Evolent Health, Inc.

Welcome to Evelyn Health Earnings Conference Call for the quarter ended June 30, 2021. As a reminder, this conference call is being recorded. Your host for the call today is Mr. Seth Blackley, 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 is 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 filings. 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.evalenthealth.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. Please go ahead.

Thank you, and good evening. I'm Seth Blackley, Chief Executive Officer of Evelyn Health, and I'm joined by John Johnson, our Chief Financial Officer. I'll open up the call this evening with a summary of our recent results, including an update on our key investment themes, which are, one, strong organic growth, two, expanding EBITDA margins, and three, efficient capital allocation. Next, I'll share highlights from across the business and how our differentiated solutions drive value for our partners before providing details on our recently announced transaction with Vital Decisions. I'll then hand it to John to take us through a more detailed financial review of the second quarter results, as well as provide third quarter guidance. I'll close with a summary of our key focus areas. As always, we'll be happy to take questions at the end of the call. We have shared a summary of our quarterly financials and highlights and an overview of the vital decisions transaction for your reference and a presentation available on the events section of our IR website, ir.evalenthealth.com. In terms of the financial overview and results for the quarter, Total revenue for the quarter ended June 30, 2021 was $222.1 million. Adjusted EBITDA for the quarter ended June 30, 2021 was $13.3 million. As of June 30, 2021, we had a total of 12.2 million lives on the platform, including approximately 3 million lives on the full platform, plus an additional 9.2 million lives in our New Century Health technology and services suite platform. Overall, we're very pleased that we achieved our key financial objectives for the quarter, and we feel good about our visibility into the quarters ahead. Turning to an update on our three investment themes, our revenue result represents year-over-year organic growth of 42.3%, which includes the divested assets. as we continue to deliver on our first investment theme of strong organic growth. Our subscription-based model gives us a high level of visibility into our forward revenue, and we're happy to be increasing our guidance for this year, and we believe we're very well positioned headed into 2022. I'm also excited to announce today three additional partnerships, bringing our total this year to seven on our way to meeting or exceeding our target of six to eight. First, Evalent Care Partners entered into new partnerships with Patient Physician Network and Bond Clinic. These two new high-quality physician groups represent an exciting expansion of Evalent Care Partners' presence in Texas and initial market entry into Florida, and both present opportunities for future growth. Patient Physician Network represents a new relationship in Evalent Care Partners' existing Texas market, and we've entered a new state with the addition of Bond Clinic in Florida. In addition to the lives launching in January 2022 as part of these arrangements, the total addressable population for these two geographies is approximately 2 million lives, providing strong expansion opportunities across 2022, 2023, and beyond. With the expansions announced today, the Evelyn Care Partners now has a presence in seven states. Second, we've signed an agreement with Molina, Ohio, to provide New Century Health cardiology services for approximately 160,000 Medicaid and exchange members through the New Century Health Performance Suite product, expecting to launch during the first half of next year. This signing is particularly exciting because it demonstrates our ability to expand organically with our base of large national payers and risk-bearing providers. It also serves as proof of concept for our ability to expand a relationship from the technology and services suite to the full performance suite as we prove our value proposition to our customers. As a reminder, our performance suite PMPMs are over an order of magnitude higher than the technology and service suite PMPMs. Inclusive of Ohio, Kentucky, Washington State, and other accelerating state-level conversations within Molina, We see a path to approximately $75 million in annualized revenue by early to mid 2022 across our Molina New Century relationship. With over 9 million lives in our technology and services suite, the New Century Health opportunity to expand performance suite for both cardiology and oncology is a very large growth opportunity for our company. Conversion of New Century's nine million technology and service suite live to the performance suite would represent over three billion dollars in increased annual revenue at typical PMPMs. Given this opportunity and given the size of any one new state going forward, we will treat new state-level performance suite signings within our existing payers as new partner announcements for the purposes of our six to eight annual signing targets. In addition to adding new logos, we'll be putting continued focus on expanding with our larger installed customers. For example, out of our largest 10 customers by membership, we currently address only approximately 10.5 million lives of the more than 35 million lives covered by those relationships. Finally, we continue to see strong same-store growth across the rest of the business. For example, Evelyn Care Partners has signed agreements with a large national payer to expand its existing footprint life base in the state of Texas, providing our total cost of care management services across a portion of the payer's Medicare Advantage and commercial plans. We're excited about this shared savings-based partnership because it is Evelyn Care Partners' first contract supporting Medicare Advantage and presents an opportunity to drive clinical quality and financial performance across a growing Medicare advantage eligible population in the state of Texas, in addition to expanding our commercial presence in the state. Ensuring that this strong growth drops to the bottom line is our second investment theme as we continue to drive expanded adjusted EBITDA margins. We're at a margin of 6.5% year-to-date, an improvement of 320 basis points over last year, and we continue to make nice progress on our strategic cost initiatives. Finally, Turning to our third theme, we remain focused on efficient capital allocation. John will discuss our capital strategy in further detail as we continue to focus our priorities on, one, enhancing our core business