Third Quarter 2026 Earnings Conference Call - CLARITEV CORP

Financial Performance:

• Total revenue reached $268.3 million in Q3 2026, up 9.1% YoY and 4.2% sequentially; year-to-date revenue was $770.5 million (+7.2% YoY).
• Adjusted EBITDA was $162 million (+4.4% YoY) with a margin of 60.4%; year-to-date EBITDA was $464.7 million (+3% YoY) with a 60.3% margin.
• Operating cash flow for Q3 was $18.1 million; free cash flow use was $25.8 million, driven by timing of debt payments and capital expenditures.
• Trailing 12-month revenue exceeded $1 billion for the first time since Q1 2023; net leverage ratio improved to 7.7x.
• Unlevered free cash flow for the first nine months was $230.7 million (+16% YoY); adjusted cash conversion improved to 50% for the nine-month period.
• Revenue growth was driven by Claims Intelligence (+17.1% YoY), while Net Work declined 5.6% due to non-recurring revenue in the prior year and strategic shifts in Payment & Revenue Integrity.

Guidance and Future Outlook:

• Raised full-year 2026 revenue guidance to $1.038–$1.043 billion (midpoint increase of $30.5 million); implied full-year growth of 7.5%–8%.
• Raised full-year 2026 Adjusted EBITDA guidance to $625–$630 million and tightened Capital Expenditure guidance to $165–$170 million.
• Projected Q4 2026 revenue midpoint of $270 million, with operating cash flow of $110–$120 million and free cash flow of $74–$84 million.
• Expects to achieve at least $1.1 billion in revenue in 2027, a year ahead of the previous multi-year plan, driven by strong bookings and conversion rates.
• Full-year 2026 ACV bookings guidance raised to $115–$125 million (70–90% growth vs. 2025); 78% of YTD bookings came from existing clients.
• Anticipates return to growth for Payment & Revenue Integrity in 2027 and continued strength in Claims Intelligence.

Business Segments and Product Lines:

• Claims Intelligence: Remains the primary growth driver; reported 17.1% YoY revenue growth fueled by NSA volumes and a new client win.
• Network & Payment & Revenue Integrity: Net Work declined due to one-time revenue normalization; Payment & Revenue Integrity transitioned a legacy clinical negotiations business to claims intelligence solutions, expected to return to growth in 2027.
• New Product Launches: Introduced Medicare Advantage offering combining 15+ solutions; launched "Transparency-based Pricing" leveraging MRF data; debuted "Clarity Healthcare Intelligence" (agent "Clara") for AI-native insights.
• Bookings & Clients: Booked $27 million in ACV during Q3; added 5 new client logos (46 net new in two years); 50%+ of bookings now originate from non-payer verticals (TPA, provider, public sector).
• AI Integration: Deployed dozens of AI agents in production across workflows, with 53% of code delivered via AI in Q1 and projected 60–80% by year-end.

Market and Competitive Landscape:

• NSA (No Surprises Act) volumes surged, with dispute initiations up 75% YoY; performance delivered 8% better results than industry average.
• Submitted charges increased 15% YoY, reflecting medical inflation and service mix changes, leading to a 13%+ increase in savings per claim.
• Market strategy shifting toward diversification; pipeline growth is 60% YoY with less than half coming from the traditional payer market.
• Positioning as a comprehensive growth company rather than a point solution, leveraging 40+ years of domain expertise and scale to address access, affordability, and transparency.

Risks and Challenges:

• Macroeconomic pressures regarding healthcare access, affordability, and medical inflation persist, though the company views these as addressable opportunities.
• Transition costs and timing delays associated with the shift from legacy clinical negotiations to modern claims intelligence solutions within the Payment & Revenue Integrity segment.
• Regulatory uncertainty regarding the long-term impact of new CMS rules on IDR (Independent Dispute Resolution) volumes.
• Competitive landscape requires continuous innovation and aggressive investment in AI to maintain market leadership.

Management Commentary and Tone:

• Management expressed high confidence, describing the quarter as "strong," "outperforming," and indicative of a "growth company, period."
• Travis Dalton emphasized that the company is "a full year ahead of the plan" laid out at Investor Day, highlighting successful execution of the horizontal/vertical strategy.
• Tone was assertive on long-term viability, rejecting the "turnaround" narrative in favor of "durable growth trajectory" and "Rule of 70" status.
• Emphasized the strategic pivot to AI and data-driven workflows as a core competitive moat, citing "trust, data, workflow, and years of expertise."

Analyst Questions and Answers:

• Growth Drivers: Clarified that Claims Intelligence outperformance is driven by NSA and new client wins; Payment & Revenue Integrity expected to grow organically in 2027 despite segment headwinds.
• Conversion Rates: Disclosed that 20% of Payment & Revenue Integrity bookings (>$40M ACV) have converted to revenue; standard conversion timeline remains 2–4 quarters for implementation, 4 quarters for full ramp.
• AI Efficiency: Stated AI is being used to enhance operational efficiency and do "more with less" or "an order of magnitude more" with current headcount; no specific headcount reductions disclosed, but R&D spend as % of revenue trending down.
• CapEx: Confirmed 2026 CapEx is near the high end due to one final chunk of the Vision 2030 transformation; R&D spend as % of revenue expected to normalize below 16% in 2027.
• Seasonality: Noted Q3 claims volumes (PSAID) were flat sequentially but up 8% YoY; long-term volume modeling assumes stability aside from the NSA uplift.

Other Key Points:

• Claritiv hosted its annual Client Conference in Nashville with >100 attendees, focusing on AI innovation and client feedback.
• P-SAVE savings dollars eclipsed $5 billion for the first time in 4–5 years; average savings per claim exceeded $1,500.
• The company highlighted a strategic shift to "agentic workflows" and a flatter general management structure to align solutions with client needs faster.
• Management reaffirmed commitment to free cash flow generation and delevering as a top priority, with Q4 expected to be the strongest free cash flow quarter in four years.