Evolent Health, Inc.

Welcome to Evelyn Health's earning conference call for the quarter ended June 30, 2020. As a reminder, this conference call is being recorded. Your host for the call today is Mr. Frank Williams, Chief Executive Officer of Evelyn Health. This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section entitled Investor Relations. Here are some important introductory information. This call contains forward-looking statements under the U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience of present expectations. A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission including cautionary statements included in the current and periodic filings. For additional information on the company's results and outlook, please refer to the second quarter news press release issued earlier today. As a reminder, reconciliations of non-GAAP measures discussed during today's calls to the most direct comparable GAAP measures are available in the company's press release issued today and posted on the investor relations section of the company's website IR.EvelynHealth.com in the 8K filed with the company with the SEC earlier today. At this time, I will turn the call over to the company's Chief Executive Officer, Mr. Frank Williams.

Thank you and good evening. I'm Frank Williams, Chief Executive Officer of Evelyn, and I'm joined by Seth Blackley, our President, and John Johnson, our Chief Financial Officer. First and foremost, I hope you and your families are all staying safe and healthy during what I know has been a difficult time for many. I'll open the call this evening with a summary of our recent financial results, as well as an update on the market, our current pipeline, and overall performance across the Evelyn network. I'll then hand it to John to take us through a more detailed financial review of the second quarter, And we'll close with an update on our organization and a summary of our key business and strategic objectives for the year. As always, we'll be happy to take questions at the end of the call. In terms of our results for the quarter, total adjusted revenue for the quarter ended June 30, 2020, increased 24.2% to $238.6 million from the comparable quarter of the prior year. Adjusted EBITDA for the quarter into June 30th, 2020 was 9 million. As of June 30th, 2020, we had approximately 3.1 million total lives on the platform. And with two partner additions in this quarter, we've welcomed five new partners to the Avalon National Network already this year. Overall, we're quite pleased with our top and bottom line results for the second quarter. And based on the strong financial visibility we have on the third and fourth quarters, we expect to outperform the full year 2020 revenue and profit targets that we outlined at the beginning of the year. Accordingly, we now anticipate delivering over 30% revenue growth in our service business for calendar year 2020. In addition, this past quarter, we continue to make solid progress on our margin enhancement initiatives and achieved an important goal of becoming cash flow positive ahead of our previous timing estimates. In terms of our ongoing response to COVID, the good news is that the initiatives that we put in place earlier this year have set us up well to support our partners comprehensively as the pandemic evolves into the fall and next year. In particular, our efforts to enhance our predictive risk stratification models as well as honing our care management outreach to incorporate social determinants of health for chronic condition patients, has had a meaningful impact on health outcomes for the populations that we serve. Our population health infrastructure serves as an important tool for our partners to manage community health in a comprehensive and integrated way. As the pandemic is, of course, an evolving and unprecedented situation, we continue to closely monitor each of our businesses and geographies, to ensure we're well prepared to address any significant issues should they arise. Lastly, as we shared several weeks ago, we're pleased with the agreement we're able to reach in the sale of certain assets of Passport Health Plan to Molina Healthcare and anticipate the transaction closing before the end of the year. We are heartened to see continued strong performance at Passport, including the plan's 1.9% operating margin across the last 12 months through June of this year. This has been a significant achievement since the retroactive rate cut from the Bevin administration went into effect and has represented a 14-point margin improvement since Q1 of 2019. Looking back at our key strategic and financial goals coming into 2020, we believe we're well on our way to accomplishing our most important objectives. First, we wanted to establish a diversified growth strategy across our total cost of care specialty care, and administrative solutions, which could serve the payer, physician, and provider markets. This has effectively expanded our addressable market to well over $130 billion, while diversifying our customer base substantially and setting up a differentiated strategy to drive consistent growth in the years ahead. Second, we were focused on delivering strong, immediate organic top-line growth in 2020. Delivering organic growth of close to 25% year-over-year this past quarter is evidence that our revenue strategy and that our solution offering continue to be well received in the marketplace. Third, we wanted to ensure a successful outcome from our work and investment in Passport. Across the last 18 months, we've delivered a 14-point turnaround in margins and strengthened the balance sheet significantly. Our collective effort established Passport as an attractive asset from Lena entering the Kentucky market and ensured that the brand and unique clinical approach will continue for several years to come. The transaction also provides continuity for the community, employees, and for members. Should Passport maintain its current performance into the second half of the year, we may also have an opportunity to generate a substantial return on our invested capital in the plan while also maintaining ongoing service revenues in Kentucky. All in all, a good resolution given the political dynamics with the previous administration. Fourth, we focused on driving demonstrable clinical and financial results for our partners. And as I'll touch on later, in outcome studies of our engaged members versus control groups, our clinical programs are delivering meaningful reductions in hospitalizations and total costs, as well as improvements in quality of care. It's this ability to drive tangible results which has led to growth within our network as well as new partner additions, including some of the most sophisticated national payers. Lastly, our continued focus on efficiency and cost improvement has led to margin expansion across this year and has allowed us to meet our objective of generating positive cash flow this past quarter ahead of our original timing estimates. Positive cash generation, as well as strong returns from the passport transaction, will continue to strengthen our balance sheet as we head into next year. Before providing a summary of the pipeline and some operational highlights, I'd like to provide an update on the overall market environment. Obviously, the pandemic has impacted geographic regions in different ways. At the time of our last call, there were much fewer COVID cases and fatalities in Texas and Florida and now the bounce back has reached crisis level in those states, which is putting significant strain on local healthcare systems. We're