Evolent Health, Inc.

Welcome to Evelyn Hill's earnings conference call for the first quarter ended March 30, 2022. As a reminder, this conference call is being recorded. Your hosts for the call today from Evelyn Hill are Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer. This call will be archived and available beginning later this evening via the webcast on the company's investor relations website. which can be found at ir.evelynhealth.com. I will now hand the call to Seth Frank, Evelyn's Vice President of Investor Relations. Please go ahead.

Thank you and good evening. This conference call will contain forward-looking statements under the U.S. federal 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 our current and periodic filings. For additional information on the company's results and outlook, please refer to its first 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 GAP measures are available in the summary presentation available in the 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.evelynhealth.com. And now, I'd like to turn the call over to Evelyn's CEO, Seth Blackley.

Good evening, everyone. Thank you for joining the call. I'll start by summarizing our first quarter results and discuss progress on our three core operating priorities. John will discuss the numbers in more detail and share our updated guidance. As always, we will close the Q&A. Turning to our results, the first quarter marks a strong beginning of the year for the company on the heels of a successful 2021 with continued growth, margin expansion, and strategic product innovation. For the first quarter of 2022, Evelyn reported total revenue of $297.1 million, growth of 38% over Q1 2021. Adjusted EBITDA for Q1 2022 was $24.3 million, 63% growth over Q1 2021. The significant flow through of revenue growth resulted in adjusted EBITDA margin expansion of 130 basis points to 8.2% compared to 6.9% in the first quarter of 2021. Relative to guidance, the quarter was also a success. We exceeded the high end of our revenue outlook range for the quarter of $280 to $295 million. And we delivered at the high end of our outlook for first quarter adjusted EBITDA, which was $20 to $25 million. We ended the quarter covering 20.3 million lives on all platforms, compared to 11.6 million one year ago, growth of 74%, driven primarily by New Century Health and Evelyn Care Partners, which together constitute our clinical solutions from a segment reporting perspective. Revenue from New Century Health and Evelyn Care Partners combined grew 46% year-over-year, while Evelyn Health Services, our administrative segment, grew 26%. This highlights balanced growth across the enterprise with continued outsized growth from the clinical segment. I want to take a moment to go a little bit deeper into New Century Health, specifically given our strong continued growth in that area and what we believe to be significant potential growth ahead in that business. There are two dynamics driving the strong growth at New Century. The first one is the addition of new lives to the platform. New Century today only touches approximately six percent of the U.S. population and so there remains a large opportunity to add revenue and margin to the addition of new client logos and geographic and product expansion with existing partners. For example, New Century's largest clients cover approximately 40 million lives across the country But New Century only serves approximately 10 million of those lives today, and those mostly in the technology and services suite represent a significant future opportunity. The second growth dynamic is the upsell from our New Century tech and services suite to our risk-based performance suite in one or more specialty areas. With almost 17 million lives on the tech and services platform today, this upsell represents a significant ongoing opportunity for future growth. We continue to look for opportunities to transition some of these oncology and cardiology lives in various states from tech and services to the performance suite. The upsell from the technology and services to the performance suite drives more than a 50-fold increase in per member per month revenue and significant increases in adjusted EBITDA per member. Now, I'll turn to updating you on the continued progress across our core operating priorities of one, strong organic growth, two, expanding margins, and three, optimal capital allocation. Looking at the first priority of organic growth, I'll highlight a few of the new opportunities we recently signed that help continue to drive our growth trajectory in 2022 and 2023. Today, we're pleased to announce two new operating partnerships in the clinical segment and a significant life expansion in 2023 with an existing EHS client. In February, we announced four new partnerships, and so these two new announcements take us to six thus far for the current year versus our annual target of six to eight. So we're on track for 2022 and increasingly well set up for 2023. As a reminder, we include new performance suite wins with existing clients towards our annual operating partner count, given the financial size and biodynamics of these relationships. Turning to the detail on the partner announcements, we're delighted to announce the expansion of our relationship with AVMED to add our new century health performance suite for oncology. Headquartered in Miami, AVMED is a highly respected, not-for-profit health plan that has been in operation for more than 50 years, providing its approximately 230,000 members with high-quality, cost-effective care. AVMED has been a valued client for our technology and services and our cardiology solution, and we're excited to now add AVMED's Medicare members to our performance suite for oncology. In addition, we're replacing another vendor to help AVMED manage radiation oncology quality for a majority of their commercially-insured membership through our tech and services platform. Our second announcement today is our new Evolent Care Partners Agreement with a significant independent physician group headquartered in California. This is an organization with over 200 physicians and is the largest in the county where it operates. The physician group was looking for opportunities to improve care for their member's provider