Good morning, everyone. Jon Swope, Managing Director, Head of Healthcare Technology at Morgan Stanley. Delighted to have you in the room, and importantly, delighted to have Travis Dalton and Doug Garis up here on stage with Claritev. Thanks, guys, for coming.
Yeah. Thanks, Jon.
Beautiful day in New York, and we appreciate everyone that is participating in the Morgan Stanley Global Healthcare Conference. Figure we kick things off with the easy question, which is, give us a little bit of a thumbnail sketch of what Claritev is today, and what you have seen over the two years now that you have been at the company.
Yeah. Thanks, Jon. Appreciate it. Hey, everybody. I am Travis, CEO. I took over in March of 2024. It has been an interesting ride. Look, healthcare is in an interesting spot. I have been in it for 27 years now, or so. It seems simple. You have plan design. If you are an employee, you enroll, you get service, claim is produced, and payment is made. Seemingly a simple thing to do. Lots of problems inside of that. So, massive amount of complexity. There is cost issues. There is fraud, waste, and abuse. There is lack of transparency in pricing. There is regulatory complexity that is pretty monstrous. There is a tremendous amount of churn inside of that process. Look, on the macro of things, our view is that, we see costs remaining elevated in healthcare. What a revelation that is. But 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, yet shifting venues of care. Care is largely shifting, in many ways, outside of what you'd 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. What do we do? 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. We provide access to care. We do that with a 1.4 million provider network. 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. Then ultimately, we bring back insightful insights into pricing and other transparency so decisions can get made in a reasonable way. At the core, everything the company does is actually aimed at the endpoint of healthcare, which is the consumer, the employee. It's not always framed that way, or it 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. That's how we view what we do, and every day we get up and think about that endpoint and the needs of that.
Really bringing insights to an opaque market is important in that consumer protection. We work across the continuum. We've got 50 million or so members that use some form of our service. We've got a pretty scaled operation. Fundamentally at the core, that's what we do, affordability, transparency, and access.
Makes sense. For decades, you've been embedded in the fabric of the ecosystem as a core infrastructure layer.
Yep.
Given that, could you expand a bit on your Vision 2030? Certainly, it's been great to see what I think you've described as 2026 is the way up, leading into the way forward in 2027. Where are you and what's on the near-term roadmap on that vision?
Yeah. As I said, I joined in March of 2024. The company had been four or five years of declining revenues. A lot of people said, "Why did you take this job?" I actually viewed a wildly underutilized 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 other vertical markets. So horizontal assets across multiple vertical markets. 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. The plan was, let's embark on what I would say was a multiyear journey. I like to name things. I think narratives work. I think stories are important. I think employees get behind stories.
We came up with this idea of a Vision 2030, but really 2024 was the foundation year for us, and we called it the foundation. 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 a multiyear basis to give us a little bit of time. So that was foundational. 2025 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 2025 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 the company was associated with prior.
So opening up those new markets were important for us in, 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. 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. We embarked on a transformation plan in 2024 to 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. I don't think I know we're well-positioned relevant to an AI future.
We are using AI today. We have got over 30 agents in use. We are performing really well in NSA in certain areas against our competition, and it is because we have got data and knowledge and people to do that. 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 will achieve that by the end of this quarter. We are 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, et cetera. We are pleased with our progress, but it has been done in a structured way. It is not luck.
Yeah.
Right? Vision, strategy, plan, execution.
Wonderful.
Very simple.
Showed up a bit with hair on fire situation and--
Yeah.
--the foundation was there. I do want to unpack some of those metrics, but quickly before I do, you've called Claritev the 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. If there's a problem to solve and you have a 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. I think that that's the most important thing, is that we care about our clients and we deliver value.
Secondly, brand. There is an element of brand that matters. I mean, w hat people think and how you're perceived matters. It matters to investors. The story matters. All of that is relevant. I think, look, that when I used the words earlier, I think there was a big mistake. Let's put it like this. The company was not positioned the way that I think it should have been in terms of talking the best-kept secret in healthcare. There are no secrets in healthcare. The first thing I said when I came here was, "We're going to be about radical transparency, not secrets." Right? Just shifting the mindset and then embarking on a brand program where we relaunched the company in an earned way, not just with new colors, was important. Ultimately, the words matter. Like I said, access, transparency, cost, and protection, that's actually what we do.
