Evolent Health, Inc.

Welcome to Evalent Health's earnings conference call for the quarter ended March 31st, 2021. As a reminder, this conference call is being recorded. Your host for the call today is Mr. Seth Blackley, Chief Executive Officer of Evalent 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 or 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 filing. For additional information on the company's results and outlook, please refer to its second quarter news press release issued earlier today. As a reminder, reconciliations of non-GAAP measures discussed during today's call 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.evalinthealth.com, and the 8K filed by the company with the SEC earlier today. At this time, I will turn the call over to the company's Chief Executive Officer, Mr. Seth Blackley.

Thank you and good evening. I'm Seth Blackley, Chief Executive Officer of Evelyn Health. I'm joined by John Johnson, our Chief Financial Officer. I'll open the call this evening with a brief summary of our recent results, including an update on the key themes of our strategic plan and momentum in the market. Afterwards, I'll share highlights from across the business, and how our differentiated solutions drive value for our partners. I'll then hand it to John to take us through a more detailed financial review of the first quarter results, as well as provide second quarter guidance. As always, we'll be happy to take questions at the end of the call. In terms of the financial overview and results for the quarter, total revenue for the quarter ended March 31, 2021 was $215.1 million. Justin EBITDA for the quarter ended March 31, 2021 was $14.9 million. As of March 31st, 2021, we had approximately 3.4 million lives on the full platform, plus an additional 8.2 million lives on our new century health technology and services suite platform. Overall, we're pleased that we exceeded our key financial objectives for the quarter. and we are increasing our guidance for 2021 accordingly, as John will discuss later. Now I'll provide an update on progress against the three themes of our strategic plan. With respect to our first theme of strong organic growth, we continue to be on track towards our target of mid-teens organic top-line growth as we utilize our value-based care solutions to improve the cost and quality of healthcare. Payers and risk-bearing providers continue to select Evelyn based on our state-of-the-art capabilities and our ability to improve savings and outcomes with high-cost, high-risk members and patients. Today, we're excited to announce two new partnerships that will contribute to our near-term goals and create the opportunity to open new avenues of growth. First, New Century Health has entered into an exciting new agreement with a leading network of risk-based primary care clinics. This partnership will ensure high-quality specialty care for this risk-bearing primary care group's patients who are diagnosed with cancer and heart disease through the application of New Century's health pathways. New Century will be providing medical oncology, radiation oncology, and cardiology services in two large markets, and we anticipate go-lives from both geographies later this year, with plans to explore additional opportunities in the future. We're particularly excited about this partnership for several reasons. First, the organization is a high-growth national organization, and this partnership creates the opportunity to grow with them over time. And second, this relationship more visibly opens the growing risk-bearing primary care segment for us. We believe that the intersection of primary and specialty care has the potential to unlock clinical value and create a better experience for patients and providers. The second new partnership we're announcing today is a signed agreement with a large health plan for our Evelyn Health Services solution. This long term partnership covers multiple markets and lines of business, and it will be an important contributor for us in 2022 and beyond. Additionally, during the quarter, we're pleased with our same store growth efforts, including adding cardiology services to an existing new century health partnership in South Florida. We continue to see strong momentum in our pipeline. and we see our solutions are increasingly in demand in the market. Additionally, favorable trends in the overall macro environment are accelerating the adoption of cost-reducing measures and the administration's commitment to the need to control healthcare costs will continue to be a tailwind for our solutions. With the two new partnerships announced today, we welcome four new partners this year and are on track towards our target of six to eight new partnerships for 2021. Further, if you look back across our last 20 new partner announcements, we see good balance across our solutions with seven from New Century, seven from Evalent Care Partners, and six from Evalent Health Services, indicating nice balance across the portfolio to expect to continue into the future. Regarding our second strategic theme, we continue to drive expanding margins towards our mid-teens goal. with Q1 adjusted EBITDA margin of 6.9%, an increase of 1.6% over 2020. We're seeing nice traction in all three areas of our plan, including lowering our unit costs through target initiatives, new customer maturation, and driving the benefits of scale across our business. Finally, with respect to our third theme, I want to provide an update on our portfolio and efficient capital allocation. The previously announced Miami Children's health plan asset sale transaction closed at the beginning of the month, and the sale of True Health New Mexico closed at the end of March. With the completion of these two deals, we have successfully exited the health plan business and monetized all of our health plan assets. Delivering on our commitment to exit this business has had a positive cumulative impact on our capital. Going forward, our capital allocation will be focused on accelerating EBITDA within our core services business. In conclusion, we continue to make significant progress on our three key focus areas. Turning to our business updates, last quarter we discussed the differentiators that drive payers and providers to select Evelyn Care Partners. This evening, we will showcase our specialty management platform, New Century Health. Before we go into depth in New Century, I want to highlight the achievements and recent activities of our other two solutions, Evelyn Care Partners and Evelyn Health Services. First, Evelyn Care Partners, our total cost of care management offering continues to perform well and represents a large strategic opportunity. In Q1 2021, our network successfully addressed 13 times more panel insight opportunities in our proprietary clinical technology platform, Identify, compared to Q1 2020. These opportunities allow physicians to be more outcome centric by identifying and prioritizing high yield critical interventions. Furthermore, our support of evergreen programs such as MSSP Pathways to Success and contracting with private payers continues to deliver strong results for Evelyn and our partners. With respect to Medicare, the new administration is committed to new payment models, and we will carefully evaluate and participate in the ones that we believe have the right long-term economic profile for Evelyn. We're using the administration's pause of