Evolent Health, Inc.

Welcome to Evelyn Health's earnings conference call for the fourth quarter and year-ended December 31st, 2021. As a reminder, this conference call is being recorded. Your hosts for the call today from Evelyn Health are Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer. 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. I will now hand the call to Seth Frank, Evalyn's Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon. This conference call will contain forward-looking statements within the U.S. federal laws. These statements are subject to risks and uncertainties that could cause actual Evalyn Health 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, including our current and periodic filings. For additional information on the company's results and outlook, please refer to its fourth quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct, comparable GAAP measures are available in the summary presentation available in the company's investor relations section of our website or 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 form 8-K filed by the company with the SEC earlier today. During management's presentation and discussion, we will reference certain GAAP and non-GAAP figures and metrics that can be found in our earnings release, as well as a summary presentation available on the events section of Evelyn's IR website, ir.evelinhealth.com. And now, I'll hand the call over to Evelyn's CEO, Seth Blackley.

Good afternoon, everyone, and thank you for joining the call. Today, I'll summarize results of the fourth quarter and full year 2021, as well as the outlook for 2022. Then I'll turn to an update of our three primary investment themes of strong organic growth, expanding margins, and optimal capital deployment. And I'll wrap up with a macro industry environment update. John will provide a detailed dive on the Q4 numbers, our 2022 outlook, and medium-term revenue and margin targets. As always, we'll close by taking your questions. Turning to the key financial results for the fourth quarter of 2021, ending December 31, 2021, Evaluant Health total revenue was $248.4 million. Revenue excluding divested assets was $245.9 million, reflecting a 39.7% year-over-year revenue growth rate. Adjusted EBITDA for Q4 was $24.3 million, compared to our Q4 outlook of a range of $14 to $18 million. During the fourth quarter, we closed the acquisition of Vital Decisions, which contributed approximately $5 million of Q4 revenue and approximately $1 million of Q4 adjusted EBITDA, consistent with expectations. Underlying our strong performance is the year-over-year growth in lives under management, the key volume component of Evelyn's revenue. As of December 31, 2021, Evelyn's services covered 20 million lives, with 1.6 million managed with Inevolent Health Services and 18.4 million lives in our clinical solutions segment. Lives in our clinical solutions segments are composed of 1.5 million lives managed under our risk-based performance suite through New Century Health, Inevolent Care Partners, and as of the end of December, we supported an additional 16.9 million lives through New Century Health's technology and services platform, inclusive of the Vital Decisions acquisition. For perspective, Evelyn's contracted solutions currently cover approximately 6% of the U.S. population. For the full year of 2021, we ended the year with total revenue of $908 million and $890.6 million of revenue excluding divested assets. This reflects growth of 36.7%. Adjusted EBITDA for 2021 totaled $66.3 million. representing growth of 36.5% year over year. These results are ahead of our medium-term revenue targets and tracking to our 2024 adjusted EBITDA margin target. The results also exceed the high end of our initial guidance for 2021 of $830 million to $880 million of revenue and adjusted EBITDA between $40 and $50 million. The fourth quarter of 2021 marks the capstone of a highly successful year for Evelyn across key performance metrics, and we're pleased with the continued momentum driving our business, as well as the impact Evelyn's delivering for employees, partners, patients, and our mission. John will provide our complete 2022 outlook later in the call, but I'm also pleased that we expect 2022 total revenue growth between 23 and 30% and adjusted EBITDA of between $80 and $90 million. Across the top and bottom lines, we continue to be on a path to deliver on or exceed our medium-term revenue growth and adjusted EBITDA targets. On behalf of Evelyn's leadership team and Evelyn's board of directors, I want to express my appreciation to all 3,500 Evelynteers worldwide. Their passion and commitment to improving healthcare through innovation continues to contribute to the quality and efficiency of healthcare delivery in the United States. I continue to be highly impressed with our team, and I'm proud to report that, even through the pandemic and upheaval in the broader economy, our employee engagement score is at an all-time high, and Evolent remains a highly desired destination for a diverse and productive workforce. Now let's discuss our ongoing progress against Evolent's three core operating objectives. One, strong organic growth. two, expanding margins, and three, optimal capital allocation. Touching our first theme of strong organic growth, we're pleased to announce four new operating partners today. As a reminder, we consider new operating partners to include both new partner logos as well as any significant geographic expansions with existing partners using our clinical performance suite. We're pleased to have added 10 new partners during 2021 versus our annual target of six to eight partnerships, and we're off to a strong start in 2022 with today's announcements. Three of the four new partnerships announced are for New Century Health with Molina Healthcare, an important and growing partner. We have signed an agreement to bring our cardiology performance suite to Molina, Nevada. In addition, Molina Healthcare in Kentucky and Washington State have elected to migrate from our technology and services suite to our cardiology performance suite. With these three expansions, in addition to the previously announced performance suite relationship with Molina, Ohio, we anticipate Molina will contribute more than $75 million of revenue in 2022, with the opportunity to continue to grow in future years. Further, we feel that the conversion from new century technology and services to our performance suite is further evidence of the value we provide to our partners and for the expansion opportunity we see within our existing partner base. In deploying the performance suite, payers and risk-varying providers are seeking a partner who can guarantee cost reduction and quality improvements in high-cost specialties. We believe we offer a compelling value proposition whereby a health plan partner transfers responsibility scope of medical costs to Evelyn. We, in turn, drive our margin by capturing the clinical savings we create from