Claritev Corp (CTEV) Q3 2026 Earnings Call Transcript

DATE

Monday, Nov. 9, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Todd Friedman
• President and Chief Executive Officer - Travis Dalton
• Chief Financial Officer - Doug Garis

TAKEAWAYS

• Total Revenue -- $268.3 million, up 9.1% year-over-year and 4.2% sequentially, driven by growth in the Claims Intelligence business.
• Adjusted EBITDA -- $162 million, up 4.4% year-over-year, reflecting absolute dollar growth despite a margin contraction to 60.4% from 63.1%.
• Claims Intelligence Revenue -- Grew 17.1% year-over-year, primarily reflecting incremental No Surprises Act (NSA) volumes associated with an early 2026 client win.
• ACV Bookings -- $27 million in the third quarter, contributing to a year-to-date total exceeding $100 million due to strong performance in non-payer verticals.
• Network Revenue -- Declined 5.6% year-over-year, primarily due to the impact of $5.4 million in non-recurring revenue recorded in the prior-year quarter.
• PSAV Claims Volumes -- Increased 8% year-over-year, reflecting consistent activity in inpatient and outpatient settings including emergency and specialty services.
• Submitted Charges -- Grew 15% year-over-year, reflecting the impact of medical inflation and a changing mix of services delivered.
• Savings per Claim -- Increased more than 13% year-over-year to over $1,500, due to the increased complexity and value of claims being processed.
• Identified Potential Savings -- Exceeded $5 billion for the first time in several years, driven by higher submitted charges and enhanced technology-enabled identification.
• 9-Month Operating Cash Flow -- $65 million, up 27% year-over-year, reflecting improved working capital management and business growth.
• Unlevered Free Cash Flow -- $104.4 million in the third quarter, resulting in a year-to-date adjusted cash conversion rate of 50%.
• Net Leverage Ratio -- Improved to 7.7x, representing a 0.1 turn reduction from the third quarter of 2025.
• Full-Year 2026 Revenue Guidance -- Raised to $1.038 billion to $1.043 billion, reflecting third-quarter performance and expectations for fourth-quarter momentum.
• Full-Year 2026 Adjusted EBITDA Guidance -- Increased to a range of $625 million to $630 million, representing an upward revision of $12.5 million at the midpoint.
• Full-Year 2026 Free Cash Flow Guidance -- Increased to $10 million to $20 million, marking a management priority to return to positive annual free cash flow.
• 2027 Revenue Outlook -- At least $1.1 billion, representing the achievement of long-term revenue targets one year ahead of the initial financial plan.
• Booking Vertical Mix -- 26% from the TPA market and 25% from public sector, provider, and international markets, reflecting successful revenue diversification efforts.
• NSA Dispute Initiations -- Increased 75% year-over-year, driven by the company's competitive position and federal regulation trends.
• Capital Expenditures -- $43.9 million for the quarter, with full-year guidance narrowed to $165 million to $170 million to support ongoing technology transformation.
• TTM Revenue -- Exceeded $1 billion for the first time since the first quarter of 2023, representing a milestone for the company's growth trajectory.

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RISKS

• CEO Travis Dalton stated that the company has "areas of the business that are highly manual in nature in terms of intake, in terms of how we process claims, in terms of how we do things internally," identifying opportunities for operational efficiency.
• CFO Doug Garis mentioned that "Payment & Revenue Integrity is running slightly behind our internal plan," due to a transition in the clinical negotiations business.
• Dalton stated that the company must prioritize resources because "the competition is out there," and "the next big thing is always there."

SUMMARY

Claritev Corporation (NYSE:CTEV) reported results that exceeded management's internal expectations for revenue, adjusted EBITDA, and free cash flow. The company stated it is currently operating approximately one year ahead of the multiyear financial plan targets established during its March Investor Day. Management indicated that growth in the period was primarily driven by the Claims Intelligence segment and increased bookings across diverse vertical markets, including public sector and international segments. The company raised its full-year guidance for several key metrics and introduced a preliminary revenue target for 2027 that reflects continued momentum in annual contract value bookings.

• Management reported that 78% of the $100 million in year-to-date bookings originated from the existing client base.
• The company introduced a Medicare Advantage offering intended to consolidate 15 existing payment integrity and network solutions for health plan clients.
• CEO Travis Dalton stated, "Claritev Healthcare Intelligence is a platform with a built-in AI agent who we call Clara, that provides greater insights, cost trends and drivers to better visualize and anticipate the critical insights that most impact a client's business."
• Management noted that 53% of its code in the first quarter was delivered using AI, with expectations for that figure to reach 60% to 80% by the end of the year.
• The company reported adding five new client logos during the quarter, bringing the two-year total to 46 net new clients.
• CFO Doug Garis indicated that "the overperformance of our Claims Intelligence business and the ACV to revenue conversion has been a bright spot for us this year."