direct contracting as an opportunity to weigh in with CMMI and other stakeholders on ideal model features and to provide CMMI with new ideas to support value-based care. Overall, across both Medicare and private payers, we continue to see a very bright future and strong tailwinds for our Evelyn Care Partners business. As previously announced, we already manage close to a billion dollars in premium, benchmarking well with other public assets in this segment. Importantly, we see opportunities to add more markets as well as more lives in existing markets through additional commercial and Medicare Advantage contracts. Market expansion and investments in product development, such as our previously discussed panel insight tool, will increase our impact on the lives our community-based partners manage over the next few years. Second, Evelyn Health Services, our administrative simplification offering, continues to invest in modernization, to lessen the burden and costs on payers and providers, and enrich the patient's lives that we serve. We continue to see that our commitment to our partner success and our industry-leading integrated administrative and clinical platform are differentiators in the market. Recently, Evelyn Health Services and partner Maryland Physicians Care implemented an outreach strategy to create awareness and assist with access to the COVID vaccine. The three-pronged strategy utilizes text and email campaigns, practice outreach, and care management intervention to ensure members are fully educated on the vaccine and have access to the vaccine. The membership is prioritized based on the state of Maryland's rollout schedule, along with an assessment of the membership's most at-risk subpopulations, including those with chronic respiratory disease, cancer, diabetes, end-stage renal disease, and those currently receiving hemodialysis. Investing in automation and operational efficiency will continue to be a focus for us across 2021 and in the years ahead. The largest category out of the $1 trillion in waste in US healthcare is actually administrative spending. And our team intends to drive further cost savings and high quality outcomes through product innovation, such as our cloud first and module architecture, robotic processing, and AI platform launched in 2020 as part of our cost efforts. These savings should yield margin for Evelyn, and they also help accelerate our sales differentiation in the marketplace. Finally, New Century Health continues to grow in terms of new business and same store growth. The high cost and high complexity across both oncology and cardiology continue to underpin the strong demand in the market for our New Century services. We've also experienced a recent uptick in engagement as health plan and risk-bearing provider prospects are increasingly able to see the light at the end of the pandemic tunnel. Additionally, New Century Health continues to invest in new programs and technology to further support our partners and their patients or members. I want to share three of those enhancements with you here. First, in January, New Century launched several new services to help plans optimize their drug policies, including new drug reviews, and model the impact of their prior authorization policies. Next, we're also excited to announce the launch of a new genomics module at New Century Health to help oncology teams select the most appropriate tests. This module will enable us to deepen our preferred pathways and encourage the use of broad panel next generation gene sequencing in specific clinical situations where there are clear benefits. This module enables us to incorporate the latest evidence into our pathways with an emphasis in supporting treating oncologists and their patients in increasing the confidence that the patients receive the best therapy and with lower risk of wasting time and money on a failed first-line therapy. Beyond helping to ensure that subsequent cancer therapies are appropriate given the patient's genetic mutation, this initiative will also identify candidates for clinical trials. With the accelerating rate of science and new treatments, this module is strategically critical for the future of New Century. Finally, the team has also been hard at work in the development of cardiology enhancements in CarePro, including simplified Q&A, service-first architecture, expansion of pathways, and the ability to include add-on services in a primary request. The cumulative effect of these new enhancements, in addition to our state-of-the-art platform, we believe will allow us to see a strong impact from our solution to give you a sense for the impact of the platform. I want to share how we believe the new century health platform impacts patient care. Often when we enter a new market, we find that the rate of adherence to our level one pathways is in the mid 60% range. That means that three or even four patients out of 10, we believe are not receiving optimal care. Once we've been live in a market for 12 months, that figure is often in the high 70% or even 80% range, a very material improvement in the care that patients are receiving. Let me bring this to life by giving you one real example how we increase the pathway adherence and therefore the quality of care for the patient. Recently, New Century Health, in the normal course of our service to a payer, client, and the treating oncologist, reviewed a complicated cancer case from one of the patients that we support. The oncologist had diagnosed the patient with what is called large B-cell lymphoma. As part of that diagnosis, the oncologist requested approval from New Century to treat the patient with the drug called Chemriah, which is a brand of CAR T therapy made by Novartis. After our nurses and oncologists consulted on this case, they found that the patient had been misdiagnosed, and in fact, the patient had a different form of lymphoma called CNS. The drug requested, Chemriah, is actually contraindicated for CNS lymphoma and would have made the patient incredibly sick or possibly could have been lethal to the patient. Thanks to our team at New Century, we were able to intervene, work with the treating oncologist to adjust the diagnosis and treatment for the patient. As a result, the patient's outlook materially improved. And as a side effect, the cost to the payer will likely be $500,000 to $1 million lower across the next 12 months. I share this story because it inspires me and my fellow Evelynteers who come to work every day wanting to make an impact. There's a family that's much better off today because of our work, and the healthcare system now has up to $1 million of additional funding to help other people through lower insurance premiums, investments in care management, and the like. Of course, this is just one example of the kind of interventions that we make every day across all of our patients at Evelyn and New Century. Finally, while we're very proud of the work we do to materially increase pathway adherence and help patients in the way I just described, we can go further. Our long-term goal is to move both cardiology and oncology pathway adherence over 90%. That ambition is a roadmap for how we'll continue to invest but also an indicator for just how big of a future opportunity we believe lies ahead for New Century Health. With that, I'll turn it over to John to give additional details on our financial performance as well as provide Q2 guidance.