adjusting our response in terms of regional severity and looking to enhance the pace and reach of our clinical support efforts, particularly for the most vulnerable patients. From a macro perspective, we believe the impact on the overall economy, including pressure on state, federal, and employer budgets, will likely cause purchasers of healthcare services to enhance their focus on cost and value. We believe this will allow for opportunities to expand our payer and provider partner base as industry players look for value-based arrangements to diversify their revenue models and reduce healthcare spending growth. As we think about how this might translate to our core solution areas, we believe this market dynamic aligns well with New Century's value proposition and ability to deliver cost savings and quality care in a short period of time. We believe that's one of the reasons we're seeing strong pipeline momentum in this specialty care management area. On the total cost of care management front, we feel that the market impact is positive on a medium-term basis as CMS continues to roll out pathways to success, direct contracting, and other programs. We're hearing from a number of organizations about the importance of having a dual financial model, including fee and risk-based arrangements as a hedge against utilization and pricing risk on the fee-for-service side. Payers are also looking for provider partners that have the ability to manage delegated capitation arrangements, which can be an important driver of growth in this segment. On the administrative services side, we anticipate that regional payers will focus on operational platforms that integrate clinical and administrative capabilities, deliver demonstrable financial and operational improvements, and improve the provider and member experience. In terms of the pipeline, we remain on track with our projected range of adding six to eight new partners across the calendar year and maintaining renewal performance in line with last year. We're excited to announce two new partners this quarter, which brings us to five for this calendar year. The first is with a regional health plan based in the Southeast. New Century Health is fully launched and providing comprehensive oncology and cardiovascular management services to our partners, roughly 20,000 Medicare Advantage members, and we look forward to exploring opportunities to expand the partnership over time. Second, we're also very excited to enter into an agreement with Molina, a national payer with a broad market presence, and strong track record of delivering high-quality service to well over 3 million members across the U.S. Molina will leverage New Century's specialty care management services for cardiovascular care to support Medicaid plan members in Kentucky. In addition, we're excited to announce that New Century will also provide cardiovascular care services to Molina's members in the state of Washington where Molina already has several hundred thousand members and a strong presence in the market. Molina plans to deploy NCH's CarePro technology platform, evidence-based pathways, and peer collaboration model in both Kentucky and Washington starting in early 2021. In collaboration with the team at Molina, New Century has an opportunity to improve health outcomes while also driving more efficient care for patients. Launching in two states represents an exciting opportunity, and we're hopeful it will continue to expand across time. It's our ability to ultimately deliver on our core value proposition across our three solution areas and drive results that led to the growth this year and that we anticipate over the long term. First, New Century Health is performing well in terms of driving provider adherence to its high-value, evidence-based clinical pathways, and is also highly focused on driving strong performance on key cost and quality metrics. In addition, I'm proud to announce a team recently earned NCQA accreditation in utilization management, which we believe is a credit to the team's operational expertise and the strength of our clinical knowledge base. On the Evelyn Health Services side, the team has continued to perform well operationally in terms of its key member services, provider support, and call center management activities after rapidly shifting and mobilizing resources to a remote model a few months ago. The platform's use of automation, machine learning, and AI delivers a strong value proposition and differentiated offering in easing the administrative burden for providers and driving efficiency through an integrated solution. The team is hard at work implementing its platform and services with our partner, Maryland Physicians Care, and we're on track to go live at the beginning of 2021 to support more than 200,000 Medicaid beneficiaries in Maryland. Third, our Evelyn Care Partners team continues to demonstrate a high level of performance in terms of driving engagement at provider practices improving patient engagement, and serving Medicare beneficiaries across the U.S. Our provider engagement strategy is made possible by having aligned incentives. We ensure that independent provider organizations are rewarded for the value that they generate and can thrive in value-based care. Our technology platform, Identify, also plays a critical role in supporting practices with addressing their highest impact opportunities across their panel. Because of our substantive experience working with Medicare patients across populations and regions, we know which clinical programs and approaches will result in the highest yield and impact on outcomes and cost. From Q1 to Q2, the team delivered a five times increase in successful patient engagement using Identify and our local engagement efforts with the provider network. In addition, Our analytics platform enabled us to identify unexplained variation in local practice patterns and partner with local physician champions to drive measurable improvement. These activities helped our physician partners to craft a high-value referral network to maximize cost and quality outcomes. Finally, our care management programs continue to be a staple of our approach for Medicare and Medicaid populations. Recently, Certain members of our clinical team published an article in the American Journal of Managed Care demonstrating the success of our care management programs. The study evaluated Evelyn's complex care program, which targets Medicare beneficiaries with multiple chronic diseases across five Medicare ACOs over a two-year period. The study found that hospitalizations were 21% lower and total medical spend was 22% lower for high-risk beneficiaries who participated in care management programs versus high-risk beneficiaries who did not. Additionally, reductions were more than 40% among high-fidelity patients, those for whom the program was able to achieve the operational KPIs that we manage to on a day-to-day basis. These are the types of results that drive significant value for payers and provider organizations through the ability to deliver high quality care and lower costs. We also believe the significant financial turnaround at Passport demonstrates the kind of value we can create when we bring our three core solutions together in a holistic population health approach. Overall, We feel very good about our performance thus far and are confident in meeting our key objectives for 2020. We feel well positioned in the market and in our ability to drive consistent growth. With that overview, I'll turn it over to John to speak about our financial performance on the quarter.