through organic product investments, two, disciplined, targeted, and accretive non-organic investments to accelerate our core business, and three, maintaining a strong balance sheet with reasonable debt coverage. In conclusion, we've made significant progress on our three key themes and feel very good about the momentum for the second half of this year and headed into 2022. Turning to updates on our three solution areas, I couldn't be prouder of how our employees continue to deliver for our customers and the 12 million members on our platform. The dedications they bring underpins our ability to maintain strong customer relationships, which we continue to see across the business. Starting with New Century Health, we're excited that 2021 marks our 10th anniversary supporting Humana, one of the most sophisticated and high-growth payers in the health insurance market. Importantly, we have consistently expanded our work with Humana over the last several years, which speaks to our strong ROI and focus on customer satisfaction. Just recently, we have added new capabilities like our dose rounding module within CarePro, expanded our performance suite into neighboring geographies, and added cardiology and other geographies. With the rapidly accelerating pressures from the specialty drug pipeline, expansion of Part D spending in oncology, and the increasing importance of genomics across cardiology and oncology, we look forward to continuing to support Humana's growth, member quality, cutting-edge innovation, and cost management. Turning to Avalon Care Partners. We're excited to now support independent physician groups covering close to a billion dollars in health care spend. Our support of these physicians drives increased quality and increased physician compensation, leading to strong patient outcomes and very high year-over-year physician retention in our network. In Q2 2021 alone, the Evelyn Care Partners Network addressed approximately 18,000 clinical improvement opportunities, of which 6,000 were high-impact interventions. Leveraging our proprietary real-time stratification models through our Identify technology platform ensures that each physician in the network is prioritizing the highest impact interventions, optimizing health outcomes for their patients, and maximizing their own compensation. Finally, I'll highlight a few examples of how we're driving value for our customers at Evelyn Health Services. We recently deployed two new innovations through machine learning. optical character recognition, and natural language processing that automate steps in the claims process resulting in improved quality, faster delivery, and lower unit cost structure, enabling partners like Maryland Physicians Care, who went live with us earlier this year, to ensure top-notch service to their members and network providers. Additionally, our work with two large ACOs has yielded shared savings resulting in an operating margin of 28 and 29 percent, respectively. across the last four years of operations. In a similar vein, our partnership with CountyCare, which began in 2016, has enabled that plan to grow significantly while sustaining the lowest administration expense ratio among Medicaid MCOs in Illinois with a solid operating margin. Evelyn Health Services' operational performance and high partner satisfaction at CountyCare were important factors in the plan's decision to expand with us adding New Century Health in 2019, which tripled the size of the partnership. Most recently, we finalized an amendment with CountyCare for additional quality-related services, including risk adjustment and provider scorecards through Evelyn Health Services. In addition to driving value for our partners, we also collaborate on creative strategies to support their organizational and community-focused goals. Recently, we issued a request for information for certifiable African-American minority organizations to support our health plan operations at CountyCare. This opportunity aligns closely with our deep commitment to promoting diversity, equity, and inclusion, as well as the supplier diversity goals of Cook County and the state of Illinois. Now, let me say a few words about our renewal environment, which has been strong so far across this year. Across the business, our average annual renewal rate excluding divested assets has been 109% since 2019, driven both by the value that we create for our customers and by the way our product offerings work well together. In Evelyn Care Partners, our model of physician engagement is performing well and has enabled us to retain 98% of our network physicians between 2020 and 2021. In Evelyn Health Services, our contracts are typically three to five years in length. We're happy that we've recently renewed and expanded our work with SOMOS, an independent physician group in New York, to coincide with their significant membership expansion. Also, as we pass the five-year mark serving county care, we expect to enter normal course renewal discussions for our administrative services later this year for the contract period started in 2023. These services account for a little less than a third of our revenue from county care. and we feel we're well positioned for the renewal and to continue to grow our relationship with CountyCare. For New Century Health, our customers are typically on evergreen annual contracts with an average annual customer tenure exceeding five years, demonstrating strong renewal dynamics. Further, our recent expansions at Centene, Molina, and Humana are additional evidence for the ROI of our service and the satisfaction of our payer partners. Overall, we feel very good about our performance headed into 2022, and we feel very well positioned to drive strong, continued growth across our client portfolio. Next, I want to provide a summary of the acquisition of vital decisions that we announced today. As mentioned earlier, I will reference the presentation posted on the events section of our IR website for this portion of the call, starting with slide number eight. We're obviously very excited to be acquiring Vital Decisions, a leading technology enabled services business specializing in advanced care planning to address a critical unmet need in the broader end of life space. Founded in 2006, Vital Decisions ensures that the care received by individuals with advanced illness aligns with their values and changing preferences throughout their last years of life. Today, Care in the last 12 months of life incredibly accounts for over 20% of total healthcare spend in the United States. And up to 35% of costs at the end of life are from unwanted care, driving excess spending and significant patient harm. Vital Decisions addresses this issue with behavioral health specialists, advanced technology, data science, and