Thanks, Seth. Good evening, everyone. We are pleased with our first quarter results with our key metrics coming in ahead of the guidance we communicated in February and building upon the momentum we carried into the year. With today's new partnership announcements, we continue our growth track record, and I'm happy to report that we're ahead of plan on our cost reduction efforts for the year. Finally, as Seth mentioned, at the beginning of this month, we closed on the final piece of our asset divestiture plan, achieving our stated goal to divest all health plan assets and focus on our core high-growth services business. In terms of our membership, we had approximately 3.4 million lives on our full services platform as of March 31st, 2021, with an average PMPM fee of $19.72. Our new century technology and services suite ended the quarter servicing approximately 8.2 million lives with an average PMPM fee of 43 cents, up from 6.2 million members in Q4. The increase in our technology and services suite lives was largely driven by launches across additional markets for national payer contracts, including Centene. Revenue in the quarter was $215.1 million, with both membership and performance-based revenue exceeding expectations. Our adjusted EBITDA results of $14.9 million was likewise driven by continued strong outcomes in our performance-based arrangements. Adjusted loss available for Class A common shareholders was minus 1.2 million, or minus 1 cent per common share for the quarter, compared to minus 0.6 million, or minus 1 cent per common share in the same period of the prior year. Before I turn to our first quarter results by segment, just a quick reminder that with the divestiture of True Health, we have reorganized our services business into two reporting segments going forward, those being clinical solutions, which includes the New Century Health and Evalent Care Partners solutions, and Evalent Health Services, which houses our administrative simplification solution and certain supporting population health infrastructure. In addition, we will report expenses in our corporate overhead as a separate segment. True health financials are reported as a discontinued operation held for sale, beginning with our Q1 results. Within our clinical solution segment, revenue in the first quarter increased 4.2% to $130.2 million up from $124.9 million in the same period of the prior year. This increase was primarily driven by new partner additions, including Florida Blue Medicare, Neighborhood Health Plan of Rhode Island, Emblem Health, and Molina, as well as expansion into new markets within current technology and services suite partners. Adjusted EBITDA from our clinical solution segment for the quarter was $16 million, compared to $7 million in the prior year. Turning to our Evelyn Health Services segment, First quarter revenue decreased 12.1% to $85.3 million, down from $97 million in the same period of the prior year, and largely driven by the run-out of services for Passport, partially offset by new partner additions, including Maryland Physicians Care. Adjusted EBITDA from our Evelyn Health Services segment for the quarter was $5.9 million, compared to $4.8 million in the prior year. This growth in EBITDA, despite the disposition of Passport to Molina, demonstrates the impact of our ongoing efforts to drive significant cost reductions across our operating model. Finally, adjusted EBITDA in corporate overhead improved 11.6% to minus 7 million, up from minus 7.9 million in the same period of the prior year, and up from minus 9.6 million sequentially versus Q4. This improvement was the result of executing on our commitment to reduce overhead while still delivering strong operational and clinical performance for our partner organizations. Turning to the balance sheet, we finished the first quarter with $236.2 million in cash and cash equivalents and investments, including $95.6 million in cash held in regulated accounts related to the wind down of Passport. Excluding cash held for Passport, this represents $140.6 million a decrease of $95.3 million versus the end of the fourth quarter, and principally driven by the repayment of our term loan with Aries Capital Corporation, with the associated warrants granted to Aries from our December 2019 financing also retired in cash. That use of cash was partially offset by a total of $43 million in cash inflows related to passport health, in line with expectations of our overall capital return range of $130 to $170 million. Cash deployed for capitalized software development in the quarter was $5.9 million. We have no outstanding senior debt in place today, and aside from the $26.7 million balance on our 2021 convertible notes, we have no other debt maturities until 2024. We continue to expect adjusted EBITDA less capex to be positive for the rest of 2021 and beyond, which provides us with the opportunity to invest in differentiating our core services while maintaining a strong balance sheet. Overall, we are pleased with our progress against our financial objectives for the year so far and are increasing our guidance accordingly. For the full year, we now expect total revenue to be in the range of $845 million to $880 million, and we are forecasting total adjusted EBITDA of $42 to $52 million. For the second quarter specifically, we are forecasting total revenue of $210 million to $225 million, and we are forecasting total adjusted EBITDA of 10 million to 14 million. With that, I will turn it back over to Seth.