Medicare fee-for-service population. After they evaluated different options, including the direct contracting model, they elected to collaborate with Evelyn Care Partners through our Medicare Shared Savings Program, ACO. We've already begun working with this group for a portion of their primary care practices and seek to expand this relationship over time. Based on our years of experience facilitating independent practices transition from fee-for-service to value, we think the Medicare Shared Savings Program Enhanced Track ACO often provides the best initial value-based care opportunities for providers, payers, and patients. That said, we are increasingly adding private payer performance suite contracts as well, as illustrated with our recently announced Blue Cross Blue Shield North Carolina arrangement. We also continue to evaluate the ACO REACH program and other models as they mature. Turning to Evelyn Health Services, today we announced that following the successful implementation of 330,000 new individual family plan commercial lives of Bright Healthcare on January 1st of this year, we anticipate an expansion to include all of Bright's IFP commercial membership in 2023. Across all of our solutions, we believe the MACO environment continues to be a tailwind for growth across our enterprise, with elevated medical expenses and inflationary pressures across the country creating increased urgency for health plans and other risk-bearing entities to drive quality of care while lowering their overall cost burden, which is the core proposition of our value-based care solutions. With strong revenue growth and new business opportunities progressing, let's talk about our progress towards continued margin expansion, which is the second core operating priority for Evelyn Health. Going forward, we anticipate continued strong revenue growth in our clinical solutions, and specifically from a higher number of lives on our Evelyn Care Partners and New Century Health performance suite solutions, both from net new logos and from technology and service suite upsells. As discussed previously, growth of our performance suite solutions across New Century Health and Evelyn Care Partners typically will drive higher growth rates solid year one dollar adjusted EBITDA contribution, slightly lower year one adjusted EBITDA margin percentages, and higher annual adjusted EBITDA margin dollars and percent as contracts mature. As shared last quarter, we continue to believe that adjusted EBITDA dollars are the best indicator to measure success relative to our margin expansion targets, and we continue to feel good about our progress towards our medium-term margin goals. Let's turn to our third core operating priority, optimizing shareholder capital allocation. When we talk about investment, we aim to drive innovation, value, and market leadership within our performance-based solutions while maintaining appropriate leverage and a flexible balance sheet to support growth, incremental to long-term growth. Our first priority for capital deployment is always building and strengthening internal capabilities. In addition to organic development, We also consider M&A an avenue to address assets that make sense financially and strategically. Our primary goal for acquisitions is to create shareholder value by adding capabilities that support our core strategic and operating objectives. The acquisition of Vital Decisions, which closed in October, and is successfully integrated into Evelyn Health, we believe is illustrative of the types of accretive M&A opportunities available. Through this transaction, we added important capabilities that both increased the value creation in New Century Health and expanded our portfolio by adding a technology-enabled advanced care planning solution. In the early stages of post-integration, we're seeing positive indications that pairing New Century's core expertise in managing highly complex chronic and acute illnesses with vital decisions offerings will be very compelling to our performance weaklines. Two quarters after closing the acquisition, the reception of the solution to the market has been positive. We believe payers will see the value and economic benefits of incorporating these services into their approach to managing health populations. For example, Vital Decisions went live with a pilot program over the last few weeks with one of New Century's largest performance suite clients, potentially unlocking significant clinical and financial benefits. We look forward to expanding vital decisions, advanced care planning solutions across several of our other New Century clients later this year. When we speak with our payer and risk-based provider clients, we often hear them say that they prefer fewer partners or vendor touchpoints in value-based care generally. That is, they would prefer fewer partners who can each provide more comprehensive services, especially in the specialty care areas where there is significant fragmentation in the vendor ecosystem. In fact, we often have our clients ask us directly if we can cover additional specialties or cover additional capabilities within our existing specialties. Given that dynamic and given our market leadership within New Century Health, we continue to see opportunities to expand our platform through creative, targeted M&A. Over time, we also see a significant opportunity to drive additional profitable long-term growth as we build a durable leadership position as a top independent specialty platform in the market, while adhering to our principles around disciplined capital allocation. To conclude, we see continued strength across the business in terms of operational success, growth, and long-term market leadership. The three core operating priorities for managing the company continue to guide me, the management team, and our board of directors. By executing on these priorities, we believe we'll be able to invest in product innovation, which will extend our market leadership, our financial results, our shareholder returns, and ultimately help us achieve our mission of using value-based care to help change the way healthcare is delivered in the United States. I'll now ask John to give some detail on the numbers this quarter and provide our outlook for 2022 and the second quarter.

