Third Quarter 2026 Earnings Conference Call - CLARITEV CORP

Explicit Guidance:

• Full Year 2026 Revenue: Raised to $1.038 billion–$1.043 billion (midpoint increase of $30.5 million vs. prior guidance); implies 7.5%–8% YoY growth with Q4 midpoint revenue of $270 million (9.5% YoY growth vs. Q4-25).
• Full Year 2026 Adjusted EBITDA: Raised to $625 million–$630 million (midpoint increase of $12.5 million); implies EBITDA margin above 60%.
• Full Year 2026 Free Cash Flow (FCF): Raised to $10 million–$20 million (midpoint increase of $5 million).
• Full Year 2026 Capital Expenditures: Tightened to $165 million–$170 million.
• Full Year 2026 ACV Bookings: Expected to reach $115 million–$125 million (70%–90% growth over 2025).
• Q4 2026 Cash Flow: Operating cash flow expected $110 million–$120 million (66%–81% YoY growth); FCF expected $74 million–$84 million (103%–131% YoY growth), marking strongest FCF quarter in over four years.
• FY2026 Cash Conversion: Targeting >50% for the full year (up from 44% last year; 50% in first nine months).
• FY2027 Revenue: Expect to achieve at least $1.1 billion (accelerated from prior 2028 target).
• Long-term Margin Target: Aim to become a "Rule of 70" company (double-digit revenue growth + high single-digit EBITDA margin growth) with EBITDA margin >60%.
• R&D Ratio: Expected to normalize to roughly 16% of revenue (down from 16.5% in 2025) with further leverage expected in 2027.

Business-Segment Outlook:

• Claims Intelligence: Largest business driving growth; expects continued strength driven by NSA (No Surprises Act) volumes and $1.50+ savings per claim. Growth expected to persist despite potential deceleration in the near term as new wins mature.
• Payment & Revenue Integrity (PRI): Expects return to growth in 2027 following transition of legacy clinical negotiations business to claims intelligence solutions. Booked >$40 million ACV in PRI over last four quarters, with ~20% conversion to revenue so far.
• Network Business: Excludes non-recurring revenue, expected to grow ~5% YoY in 2026; long-term outlook remains positive with ~60% of clients participating.
• Vertical Diversification: Diversifying beyond core payer market; >50% of YTD 2026 bookings came from non-payer verticals (TPA: 26%; Provider/Public Sector/International: 25%). Public sector and TPA are making "meaningful contributions."
• New Product Rollouts: Medicare Advantage (MA) offering launched (integrating 15+ solutions); Transparency-based pricing and Clariti Healthcare Intelligence (Clara AI agent) recently showcased. AI agents expected to scale across workflows to improve efficiency.

Market and Competitive Outlook:

• Demand Trends: NSA dispute initiations up 75% YoY in Q3; submitted charges up 15% YoY reflecting medical inflation and service mix changes.
• P-SAVE Performance: Identified potential savings per claim increased >13% YoY; cumulative P-SAVE savings eclipsed $5 billion.
• Competitive Position: Claim to be uniquely positioned to tame medical inflation and provide transparency. Belief that clients will shift to more comprehensive solutions (claims intelligence + payment integrity) over point solutions.
• Pipeline Growth: 60% YoY growth in pipeline; less than half derived from core payer market, indicating broad market demand.
• Structural Shifts: Anticipated continued movement of healthcare delivery "outside the four walls" (behavioral health, etc.), sustaining out-of-network claim volumes and NSA relevance.

Macro / Industry Outlook:

• Medical Inflation: Viewed as a persistent tailwind; rising costs and need for transparency driving demand for savings solutions.
• Regulatory Landscape: NSA business remains a key driver; final rules still settling, but management remains positive on market leadership and value delivery.
• Economic/Operational Environment: Focus on operational leverage via AI to reduce manual work in intake, claims processing, and sales targeting.
• Client Behavior: Shift towards "agentic workflows" and AI-native solutions that provide real-time insights without manual data aggregation.

Strategic Initiatives:

• AI & Automation: Deploying dozens of AI agents in production (e.g., Clara agent); goal to "do a whole lot more with less" or "order of magnitude more with same headcount." Targeting 60–80% of code delivered via AI by year-end.
• Investment Priorities: Continued investment in Sales, Marketing, and Delivery functions (initially $20–$25M); one final chunk of transformation investment remaining.
• Product Expansion: Packaging of Medicare Advantage solutions and expansion into TPA space.
• M&A/Partnerships: Added 5 new logos in Q3 (46 net new clients in two years); focus on deeper partnerships with existing clients.
• Timeline: Comprehensive FY2027 guidance (free cash flow, revenue bridge) expected in February 2027 at Q4 earnings release.

Risks and Headwinds to Outlook:

• Revenue Recognition Lag: New bookings typically take 2–4 quarters to begin converting to revenue, followed by another 4 quarters to reach full annualized contribution (20–28 month total cycle).
• Segment Transition: Payment & Revenue Integrity segment decline currently driven by legacy business cannibalization; conversion lag may temporarily suppress segment growth.
• Regulatory Uncertainty: NSA final rules still in flux; impact on volumes may evolve as regulations settle.
• Non-Recurring Revenue: Prior year comparisons affected by $18.6M non-recurring revenue (last $5.4M in Q4); Q4 2026 guidance includes no such one-time items, implying organic growth pressure.
• Execution Risk: Success relies on "high say-do ratio" and ability to translate bookings into revenue amid macroeconomic changes.

Management Tone on the Future:

• Confidence Level: High; described as running "a full year ahead of the plan" set at Investor Day.
• Narrative Shift: Explicitly moving away from "turnaround" or "transformation" story to being a "growth company, period."
• Key Phrases: "Breakout 2027," "durable growth trajectory," "competitive position has never been stronger," "laser-focused on execution."
• Outlook: Bullish on diversification, AI integration, and long-term margin expansion.

Miscellaneous:

• Financial Milestones: Trailing 12-month revenue exceeded $1 billion for first time since Q1 2023; highest quarterly adjusted EBITDA in 16 quarters.
• Leverage: Net leverage ratio improved to 7.7x (0.1 turn improvement QoQ).
• AI Development: R&D spend normalized to ~16% of revenue; R&D efficiency expected to improve further as transformation concludes.