that capitation rate using our advanced technology platform, scaled services, and our proprietary clinical intellectual property. We are pleased that we have also extended this performance suite model to primary care through our Evelyn Care Partners business. As such, our fourth new partnership announcement is the first primary care performance suite agreement for Evelyn with Blue Cross and Blue Shield of North Carolina. Effective in January 2022, Evelyn Care Partners and its network of independent primary care physicians began managing over 10,000 Blue Premier members. Evelyn Care Partners will leverage our proprietary identified platform, proven care management, and patient engagement programs to improve quality and reduce unnecessary costs. Blue Cost and Blue Shield of North Carolina is a leading payer in the value-based care space, and we look forward to collaborating with them to improve the health of communities across North Carolina. Rounding out our growth news today, we are disclosing that our previously announced Evelyn Health Services National Payer is Bright Healthcare. Beginning January 1, 2022, we went live with a multi-year operational partnership whereby Bright will leverage Evelyn's health plan administrative services to initially support an estimated 350,000 commercial and Medicare Advantage members. We're delighted to work with Bright as they integrate vendor relationships and seek to expand their unique patient-centered integrated pair provider model to the health plan market. Moving to our second objective of margin expansion, we're pleased with our progress towards our medium-term margin targets. Given our high revenue growth rates and larger proportion of mix from performance suite products, which have lower year one margins and higher margins in later years, we will continue to see some fluctuations in year to year EBITDA margin percentages. Our high revenue growth rates give us greater conviction with our medium term outlook, including confidence of reaching our absolute adjusted EBITDA dollar goals, which we believe to be the best indicator of success on our margin expansion targets. Finally, I'd like to discuss our third theme of shareholder value creation for Evelyn, which is optimal capital allocation. Even as we rapidly scale our business, our execution, and our differentiated solutions increasingly generate higher levels of operating cash flow, enabling us to further accelerate our market leadership. As we think about capital deployment, our priority is to drive innovation and market leadership around our core three solutions. First, through continued R&D in our core business, Second, through strategic M&A in the core. And third, through innovative capital light partnerships. Regarding R&D within the core, we plan to continue steady and disciplined investment around our primary solutions. For example, within Avalon Health Services, we're leveraging artificial intelligence and other technology investments to scale high volume transaction processing activity more efficiently for our provider and health plan partners. Regarding M&A, Our 2021 acquisition of Vital Decisions is a good example of how we use M&A to extend our market leadership. By integrating Vital Decisions into New Century Health, we add important capabilities to better manage overall end-of-life quality and cost. According to CMS and published studies, direct medical costs during the last 12 months of a person's life are approximately 20% of total Medicare spending. Vital decisions greatly enhances and deepens our ability to impact those costs, especially within oncology and cardiology, which represent the majority of end-of-life medical expenditures. Our vital integration is going well and is on schedule. During 2022, we'll continue to evaluate other strategic accretive acquisition opportunities. Given our market leadership position and high demand in the market, we continue to see particularly interesting opportunities to deepen and broaden our the new century platform through continued M&A. Third, we also seek to innovate through partnerships with no or minimal use of R&D or M&A capital. For example, with an oncology, we are partnered in the evolving pharmacogenomics space. This relationship seeks to further optimize treatments that maximize efficacy, effectiveness, and minimize the risk of side effects. In addition, We're partnering with a Wells-Carson-Valtruas-backed organization that seeks to expand oncology care capacity with a new hybrid value-based delivery model. Finally, complementing our primary care-centric focus with Avalon Care Partners, we have partnered with an organization to support early identification and treatment in kidney care. These relationships and others like them accelerate and enhance our existing solutions, allowing us to innovate without deploying significant capital. Collectively, across our R&D, M&A, and focused business partnerships, we remain optimistic regarding our ability to extend Evelyn's market leadership and to continue to build long-term profitable growth. To conclude, I want to give you our perspective on where the current environment stands as it pertains to value-based care in both the public and private sectors. As many of you know, there are many value-based care models and experiments going on, all attempting to bend healthcare's unsustainable cost curve while improving quality. On the public side, as you're likely aware, CMS seeks to ensure 100% of Medicare and most Medicaid beneficiaries are in value-based relationships by 2030. The Medicare Shared Savings Program generated a seven-fold increase in total earned shared savings between 2013 and 2020. with dramatic savings acceleration between 2018 and 2020. Also importantly, CMS reports average quality scores for the programs for 2020 were 97%, the highest level since the initiation of the program. As previously discussed, we chose not to participate in the Center for Medicare and Medicaid Innovation's direct contracting model and instead focus on the more proven but similar Medicare Shared Savings Program called Pathways to Success. While the various model formats will surely evolve to reflect stakeholder feedback over time, we're highly confident in our near-term F1 opportunities with the current Pathways to Success program. We're also confident that there's broad bipartisan support for value programs in the years and decades ahead. More importantly, we also continue to see a strong push to value models in the private payer and risk-based provider markets. As evidenced by numerous national payers and risk-bearing providers highlighting their efforts to drive cost down and quality up through engaging their provider networks, we continue to see strong demand for our solutions. Taken together, the impact of policy and the private market direction, these trends give us confidence that we'll have strong macro tailwinds for years to come. I'll now ask John to give some detail on the numbers this quarter and also provide our outlook.