectivity, data, moat, et cetera, that has led you to be number 1 provider in IDR?

Couple things, like I said, we've got, you know, decades of smart people who actually know how things work. We build a network over 30 years, so we know how networks work. We have embarked on the technology modernization that I mentioned, which allows us to understand the data set that we have. We've applied, we've been using machine learning for a long time, not just for the last five minutes. But we've also really focused our AI projects and approach to that process. And so I think what has helped us is, one of the reasons I came, I like the size of the company relevant to being able to do some things. We can put some wood behind the arrow, but we also can pivot pretty quickly. So we were able to adapt quickly to NSA, put wood behind the arrow, make real investments, and execute solutions quickly. We didn't get mired in a lot of internal structural challenges and priority problems. And so just quick prioritization, focus, great people, and approachability.

Appropriate use of technology. It is showing up in the growth. You mentioned earlier ACV this year, and congrats on a strong Q2 at $74 million, well ahead of your $100 million target. What's driving that? How's it tracking? How do you think about the sustainability and durability of growth, particularly in ACV from new solutions, new customers, new areas?

Yeah, let me do a couple sentences on that, and I'm actually going to let Doug talk. He was it for us to talk. So, the great news in my mind is, you know, booking are an important leading indicator for one, the value demand, two, are you listening to your clients? And three, growth over time. And so, as I said, we showed up early in the year, had our Investor Day. I think last year we were, what did we do in ACV bookings? $67 million. We said early in the year, hey, I think we can do $100 million in bookings this year. And as I noted, I think we'll achieve that by the end of this quarter. So we're significantly ahead. Why is that happening? We've got more at-bats. I mean, when I came here, we had four, I think, commission sellers, the entire company. That's probably not enough. And so we create an entire go-to-market structure. We've opened up new markets that I've mentioned. So we won business in the public sector with the World Trade Center Network Deal. We won business in the provider, direct-to-provider market with large systems and logos. We've won some business in international, so that's growing. So you add all that up and that is making us more robust and more diverse, relevant to what the company has done in the past, which is just a hair focus. Now, make no mistake, that's still an important channel for us. I mean, it's critical and we're growing, but I'd say it's that diversity of market approach, some new product and the value showing up. So, yeah, Doug, I don't know if you want to.

Yeah, that's great. I mean, the segmentation's been critical, right? And so we announced in Q2 on the $74 million of bookings and the north of $100 million that we're going to do this year, about 1/3 of it was going to come from the TPA space. We didn't have a segment later in the TPA space when we entered the year. And when you look at not only the segmentation process maturity, I mean, it's, you know, it's a little bit unique that we give funnel and pipeline information on earnings calls, but we think it's important to show that not only is the segmentation working, our process maturity is working. And then finally, opening up new markets and getting new accounts has been critical for us to start to diversify our revenue base. So when you look at it about four years ago, our two top 10 clients were about 80% of our revenue. We like to have large clients. We also booked some pretty nice business with our large clients. But over time, opening up new markets and new channels allows us to diversify the business, which our investors obviously are concerned about. And then when you look at the ACV and the ACV conversion, about 75% of our bookings are within our current install base. And so, you know, getting to, we're going to return to $1 billion of revenue this year, first time we've done that in four years. We get questions all the time relative to a large install base and whether or not there's white space within the current install base. And so TPA market is a market we've gone after aggressively. There's still plenty of white space in the payer side of the business, which is most of our revenue. And then when you kind of put that against our product roadmap, our innovation strategy, we have north of $300 million in our sales pipeline. Our win rates on our install base are between 30% to 40%. And then about half of our funnel is net new logos. And we've closed 30 net new logos over the last year, year and a half. Over time we would expect maybe the trend of net new versus our installed base to be more equal, but we have seen a really nice attribution this year and specifically over the last six quarters with very high win rates and average ticket price increasing on our installed base which is really nice to.