But we get picked at for one thing, which is the out-of-network business. A lot of people are just pissed that we do that. Okay. I think it's the right thing to do. I use a simple example. You look at out-of-network, everyone can relate to this. You're on vacation with your family, child gets a splinter. You take him 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 did that on purpose or not. It could've been a bad coding. It could've been improperly submitted. Doesn't matter. What matters is you get to the right place ultimately. When you're talking about billions and billions of claims a year, you're going to have things like that are anomalies or inefficient in that system. Largely what we do is deal with examples like that all the time. 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. With NSA, that's a government-mandated program that we support.
To push on that, i nstead 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, where the industry's going and your core role. Talk a bit more about how the NSA, but also important growth driver IDR, how you're playing in that.
For sure. It's a big part of what we do. It's a big part of our growth areas. It's not just at the national level. State surprise bill is also something that's not talked about a lot, but we do very well in that. 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. 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 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 IDR. The first thing 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 there a QPA that you could attach to that? Then the last step of that is the IDR process. The vast majority of that really gets handled in an appropriate way prior to going to IDR. That said, there's a very real thing that happens there, and we do well there, but providers win a lot more than payers do.
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 the number one provider in IDR?
Yeah, a couple of things. Like I said, we've got decades of smart people who actually know how things work. We've built 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 dataset that we have. 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. I think what has helped us is the company, 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.
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. Just quick prioritization, focus, great people, and 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 is driving that? How is 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 am actually going to let Doug talk. He loves to talk. The great news in my mind is bookings are an important leading indicator for, one, the value demand, two, are you listening to your clients, and three, growth over time. 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.
67. We said early in the year, "Hey, I think we can do $100 million of bookings this year." As I noted, I think we will achieve that by the end of this quarter. So we are significantly ahead. Why is that happening? We have got more at-bats. When I came here, we had four, I think, commission sellers, entire company. That is probably not enough. So we created an entire go-to-market structure. We have opened up new markets, as I mentioned.
So we won business in the public sector with the World Trade Center network deal. We won business in the direct-to-provider market with large systems and logos. We have won some business in international, so that is growing. 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 payer focus. Now make no mistake, that is still an important channel for us. It is critical, and we are growing, but I would say it is that diversity of market approach, some new product and solution, but it is really how we have attacked it. And we've made some new things relevant to that, the value's showing up. Yeah. Doug, I don't know if you want to-
Yeah. That's great. The segmentation's been critical. 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. When you look at not only the segmentation process maturity, 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. Then finally, opening up new markets and getting new at-bats has been critical for us to start to diversify our revenue base. When you look at it about four years ago, our top 10 clients were about 80% of our revenue.
We like to have large clients that we also have 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. Then when you look at the ACV and the ACV conversion, about 75% of our bookings are within our current install base. So, 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. 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.
When you 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%-40%, then about half of our funnel is net new logos, and we've closed 30 net new logos over the last year and a half. Over time, we would expect maybe the trend of net new versus our install 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 in average ticket price increasing on our install base, which is really nice to see.
Pulling the thread on that a bit, we're mid-September, October, benefits enrollment season is coming. We've seen and we know the headlines, and we feel it, I'm sure as the CFO you feel it.
Yeah.
Of employers, medical cost trend highest in two decades, and that isn't abating soon. As you think about TPA, employer, where in the growth there, looking ahead to 2027, what are the quick, easy things that you engage on beyond the fact that, hey, your cost trend is high, we can help. Where do you help? Where do you get the conversation started with TPAs and employers?
Yep. So two pieces specifically. We have a business called Vistara, which is a reference-based pricing health plan. This is a wonderful product for TPAs to sell to medium-sized employers who by all accounts, are getting the most amount of inflation. We've started to see articles clips 10% for healthcare inflation for self-funded plans. So we have a great alternative product for medium-sized companies in the 500- 5,000 employee range. We also have a product called BenInsights, which helps- when you look at plan design, helps employers, brokers, and TPAs make the right decision against their health insurance against all the alternatives. We use our data science, our software to evaluate an enormous amount of claims data for employers to make sure that they're buying the right type of health insurance relative to their claims population.