INDUSTRY GLOSSARY

• ACV: Annual Contract Value, the yearly value of a customer's contract.
• NSA: No Surprises Act, federal legislation protecting patients from unexpected medical bills.
• PSAV: Payment Savings and Value, a metric for medical expenses reduced or avoided.
• MRF: Machine-Readable Files, data sets containing pricing information health plans are required to publish.
• Rule of 70: A performance benchmark calculating the sum of a company's revenue growth rate and its margin.
• ACE: Advanced Code Editing software used in payment integrity.
• TTM: Trailing Twelve Months, a financial period covering the most recent 12-month interval.
• TPA: Third-Party Administrator, an organization that processes insurance claims or certain aspects of employee benefit plans.
• MA: Medicare Advantage, a type of Medicare health plan offered by a private company that contracts with Medicare.

Full Conference Call Transcript

Operator: Thank you for standing by, and welcome to the Claritev Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Todd Friedman, Head of Investor Relations. Todd, you may begin.

Todd Friedman: Thanks, Rob. Good morning, everyone, and welcome to Claritev's Third Quarter 2026 Earnings Call. Joining me today are Travis Dalton, President and Chief Executive Officer; and Doug Garis, Chief Financial Officer. During our call, we will refer to information included in the supplemental slide deck that is now available on the Investors portion of our website, along with the third quarter 2026 earnings press release that was issued earlier this morning. Our remarks and responses to questions today include forward-looking statements. These forward-looking statements represent management's beliefs and expectations only as of the date of this call. Actual results may differ materially from these forward-looking statements due to a number of risks.

A summary of these risks can be found on the second page of the supplemental slide deck and a more complete description in our annual report on Form 10-K and other documents we file with the SEC. We will also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Claritev's underlying operating results. An explanation of these non-GAAP measures and reconciliations to their comparable GAAP measures can be found in the earnings press release and in the supplemental slide deck. With that, I'd now like to turn the call over to Travis.

Travis Dalton: Good morning, and thank you for joining us. Let me start by saying it was another strong quarter for Claritev. Simply put, we are delivering on the turn and the way up. Our horizontal product and vertical market strategy is working. Revenue and adjusted EBITDA are ahead of guidance. Our growth teams are focused on execution, delivering ACV bookings across all verticals, and we are accelerating our innovation efforts to elevate how we serve our clients and deliver meaningful, measurable value. This progress was evident at our recent Claritev Client Conference. We are gaining momentum and the attendance, participation, and enthusiasm are building year-over-year. I will share more about this event later in the call.

Doug will provide more detail on the full financial results and our outlook, but we are a full year ahead of the plan that we laid out at our Investor Day earlier this year. On today's call, I'll cover a few key topics. First, our third quarter results and what is driving our success. Second, the innovation and market growth happening across Claritev, including surprise build services momentum, recent new product launches, and our progress on AI. Finally, the strength of our competitive position and why we believe we are in great shape for a breakout 2027. Let me start with the results. Bookings, revenue, and adjusted EBITDA all exceeded our expectations.

Our performance reflects the same fundamentals we've emphasized throughout the year, listening to our clients, focusing on their needs, and delivery excellence -- we keep our promises. This has allowed us to build on the trust we have with our clients and competitive advantages to diversify revenue growth, strengthen our vertical go-to-market strategy, and produce more product enhancements and features than ever before. It is clear that Claritev solves real and meaningful problems facing employees and constituents of healthcare. The clearest indicator of our momentum is bookings. We booked $27 million in ACV in the third quarter, bringing our year-to-date bookings to more than $100 million. We expect to finish 2026 with approximately 80% ACV growth over last year.

Importantly, that growth is increasingly diversified. Bookings and pipeline are growing across every vertical market, reducing our reliance on any single market. While payer remains an important part of our business, public sector, provider, and TPA are all making meaningful contributions. We added 5 new client logos in the quarter, bringing our 2-year total to 46 net new clients, giving us growth from new relationships as well as deeper partnerships with existing clients. Our renewed focus on the TPA space is delivering results, and our overall pipeline remains strong and well-balanced across vertical markets.

One of the most critical elements of our long-term vision is the diversification of our revenue base, and these results provide validation that our strategy is working and clients are turning to Claritev for more of their critical needs. Last quarter, we spoke about Surprise Bill Services in the federal NSA business. NSA was once again a key driver in our outperformance, and we expect that tailwind will persist. Dispute initiations were up 75% in Q3 over the same quarter last year. We continue to invest, focus, and apply our considerable talents and AI expertise in this area, which has allowed us to deliver 8% better performance than the industry average. Simply put, nobody does this better.

