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.