motivational interviewing to elicit, document, and share patient preferences and goals of care. which play a critical role in the end-of-life care continuum. Similar to New Century Health, Vital Decisions sells services to payers and delivers strong ROI to those clients while improving patient quality and satisfaction. Vital Decisions' business model is fee-based and drives recurring revenue. And, as we'll cover in a moment, the acquisition is EBITDA per share accretive before assuming any synergies. The strategic rationale for the Vital Decisions acquisition is threefold. First, we believe the transaction will strengthen Vital Decision's existing offering, which today focuses on the patient but does not engage directly with the provider. Of course, New Century Health today focuses primarily on influencing providers, but often not the patient directly. Putting these two parts together creates a significant opportunity. Given that cancer and heart disease, where New Century Health is focused today, account for more than 50% of the end-of-life care opportunities in the United States, We believe New Century Health can drive meaningful cost and quality improvements in these two specialties. Second, we expect Vital Decisions to accelerate the growth opportunity and profitability of New Century Health. The company is highly complementary to New Century Health's existing business, which presents near and long-term growth and cross-sell opportunities. Only 27% of Vital Decisions customers are current New Century Health customers, And only 18% of New Century Health customers are Vital Decisions customers. We believe we'll be able to continue the strong track record of the New Century sales team driving growth. Additionally, we believe Vital Decisions capabilities can drive higher EBITDA as end-of-life capabilities, patient engagement, and telehealth have the ability to reduce the total cost of care, driving margins of our performance suite product. Third, we see strong go-forward product opportunity for the combined solutions, given we expect vital decisions to add consumer, patient engagement, and telehealth capabilities to New Century Health. So, with New Century Health's 19 years of physician engagement and Vital Decisions' 15 years of patient engagement and telehealth experience, we believe this product integration should increase the product stickiness, sales conversion, and profitability of both products. Turning to the transaction overview, which is profiled on page 8, the transaction has an $85 million purchase price at close, plus an earn out of up to $45 million based on Q4 2022 run rate EBITDA for a maximum purchase price of $139 million. The on-prem consideration will be funded with 50% cash and 50% equity, with the cash consideration funded with cash on hand. The earn out will be funded with up to 50% Evalon equity at our discretion, and the remainder funded with cash. The transaction is subject to certain customary closing conditions and we expect it to close later this year with no impact on our top and bottom line guidance given the size and timing of the transaction. Once the transaction closes, the talented Vital Decisions team and management will integrate into New Century Health. In terms of a quick overview of Vital Decisions financial profile, as of June 30, 2021, Vital has annual revenue of approximately $20 million. and approximately three to $5 million of go forward EBITDA. The business has 55 to 60% gross margins and strong top line trajectory with year to date revenue through June 30, 2021 up over 40% versus the same period in the prior year. Vital currently covers approximately 2.9 million members across 12 health plans nationally. Additionally, we believe this transaction has an attractive valuation profile. FIDO's anticipated 2022 contribution is approximately $5 million of adjusted EBITDA before any synergies. The upfront valuation is approximately 17 times EBITDA before any synergies, and a total maximum valuation of 15 times Q4 2022 run rate EBITDA, which will be up to $130 million of total purchase price. Together, we believe this will be a nicely accretive acquisition that connects to our key investment themes and mission. Coming back to the problem vital decisions addresses in the end-of-life care space, I'll refer to slide 10. The company drives reduced spend at the end of life by adhering to patient preferences. Again, over 20% of expenses occur in the last year of a member's life, and 35% of costs at the end of life are from unwanted intensive care for patients who prefer hospice and home care. In fact, 71% of adults have no knowledge of palliative care, 89% want to discuss end-of-life issues with their doctors, but only 17% do. These issues are highlighted in Atul Gawande's book, Being Mortal, which places a sharp focus on the human suffering associated with end-of-life mismanagement. The quote on the right side of slide 10 highlights the opportunity in cancer care to alleviate suffering, reduce health care costs, while actually increasing expected lifespan from palliation enrollment by 25%. Next, I want to turn to slide 11 and a deeper summary of the Vital Decisions capabilities. Vital has a dedicated virtual team that leverages its market-leading predictive analytics models and member-facing digital platform to facilitate advanced care planning of patients. We look forward to leveraging the strong track record of the New Century Health Team to achieve cross-sell opportunities in both directions and also expand the integrated offering. Turning to slide 12, We believe the acquisition will add important capabilities to the new century health portfolio and presents strong opportunities for our company going forward in the consumer space. While not factored into any of the financial numbers shown today, there are a number of strategic product extensions we can consider in the future to build off of Vital Decisions patient engagement and telehealth platforms that could further strengthen our core business. Closing out the Vital Decisions discussion on slide 13, we think this is an exciting acquisition that is fully consistent with our three investment themes. We believe that Vital Decisions can accelerate New Century Health's growth opportunity through strong two-way cross-sell opportunities and enhanced core offering. Vital Decisions' margin profile is higher than Evelyn's average, and we would expect it to increase core New Century Health margins as well. Lastly, the use of capital for this transaction we believe will accelerate our company's growth and margins, while being accretive and keeping our leverage ratios in line with our expectations. With that, I'll turn it over to John to give more details on our financial performance in the quarter, as well as to provide guidance.