I'm pleased with our performance and have great confidence that our growth teams will continue to perform and deliver a very strong close to our sales year to launch us into 2027. The innovation and expansion of our solutions and growing client momentum was on clear display at our annual Claritev Client Conference, which we held 2 weeks ago in Nashville. More than 100 clients joined together to hear about our vision and discuss the value Claritev is bringing to them. Most importantly, the event provided the opportunity for our team to hear from our clients on the issues and challenges that are most important to their businesses and their members.

We introduced a Medicare Advantage offering, bringing together more than 15 existing solutions across payment integrity and network to better support health plan clients serving the market. We also showcased a number of new innovations, leveraging AI to improve the value we deliver, including transparency-based pricing, our newest Claims Intelligence offering and Claritev Healthcare Intelligence, one of our first examples of AI-native development. Transparency-based pricing combines massive sets of publicly available MRF data that is ingested and standardized using AI-enabled processes with our proprietary reimbursement intelligence to provide unique claim-level reference points.

Some clients prefer to use an approach built off of the MRF data sets, and this is yet another option that offers flexibility for our clients when evaluating with our Pro Pricer tools, the insights methodology that best suits their client needs. More tools, more flexibility, more opportunity to serve employees. Claritev Healthcare Intelligence is a platform with a built-in AI agent who we call Clara, that provides greater insights, cost trends and drivers to better visualize and anticipate the critical insights that most impact a client's business. Historically, this type of analysis required weeks of manual work across disconnected data sources.

We applied AI to the data we already have for our clients to put those insights into their hands in real-time. This is an example of what only Claritev can do and what we have been saying on this call. We have trust, data, workflow, and years of expertise to give us a clear advantage in bringing solutions to the market. We'll be sharing a demo with you of Clara in a few weeks to give you a sense of the innovation that our clients witnessed at the conference. Together, these new solutions demonstrate how we are strengthening our core business, expanding into new market opportunities and bringing meaningful innovation to our clients.

There are also examples of our AI strategy, bringing together our decades-long claims expertise with AI-based data science and machine learning models to create new value for clients and new growth for us. None of this works without the foundation we have spent the last 2 years building, organized data and modern cloud workflows, harnessing our domain expertise. We see a powerful opportunity to create agentic workflows at lightning speed that can answer almost any challenge our customers face across all of our solutions. Today, we already have dozens of agents in production across the company with many more in progress. Each one is built to take on a specific high-value task inside our workflow, and they are delivering results.

However, AI is only as powerful as the data, expertise and the trust behind it. That is where Claritev stands apart. I'll close with a few broader macro and landscape comments. The challenges facing access, affordability, and transparency persist. We are uniquely positioned, and it's, in fact, our mission to address these pressing problems. The need to tame medical inflation and rising costs has never been greater, and we play an important role in tackling these challenges across the health care ecosystem.

I also think there is a real opportunity to change how solutions are scaled and bought in this segment of the market, giving operating expense savings to our clients that can then be passed on in the form of cost reduction to employees. Continued innovation and scale advantage can make an impact on costs over time. We bring more than 4 decades of experience. We're a public company, transparent and committed to long-term investments for our clients. We are not a widget or a point solution looking for an exit or a home. We offer proven solutions for our clients. In healthcare, those long relationships build trust.

When you combine that trust with the ability to operate at scale and invest aggressively in AI and innovation, clients will turn to you to solve newer, harder, and more complex problems. This is what is ultimately driving our results and innovation agenda. We are laser-focused on access, claims intelligence, protecting employees, and bringing insights. Finally, let me close by saying, we have used the words clarity, alignment, focus, and journey when describing our company, and others have called this a turnaround story. I think our Q3 results and the preliminary color we are providing on 2027 can only be described in one way: Claritev is a growth company.

Our performance last year and forecast for the rest of '26 and into '27 demonstrate without qualification that we are solidly on a durable growth trajectory. It is evident in our numbers, it is evident in our culture, and it is evident in our confidence. Our competitive position has never been stronger. We're excited about a strong fourth quarter, and we are carrying that momentum into 2027. With that, I'll turn it over to Doug, to walk through the financials in more detail.

Doug Garis: Thank you, Travis, and good morning, everyone. In Q3, we once again outperformed our internal expectations for revenue, adjusted EBITDA and free cash flow, and we remain on-track to deliver against the multiyear financial targets we outlined at Investor Day. I'll provide a few highlights on how we're thinking about 2027, but the punchline is we're running about a year ahead of the financial plan targets we outlined in March. Total revenue in the quarter was $268.3 million, up 9.1% year-over-year and 4.2% sequentially, well ahead of the roughly flat sequential cadence we suggested on our last call. This marks our sixth consecutive quarter of year-over-year revenue growth and our highest quarterly revenue in 17 quarters.