Good afternoon, everyone. We are pleased with our first quarter results with our key metrics coming in ahead or near the high end of the guidance we communicated in February. We are building upon the momentum we carried into 22. In total, our quality and cost management solutions covered 20.3 million lives during Q1, and we are well situated to grow that reach both across the remainder of this year, as well as into 2023. We outperformed the high end of our revenue range for the quarter, due to stronger than projected performance payments within both our clinical solutions and Evelyn's health services segments. Our adjusted EBITDA was likewise driven by continued strong outcomes in our performance-based arrangements. With typical seasonality in working capital during the first quarter, our operating cash flow declined versus the beginning of the year in line with our expectations. And we anticipate during the remainder of 2022 to build upon our cash flow momentum from 2021 with continued focus on our disciplined capital allocation strategy. Now let me take you through consolidated results before turning to segment-specific results and ending with an update on guidance. Revenue in the quarter was $297.1 million, a 38.1% increase compared to the same period in the prior year. This was due to growth from new partner additions as well as same-store sales growth across our enterprise. Adjusted EBITDA for the quarter was $24.3 million, compared to 14.9 million in the same quarter of the prior year. This represents year-over-year adjusted EBITDA growth of 62.7% and margin expansion of 123 basis points. Turning to our segment results, within our clinical solution segment, revenue in the first quarter increased 46.1% to 190.2 million, up from 130.2 million in the same period of the prior year. This strong revenue growth is due to continued same-store sales and new client growth, including the previously announced partnership with Blue Cross Blue Shield of North Carolina, where we are now managing over 10,000 Blue Premier members on our Evelyn Care Partners platform. Q1 adjusted EBITDA from Clinical Solutions was $22.2 million, compared to $16.0 million in the prior year, driven by continued strong performance at New Century Health. As previously discussed, the growth at Evelyn Care Partners is expected to have lower than average year one margin, progressively ramping to more meaningful profitability over approximately three years. Membership in our performance suite for clinical solutions was 1.5 million compared to 1.4 million in Q1 of the prior year, with a PMPM fee of $38.07 versus $26.32. This increase in PMPM was principally driven by the addition of the Blue Cross Blue Shield of North Carolina Lives, where the full revenue premium is recognized. Membership in our technology and services suite for clinical solutions was $16.7 million relative to $8.2 million in Q1 of the prior year, with a PMPM fee of $0.38 versus $0.43 in Q1 of the prior year. Within our Evelyn Health Services segment, First quarter revenue net of intercompany eliminations of $500,000 increased 25.9% to $106.9 million, up from $84.8 million in the same period of the prior year. Growth in this segment was driven by new client go-lives, including the previously mentioned addition of approximately 330,000 incremental Bright Healthcare lives. We also benefited from higher than projected performance-based revenue in the quarter. which was largely offset by certain pass-through and one-time costs. Membership in our performance suite for Evelyn's Health Services was $2.1 million compared to $2.0 million in Q1 of 2021, with a PMPM fee of $19.17 versus $14.60. Adjusted EBITDA from our Evelyn's Health Services segment for the quarter was $8.2 million compared to $5.9 million in the prior year. demonstrating the progress we have made in driving significant unit cost reductions across our operating model. Finally, corporate costs decreased 12.2% to $6.2 million from $7.0 million in the same period of the prior year. The steps we have taken to lower overhead costs and become more efficient continue to benefit our consolidated adjusted EBITDA margin, even in the face of continuing growth. Turning to the balance sheet, we finished the quarter with $210.2 million in cash, cash equivalents, and investments, including $53.9 million in cash held and regulated accounts related to the wind down of Passport. Excluding cash held for Passport, we have $156.3 million of available cash, a decrease of $59.3 million versus the end of the fourth quarter. As I mentioned, this decrease was principally driven by seasonality and working capital, including year-end incentive compensation, and we expect to be meaningfully cash flow positive across the remainder of the year. Cash deployed for capitalized software developments in the quarter was $6.4 million. Finally, turning to guidance, based on continued strong performance, we now expect total revenue for the year to be in the range of $1.16 to $1.21 billion. and we are raising our outlook for adjusted EBITDA to between $85 and $95 million for the year. For the second quarter specifically, we are forecasting adjusted revenue of $290 million to $305 million, and we are forecasting adjusted EBITDA of $18 million to $23 million. As a reminder, we continue to expect quarters one and three to be high points for adjusted EBITDA this year based on timing of performance revenue. We continue to forecast between 25 and 30 in annual capitalized software development expenses. With that, I will turn the call back to the operator to take your questions.