Thanks, Seth, and good evening, everyone. Overall, we are pleased with another strong quarter of execution across our enterprise. Year-over-year organic growth excluding divested assets was 42.3% compared to the same period in the prior year. Growth is ramping across all areas of the business and has been particularly strong within our clinical solution segments, which has benefited from multiple new go-lives and customer expansions at New Century Health. These new go-lives drove a net sequential increase in revenue of $7 million over our consolidated first quarter results. Year-over-year adjusted EBITDA margin expanded by 117 basis points to 6% for the quarter, consistent with our planned margin expansion trajectory. We are pleased to report that our cost reduction effort, bringing further automation and machine learning to the administration of healthcare, is proceeding ahead of schedule, setting up a compelling unit cost profile for our future growth, especially in our Evelyn Health Services segment. As importantly, continued strong growth in our clinical solutions segment brings with it further margin expansion tailwinds as our newer partnerships mature in the coming years and ramp to full impact from our value-based approach. Recall that our flow-through margin in these businesses can increase by 2 to 3x over the first couple of years as we stand up our clinical programs and drive the highest clinical quality and outcomes through the network. Cash usage in the quarter was minimal, with Q2 ending available cash of $140.1 million, excluding cash held in regulated accounts for Passport, down $0.5 million from Q1. Cash deployed for software development and purchases of PP&E was $5.5 million. Net debt, which we define as the face value of our convertible notes less available cash, was $176.2 million at quarter end, resulting in a net debt leverage of 2.8x versus LTM adjusted EBITDA. Now let me take you through consolidated and segment-specific results before briefly discussing our capital allocation strategy then ending with an update on guidance. Revenue of $222.1 million in the quarter represents an increase of 2.2% year-over-year. More importantly, revenue left to vested assets of $218 million increased 42.3% from $153.2 million in the prior year due to growth from new partner additions as well as same-store sales growth. Adjusted EBITDA grew to $13.3 million relative to $10.5 million in the same period of the prior year. Turning to our segment results, within our clinical solutions segment, revenue in the second quarter increased 12.6% to $147.2 million, up from $130.8 million in the same period of the prior year. Excluding revenue from divested assets, clinical solutions revenue grew 50.2%. Adjusted EBITDA from our clinical solution segment for the quarter was $13.6 million, compared to $12.2 million in the prior year. Membership in our full platform for clinical solutions was $1.5 million relative to $1.4 million in Q2 of the prior year, with a PMPM fee of $32.39 versus $31.03 for the same period of the prior year. Membership in our New Century Health Technology and Services Suite for Clinical Solutions was $9.2 million relative to $4.9 million in Q2 of the prior year, with a PMPM fee of $0.37 versus a PMPM fee of $0.40 in the same period of the prior year. Within our Evalent Health Services segment, second quarter revenue decreased 13.6% to $75.3 million down from 87.2 million in the same period of the prior year, and largely driven by the disposition of passport, partly offset by new partner additions. Excluding revenue from divested assets, Evalent Health Services revenue grew 28%. Adjusted EBITDA from our Evalent Health Services segment for the quarter was 6.5 million, compared to 6.9 million in the prior year. Membership in our full platform for Evalent Health Services was 1.5 million, relative to $1.8 million in Q2 of the prior year, with a PMPM fee of $13.81 versus $14.78 in the prior year. Finally, corporate costs decreased 21.4% to $6.8 million, down from $8.6 million in the same period of the prior year. This decrease was the result of continuing to execute on our commitment to reduce overhead while still delivering strong operational and clinical performance for our partner organizations. Before I turn to guidance, let me walk you through how we are prioritizing our capital allocation strategy. Consistent with our investment themes, our capital allocation is focused on driving profitable growth in our core services business while maintaining a reasonable amount of leverage for a company of our scale with the ultimate goal of driving the best results for our shareholders. Our first priority is toward internal product development and enhancement. We believe we have an industry-leading set of solutions, and we continue to invest to make them industry-leading. This year alone, we expect to deploy more than 45 million in product development and R&D, of which approximately 25 million will be capitalized as software development. We believe this development cost, leveraged across the 12 million lives on our platform, is critical to driving customer performance, which in turn propels our growth and profitability. Our second priority is towards strategic acquisitions that accelerate and complement our current solution framework. We believe the Vital Decisions Transaction is a superb example of this objective in that it adds important capabilities to our platform and patient engagement, accelerates our growth within New Century Health, and is accretive on a go-forward basis. Our third priority is to ensure an efficient capital structure. To this end, we will generally seek to maintain a reasonable net leverage level and prudently manage our cash interest, maturity timing, and other financing costs. Finally, turning to guidance. We are increasing our full-year revenue guidance to between $870 million and $900 million, an increase of $22.5 million at the midpoint versus prior guidance. principally driven by the momentum established during the first half of the year across both new customer go-lives and existing customer expansions. We are also increasing our annual adjusted EBITDA guidance to between 50 and 58 million, an increase of 7 million, or 15% at the midpoint, versus our prior guidance. We expect our second half EBITDA will be slightly weighted towards Q3, with Q4 modestly impacted by one-time go-live expenses for our previously announced large health plan clients that will go live in January 2022. Regarding vital decisions, we expect minimal impact from the acquisition on our guidance in 2021. After the transaction closes, we will report vital decision results in our clinical solutions segment as a part of the tech and services suite. And for clarity, In terms of cash usage, the initial consideration for VITAL will be $42.5 million in cash with the rest in equity. For the third quarter specifically, we are forecasting total adjusted revenue between $215 and $230 million, and we are forecasting total adjusted EBITDA of $11 million to $15 million. With that, I will turn it back over to Seth.