Those two businesses are newer acquired businesses. When you look at the benefit cycle coming up, we've put tools in the hands of TPAs and brokers to work with employers so that they can make a much more informed choice. The final thing I would say is, CFOs and CEOs are now having the conversation and getting much more involved in the health and benefit plan design process. We use our BenInsights product on ourselves, and we've been able to keep inflation at bay because we like to eat our own dog food. First time we ran BenInsights, we saved a few million dollars on our health plan spend. We've been able to keep our own health plan costs relatively flat, certainly under the level of inflation that we've seen.
It's about giving TPAs, brokers, and employers access to their information so they can make great decisions.
Switching gears on picking more the transformation, the way forward, i n terms of transformation, a lot of the focus early on was cost and infrastructure, changing our ERP. Where is that? How much more is left to do from a cost and operational infrastructure transformation before then next question, getting to the revenue?
Yeah. Our plan is a multi-year plan. Travis mentioned we kind of launched it at the very end of 2024, when we migrated most of our workloads into Oracle Cloud Infrastructure. That lift and shift started really at the end of 2024 through 2025, and then we're rewriting about 400 applications to take advantage of all of the tools and technology on top of modern scaled infrastructure. We expect that investment largely to conclude by 2028, and we're going to spend about $140 million- $150 million of net incremental money to fulfill that transformation. Look, we expect to take 10%-15% of our cost structure out. I know we're already a fairly high margin business. We're going to address CapEx, OpEx.
When you look at our current kind of R&D as a percentage of revenue, it's in the mid-teens, w e expect that to go down to 10%-12%, and we expect to continue to deliver value to our clients by investing in technology. Whether it is NSA or our network or payment and revenue integrity solutions, we are able to develop and deliver much faster. The final point is, we have our chief digital officer in the room with us. In Q1, we wrote 53% of our code using AI. That is going to be between 60%-80% by the end of the year. All of these things were very purposeful investments so that we could take full advantage of where the future is going. We really like our position.
Importantly, we really like when we started, because we are now, to use a baseball analogy, through the bottom of the fifth inning, and we are in the home stretch here to get our tech transformation done.
Travis, you have spent much of your career at a software company. This, as much as anything, is a data and analytics company. As we were walking on stage, saw the press release of Ben Letham being added to the board, AI genius. Great to have an AI genius around. As you think about that announcement, digital strategy, how should we think about that as part of the next steps in the transformation of the business?
Yeah. We did announce Ben this morning, which was cool. So, brilliant mind, humble person, will add a lot to the company and what we do. So two elements to that. One is, first I would say, not to think about the company, but we are thinking about our board and strategically, the talents and skills that we have. So it is transforming the board while we transform the organization as well at the same time. So it is a holistic approach to cultural change for the company, and how we think and what we do. We felt like Ben had a lot of insights. He is active. He is participating. He has a real day job every day in this arena. He works at Meta. He is in the fight, if you will, right? So we thought that was needed.
In terms of AI in general, I'll talk more in general, I'll talk more specifically. We haven't come up and made a lot of grand proclamations about it. We didn't come out and say we're going to lay off half our people or anything. We've come out and said we're going to do meaningful things that add value to our clients and use the available technology. AI is one of those tools that we will absolutely use and we are using. What I would say relevant to the company, I 100% believe that there will be big winners and big losers over the next five years. I think we're well-positioned to be a winner. I think that's starting to show up in our growth, over this last year period, while a lot of this has played out in the markets.
You look at what are the key ingredients we've got. We have one-to-one data relationships with large clients, publicly available data. We've got trust, and we have workflow and access. You combine that with smart people, you have the harness to actually productively use AI. Just throwing the words around is one thing, but prioritizing what you're going to do is the most important thing. Structurally, is the company in a position to make good decisions, high priorities, and focus? Those are the kind of things I've been thinking about. I like that we're prioritizing the work we do. I like that our data's in a place that it's usable. I like that we have the abilities to do that. Our position is very good, and we're adding real value associated to that.
One other thing I'll say is that I said earlier, the company is big enough to be scalable and productive, but small enough to make changes. We've reorganized and realigned in the last year, where we've actually gone away from a product organization to what I would call a much flatter, leaner, pod-based organization. This idea that we're just going to build products, jam products into markets, there's always going to be products out there, but generative solutions are actually going to be the future. When you can make something in a week that used to take six months to get the requirement, do the code, test the thing, how you line up to the market is going to be really crucial. We've taken our product management teams, and we've embedded them into our GM structure.