Thanks, Frank, and good evening, everyone. I hope you and your families are staying safe and healthy during this unprecedented time, and I thank you for joining us. Our second quarter results exceeded our expectations on adjusted EBITDA and cash flow, largely as a result of strong performance across our customer base, the strength of our performance-based arrangements, and our overall cost containment efforts. The strength of our operations also translates to being on track to outperform the high end of our previously stated guidance range for the full year. Before going through our detailed results, I wanted to give a brief update on the COVID pandemic and its impact on our financials, which is modestly net positive for Q2 and our revised outlook for the year. As discussed during our first quarter earnings call, we are monitoring the pandemic across all areas of our business, but in particular in the three areas of membership, medical utilization trends, and liquidity. On the membership front, through June, we have seen modest increases in Medicaid enrollments across select clients relative to the first quarter, consistent with macro expectations during the COVID pandemic. These enrollment increases ramped across the second quarter and thus were not a meaningful contributor to our top-line performance in the quarter. That said, with over 50% of our lives in Medicaid, the continued shift towards higher Medicaid enrollments would likely be a net positive for us. Turning to medical utilization trends, as expected, the disruption of care patterns nationwide during the quarter resulted in a reduction in overall medical utilization. This drove a modest net benefit to the economics of our performance-based arrangements in the quarter, as expected, with lower utilization partly offset by expenditures made to enhance the accessibility of our services during this important time. Overall medical utilization across the country has largely rebounded from April lows, suggesting that this dynamic is largely behind us. Finally, we have been focused on operational discipline with a priority on liquidity and financial sustainability, which resulted in a positive cash flow for the quarter ahead of our target date for reaching positive cash flow by this fall. We now expect to be cash flow positive for the full year 2020. Now let me take you through our results for the quarter before turning to guidance. Beginning with our consolidated results, Adjusted revenue increased 24.2% year-over-year to $238.6 million. Adjusted EBITDA grew to $9 million relative to minus $7.7 million in the same period of the prior year. Adjusted loss available to common shareholders was minus $2.3 million, or minus $0.03 per common share for the quarter compared to minus $21.4 million, or minus $0.26 per common share, in the same period of the prior year. Turning to our segment results, in our services segment, second quarter adjusted revenue increased 45.1% to $217.3 million, up from $149.7 million in the same period of the prior year. The increase was primarily driven by new partner additions and cross-sell expansions within our existing partner base. Adjusted platform and operations revenue accounted for $216.5 million for 99.7% of our total services revenue for the quarter, compared to 147.8 million in the same quarter last year. As of June 30th, we had approximately 3.1 million lives on our full services platform, which excludes members covered by our light service offering. Our average PMPM fee for the quarter was $22.12, compared to $14.16 in the same period of the prior year, and $20.22 in the first quarter of 2020. Adjusted EBITDA from our services segment for the quarter was $10.5 million compared to minus $8.8 million in the prior year. Turning to our true health segment, we had premium revenue of $25.5 million in the second quarter, down $20.2 million from the same quarter last year. The drivers of this decrease are twofold. First, year-over-year revenue is down due to exiting the reinsurance agreement with New Mexico Health Connections in the fourth quarter of 2019 and slightly offset by membership growth within the individual and federal employee markets. Secondly, lower medical utilization driven by COVID-19 restrictions year-to-date raised the potential that premium rebates could be due based on minimum medical loss ratio regulations in the state of New Mexico. As a result, an approximate $4 million liability was booked in the quarter. True Health served an average of approximately 24,000 members in New Mexico in the quarter, up from approximately 17,000 members in the same quarter of the prior year. Claims expense as a percentage of premium revenue was 71% in the second quarter compared to 73.1% in the first quarter. Adjusted EBITDA from True Health for the quarter was minus 1.5 million. As we discussed in our 10-K filed in February, Passport's unsuccessful bid in the Kentucky Managed Medicaid RFP indicated a triggering event that required us to perform interim impairment testing. As of May 31, 2020, we determined that one of the three reporting units in our services segment, the one which was most closely associated with the Passport services, had an estimated fair value less than its carrying value. This resulted in a charge of 215.1 million that does not impact cash or our forward financial projections. Turning to the balance sheet, we finished the second quarter with 115.2 million in cash and cash equivalents and investments, an increase of 28 million versus the end of the first quarter, and principally driven by our adjusted EBITDA results and efficient working capital management. During the quarter, cash provided by operations was 37.7 million. Cash used in investing activities was $7.6 million and principally comprised $6.4 million of capitalized software development expense. Cash used in financing activities during the quarter was $6.7 million and largely comprised decreases to restricted cash accounts held on behalf of our partners for claims processing purposes. Finally, as Frank mentioned, Passport Health Plan, which we account for using the equity method, continues to perform ahead of our initial expectations of an overall profitable year. Overall, we are pleased with our progress against our financial objectives for the year thus far. As Frank mentioned, based on the strength of our revenue growth coming into the year, the success of our cost containment efforts and performance in our performance-based arrangements with our partners, we now have strong line of sight into outperforming our initial adjusted revenue and EBITDA guidance for the year. As a result, we are updating our full year guidance as follows. We are forecasting total adjusted revenue of $995 million to $1.035 billion for the calendar year 2020. The components of full year 2020 adjusted revenue are as follows. We expect adjusted service revenues to be in the range of $900 to $930 million. We are forecasting true health segment revenues of $115 to $125 million. We are forecasting intercompany eliminations of minus 20 million. With respect to full-year adjusted EBITDA, we are now forecasting a range of 32 to 38 million. For the third quarter specifically, we are forecasting total adjusted revenue of 258 to 272 million. The components of adjusted revenue for the third quarter are as follows. We expect adjusted services revenues of 235 to 245 million We are forecasting true health segment revenues of 28 to 32 million. And we are forecasting intercompany eliminations of minus 5 million. For the third quarter, we are forecasting adjusted EBITDA of 10 to 14 million. With that, I will turn it back over to Frank.