Thanks, John. In summary, we continue to make progress against our strategic priorities of, one, driving strong organic growth and achieving our mid-teens growth target, two, scaling the business to drive enhanced margins, and three, efficiently allocating capital. We feel confident about meeting our targets for 2021 and in our unique ability to improve the health of the communities we serve. We are proud that Evelyn's quality and cost improving solutions were deployed across more than 11.6 million lives during Q1 and we're excited to continue to grow that reach. Thanks everyone for participating in tonight's call. With that, we'll end our formal remarks and we're happy to take questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question today will come from Ryan Daniels with William Blair.

Yeah, guys, thanks for taking the questions. Congrats on the strong start to the year. I wanted to hit the new partnerships. I know you're not naming the partners, but I'm hoping to get a little bit more visibility. Number one, on the risk-bearing organization, first off, what would trigger potential expansion of that into other markets? I don't know how many they're in, but I think you mentioned you'll start with two. Is it just going to be results in those markets, or are there kind of savings objectives that would trigger expansion across their book of business?

Hey, Ron. Yeah, Seth, happy to take that, of course. Well, I'd just say, first of all, we're excited about both the partnerships. We think they're going to be important contributors, you know, that's for 2021, but really in 22 and beyond, and excited about both of them. On the risk-bearing primary care front, I mean, I think it's important for a couple reasons, Ryan. You know, one, it's obviously a very fast-growing segment in general, and there are multiple players, some public, some private, in this segment, and it's, we think, going to be a really important part of the healthcare ecosystem going forward, so opening up that channel more formally is big for us, and we think it'll be important and exciting. This particular entity that is our partner here is also fast growing themselves, and so I think there'll be a big opportunity with them. You know, to your question, we're starting a couple markets, but I think, you know, over time, it's going to be a dozen plus in terms of market opportunities, and You know, we'll move into those markets based on performance in our first two, just like with a lot of our other partners. We're very focused on execution, delivering for them out of the gates, and then, you know, have the opportunity over time to grow. So, we do think there will be opportunities there. You know, the other partner is also exciting and important, and it's a large health plan, multiple geographies, multiple lines of business. I think should also create some growth opportunities. So, you know, with both of them, we're excited. I think, you know, the other fact point that is sort of relevant to your question, Ryan, is from Q1 of 20 to Q1 of this year, we had 29% organic growth when you hold out the divestitures, and we obviously grew 21% last year. So I just say in general, We feel really good about the environment. These two new partners will be kind of right in line with that, and we continue to feel good about the path ahead.

Okay, and I appreciate that, Keller. And then on the large health plan, is there any way to offer some granularity, if not on the potential size of that for 2022? Maybe how far that gets you in maintaining the mid-teens growth target, all else equal. You know, it sounds like a potentially larger deal given it's a larger plan, it's in several states, multiple lines of business, and they're buying, you know, a broader solution set from you. So I assume it's a higher PMPM. So just, can you talk a little bit about, you know, the potential there?

Hey, Ryan. It's John. I'll take that one. It's a good question. You're right that it is a fulsome PMPM, given the suite of services and the scope of what we'll be doing for that plan. We're excited about the partnership in that way, and it's very helpful for us as we're thinking about setting up next year. Obviously, still pretty early in the year here, but based on where we are today, we continue to feel quite good about that mid-teens range.