Thank you, John. We remain confident in the execution of our investment themes 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. 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 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question will come from Ryan Daniels of William Blair. Please go ahead.

Yeah, guys, congrats on the strong first half of the year and all the progress and on the vital decisions transaction. I want to dive a little bit deeper into that. Can you talk a little bit more about the background in that product and how it leverages not just communications with patients and engagement, but also kind of care guidelines and how you think you can enhance that perhaps with your oncology and cardiology offerings to kind of integrate more best practices and drive not only a better patient experience, but maybe lower cost and better outcomes, especially as patients approach the end-of-life care?

Yeah. Hey, Ryan, it's Seth. Great question. So if you think about what Vital does today, they use their algorithms and their technology to identify a group of patients out of a larger population that they want to reach out to, communicate with, build out a care plan around that individual's preferences, and they do that directly on behalf of the payer, reaching out directly to the consumer or the patient, and they do it through basically a telehealth platform. And it works well, and they have great results, and it's performed well for the payer clients that they have. But if you think about what New Century does and think about cancer as an example, and I mentioned cancer and cardiology are 50% of end-of-life situations, we have incredibly deep relationships with the cardiologists and the oncologists. And so our ability to coordinate, let's say, let's use cancer as a for instance, with the oncologist and get a line between the oncologist, vital decisions, new century, and the patient, and get that entire group on the same page and the family, frankly, we just think we can have you know, considerably higher levels of engagement and overall lower costs. And in general, you know, what happens is patients are on average, in many cases, cancer being a good example, receiving far more care, far more chemotherapy as an example, and they really want it at the end of life. And so the ability to get those things aligned and, as I said, add our ability to bring oncologists into that conversation and get everybody on the same page, we think is a big addition. And again, we connect directly with patients today through New Century, but the master's level behavioral specialist that Vital has, we think we'll be able to take that to another level, particularly around end-of-life conversation. So it really is one of these wonderful examples of bringing two things together that really should belong together, and we're very excited about it.

Is that the type of offering where even if you don't cross-sell it, you can probably integrate some of the solutions into your current business to drive better outcomes and cost savings and maybe benefit financially or benefit through expanding contracts because of the enhanced value proposition?