Thanks, John. I thought we'd close with a few words on our executive promotions and our focus heading into 2021. As you all read in our press release, Effective October 1st, Seth Blackley, a fellow Evelyn co-founder and our current president, will step into the chief executive officer role. I will remain as executive chairman and intend to stay intensely focused on the business and look forward to continuing a very productive partnership with Seth, John, and the executive team. The timing of the decision was largely related to Seth's demonstration of readiness to take on the Chief Executive Officer mantle based on his history of achieving business results, his strategic vision, and his unique, compelling, and highly effective leadership style. As my partner and as president across the last decade, he has been a force in driving the overall strategy, as well as demonstrating a grasp of all aspects of the business. The board and I both felt strongly that this was an opportune time for Seth to lead the next phase of the company's growth as we approach a billion in revenue this year, with a focus on growth across the core solution areas that Seth has been leading and orienting to the market already for some time now. While most of you know Seth well, for those of you that don't, he's been an absolutely inspiring leader of our management team since the very beginning as a co-founder of and has led the charge in building our national network of partners across the U.S. Seth helped to establish and refine our go-to-market strategy, as well as creatively leveraging M&A to further the differentiation of our key solution areas. Seth has also led the New Century Health business since its acquisition in 2018. I'm certain Seth will have a tremendous impact in his new role as Chief Executive Officer, and personally, I'm excited to continue working with him and the team going forward. With that, it's my pleasure to turn the call over to Seth and have him discuss our key priorities heading into 2021.