Thank you. 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're 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. Our first question comes from Richard Close with Canaccord Genuity. Please go ahead.

Great. Thanks for the questions and the time today and congratulations on the progress. Seth, I was wondering, or Seth or John, I was wondering if you could talk a little bit about the oncology care partners relationship. And then you also announced Strive Health here recently. So I was wondering if you could just walk us through the structure of each of those relationships, what the opportunity is. And maybe, you know, from a financial perspective, you know, are they relevant for 2022? Or how should we be thinking about 2023 contribution?

Yep. Great, Richard. Thanks for the question. So, you know, I think the way we think about this part of our business is around innovation, right? So, across all three parts of the business, Evelyn Care Partners, Evelyn Health Services, New Century. We think about innovation in kind of three buckets. One is, well, things we can build internally and that we do build internally, software development and the like. Second is M&A, right, accretive M&A that we use. And then in the third bucket, we have partnerships from time to time, like the couple that you mentioned. They may be in Evelyn Care Partners, they may be in New Century, they may be in Evelyn Health Services. They tend to be very capital light or zero capital deployed, but add some sort of innovation in the case of Evalent Care Partners, or excuse me, Oncology Care Partners that you mentioned. You know, we see in certain markets places where there needs to be new oncology capacity and that, you know, having a separate company and this company you mentioned be able to help us in that way in those markets is a value add, doesn't take our capital up. It's really part of our broader innovation methodology that we use. Again, internal development, M&A, and then we have select partnerships in targeted areas that are capital light and yet continue to innovate our product. It's all with an eye towards market leadership across all three products. I think the financial point to your question, Richard, it's more about you know, market leadership and therefore our ability to continue to grow at really fast rates over time, but also our ability to deliver on our, you know, our targets and expectations on the earnings front. So it's really, you know, fits within that framework. So I wouldn't think of it as an additive thing from a financial perspective necessarily in the short term.

Okay. But I guess I'm trying to understand, is oncology care partners, you would be I think that's a JV. So would you be, is that like a revenue share? And then Strive Health, it seems like that's somewhat sort of like your cardiology or oncology performance on the kidney care. So is that a revenue share as well?