Yeah, absolutely. And, you know, obviously we're going to be trying to do both. But if you just answer your question specifically, the answer is absolutely yes, particularly when you think about our performance suite, right, where we're accountable for managing the total cost of care on behalf of the payer and the ability to engage the patient in these end-of-life opportunities has, we think, a very significant opportunity to, frankly, reduce the cost. And as I mentioned in the prepared remarks, that often amazingly ends up in a happier patient and longer lifespan. And so it's one of those win-win situations and being able to bring that in to the cardiologist and we would be integrating and embedding this outreach into CarePro so that the oncologist is brought into the process from a technology perspective, data perspective, and ultimately into the conversation directly with the patient and their family.

Okay, very helpful. And then switching gears, You discussed the Molina contract. That's quite impressive. And I want to get a better feel or understanding for the revenue that's actually likely to hit a run rate versus what could be a potential run rate revenue. So I think you mentioned something like $75 million. Is that where you think you will actually be on a run rate upon full implementation? Or is that the opportunity longer term if you can continue to penetrate within the client?

Yeah, so just a little context, and I'll answer your question specifically, Ryan. Look, we're excited about Molina. It's a great team. We've been there for now over six months in terms of doing work with them, and have had a chance to prove out the value proposition that we have. And so we're really excited about it. We're excited about now being in three states, but probably most excited about kind of the proof case of going from the tech services suite with our relationship into the full performance suites. And so that is a big deal, we think, given that we have 9 million tech services lives, and that conversion is very interesting to us, and we think it's very attractive for our partners as well. So that's playing out like we hoped. The 75 million is a specific number that we'd be at on a run rate basis next year, and we gave a little bit of timing guidance around that. So it's not a pie in the sky. We hope we get there, but it's something we see direct line of sight to based on the things that we're doing right now.

Okay, perfect. Thanks for all the color, and again, excellent performance, guys. Congratulations. Thanks so much.

Thanks, Ryan.

The next question comes from Charles Ray of Cowan. Please go ahead.

Yeah, thanks for taking the questions. I wanted to ask about the renewals. I think Cook County is one that you talked about. You're doing some initiatives to hit some ESG-related metrics. That contract in particular, is there anything about that in terms of renewal that is something that is worth calling out here, or is that one that's on sort of a continuous evergreen kind of status?

Yeah, let me give you a little context on CountyCare. We're about five years into that relationship on the Evelyn Health Services side, and partnership has gone actually very well, and excited to be kind of lowest cost administrative ratio if you look at the Milliman benchmarks in the market, and highest quality and the like. So they're a great partner, they're a very happy partner, and we spend a lot of time with them. Generally speaking, at the end of five years, the county guidelines call for renewing all contracts. So we're kind of at that normal course renewal process. And our expectation would be that they would have a more formal vendor procurement process across the next few months. And so it's kind of normal course, what we expected. And again, this is for a 2023 renewal, Charles, to be clear, and also just focused on Evelyn Health Services, which is kind of a third of that overall county care. And we feel very well set up for it.

Okay. That's helpful. And then maybe when we look at on the clinical solution side, the performance suite versus the tech and services, you kind of highlighted that if you can transition all the tech and services members and their lives over to performance suite, that's about $3 billion in revenue. Okay. you know, so far, like what has that kind of conversion rate look like for you sort of on an annual basis? And, you know, what, what do you, you know, what do you see helping you drive maybe a faster conversion of that? And, and then secondly, you know, when we think about lies between Medicaid and Medicare, can you give us kind of a split? I know you talked that tech and services is driven more by the growth of Medicaid versus performance, which has been driven more than Medicare and, But maybe you can give us a split what that kind of looks like currently in terms of lives.

Yeah. Sure, Charles. Let me take the first one. I'll pass the second one to John. So on the conversion question, you know, we just got announced with going live with this tech services piece right at the beginning of this year. And I think it's going to take, you know, six, 12-plus months of performance to really show the value and then have the opportunity to come back, have those conversations, and then look at a state or market, particularly where there may be some pain for that given payer or risk-bearing provider and they need our support in greater detail. And so, you know, I wouldn't expect to have a lot of data points six months into it, although it's nice to have one. But I think, you know, later in the year and into next year, we'll have a lot of additional data on the opportunity to continue converting that. But, you know, that's part of the design is to be able to move quickly. get out across the market. It generates nice operating income as well, but it also is going to get us into a position to better have those conversations later this year and into next year.

And, Charles, go ahead. I'm sorry.