Frank, thank you. I am excited and humbled to lead what I believe is a world-class organization. I look forward to building on Frank's legacy and to continue the strong partnership that he and I have had since founding the company together almost 10 years ago. I'd like to highlight four business and strategic objectives that will be key focus areas as we head into 2021. These objectives aim to ensure that we both continue to build a company that drives transformative change in healthcare and strong shareholder returns. First, focus will be a theme. We will remain focused on disciplined execution against the core growth strategy across New Century Health, Evelyn Care Partners, and Evelyn Health Services. The strategy will allow Evelyn to continue to scale our services model with technology and intellectual property at the core of all that we do. Second, we will ensure that our operating cash flow profile and our capital dollars are focused and deployed on our core businesses, and that we have the balance sheet flexibility to continue to grow profitably. This work is highlighted by the expected return of capital from our passport transaction as outlined by Frank and John, as well as the fact that we are projected to be cash flow positive in 2020. Third, while we will continue growing with providers, we are accelerating our work with the payer community as we scale the business and continue our leadership position in value-based care. Our work with payers leverages all the capabilities we've built over a decade, and leans heavily on our credibility and expertise with providers. And finally, we will continue to be a leading destination for top talent, and we will continue to be a high-performance organization. Frank has built an incredible foundation for our culture, and I believe that our team and culture will be a competitive advantage for many years to come. With that, I will turn the call back to Frank to close.

Thanks, Seth. And thanks to everyone for participating in tonight's call. With that, we'll end our formal remarks and we're happy to take questions.

Thank you. And we will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Our first question today will come from Ryan Daniels with William Blair. Please go ahead.

Yeah, congrats, Seth, and thank you for taking the questions and for all the color. Can you start with a little bit more on the Molina agreement? It's great to see that they're already expanding into a new state, but can you give us a little bit more color about what drove that expansion before the initial contract was even started and then As a follow-up to that, just any, you know, key things that they are looking at as they assess expanding into other markets, whether it's, you know, challenges in those markets or ROI from the initial deployment? Thank you.

Yeah, thanks, Ryan. You know, it's been nice getting to know the Molina team across, you know, the last several weeks. And what I would say is we've had an opportunity to get our clinical people together and go really deep on the new century clinical pathways, on the approach to managing both cost and quality. We've learned also about how Molina approaches specialty management. And I think there's been a really good fit with our approach and how they're thinking about those specialty areas strategically. Based on that and with all the pressure that we see on managing medical costs and, again, making sure that high quality care is being provided and what are complex areas. I think based on that, there was a lot of attachment to the value proposition and a desire to get going early next year, not only in Kentucky, but also in a second market. As these things go, you begin working together and hopefully things go well and we have an opportunity to deliver value for Melina's members, higher quality care, hopefully at high levels of efficiency, and then can expand that relationship over time. So all I would say at this point is we've really clicked in our early conversations. We're excited that we have two markets to begin in early 2021, obviously focused on strong delivery. And I think if that happens, we're hopeful that we'll have an opportunity to expand the relationship to other markets.

Okay, great. And can you talk a little bit about the sales investments, whether it's sales and marketing or direct sales team behind a new century? That's obviously been a strong growing asset. It seems like there's a lot of demand and several large new customers. So are you reallocating any sources from the administrative services or other areas to that? And just give us a little bit of a sales update there, and I'll hop off. Thank you.

Sure. Ryan, it's Seth. I can take that one. So when we acquired New Century initially, there was a very small team in place, and we have over the last 18-plus months reallocated some team members, some of our stronger talent over to that business on the sales and marketing side. And, you know, at this point, I think the team is well-staffed and in a good position, and it's been, I think, part of the reason that we've been able to accelerate the growth there over the last couple years.

We can move on to our next question. Our next question will come from Robert Jones of Goldman Sachs. Please go ahead.

Great. Thanks for taking my questions. This is Jack Rogoff on for Bob. I want to ask about guidance. It seems like the midpoint of implied 4Q services revenue guidance is below the midpoint of 3Q guidance. I'm just curious if there's anything we should be aware of on cadence or attrition, or maybe that's just conservatism on some performance-based revenues that you're expecting.

Yeah, no, two things in there, Jack. I think nothing specific that we're indicating there. I think the range that you see sort of wouldn't permit a flat quarter to quarter. We also do have some one-time items that could hit both this quarter and next quarter. And so that's what you're seeing there.

Got it. That makes sense. And then you talked about potential expansion with this Southeastern client when you announced this quarter. I'm curious what areas you'd be expanding in since you're already deploying both the century modules. Is this Is it Medicaid or is it other Evelyn offerings to this client?