Okay, fair enough. And then final one to hop off, just going back to the Risk-bearing organizations, obviously we've seen a lot of growth in that market. It's a new opportunity for you. So a couple questions. Number one, is that the first provider group you've signed up for New Century, given that that's traditionally been a payer-focused offering? And then the follow-up there, is that something that you guys got together strategically and discussed? Did they approach you? Was it an RFP? Did you develop a new sales team to go after this? How are you approaching that market? Because it does seem to be one, especially with the MA plans and all the MA enablers or direct models, that's going to be a high growth area and that there's a lot of interest and probably a lot of need for solutions like yours, given the cost and exposure to those two disease states. Thank you.

Yep. Yeah, no, Brian, happy to take that one. So I would just say, you know, historically, yes, we've done some things with providers in new century. We were part of the oncology care model, which is part of CMS. And we have done some things in the past. I do think we, you know, through our work with everyone care partners, frankly, but also just more broadly seeing the opportunity. to integrate with primary care and use that as a channel, it is strategic for us. We decided it was strategic and we have gone after it in a strategic way. We haven't created a separate sales force because it's a lot of the same competencies, but we have approached it in a little bit of a different way. And I think the product integration opportunities, Brian, are really interesting, right? When you have the patient very deeply integrated with the primary care physician, the integration you can do into specialty is great for the patient, It can actually, I think, drive savings that are higher than we normally get because of that integration over time. And it's what I would call just an exciting product space for us.

So hope to see a lot in this area in the future.

Our next question comes from Robert Jones with Goldman Sachs.

Thanks for the question. Maybe just to follow on there, just because obviously there was so much focus on New Century on this call and clearly the win in the risk-bearing clinic space. Are there other interests from your Evelyn Care partners today to pursue this? And did you think you kind of needed to get, you know, one kind of marquee win on the board that could really accelerate, you know, what might already be a pipeline for other risk-bearing clinics to want to turn on New Century?

Yeah, Bob, I think, so definitely there are going to be a lot of other, I think, opportunities here. And, you know, they're the public companies that we all know about, but there's a lot of, you know, risk-bearing primary care that's out there and around the country that we can also support in different ways. I think the oncology care model is a path. You know, this works best in segments like Medicare Advantage or the commercial population where you have the prior authorization lever that comes from the payer. So, you know, the delegation of claims down, delegation of care down to a physician group, and then, you know, in turn to us around the specialty is a chain that really works well. For the Medicare CMS, you know, programs, DCE, the Evelyn Care Partners, CMMI programs, those sorts of things, you don't have the authorization level. So it's a little bit different, but I think there's also going to be opportunities there as well. So just in general, you know, to your question, Ryan's question, I think there's a whole, deep vein for New Century around provider. And we haven't spent much time there now that we have a first very significant partner in this area. I think it gives us a chance to accelerate there.

Got it. Got it. No, that's helpful. John, I guess maybe just on the guidance, you know, revised upward, I just wanted to get a little bit more of what informed that raise. Obviously, the quarter was good. Was there anything else you're looking at across the year differently than, you know, the previous update? And then maybe specifically, you know, delayed redeterminations as it relates to Medicaid partners or anything around the special open enrollment period as it relates to exchanges, just trying to get a little bit more of some of the moving pieces behind the guidance raise.

Yeah, totally. So, obviously, we beat in Q1, and so part of the raise is acknowledging the strong performance there. If you look at the two components of the BEAT on the top line, I think I mentioned in the prepared remarks, part of that certainly was driven by higher than expected membership. And that contributes to tightening of our range on the top line for the rest of the year. Certainly, we do have high Medicaid percentage in terms of our mix. And so if the redetermination delay is extended, then that could have some positive impact on our top line. And then on the bottom line, principally performance there is driven by strong performance in our performance-based arrangements and taking that into account for the rest of the year as well.

Okay, great. Thanks so much.

Our next question comes from Sean Wieland with Piper Sandler.

Thank you very much. One more, if I could, on the risk-bearing primary care market. Is there any opportunities beyond New Century, maybe in Evelyn Care Partners or Evelyn Health Services for that market?

Yeah, no, I'm glad, Sean, I'm glad you asked that question. The answer is yes. We actually do some work already with Evelyn Health Services into, you know, the primary care provider space. I think our relationship with, you know, Somos in New York, which we've talked about over time, has a lot of components and capabilities that would be an example of that. And I think there will be others. There's some conversations that are ongoing today. And then, you know, for Evelyn Care Partners, You know, our approach there, Sean, really is to work with independent physicians who want to look and feel like those risk-bearing providers that we're all talking about and, you know, that are, you know, bumping along with their fee-for-service economics and want to transform what they do and do it first and foremost for the patients, but also the economic opportunity to do that. Surely they're seeing the economic opportunity in lots of different ways. So I'd just say that the pipeline for that Evelyn Care Partners business to having those conversations with independent primary care is very significant right now.