You can jump in and answer your last question. Yeah. On the live question, we're a little over 50% Medicaid right now. If you want a more detailed breakout, we do have that within our queue, and then in page 19 of the PAC that we put up on our website, it breaks down by segments by line of business. That should give you some color there. Generally, what we see on a PMPM basis is Medicare, Medicare Advantage, and Medicare Fee-for-Service tends to have a higher PMPM fee. Service is more complex. than does Medicaid. So that's some of the dynamics that you'll see in our PMPMs over time, but hopefully that gets you the answer you're looking for.

Okay, yeah, I'll look through that. And maybe just lastly on vital decisions, you know, Seth, you talked about being poorly managed. What do payers, what are payers doing to manage sort of end-of-life costs currently, or is it just not doing much at all?

Yeah, look, I mean, unfortunately, there's not that much going on if you look broadly, and you look at some of the data points that I mentioned that 89% of people want to have an end-of-life conversation, 17% are actually having those conversations, for instance. So, you know, unfortunately, the market is incredibly immature here, and there's some players that are doing the actual palliative care work, but we see a bigger part of the problem is upstream from that, meaning... You know, how does a family and their patient coordinate with their physician to make these decisions, right? And get clear on those decisions before you're in the crisis itself. And that, to us, is a very big opportunity. It's incredibly mission-driven, and it's a pretty open space right now. So we're excited about it, and I think our team is energized by the mission component of it as well.

Great. Appreciate it. Congrats.

Thanks, Charles.

The next question comes from Richard Close of Canaccord Genuity. Please go ahead.

Yeah, thanks. Congratulations. Great presentation of all the progress you guys are making. Considering your target, the mid-teens organic growth, it sounds like that could be pretty conservative based on some of the things you've laid out here. How are you thinking about that? Are you just just trying to remain conservative? Is that mid-teens, a two- to three-year outlook? How are you thinking about that?

Yeah, it's a great question. I mean, obviously, at this point in the year, it's a little early to start talking about specifics around 22, and lots of things still in the pipeline that are exciting. And so, you know, it's just early to talk about that. I think if you think about our business coming up closer to a billion dollars of revenue and adding, you know, mid-teens to that, it's a significant number and we think an exciting path. Obviously, we've well exceeded that this year on a kind of a true organic basis and we're always going to try to exceed all of our targets. And so, as we get closer to next year, we'll have a view into that, but that's sort of how we're thinking about it right now.

okay that's helpful and then um you know the six to eight new clients um you know you're uh doing well already you know through half the year how does the pipeline look um maybe on each of the segments as we you know uh enter here the second half yeah the the pipeline is in a great place and it's it's across all three uh which we really like the balance across all three and uh you know each

Each of the three businesses have a slightly different set of characteristics, Richard. So within the Evelyn Health Services space, for example, they tend to be fewer but very significantly sized. And, you know, the one we announced on the last quarter, which we haven't disclosed the name yet, but there's really significant opportunities there to continue expanding. And that feels really good. And there's a lot of other things coming behind that one. On New Century, you know, and Evelyn Care Partners, frankly, it's more broad-based. and larger numbers and both, again, in a really good spot to set up 2022. So it feels great overall. I think the macro environment is part of that, which is just that the issues we're solving, the ability to commit to driving real savings is always an evergreen issue, but I think right now is particularly resonating coming off of COVID and all the things that are going on in the macro environment. So overall, it feels quite good and and it really is balanced across all three.

Okay. That's helpful. Congratulations. Thanks, Richard.

The next question comes from David Larson of BTIG. Please go ahead.

Hi. Congratulations on the very good quarter. Can you maybe just remind me what the in-sell potential is on a dollar basis for, like, I think Melina, And if you have 9 million lives on the platform at $20 per member per month, that's a very significant number, right? Are we talking in the billions of dollars? I'm sorry, can you please just take me through that math?

Yeah, sure, David. So on that second question first, and I'll come back around on your other one. The $9 million is in our new tech services suite, which has the PMPMs that are published in the PAC, but under a dollar. And that opportunity is really about going broad across lots of payers across the country, as we've done. And it gets a really nice foot in the door, if you will, to build the relationship and prove it out. It also has very nice contribution margins, as we've talked about. And so that's the $9 million lives. The $3 billion opportunity is is converting those 9 million lives into the typical performance suite PMPMs, which would be in the billions. We sent 3 billion on the call. And so that's that opportunity. And then if you talk about the in-sell opportunity, you know, at a Molina or any of these various partners, some of it is converting the 9 million to the performance suite, which we've sized that at 3 billion. But we also sized, if you think about our top 10 relationships, we have about 10 million lives out of, I think we said, 35 million. total lives within those payers. So the opportunity is twofold, right? It's to take the $9 million into the performance suite, and then it's to take the total of $10.5 million that we have closer to the $30-plus million that we have. So you can kind of do the math on those two, but it's obviously, you know, over $10 billion probably when you do the math and think about the expansion opportunity across those multiple dimensions.