Keep in mind that we have previously disclosed $18.6 million of non-recurring revenue last year that passed through adjusted EBITDA at nearly 100% margin with $5.4 million in Q3 and Q4. Our year-over-year comparisons are not adjusted for that impact. Revenue outperformance was once again driven by our largest business, Claims Intelligence, which grew 17.1% year-over-year, primarily reflecting incremental NSA volumes associated with an early '26 client win. Our Network business declined 5.6% year-over-year, primarily due to the $5.4 million of non-recurring revenue previously mentioned. Payment & Revenue Integrity is running slightly behind our internal plan, and the decline is due to the transition of the legacy clinical negotiations business as clients adopt more of our Claims Intelligence solutions.

This transition has more than offset the revenue ramp from newer solutions, including our Advanced Code Editing or ACE software. As we've stated previously, we remain confident in the medium- and long-term prospects for the business, and we expect to return to growth in '27. Turning to underlying claims trends, which are reflected on Slide 17 and 18 of our supplemental deck. We continue to see healthy activity across our platform. PSAV claims volumes increased 8% year-over-year and were flat sequentially. Importantly, submitted charges grew 15%, reflecting both medical inflation and changes in the mix of services delivered. We continue to see meaningful activity across inpatient and outpatient care settings, including emergency, surgical, and specialty services such as behavioral health.

As the value and complexity of claims evolve, so does the opportunity for our technology and clinical expertise to identify savings. This is evidenced in identified potential savings per claim increasing more than 13% year-over-year, reinforcing the value we deliver to our clients, who in turn are delivering value to employers and consumers and which is ultimately captured in our PSAV revenue. Adjusted EBITDA was $162 million, up 4.4% year-over-year and up 4% sequentially. Adjusted EBITDA margin was 60.4% compared with 63.1% in Q3 of last year. I'll also note that Q3 represented our highest quarterly absolute dollar adjusted EBITDA in 16 quarters.

Through the first 9 months, revenue was $770.5 million, up 7.2% year-over-year, and adjusted EBITDA was $464.7 million, up 3% with a margin of 60.3%. As we exited Q3, our trailing 12-month or TTM revenue exceeded $1 billion for the first time since Q1 of '23, more than 3 years ago. This represents an important milestone and further evidence of the strength of Claritev's growth engine as we sprint into next year. Moving to cash flow. As a reminder, Q1 and Q3 are typically cash consumption quarters, while Q2 and Q4 are cash-generating quarters, a pattern we expect to continue under our current capital structure given timing of debt and interest payments.

In Q3, we generated $18.1 million of operating cash flow and had a use of $25.8 million in free cash flow, with capital expenditures net of proceeds from disposals of $43.9 million. Unlevered free cash flow was $104.4 million with adjusted cash conversion of 64.5%. For the first 9 months, operating cash flow increased 27% to $65 million and unlevered free cash flow increased 16% to $230.7 million versus prior year. Our 9-month adjusted cash conversion improved to 50%, up 6 percentage points from 44% last year. We remain well on-track to deliver greater than 50% cash conversion for full year '26. We ended the quarter with $10.1 million of unrestricted cash and $95 million drawn on our revolver.

Our net leverage ratio improved to 7.7x, a 0.1 turn improvement compared with Q3 '25. Turning to bookings. Travis hit the highlights, but I want to emphasize how our strong bookings performance also reflects the diversification in our business that we've built over the past few years. In Q3, we booked $27 million of ACV, bringing year-to-date bookings to more than $100 million compared with $67 million for the full year '25. Notably, 78% of our year-to-date bookings came from our existing client base and more than 50% of our bookings have come from other verticals outside of our core payer market.

This included 26% from the TPA market and another 25% from our newer markets, primarily -- provider, public sector, and international. We now believe we will deliver ACV bookings of $115 million to $125 million for the full year, which represents 70% to 90% growth over '25. As a reminder, new bookings typically take 2 to 4 quarters to begin to convert to revenue, followed by another 4 quarters to reach their full annualized revenue contribution. Turning to guidance. Given the strength of Q3 and our outlook for Q4, we are raising our full year revenue guidance to a new range of $1.038 billion to $1.043 billion, a $30.5 million increase at the midpoint from our previous guidance.

Our updated guidance implies full year revenue growth of 7.5% to 8% with Q4 revenues of $270 million at the midpoint. This represents a low single-digit sequential increase over a particularly strong Q3 and a 9.5% growth over Q4 '25. Keep in mind, Q4 last year included the final $5.4 million of onetime revenue at 100% margin. We are raising our full year adjusted EBITDA guidance to $625 million to $630 million, an increase of $12.5 million at the midpoint. We are also raising free cash flow guidance to $10 million to $20 million, up $5 million at the midpoint and tightening our capital expenditure guidance to $165 million to $170 million.