Great. And you mentioned, I think, for the first time, clinical trial recruitment. Can you just touch on that a bit more? What are you thinking about that, and how do you monetize it?

Yeah, Sean, we have not yet entered that directly in terms of monetizing it. I think right now we view it as a service to the treating oncologist and that patient to make suggestions based on our network and reach and knowing that when you have the genetic mutation information, that is often the key to unlocking access to a trial, right? helping line those things up. It certainly is also a business opportunity for us, but right now we're doing it as part of our kind of core value proposition, our current partners and the patients they serve.

All right, super. Thank you very much.

Sure, welcome.

Our next question comes from Charles Rhee with Cowen.

Yeah, thanks for taking the question. I wanted to follow up on this in primary care. Can you talk a little bit more about how does primary care in this situation use New Century? I understand how, or at least the way I understood it is with specialists, right? It can help them understand best treatment and understanding sort of the mutation and guide specialist decision-making. How is it being used here by primary care professionals? partners here, particularly that are risk-buried?

Yeah, Charles, it's a good question. It is similar in the sense that when a patient's diagnosed, the New Century team works with the treating oncologist to make sure that the pathway is correct. And if there's a need for changing that pathway, being able to work with the oncologist to change that pathway, which over time, as we always talk about, is better for quality of that patient and also reduces the cost. And so in that way, it's very similar to what we do. And I think it's an acknowledgement. We see this all the time with primary care physicians, the level of complexity in cancer is too much to keep up with, even for oncologists. So imagine how hard it is for a primary care physician. So I think having that extra layer of support for the patients that these primary care groups wrap their arms around is big. I think the thing that's net new and different is that we do have an opportunity, and part of what we're gonna be doing is integrating back with the primary care physician, meaning communicating back to the physician, closing that loop in a way that doesn't happen, unfortunately, enough in healthcare, where a patient goes into the specialty setting, primary care physician doesn't exactly know what happens on a regular basis. And so being able to close that loop. And often when you think about, imagine you have cancer, right? It's not just cancer. You actually do need to coordinate the drug regimen and the care that patient's receiving with other comorbidities. Mental health is highly correlated with cancer for not surprisingly. And so being able to tie that back into the primary care physician, all the wonderful work they're doing, is kind of a net new opportunity that's here over and above what we normally do.

So in this case, when you're working with risk-bearing primary care, is it that these groups are taking New Century, so they have a patient, they're diagnosed with cancer, before referring them on to a specialist, they're engaging with New Century Health to kind of guide the initial pathway, or is this a Is this helping guide the referral to a specialist? Because I would imagine I would think it's the specialist that would determine the treatment plan.

Yeah. Yeah, it's both. So we have kind of inserted a process, again, that new that we can't do normally, which is around directing the referral. Not all referrals for cancer go through the primary care, but those that do, We are going to be helping direct that using our data and information about who are the most efficient, high-value, high-quality oncologists. But also, once the patient gets to that destination, whether through the edited referral that we might make or on their own, applying the same methodology that we always do of pathway support and effectively what we kind of colloquially referred to as sort of, it's almost like a B2B second opinion, right, for that oncologist. And we're also obviously continue to do that in these cases.

Okay, that's helpful. And if I could switch gears, I want to ask about Passport with Molina. If I remember, I think you were, you sold it for $40 million and part of that price was contingent on how many lives Molina retained. I think Molina retained the bulk of those lives. So I'd imagine you captured the full purchase price. And is there any remaining cash we're still waiting to collect on the runoff of lives?

Hey, Charles, it's John. Let me take this in order. On the membership purchase price, in the first quarter, we received $23 million, which is 50% of what we've earned. The second quarter, $23 million is payable in Q1 of 2022, so a total of $46 million. That last $23 million is subject to a couple of contingencies across this year. On total cash back, that part of the question, beyond that second $23 million slug that will come beginning of next year, We are still winding down the plan, and we'll expect some additional capital back as a part of that over the next couple of quarters.

Okay. And then last one for me on Molina. I know part of the agreement with Molina is serving them in Kentucky, but there was talk of expansion into additional states. Is that something that we expect this year? And if so, is that already in the guidance, or is that something we expect at a later time? Thanks.