So you said over $10 billion of opportunity with the clients that you're working with now if they bought everything you had.

If they bought everything we had across all the solutions, correct. And we don't really think about it that way. We think about the opportunity to convert first the performance suite and then incrementally add from 10.5 million lives further towards that 30 million plus lives.

Okay, and then can you just please remind me, how many Molina lives do you have on your platform right now? And I think they have around 4 million in total that they manage.

Right now, Dave, it's a little less than 200,000, principally in Kentucky.

Okay, so, I mean, is there anything preventing you from going from, say, 200,000 up to 2 million or 4 million Molina lives over time?

I mean, it's the same dynamic, Dave. No, the answer is no. Nothing prevented us from doing it. We have to do a great job. We're in three states. We need to do an incredible job in those three states where we've been entrusted to manage the care for those members, and we're going to do that. And then being able to go back to that partner, share that with them as we build their confidence further, and continue to go forward. And that's what we've done with Centene and Humana, and we think now doing it with Molina. It's not a silver bullet. It doesn't happen overnight, but it really does, we think, help us towards our medium-term objectives that we've been talking about.

Okay, congratulations. You had a great quarter. Thank you. Thanks a lot.

The next question comes from Shawn Weiland of Piper Sandler. Please go ahead.

Hi, thanks. A couple more on vital decisions, if I could. What's the revenue model here? How do they get paid?

Hey, Sean. It's Seth. So they, you know, effectively, you know, the way we think about it is really on a PM-PM basis across the close to 3 million lives that they touched today, and we talked about that in the PAC and on the call. They actually have a slightly different way to monetize, which is they get paid on an engaged member basis, but it's effectively the same thing. that we do, which is a PMPM across the population. It is fee-based today. We talked about it a little bit on the call, but as we integrate it with New Century, Sean, there are going to be some other ways for us to capture the value that we're helping create, including on the New Century margin side. Certainly also an opportunity from a product perspective to take more of a capitated arrangement around... That population as well, they don't do that today at Vital, but that would be an opportunity. But I would think of it in the simplest form as kind of a PMPM approach today.

And, Sean, just to put a bit of a fine point on the numbers, as Seth said, they do bill based on engaged members. And what that translates to in terms of an average PMPM fee across their life base is around $0.60. And that's how we'll report it after the close of the transaction in our tech and services suite.

What percentage of the members do they actually wind up getting engaged?

You know, I'd have to look at that number specifically, but it's, you know, you really have to look at it on a percentage basis, Sean, of those who should be engaged. And I want to say that number is in the 20% to 30% range of those who they target. Now, as we think about adding New Century Health, We think that ability to go to 20% to 30% of engagement up to well north of that is very significant as you bring, say, an oncologist into that conversation. That's a really significant opportunity. As a benchmark, you probably know this, but the traditional payer engagement rates are often under 5% for programs. So they actually, we think, have a very good engagement track record now, and we think we can move that number up in the ways that we've described in this call.

Okay, and then over the next 18 months during the earn-out, are there any limitations in terms of what you can do with the business, or are you going to let it kind of run on its own until the earn-out is over?

No limitations, and we plan to really tightly integrate it for all the reasons we described in this call. So we're not going to put a firewall up and hold it to the side. We're going to be very focused on integration right out of the gates. And it's a, you know, look, I mentioned a little bit, Sean, on the call, but it's a great team. Really talented team, and we're excited to work with them, and they're going to, I think, be a great cultural fit for our organization as well.

So, you know, as I think about this, it's a tough call to make. It's probably a tougher call to receive. I'm sure it's a tougher call to receive. You know, shouldn't the doctor be having this conversation with the patients and not someone, you know, on the phone that you've never talked to?

Yeah, look, our view, Sean, is that it's a combination of the two is what should be happening. Sadly, physicians are incredibly reticent to have this conversation. It's sort of surprising, but they're not trained to have these hard conversations either. And if you think about what Vital does, they have master's trained behavioral specialists, and this is their expertise in life. Now, wouldn't it be better if the oncologist introduced that behavioral specialist to the patient and their family as a member of his or her team, that we think is the sweet spot, and that's exactly what we're going to be doing with Vital.

Got it. That's super helpful. Thank you. Sure.

You're welcome.

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

Thanks, everybody, for joining, and we'll look forward to connecting in the days and weeks ahead.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.