I'll note that the combination of high single-digit revenue growth and adjusted EBITDA margin above 60% brings us meaningfully closer to our long-term objective of becoming a Rule of 70 company. I want to turn for a moment to Q4 and our full year free cash flow expectations. We said at the beginning of the year that returning to positive free cash flow was our management team's Number 1 financial priority. Based on our performance through the first 9 months and our outlook for Q4, we remain firmly on-track to deliver on that commitment.

In Q4, we expect operating cash flow of $110 million to $120 million with growth of 66% to 81% year-over-year and free cash flow of $74 million to $84 million with growth of 103% to 131%. This would mark our first return to more than $100 million of quarterly operating cash flow in several years alongside what we expect to be our strongest free cash flow generating quarter in more than 4 years. Before turning the call back to Travis, I want to briefly address our initial outlook for '27, which we've included in today's press release. As I mentioned earlier, we're running about a year ahead of the financial plan we laid at our March Investor Day.

Our multiyear outlook at the time contemplated $1.1 billion of revenue in 2028. We now expect to achieve at least $1.1 billion of revenue in '27, driven by our strong performance this year, continued momentum in ACV bookings and the ability of our growth and operation teams to translate those bookings into revenue. It's only November 9, and we still have important work ahead of us to finish the year and finalize our plans for '27. We intend to provide more comprehensive adjusted EBITDA and free cash flow guidance, along with a more detailed revenue bridge when we report Q4 results in February.

We're operating with confidence in our revenue trajectory and expect to deliver another year of meaningful financial progress in '27 while maintaining a high [ SAU ] ratio. As Travis said earlier, Claritev is no longer simply a turnaround or transformation story. We are a growth company with a significantly stronger financial foundation and the capacity to continue investing in the opportunities that lie ahead. With that, I'll gladly turn the call back over to Travis, for a few final remarks before we take your questions.

Travis Dalton: Thanks, Doug. I'll close with a few brief thoughts. We said at the start of the year that we would deliver on our promises. And through 3 quarters, we are doing exactly that, record bookings, consistent revenue growth, expanding markets, and real innovation in front of our clients. Our priorities remain crystal clear: continued growth and investment in our core, diversification of our revenue base into new markets, free cash flow and de-levering the business. Finally, I want to thank our 3,000 Claritev associates for their dedication and commitment to our clients. None of this happens without them. With that, I'll turn it to the operator for questions. Thanks.

Operator: [Operator Instructions] Your first question today comes from the line of Jason Cassorla from Guggenheim Securities.

Jason Cassorla: Congrats on the quarter. I appreciate the early look on preliminary 2027 revenue. I guess, can you just give us a sense of how you're thinking about the puts and takes around growth at the segment level? And then perhaps any early indication on the balancing items like gross revenue retention and how you're thinking about kind of organic or in-client currently versus like ACV-related contribution? Just any incremental thoughts would be very helpful.

Doug Garis: Jason, thanks, and thanks for the sentiment. So I think we outlined in our prepared remarks that we wanted to give some indication of the top line. I mean, we are running pretty firmly ahead. We did also mention that we expect Payment & Revenue Integrity to return to growth. Our Network business would be up about 5% if you excluded the onetime revenue this year. And quite frankly, our Claims Intelligence business has been -- our largest business has been performing exceedingly well. We're going to hold off further guidance for now. We need to finish the year.

But I would expect -- I think the biggest thing to intuit is in the prepared remarks, we expect our Payment & Revenue Integrity business to return to growth next year.

Jason Cassorla: Okay. Got it. Very helpful. And then maybe just a quick one on CapEx. You narrowed to the high end of the range previously. I guess just was that simply a pull forward versus what you had expected to spend for next year? And then maybe if you can provide any early CapEx priorities you have for next year, if you would expect kind of like similar spending levels or how to balance what you've spent this year against kind of your run rate going forward would be helpful.

Doug Garis: Yes. I mean, for us, for '26, we just narrowed the guide. We feel really comfortable about our multiyear investment framework in our Vision 2030 transformation. And look, in '25, when we announced our transformation, R&D as a percentage of revenue was about 16.5%. That's going to trend down to about 16% this year, and that will continue to improve over time. We have one final chunk of investment in our previously announced transformation program. But as we outlined in our Investor Day, we expect the return on capital expectations of the transformation program to be strong.

And then we expect our R&D as a percentage of revenue to start to normalize, and we expect to get some of that leverage next year. So that's about all I'm going to say on the CapEx priorities for '27. And of course, we'll give a more fulsome bridge when we do our full year guide in February.

Operator: Your next question comes from the line of Richard Close from Canaccord Genuity.