Yeah, Charles and Seth, I can take that one. Yeah, we are doing work in Kentucky with New Century, as you mentioned, also the state of Washington. And that was additive. And then, you know, we're right now focused on doing a great job with those two, but we think there could be opportunities beyond those two as well.

Great. Thanks a lot, guys. Welcome.

Our next question comes from Ann Samuel with JP Morgan.

Hi, guys. Thanks for taking the question. I was hoping maybe you could give us a little bit of a DC update now that we've got a new administration. We've been hearing from a lot of others that, you know, that maybe the environment's a little bit more favorable for value-based care. So just curious your thoughts there.

Yeah, Seth, happy to take that one. I think, you know, when we think about macro environment, the first thing we kind of think about is actually the private payer market, the risk-bearing primary care groups or the MCOs, and they're the macro environment's really good. And we've talked a lot about that today. And there's just a lot going on with value-based care. I think a lot of pressure to manage costs coming out of COVID, et cetera, et cetera. In many ways, if you think about macro for us, that's the 80 to 90% of life for us is what happens in that segment. And it's in a great place there. A lot of these announcements are consistent with that. With respect to the administration, That's kind of upside to us, the way we think about it. It is favorable, to your point. A lot of commitment to value. We're very deeply tied into CMS and CMMI and spend a lot of time with them right now. And, you know, the good news is this has been kind of accelerating since 2010 or 11. And even through the Trump years, you know, there was continued focus on value. But yes, I would say further acceleration, under this administration that, you know, I think getting their ducks in a row with respect to what that's going to look like, and we're providing a lot of input to that, but we think that's a nice kind of additive piece for everyone over the years to come.

Great. Thanks so much.

Sure. Welcome.

Our next question comes from Richard Close with Canaccord Genuity.

Yeah, thank you. I was wondering, Seth, if you could just go into a little bit more detail on the new products or services that you were talking about with respect to genomics and I think the drugs and cardiology, just a little bit more detail there. I know you addressed the clinical trials with Sean's question, but if you could.

Yeah, sure, Richard. Yeah, let me start with the genetics piece because that, in a lot of ways, I've talked about three things, but that's sort of the biggest of the three. And, you know, the issue with genomics and cancer is that there are more and more expensive drugs that are coming out that are very targeted towards specific genetic mutations. But often what you find if you look at the data is that the companion genetic tests isn't ordered. And in the therapy, expensive therapy is prescribed to patients who don't have the mutation. Or worse, you have a patient who has the mutation and therefore would respond well to the therapy, but they're given a different first-line therapy that might fail and you've wasted valuable time for that patient. You could have gone straight to the more expensive but higher efficacy therapy. And, you know, so the analogy would be, you know, if you were an oil company and you were drilling randomly without geostudies, you know, you would never do that. And you really shouldn't be diagnosing and prescribing therapeutics without the proper genetic tests. Now, this space is incredibly complicated, and there's a lot of gray areas, and it takes a lot of interpretation. And so we think it fits very well with what we already do at New Century, right, take science and evidence and apply it to clinical situations with the best interest of the patient in mind first, but second, looking at efficacy and cost. And, you know, today there's a smaller subset of drugs that are tied to companion diagnostics and genetic mutations, and that's a savings opportunity today, but if you go out two, three, four, five years, that number is going to grow a lot. So we want to be the market leader in what we're doing here, and we think we are, and Adding this module, I think, is going to be really important to, you know, staying in that position and being able to drive the kind of quality care that we want to do. So we're very excited about this, and there's a very deep vein here. You know, the other couple things are important, too, but they're, you know, more around the edges. And just to give you one of the two examples, you know, the ability to understand how future drug pipeline and how changes in that pipeline overlay with the plan's formulary would affect their costs. and our ability to use that to help drive decision making with the plan, which ultimately affects the cost and quality is another example that's almost like an analytics product that kind of overlays with the kind of workflow product that we provide every day. So that may be more color than you're looking for, but that's a little bit of flavor.

Well, from a revenue contribution standpoint, so we're really talking fiscal 22 or calendar 22 and beyond on those new offerings?

Yeah, I would say yes in general, but they can also show up in two other places. Just, you know, conversions and wins, even on the core product, right? This is a value added thing that, you know, even if we are not getting extra PMP import this year, it is important and exciting for a buyer. And so I think it'll show up as a support there, you know, sooner. And then the other thing it does is it drives the performance in terms of cost and quality in the right direction. So it also helps us on our performance side, right, of what we do, where we participate in the savings that they created. And that, you know, could help us across this year as well. But, you know, in general, it is a future thing, but it will help us this year.

Okay. Thank you. Sure.