Yeah, I mean, I think what we've seen in a lot of situations is we start out in one solution area and then we see the opportunity to grow in two ways. One, the client is investing in growth and as they add lives, we grow with them. Many times it will be in the same population area, but sometimes it's They will go into, you know, other populations, which would be either commercial or Medicaid. And then also, you know, once we start working together, an opportunity to bring our other solution areas to bear. And that could be both in the administrative solution area, you know, where, again, there's a number of things we provide in terms of clinical infrastructure. And then also, you know, if they're looking at working within the physician network to delegate risk, we can also use our total cost of care assets and capabilities to help support them. So right now, we're focused, again, as we are in any new relationship, on delivering on the core of what they've asked us to do. And then our hope is we build confidence across time and see the type of cross-sell that we've seen across the past year, which has been a big source of our growth this year and hopefully That will apply to our five new partners that we've announced thus far this year. Got it. Thanks. Very helpful.

Our next question today will come from Matthew Gilmore of Baird. Please go ahead.

Hey, thanks for the question, and congrats to Seth. I wanted to follow up on guidance. It looks like you increased the service revenue guide by about $65 million, and that's mostly confined to the back half of the year. Could you go through what some of the upside drivers were?

Early on in this year, the possibility that we could have some strong growth in the back half of this year. And so what you're seeing now is that full visibility into that rolling on. from some of the new partners that we've announced this year. So that's really the dynamic that we're seeing this year, along with strong performance in our performance-based arrangements. As we look at next year and setting that up, obviously too early to comment on 2021 specifically, but certainly as we are able to build up our starting point, that will increase our starting point for next year.

Okay, fair enough. And then, John, one more, I think this probably falls to you too, that, you know, the platform-wise ticked down a little bit again. It's obviously not having a big impact on revenue, but can you just help us understand what caused that metric to go lower this quarter?

Yeah, of course. So not unexpected. Again, we sort of indicated that it would likely be in the low threes in the middle of the year here. So consistent with our expectations. I would expect it from here between now and the end of the year to take back up as we have some of the new go-lives coming on that we just talked about. Okay, great. Thank you.

Our next question today will come from Charles Rye of Cohen. Please go ahead.

Yeah, thanks for taking the questions and congrats to Seth. Just I wanted to follow up a little bit on the passport. Is it possible to kind of help us think about the revenue differential between the services agreement with Passport, which expires at the end of this year, versus the new century deal with Molina that starts next year? And then, you know, I think Molina has talked about potentially closing the Passport deal early, potentially in the fall here. What kind of impact would that have for you guys this year or later? or anything like that?

Yeah, I mean, first of all, the closing date does not impact our revenues for this year. We'll be providing our full suite of services through the end of the year, so the close date doesn't impact that in any way. You know, if you look at the Molina announcements, both in Kentucky and in Washington, you know, we'll start those sometime early next year. There's still a lot of work to do to understand what membership Molina will end up with in Kentucky, what the, you know, the financial analysis will reveal about the population and what the ultimate PMPMs will be. And then, as you know, a lot of our NCH business does ramp across time in the first year. So I would say safely Between those two, we could expect a couple points of growth in 21. I think that's safe to say. And then we would hope that those expand significantly, you know, as we get to the back half of 21 and into 22. But that's our best guesstimate at this point. There's a lot of information we'll need to gather across the next, you know, 90 to 120 days before we have a sense of real revenue estimates.

Okay, that's helpful, and if I could just follow up on one of the questions. We've talked a lot about new century. Maybe in the provider market, hospital market, what are some of the dynamics going on? Obviously, a lot of them are dealing with COVID right now, but as we think more broadly, the shift to value-based care, maybe you can just help us understand sort of the general trends and themes in the provider side of the world. Thank you.