Richard Close: Congratulations on the strong results here. Doug, maybe just on the Payment Integrity, I appreciate the return to growth next year. Can you talk a little bit about maybe the ACV or bookings so far this year? Or what is really providing that confidence? And then maybe why has it underperformed in the quarter?

Doug Garis: Yes. So maybe I'll take the second one first. So we have a clinical negotiations business that is within our Payment & Revenue Integrity segment. We've had some clients kind of move over to our Claims Intelligence solutions, which are embedded in our Financial Negotiations business. This is pure geography. The Clinical Negotiations business is about 1/3 of the Payment & Revenue Integrity business. So while in the grand scheme of things, it's not an overall net large impact to our consolidated revenue. It does have an outsized impact on the segment.

And look, over the last 4 quarters, we booked north of $40 million of ACV in our Payment & Revenue Integrity business, and those were primarily in our higher-value categories and some of our newer solutions. I think only 20-ish percent of that has converted into revenue. So we have great insight into '27 and beyond in the Payment & Revenue Integrity business, and we're fairly bullish on the medium- to long-term prospects of that business.

Richard Close: Okay. That's really helpful. And then maybe on, I guess, the last point in terms of the 20% conversion, how do you guys think about as you expand, I guess, outside the payer segment in terms of does that change anything with respect to the 2 to 4 quarters that implement and 4 quarters to fully ramp to the full revenue? Does the bookings conversion to revenue change at all?

Doug Garis: No, not really. So the mix of bookings, so I would just say, if you look at kind of some of our additional beat this year, some of our solutions, we can turn on fairly quickly, especially within Claims Intelligence, where we already have an installed base. I'd point you to our year-to-date bookings, about 78% of the $100 million we booked has been within the current installed base. And so Payment & Revenue Integrity solutions tend to take a little bit longer to turn on and realize full value, especially with the net new install.

And when you look at Network, for instance, with our World Trade Center win, it took us about 3 quarters to build all the requirements with our primary on that. And so the 2 to 4 quarters is a good blended assumption. I would say the overperformance of our Claims Intelligence business and the ACV to revenue conversion has been a bright spot for us this year. But on balance, 2 to 4 quarters is still kind of our planning assumption.

Operator: Your next question comes from the line of Jessica Tassan from Piper Sandler.

Jessica Tassan: So PSAV claims volume was stable quarter-over-quarter and up about 8% year-over-year. I appreciate that you all are launching a new NSA customer, but can you kind of help us better understand the normal quarterly seasonality for PSAV claims volume and whether your expectations for long-term claims volume growth have changed at all in light of recent strength?

Doug Garis: Yes. So thanks for the question, Jess. So the NSA business has been a bright spot for us this year and the growth year-over-year is primarily due to the NSA business. In fact, our NSA volumes grew sequentially as well, and we're still taking some time to understand the new rule changes. So it's kind of hard to give you an outlook on the next few years, which is why we're saving more detailed guidance on revenue for '27. And look, when we gave our Investor Day, we felt pretty good at the Out-of-Network business being 7% to 8% of all dollars. We kind of planned for modest claims volumes.

We're 2 to 3 points ahead of where we planned, which is why we raised the guide. But the growth and progression of Out-of-Network is a business that we feel really good about, and it's 2/3 of our business. Claims volumes, I think, will continue to be stable. And that's how we've modeled it in our multiyear outlook with the exception of the NSA win, which has obviously given us the uplift on revenue.

Jessica Tassan: Okay. That's helpful. So we should think about the uplift as being the product of this new NSA customer. And then just maybe my follow-up is, can you elaborate on the contraction in Payment & Revenue Integrity year-over-year and sequentially? Just -- is this business growing or flat, excluding the one customer you mentioned? And then maybe just what does this transition involve? When did it commence? And what is the benefit to Claims Intelligence in 3Q from that transition?

Doug Garis: Yes. So the business, excluding the clinical negotiation business was about flat this quarter. And I just -- Richard had asked a question, we feel really good about the medium- and long-term prospects of the business, especially in our solution areas that have, quite frankly, grown substantially over the last 4 to 6 quarters, namely our DRG and ACE solutions, which are prepay, more valuable Payment & Revenue Integrity solutions. Our financial negotiations and clinical negotiation business have similar operations, and there's probably a 1.5-point to a 2-point benefit to our Claims Intelligence business from some of that switching.

So it's not isolated to one client, more of a preference, but the Claims Intelligence business is where some of that volume or some of those revenue dollars were captured, not as significant to Claims Intelligence because it's about 6x or 7x the size, but obviously meaningful from a segment perspective when you break it out. And then the final point I would add is on the bookings and revenue conversion, we expect that business to return to growth going forward, and we're pretty excited about the prospects. I think maybe, Travis, you have a couple of comments, too.