Hey, Richard, this is John. I'll take some of those. On both, think of them as in our network, partners in our network. So just like we partner with a number of oncology groups across the country in New Century, oncology care partners will be part of our network as they grow. And so we're happy to support them in that way. As Seth mentioned, it's not an investment that we've made. On Strive, think of that as a classic subcapitation agreement where in the Evelyn Care Partners Live, which as you know are mostly in the Medicare Shared Savings Program. We were seeking a partner to help us manage the costs of kidney care, and Selected strives to do that. And so we're excited to roll that out as a pilot with them in a couple of markets and see what kind of savings they can drive on our population.

Okay, thank you.

You're welcome.

Our next question comes from Ryan Daniels with William Blair. Please go ahead.

Hey, guys. Thanks for taking the questions. I'll add my congratulations on another strong quarter. Seth, you talked about in your prepared comments the massive opportunity you have both to upsell New Century and then cross-sell solutions into that marketplace. So I'm curious if you can speak a little bit to that. specifically what you're seeing there with clients and, you know, with existing clients that are already using you and seeing such good results, you know, how do you push the needle forward more rapidly there to drive growth in that segment from a sales or investment standpoint? Thanks.

Yep. Good question, Ryan. So, yeah, I mean, it is down two vectors, right, to your point. One is we've got across our biggest clients we only have, say 10 million lives covered out of their 40. So there's an opportunity to go to different geography or different specialty or something like that that we're not touching at all today. And then the other vector is out of the base of the technology and services lives, upselling them to the performance suite. Even if they're already our lives, that 50-fold increase that we talked about, those are the two opportunities. They're each a little bit different, right? On the upsell opportunity of going from tech services to performance, we already have the data. We already are supporting the partner in some way, shape, or form, and we can make very specific, credible, data in front of them about the opportunity to upsell to the performance suite. And so those things are happening on an ongoing basis. We've obviously talked about several of those with a couple of our big national payers on the last few calls. Those are going well. And it's really about increased savings, Ryan, for them in those markets, and particularly where they might have the biggest pain points within their business. You know, with the other dimension where we're not touching the lives at all today, it's a brand new market or something like that, the same messages are true, but the sales cycle is a little bit different, right? Because we don't yet perform services on those markets. And I think across both, the common theme is, hey, where is there a pain point for our customer? which is the growth of oncology or cardiology or end of life, which stitches into both of those. And I think the good macro news for us is there's a lot of challenge in managing those segments. And I think we have a unique ability to help manage them at a lower rate than they can on their own. And so we're seeing a lot of strong progress across kind of both of those dimensions you asked about.

Okay. I really appreciate that, Cutler. And then you mentioned vital decisions, a relationship, I think, with an existing client where they're doing a pilot. Can you dig into that a little bit more? Is that something where they're doing just a small amount of lives and the potential is for expansion? Or is it, you know, I guess more color on that would be helpful.

Yeah. Yeah. So this is, you know, one of our larger performance suite relationships today. So we already are kind of managing the population and the cost, and we've have relationships with these physicians and their patients today, so it's only natural that we would be able to stitch in the capabilities that Vital brings to help manage that aspect of, say, a cancer patient or a cardiology patient. And our team at Vital is fantastic, and all the right abilities from an empathy perspective, getting in with the physician and the patient and their families to have those conversations. I think we're seeing a lot of positive receptivity in terms of the clinical leadership of these plans saying, yeah, that makes a lot of sense. Let's bring it in and stitch it in. And so the pilot is with one of our bigger partners. It is rolling out pretty broadly across that population quickly. And again, we don't really sell it. I think we talked about this early in the vital. It's not a sales thing. We're bringing the capabilities to bear because it's the right thing for the patient first and foremost. It often results in better care and longer lifespan and the like for the patient, but also has a savings opportunity that can accrue back to us over time, quality first always. And that's how we do it, and it's working quite well.