We've taken our product owners, and we've embedded them into the technology engineering function and moved away from a vertical product organization that, in my mind, creates a lot of friction inside of a fast-moving situation. Structural alignment, prioritization, those are the things I don't think people talk about enough. You can use the tools. We all use them on our freaking laptop. But are you structurally aligned to make good decisions and get real value? The last thing I would pose is just a more provocative question for us. I know that we're going to use the available capabilities to add real value and drive growth and value for our clients. But I really think the world is shaping up where narrow spaces with tons of volume and structured data are going to have high value in a data world, and we're in one of those.
We see billions and billions of claims a year. You look at that and you think, "Hey, if we map, we will map our ontologies, we will create knowledge graphs, and when we do that, we will create language models that we can train on. Why wouldn't others train on that? Why wouldn't the frontier models look to consume what we have to offer in our building? They should, and they will. We're not banking our future on that idea, but you can bet that we're going to go do that. That's another reason to believe beyond just the P&L, is we think that there's real future in that data future beyond what we do as a consumable, not just us using it for our own purposes. That would be a massive unlock.
Compelling opportunity.
Yeah.
You're uniquely situated to get it. Before we wrap up, we could spend another 30 minutes on that, I'm sure.
Sure.
I'll certainly be paying attention to some of the milestones along the way. We've talked a lot about the P&L. You guys, in the two years you've been around at the company, you've done a lot of debt conferences, credit conferences. We're delighted to have you at an equity one.
Yeah.
Doug, talk to us about the balance sheet and the flexibility that you have or don't have--
Sure.
--to execute on the growth initiatives and otherwise.
Yeah. Travis and I, when we got here our first few quarters, we had to reset expectations. We went to our capital holders and asked for time. Said, "Hey, we think we have some really good assets here. Structurally, we need to make an investment." We're making a $150 million tech investment. We needed to change the way we did business. We aligned a go-to-market function with segments and general managers who run vertical P&Ls, and we also had to invest in all the tools to run a large public company. We had to do all those three things at once. Our credit holders gave us more time, and when you look at our capital structure, it's still limited.
Most of our excess cash flow, which we'll have a little, itty bitty amount of excess cash flow, has all gone to investing in the business because we feel really good about the return on capital for the assets. As our business continues to perform, starts to look a little bit more exciting, and when we put out our investor day financials, the de-levering will be modest this year and next year. But really, as this business gets de-levered, free cash flow really starts to open up. At the midpoint of 2028, we're generating $75 million free cash flow, mid-single digits on revenue, free cash flow yield, still doesn't look very exciting. Once our tech transformation's complete, this business starts spitting off pretty significant excess free cash flow. As the business improves, we're going to opportunistically look for ways to address the capital structure.
But our first, second, and third priorities have been focused on making sure we have a healthy business, so whenever there's a window to do something more strategically, we're ready. I think we've done a good job, our management team, of staying game ready as the seasons change. But right now, the capital structure is set. Our first debt maturity is a revolver, which comes due at the end of 2029, followed by our senior notes that come due at the end of 2030, and our third out notes in 2031. So we have a few years to make sure we get the business growing. Our kind of financial algorithm is Rule of 70. We're north of 60% EBITDA margin. Then revenue growth has been the number one focus with the investments and the tech transformation.
So capital structure is still constrained, but the business performance gives us almost a dollar per dollar credit in terms of what we could do to start to really free up the capital structure in the future.
Helpful. As we close, Travis, looking ahead to 2027, I'm not going to push for guidance, but what are three business milestones that are important to you that we should be paying attention to for 2027?
Yeah. I think, as we talked about it, bookings growth, no doubt about it. Continued revenue growth, the obvious ones. New client acquisitions, so new logos. We've been announcing that as we go forward. So those are, I think, critical things for us as we push forward. Those are obvious ones, but they're real things, and we say around our shop, "Judge us on our actions, not just our words." We're keeping our promises, and we're growing the business, and I think you can expect to continue to see that from us as we go forward. So--
Travis, Doug, thank you both so much for your time and being here at the conference.
Thank you.
Thank you, Jon.