Travis Dalton: Yes. I was going to make just a slightly broader comment. I think a huge positive for us is the forward indication relevant to our bookings and pipeline. So one of the big goals really since we launched into our Vision 2030 was diversification of markets, using our product capabilities to the fullest and expanding that into new markets. So as you look at our bookings for the year, it's not occurring in a single market vertical, which would be payer. It's spread across multiple. In addition to that, our pipeline growth is significant. So we're about 60% year-over-year on pipeline growth and less than half of that is coming from the "payer market", and we have 46 new logos.

So as we kind of evaluate our future, we actually see a more durable path for us relevant to the markets we serve, claims volumes, the resiliency of the business and our ability to press forward and move forward on a growth trajectory. I think that's an important note for us as we progress. So I'll just add that as we go to the next question.

Operator: Your next question comes from the line of Glen Santangelo from Barclays.

Glen Santangelo: Travis, I also wanted to follow-up on the outperformance in the Claims Intelligence business. In sort of your prepared remarks, you obviously talked about the NSA and the key driver it's been and you're making the case that it's going to persist. But I was kind of curious if you could maybe unpack that growth a little bit more and how much came from that incremental new customer to help us think about what the real organic growth rate is here, so we can think about the durability.

Because looking at the initial guidance that you've given us for fiscal '27, and assuming we get growth in Payment & Integrity and Network, I mean, that assumes a pretty sharp deceleration, I would assume, in Claims Intelligence. And I'm just trying to put all these pieces together. And then, Doug, my follow-up question would be on the margin side. We typically think about Claims Intelligence as being an above-average margin business. And when we look at sort of gross margins down this quarter, higher operating expenses maybe for reasons we know about, how should we think about the margins going forward into 2027, if Claims Intelligence is going to continue to be the fastest-growing business?

Travis Dalton: Yes. Thanks, Glen. I think there are a few questions in there. So we'll do our best. Look, let me just make a high-level comment, and I'm going to let Doug talk about some specifics there. Actually, we have a lot of room to go when I look at this. So what I think about in terms of our growth thesis is I do think that NSA, obviously, is core to our growth right now. And we expect to continue to be.

I actually think in healthcare, there will be continued movement of care outside the 4 walls, which will continue to sustain Out-of-Network claims and Out-of-Network claims volumes over time in addition to what you may or may not see with NSA, which we think will continue to be a driver for us. So NSA claims volume a driver, the movement of healthcare outside the 4 walls into behavioral health and other areas as a higher savings environment is important for us on the macro. I'll also just say that if you look at the core business, I think that beyond that, I'm really excited. Look, we have room to go.

We're not just looking at this going, man, I hope we can squeeze one more tiny out of a claim. You look at the business PRI, we're just getting started in that business. And our bookings pipeline and bookings growth have been good. Now we have to turn that into revenue, right? So we're going to be laser-focused on execution against the TPA business, which has a lot of Payment & Revenue Integrity sales in it into revenue. So I would look for us to improve there, and that should be an indicator for all of you as we progress forward. And that will be an important area for us. And then MA, we mentioned MA on the call.

We're involved with almost all of these clients providing MA plans, and we just haven't packaged a solution that's marketed and meaningful enough to them yet to get what I would consider to be meaningful progression in that business. So aside from NSA, aside from pure Claims Intelligence, which we expect to be durable and consistent and we'll continue to find value per claim, we actually are going to go attack these other markets around PRI, which we have great products, and we're not well-known for and we should be. And we're going to go and attack other areas that I just mentioned.

So that's a broad brush of what you might be able to look for and how we're thinking. Then I'll let Doug hit a couple of specifics relevant to your questions on volumes and numbers.

Doug Garis: Yes. I would say -- I think a couple of the biggest highlights that are maybe the undercurrent is our charges submitted to us were up 15% year-over-year. Our savings rate, our ability to capture savings on higher charges went up. And then our PSAV savings dollars eclipsed $5 billion for the first time in, I don't know, maybe 4 or 5 years. on top of delivering more than $1,500 of savings per claim. And so the mix has been our friend. We've helped our clients offset inflation. And as you correctly pointed out, I mean, it boded well for our largest and most profitable business.

I would also highlight you to the fact that when we started the year, we indicated that we would invest purposely $20 million to $25 million in our sales, marketing, our go-to-market as well as our delivery functions. We feel like those are good investments. And if you look at the proof, you need to invest money to deliver $100 million bookings. And so we really like the investment. If you look at the business on a comparable basis, and roll it forward, our medium- to long-term outlook here is to run a Rule of 70 company. And so we're willing to invest money to diversify the business.