Okay, perfect. And then two more, and I'll get off. One for John very quickly on the performance-based fees. Were those generally in line with your expectations during the quarter, or was there any pull forward that helped drive the upside to sales and EBITDA?

Yeah, good question, Ryan. I would say they came in slightly ahead of our projections, but not from a pull forward, but based on the final read of the data that we got to base those performance fees on. So nice to see those in the quarter.

Okay. And then the last one, you know, Seth, you always talk about the third – kind of investment platform being M&A opportunity. I'm curious, with the weakness we've seen in the public equity markets, and in particular with the digital health companies of late, have you seen a reset in seller expectations such that you're seeing more attractive opportunities to enhance your product or service offering through M&A going forward? And might that cause a reallocation of capital from internal to external M&A opportunities going forward? Thanks.

Yeah, I think what we'd say about the M&A, we don't need to do it, Ryan. You know, we've kind of had this really good organic path, and that's ahead of us, and we feel really confident in that path. So we don't need to do it. I think, you know, the times when we will do it, Ryan, there's got to be a couple things present. One is we see a strategic fit, you know. It fits with what we're doing in the core. It needs to be a short-term win, so it needs to be accretive. you know, quickly. And then the third thing is needs to be, you know, a win in the long term, which is sort of strategic upside from the transactions. I think that's our main framework for it. You know, when the prices of the assets go down a little bit, it can help on the short-term accretion thing. And I think we are seeing a little bit of that right now. But I think just the broader point is that, especially within the specialty space, really interesting opportunities to meet all three of those criteria. And so it sort of helps the business in the short and the long term. And we definitely see some opportunities out there. And I think to your point, it should be more attractive even, you know, in the six, 12 months ahead as the markets adjust a little bit.

All right. Great. Thank you so much, guys.

Thanks, Ryan.

Our next question comes from Ann Samuel with JP Morgan. Please go ahead.

Hi, guys. Thanks for taking the question. You know, maybe just a follow-up to Ryan's question. You know, you talked about opportunity to expand beyond your existing specialties. What areas are your customers asking for that might make sense to round out the portfolio?

Yeah. So I think it's interesting, Anne. We certainly, thankfully, hear a lot about oncology and cardiology at the end of life. So it feels like the ones that we're in are spot on. There are some other ones that are just big and are also growing. Musculoskeletal is an example of that. There's some needs around patients and helping the patient navigate a little bit more that is talked about quite a bit. And I think there are a few others, like I put neurology on that list, that are also higher cost. And so there's certainly opportunities. And across the ones that I just mentioned. And I think the most important fact is we are getting a lot of our customers coming to us to your point saying, hey, we want you to do more. I think we're doing a good job delivering on what we've got in front of us, which is always job one in life. But I think there's also a dynamic, which is they prefer to buy more from one place. And so our ability to add more is certainly part of the commentary around M&A, but also could be organic additions. And we're quite excited about the opportunities around New Century in general.

That's great. You know, you continue to add new partnerships at the rate you always have, but you've also got a nice base now of larger existing clients. So I was just wondering, how should we think about that composition of same store versus new growth going forward? And, you know, might that look different? Or is that supportive of maybe, you know, kind of higher growth than you've seen in the past?

Hey, Annie, this is John. I'll take that one. Typically, 60% of our growth has come from new partner ads and about 40% has come from same store expansions. And I do think that given the dynamic that you described, the opportunity in front of us to further penetrate our existing customer base, We expect that to shift a little more towards the same store side. Now, is that 50-50 or 60-40 the other way? It's not going to go 80-20. We continue to believe that there's a lot of new flags out there to plant. But we do see that dynamic happening. I think the other thing that you'll see across this year, just to mention it, is that conversion of lives that are in the tech and services suite today up to the performance suite. And so maybe not as much change on the total life count and more of a change in the aggregate PMPM as we're able to drive more revenue, more profitability, and ultimately more value for the customer and the patient through that performance suite.