Sure, and good question. First of all, from a healthcare payer perspective, people that are purchasing healthcare, it's obviously a tougher economy. There's a lot of focus on cost and making sure that, you know, premiums are efficient. And so I do think you're going to see more pressure in terms of value-based arrangements, which really are the best way to address healthcare cost increases. So we're hearing that in the market. and I'd say from the full range of players that are out there. From a physician perspective, they generally have had a hit to cash flows as a result of COVID, lower office visits in many cases, lower elective procedures. So there is an opportunity for physician organizations that are efficient to move to risk-based arrangements and to do so very profitably. And so we are seeing, if you just look at general demand from physician organizations that we're talking to, we are seeing, you know, increased interest and demand in what we do and potentially working together. There still are a lot of issues that need to be sorted out with CMS in terms of their ACO programs, everything from beneficiary alignment, quality reporting, how they're going to handle payment methodologies in COVID, So you have organizations that have stepped forward and said, look, we want to move in this direction. One way is through CMS programs. We need a little more information, but we want to prepare. And then second, obviously, is taking delegated arrangements from local payers, which we support. And again, there you don't really have to wait for various policy decisions. And so I do think we'll see more in terms of delegated arrangements, both with our existing base, but also in attracting new position groups. For health systems, you know, it's the two canoe issue that a lot of them, you know, have largely relied on fee-for-service as the base of their economic model. That's generally hurt them in this recent period. And I think there's an acknowledgement that having dual financial models, if they can be well managed, is an opportunity to hedge. And so, you know, if you think about health systems that have lost, you know, a lot of Volume, cash flow has been impacted, moving towards more substantial participation in Medicare and potentially Medicaid risk is surely attractive, and we are seeing more activity there. But primarily, I would say we're seeing it on the physician side. We're seeing a lot of pressure from those paying for health care. That takes a little time to cascade through the system, but I think we'll start to see the impact of that as we get towards the middle of 21 and into 22.

Great. Thanks a lot, guys.

Thank you.

Our next question will come from Richard Close of Canaccord Genuity. Please go ahead.

Great. Thanks. Congratulations to all. Just curious maybe to go follow up on Charles' question on Passport. I think it was 22% of revenue in the first quarter. Do you have what it was in the second quarter or for the first half total?

I mean, I think it would be slightly less than that. I think it would be slightly less than that given the revenue growth we've had on the other side, and we've had a little bit of membership increase there, but it's been largely stable. John, feel free to add any detail to that.

Yeah, it's the same ballpark. Okay, great. Thanks there. And then, Seth, maybe if you could dive in a little bit deeper on the fourth strategy you had or fourth point there in terms of accelerating work with the payer community. Is there any additional details that you can give us on that? What exactly are the intentions there?

Yes, sure, Richard. Thanks for the question. So, you know, Since we've started EvLent, we've really served this bridge between the payer and provider community from the start. And over time, we've done a lot of work with providers, and then that migrates through ACOs or other models up to the payer community. Of late, you've seen a lot of announcements from us starting with the payer and ultimately working with the provider community, the capability in the middle to engage physicians and to change the way health care is delivered, deliver higher quality, lower cost care, that all remains exactly the same. But as you've sort of seen across the last 12 months, we've had, I'd say, a disproportionate share of announcements with the payer side as sort of the starting point for these relationships. And I think what we're finding, particularly with New Century, but just in general, that you can continue to accomplish a lot of the same work with the same capabilities and but the actual original contract starts on the payer side. And often those organizations have slightly more lives, a little bit more scaled out of the gate than some of the provider organizations. And so it's been a nice way for us to scale and grow. And I think the statement is just sort of saying we plan to continue that. Again, it doesn't really change what we're doing in the middle as the bridge. And it certainly doesn't have any implication for the fact that we'll still also in certain cases continue start with a provider health system or often an independent physician group as we do with Evelyn Care Partners. But I think the go-to-market sales side of what we do has shifted a little bit and will kind of continue to be a little bit heavier weighted in that direction as we head forward.

Okay. So it's not like adding additional services to the payer community. It's just going with what you have already and fold there.

Correct. And it's sort of making it clear that we are finding a fair bit of success there when we started this. You know, we first announced this around the new century acquisition. It was new for us and it's been an important part and we just are stating we plan to continue down that path. Great.

Thank you. I mean, and I'd say just to add, I mean, if you look at the penetration within the total opportunity in oncology and and cardiovascular services just within our existing client base, it is a tremendous growth opportunity, as Seth said, with what we have today. And so we obviously want to take advantage of that and grow off of that existing base. At the same time, there are a lot of extensions and additional things we could do within those specialties and also in new specialty areas that surely would fit the strategic vision that Seth laid out. So the nice thing is we've got a lot with what we have. We've got some nice extensions we can do off of that and a huge penetration potential. And we can also look for opportunities for other specialty areas that make sense given the feedback we get in our existing relationships. Great. Thanks.

Our next question today is from Sandy Draper of SunTrust. Please go ahead.

Thanks very much, and I'll echo my congrats to you, Seth, as well as to the whole team. I guess maybe just following up on this line of questioning about payers and providers, and as you're doing more with purveyors, one of the things that you guys talked about a lot, and I'm going to go way back to the IPO in the early days, was pretty much sole focus on the providers, and you were in the camp of the provider. And as you were doing more payer work, have you had any conversations with providers where they're like, Yeah, but now that you're sort of in the payer camp, we're not sure you're really, you know, working for us anymore. How do you manage that relationship where you're working with providers and payers and potentially at times it may be some bumps? How do you deal with that?