If you look at what we've booked so far this year, more than 50% of it has come outside of our core business. And as Travis indicated, our goal is to run a diversified, durable, and increasingly financial strong business. We will save follow-on comments for '27, and we will give a little bit more details on each of the segments to help you guys unpack that. But across the board, I think the punchline for us is this was a banner quarter, a breakout quarter, and we couldn't be more pleased with the financial progress of this company.

Operator: Your next question comes from the line of Stan Berenshteyn from Wells Fargo.

Stanislav Berenshteyn: First, maybe on AI. I think you had mentioned in the prepared remarks or in the press release that agents are doing a bit more of the workflows. Can you just discuss -- maybe give us some examples of what that entails? And does that translate into any changes into the size of your financial negotiation team as we think about next year?

Travis Dalton: Yes. Stan, thanks for the question. Yes, I can sit here and say AI 30 times, like a lot of people do on calls. But to me, it's a tool that enables us to better serve our clients. So we're obviously prioritizing and deploying our AI agents, specifically around NSA, which I mentioned. So we have projects inside the company that will allow us to more quickly evaluate and modernize the work that we're doing inside of the company. So we expect to be able to generate more positive returns for our clients, frankly, in terms of protecting employees and employers, but we also think that we can gain operating efficiency inside of the business.

We still have areas of the business that are highly manual in nature in terms of intake, in terms of how we process claims, in terms of how we do things internally. And so AI is a very key priority for us as we think about how to get more efficiency and how to ultimately truly unlock the potential of the company on a multiyear basis to get more operating leverage across the business as we proceed forward. And so I've given a few examples around NSA. There are others inside the company. We're using it in our sales processes and how we better identify leads and target those.

And we're really using it at this point as almost across the entirety of our business and everything we do every day. And I'll just make one editorial comment and let Doug comment. I think the key to the use of AI is not going to be the use of it, but working on the right things. And so we have put a lot of focus and energy on things internal to the company that may not be obvious relevant to an earnings call, but are very obvious when you look at our results. And moving to a segment strategy that has a general management solution organization allows us to target the right priorities.

And so that's why we changed the structure of the company so that we could get much flatter, better alignment for our segment leaders who have -- hear the needs of our clients to our general managers that ultimately produce the solutions and capabilities against that. And so lining that up against our priorities is allowing us to move much faster and which, again, the last thing I'll say is you have to because the competition is out there. We know that. Our clients are out there. And the next big thing is always there, and we have to go find it first. And so it's imperative that we apply our resources in a very specific prioritized way.

So those would be my comments on AI and how we're thinking about our focus. And Doug, if you want to jump in.

Doug Garis: And just on the financial elements, look, we're not going to give specific comments on any line of business and headcount. What I would say is we take a very circumspect look at AI. We have a great AI organization within our Chief Digital Officers team. We have 4 dozen AI scientists. We're working on dozens of important things. And we have a very great way to make sure that there's an economic return on where we're investing our dollars. It would be natural to expect 1 or 2 outcomes from our investments in AI. We do a whole lot more with less or we going to do an order of magnitude more with the same amount of folks.

In our Q1 earnings call, we said 53% of our code in Q1 was delivered using AI. We had also said in Q2 that was going to be between 60% to 80% by the end of the year. And we have a large organization that is spending a lot of money on R&D. I would continue to think about our progression and our R&D to scale over time and then our organization to be able to do a whole lot more with less, and that's where we'll leave those comments.

Stanislav Berenshteyn: Appreciate the color. Maybe as a follow-up on IDR volumes, I believe in August, I think you had mentioned maybe you need a couple of quarters to really see whether there's a volume uplift from the IDR rules. Did 3Q show any changes in eligible volume? And can you maybe talk about win rates and economics related to that?

Doug Garis: Yes. So I think we do formal releases when CMS publishes their data. So what I would say is claims volumes were up sequentially in NSA. It's part of the reason why our Q3 results were strong. and why we raised our guide $30.5 million at the midpoint. It's still taking a little while for the final rules to settle in, but we remain positive that we are a market leader in our category and the value we deliver to our clients is exceptional, and we're getting rewarded for it for additional volumes.

Travis Dalton: Stan, I'll repeat it. I'll repeat the data point we actually gave in the prepared remarks. Some of this is related to the clientele, but our dispute initiations were up 75% year-over-year over Q3 of last year.

Operator: That concludes our question-and-answer session. I will now turn the call back over to the company for closing remarks.

Travis Dalton: Yes. I'll just close out very briefly. Thanks, everyone, for the time. As I mentioned, we've been on a journey. We're proud of the progress we've made. At the end of the day, it's about our people, and we have to prove ourselves every day. So second this call is over, we're back to work for our clients. So thanks for your time. Thanks for listening, and I appreciate the questions and the attention. Thanks.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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