That's really helpful. Thanks. And maybe just one more housekeeping. Perhaps I missed it, but was hoping maybe you could provide just some color on the lives in PMPM of the patients new partnerships, and then also just how to think about the expansion at Bright Health and maybe timing of that.

Yeah, let me do those in backwards order. So on Bright Health, as we mentioned, anticipating to have all of their IFP lives on our platform in January of next year. So I believe on the call this morning, they mentioned about a million lives, you know, plus or minus their growth. That will be our membership. So really excited to continue to grow with them and provide really strong service. On a couple of other announcements today, you know, AVMED, as we mentioned, the main focus of this performance suite is in the Medicare Advantage book of business, which is a fraction of their lives. So think of it in the $20 to $30 million of code. in terms of total revenue. And on the ECP ad, as you know, that is a longer, it takes longer to show up in the revenue since it is a shared savings model. So really there we're talking about revenue impact for next year where we see that anticipated.

Very helpful. Thank you.

Our next question comes from Charles Rye with Cohen. Please go ahead.

Yeah, thanks for taking questions. Maybe just a follow-up question around vital decisions. You know, Seth, with the pilot, you know, maybe I missed it from Ryan's question. How long do you expect these kind of pilots to last? And do you see pilots as the primary way you're going to get vital decisions into your existing client base? Or do you see maybe this one pilot being a reference site, in effect, for other clients to just sign on for vital decisions going forward?

Yeah, it's a good question, Charles. So this pilot will flip into, I think, a full relationship later this year. And it's rolling out pretty quickly. And then we expect a couple more of these this year, too. So we're not having issues yet. getting our partners to adopt it. And I don't think we're going to really need to use a pilot methodology. That's just sort of where we are with this first big one, given the timing of the integration. But generally speaking, they're going to just roll in and become part of the operational platform that is New Century Health. And so it feels really good, and we're not having any issues in terms of adoption.

And then, you know, as we move forward, you know, for potential new clients at New Century Health, sort of new logos, is the final decision going to be just part of the package, or is it an option they can select into as they sign up?

Yeah, I think it'll often be part of it. It will be a conversation, and so sometimes they can opt out of it, but I think it'll be more of an opt-out than an opt-in in most cases, and it just makes so much sense, right, when you're contacting people the oncologist or cardiologist already stitching the same platform in, so it'll be, I think, part of the default relationship.

Great, and then last question for me, just in terms of, I think on the fourth quarter call, you guys talked about, you know, lives from the Molina expansions ramping up in the Performance Suite lives, you know, but sequentially, I think we're still at 1.5 million How should we think about the ramp of those lives to flow through? Is that should be more back half-weighted and then maybe similarly for Blue Cross Blue Shield? I know you made a mention, but I think I missed that.

Yeah, yeah, no sweat. The Blue Cross Blue Shield lives are in the number as of 1-1. On the Molina performance suite contracts, two went live in April. and we expect the other two will phase in at some point this quarter.

Okay, so we should be stepping up. Should we step up the full 500,000 in the second quarter, or should we have some of that step up in the third quarter?

I would expect that is the magnitude of the step up in the second quarter.

Great.

And just to be really precise about it, Charles, that is a move from tech and services lives to performance suite, not a move from lives. Yep.

Yep. Okay. Perfect. Thanks. I appreciate it, and congrats on the quarter.

Thank you. Thanks, Charles.

Our next question comes from Jessica Tassin with Piper Sandler. Please go ahead. Hi.

Thanks for taking the question. So I think just, we had estimated that there was a one, one Molina, um, Kentucky launch for, for new century, um, uh, performance suite, I guess, uh, which would have added like roughly 165,000 lives. So I guess just, are there any kind of underlying dynamics behind the flat sequential reported lives in, um, performance, uh, performance suite within clinical solutions?

Yeah, no underlying dynamics there. Still on track for Kentucky to flip to the performance suites. And also, just in aggregate, as we've talked about the Molino relationship this year, continue to expect that $75 million revenue zip code. So that is on track.