Our next question comes from Andy Draper with Truist Securities.

thanks very much and congrats on the quarter just a couple sort of housekeeping questions one I just want to confirm John the the guidance you're no longer talking services revenue so the guidance is is really gap revenue so it's not adding back I mean the inner segment eliminations is very small now but I just wanted to confirm that first yes Andy that's correct so the

Then true health is now in discontinued operations and our revenue services revenue to that plan is.

Pardon me, we seem to be experiencing some technical difficulties, so please hold for a moment. Thank you. And I've reconnected our speakers.

You may proceed.

All right. Apologize for the technical difficulties there. Back to your question, Sandy. The True Health services revenue is now between Evalent and Bright. So it's incorporated in the guidance for the rest of the year. And going forward, our revenue is just the services revenue with True Health and discontinued operations.

Got it. Okay, that's helpful. And then another sort of housekeeping. In the new segment reporting, the numbers line up a little bit differently than the old when you had reported transformation clinical administrative solutions in the 10Q. Is that just the way you're presenting now, or is there something else going on? I'm just trying to think about how to try to tie, until the Q comes out, tie how you're reporting clinical benevolent health services versus what you used to report clinical solutions and admin solutions in the SEC documents?

Yeah, that's a good question. So the prior method of reporting included some contracts that are managed now in our EHS segment as clinical contracts. They're pop health contracts. So that's part of the change there. The SEC filing will be out very shortly. So that will bridge the gap for you.

Okay, great. And then one final one, also probably pretty quick. Transformation services is obviously down. We had a quarter, I think it was second quarter last year, where it's below a million. I mean, how should we be thinking about transformation services? It's not a huge portion of the business anymore, but just, you know, as a percentage of the total guide, or is there a dollar range we should be thinking about? My guess is it wouldn't stay below a million a quarter, but I just want to make sure I shouldn't just be basically looking at this as less than a million dollars each quarter going forward.

Yeah, as you've seen in the last several quarters, the transformation revenue line tends to go up and down just based on the volume of implementation work that we're doing in that quarter. And we'll see the same thing, I would expect, in future quarters. So, if you look at that recent history there, it's probably a pretty good indication.

Got it. That's it for me. Thanks so much. Great.

Our next question comes from David Larson with BTIG.

Hi. Congrats on a good quarter. Can you just please remind me what exactly is in clinical solutions and what exactly is in Evelyn Health Services? Is clinical primarily New Century Health? Evalent Health Services is mainly valence and identify? And why are the margins on clinical a bit higher? Thanks.

Hey, Dave. Thanks for the question. You are right in terms of categorization. Our clinical solutions encompass both New Century Health and the Evalent Care Partners solution, the primary care solution, where Evalent Health Services is the old valence business, the administrative services and some legacy pop health contracts as well. And generally speaking, New Century has a slightly lower gross margin on a percentage basis than did Legacy Evolence at the time of the New Century acquisition, and that trend has generally continued.

Okay, great, thanks. And then in terms of the appetite that primary care physicians and provider organizations have for risk, I guess maybe Seth, can you comment on that? Is it accelerating now? And how much more money can a physician group make when they capture part of the premium under a risk deal versus traditional fee-for-service? Just any additional color there would be very helpful. Thanks.

Sure, David. Good question. I'd say it is accelerating right now. I think that's driven by a couple different factors, including, you know, the experience of what fee-for-service is like during a pandemic. I think, you know, seeing what else is going on in the marketplace and, you know, just generally also when you sit down and talk to primary care physicians about what it's like to practice medicine under more of a value model, it's better healthcare, more thoughtful healthcare, more integrated, and I think physicians want to do that when they can. I'd say yes, it's accelerating. And I think there's a nice opportunity for us to continue going down that path. And it's going to be a pretty significant contributor, I think, over time for us. So that's how we think about it.

Okay. And then just the last one for me, like with your Centene and Molina and Blue Cross Medicare Advantage deal in Florida, it's my understanding that These are plans that have contracts with New Century Health for one product, right? It's either oncology or cardiology, not both. So that would still represent an in-cell opportunity for each of those plans. Is that correct?

Yeah, correct. We do. We've started with one part of our portfolio, and there's certainly an opportunity to cross over on the other side. We also have had the technology and performance suite has been the focus there. And the other dimension of kind of cross-sell, in-sell, to your point, would be to move to more of the full suite, performance suite, which would also represent some upsides. There's a couple different ways to expand those relationships and opportunities in both directions.

Great. Thanks very much.

You're welcome, David.

This concludes our question and answer session. I'd like to turn the call back over to Seth Blackley for any closing remarks.

Thanks for everybody's time. Look forward to connecting over the days and weeks ahead. Have a good evening.

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