Yeah, I would say that we know we're going to be effective if the relationship works for both the payer and the providers that are participating, and that's true in any relationship where you're delegating risk, where you're asking providers to take a more active role in managing care, it has to be the right arrangement. There has to be a collaborative philosophy. There has to be alignment. And we will only work in situations with payers that are committed to that philosophy. And I think the fact that providers recognize that for them to get scale and value-based care, they need lives, that payers have a lot of lives, and an if they can have an Evalent bridge the relationship so they know they're getting reasonable terms, they know that they're going to get delegated appropriately the clinical functions that are necessary for them to perform, that there's a fair balance that allows both of those groups to work together very collaboratively. So we haven't gotten pushback because we have not moved away from our philosophy to make sure we have that alignment in any relationship. that we're in between payers and providers. And as a result, I think that's why you've seen the growth on the payer side. What it's allowed us to do is go exactly to where lives exist today, under managed care, under value-based relationships, and therefore get our provider partners involved. And so I think it's been a very effective strategy. It obviously diversifies our revenue base. We're not dependent on the market moving. We're going directly to a place in the market where it exists today. And yet we're serving as a catalyst in a place where it's been difficult sometimes for payers and providers to work together effectively because we're bringing a philosophy that really creates that alignment and makes sure that these relationships ultimately work.

Great. I appreciate that. That's helpful commentary, Frank. And then maybe just a quick follow-up for John. When I look at the expenses, and I'm primarily not as much focused on the claims expenses because I understand why that's down, but I look at the cost of the core Evalent as well as SG&A down fairly notably sequentially. Can you just remind me, besides just some normal cost controls, et cetera, are there any sort of expenses that you are I can't remember if you took some things off the table that when things get back to normal, you're going to bring back and there's a step up in expenses. I can't remember if there are pay cuts anywhere, 401k match, things like that. I just can't recall if there were expenses that are not there now that once things get back to normal, you will turn back on.

Hey, Sandy, good question. I think fundamentally what you're seeing here is just the result of the focus that we've had on driving cost efficiency year over year. If you look at the comparable quarter last year, our SG&A line is down $16 million, and I would indicate that's a real cost reduction that is sustainable. Obviously, there are always ins and outs from working capital, but what you're seeing in the numbers is the result of that work that we've done. Great. I appreciate it. Thanks. Thanks.

Again, it is star then one to ask a question. And our next question will come from Ann Samuel of J.P. Morgan. Please go ahead.

Hi, guys. Thanks for taking the question. Maybe just following up on that margin question, you know, you've done a lot of work on managing the expense base. So as growth returns to a mid-teens revenue run rate going forward, how should we be thinking about the pace of margin expansion and And how much of that is going to come from leverage versus further expense control?

Hey, Annie. Good question. So I think what we've generally thought of in terms of multi-year margin expansion opportunity here is the ability to add a couple points of adjusted EBITDA margin a year from both of those levers. So lever A being growth and lever B being growth. cost efficiencies through automation and otherwise. I think we continue to see both of those levers being important as we move into the future.

That's really helpful. And then maybe one, you know, it seems far away, but as we approach November, do you see any potential disruption to the momentum you've spoken about, you know, around value-based care if we were to see a change in the administration?

We don't. I think The good news for us is that what we saw, obviously going back to the Obama administration, was a real commitment to value-based care, to a lot of the principles that started with the early ACO programs. We then had a pause when the new administration came in. And as you know, there was some tumult with the director of HHS. So there really was a pause in the market. But now what we've seen is a full commitment to value with partners in success, with direct contracting, with a lot of the things the administration has supported. So I think we can say that it is a bipartisan agreement that fee-for-service payment in Medicare is going to go away and under a reasonable period of time. So we're confident that either way we're going to see support for value-based care programs. And then remember, What we just talked about earlier was the diversification of the revenue base to the existing payer lives that exist today also is a hedge if there were to be some interruption for some reason. We don't see that happening, but that's the whole point of a more diverse revenue base that really allows us to drive pretty consistent growth, we believe, over the medium term with the existing solution areas that we have.

Very helpful. Thank you. Thanks.

Thanks.

Ladies and gentlemen, this will conclude our question and answer session. And at this time, I'd like to turn the conference back over to Frank Williams for any closing remarks.

Well, thank you, everyone, for participating in the call. I know we have some opportunities both through some virtual conferences coming up and individual meetings virtually to interact with many of you. And we look forward to it. And, again, appreciate you participating in the call. Thank you.

The conference is now concluded. We thank you for attending today's presentation, and you may now disconnect your lines.