Got it. That's helpful. And then I guess just within clinical solutions performance suite, what's the mix between Medicare and Medicaid? And within the base, should we be expecting just those populations to grow roughly in line with overall growth year over year outside of contracted symptoms or new deals?

Yep. Medicare revenue in the quarter represented a little more than half of the total clinical solutions revenue. Medicaid was the next largest commercial, was 10-ish percent. Overall, in terms of how that shapes, it's going to depend on specific deal cadence. Generally speaking, Medicare is a bigger market for the oncology and cardiology services. And so I would expect that probably to grow a bit faster.

Got it. And then can you maybe like help us think about what the potential impact of Medicaid redeterminations might be? How much of that membership possibly convert to exchange deals? And yeah, just what the potential impact of that might be.

Yep. And so just to ballpark it, at the end of 2020, when most of that impact happened, we made an estimate that our aggregate membership at the time was about two to three percentage points higher than it might have been absent the public health emergency and the redetermination pause. So then the question is, how much of that might we give back when the redeterminations turn back on? I think that most of the forecasts that are out there have a reasonably slow ramp in terms of that membership rolling off, whether it's across six months or 12 months. And that's consistent with our forecasts as well. So we have incorporated that into our guidance. We do expect to see it. We don't think it will be that big of an impact given that two to three percentage points initial impact to the positive.

Thank you. Our next question comes from David Larson with BTIG. Please go ahead.

Hi. Congratulations on a very good quarter. For the Molina $75 million, how much of that was actually in 1Q22?

Very little, Dave. Very little. The majority of the relationships went live on 401 and are going live later this quarter.

Okay. So one of the reasons...

Yeah, just to be precise on it, that's one of the reasons for the step up in the revenue guidance moving from where it was to where it is in Q2.

Right. So the revenue beat happened despite the fact that most of that millennial will be in future quarters. Okay. And then with the bright lives, those 1 million lives, What exactly are you providing to them? Is it the cardiology or is it the oncology service? I'm just trying to get a sense for the PMPM fee.

Yeah, of course, of course. So the core services that we're providing to Bright are out of the Evelyn Health Services segment. So that's the administrative platform, claims payments, UM, CM, et cetera, for a portion of those lives. And so, you know, PMPM, that's going to vary by market, scope of services, and so on. Obviously, it's somewhat of a vast relationship, so a number of different pricing models in there. But overall, I think we said on the last call, you know, somewhere between $7 and $11, PMPM is a decent place to start.

So... so if we assume 10 bucks per member per month, um, that's like a hundred. How much is it on an annual basis? Is that like a 120 million?

A little less. Uh, if you use the midpoint of my seven to 11 range. Uh, but yes, it's a large contract. Uh, we're excited to grow with them.

Okay. Um, that's a, that's a very large contract. Okay. And then, um, What were the performance fees in the quarter that you recognized? What was the dollar amount?

Yeah, recall in our Evelyn Health, this is in our Evelyn Health Services segment principally, where we saw the outperformance in that line this quarter. And those are relationships where we have an upside with our customers based on value that we're able to drive for them. Usually, and in this case, that is based on savings that we're able to drive relative to a benchmark. And so we got some final data in the quarter that allowed us to recognize that amount in those areas and contributed to the top line B. Now, as I mentioned in my prepared remarks, that was offset by some one-time costs associated with that revenue. We passed a certain amount of that downstream, for example. So the EBITDA impact in EHS was a little lower, but really pleased with the magnitude of that result.

Okay. That's very helpful. I think there was a little bit of a delay in some performance revenue in like 3Q of 21 or something like that. Was it related to that? Like you finally got all the data in, so you collected all that?

Yeah, it was not. At the outset of the year, and I mentioned again today, we do expect quarters one and three of this year to be high points for performance revenue. The third quarter impact is largely driven by the timing of the Medicare shared savings settlement files that we received for Evelyn Care Partners.

Okay, and then just the last one, and I'll hop off. In terms of your TAM or your in-sell potential, I heard the phrase 50-fold. Can you put a dollar amount on that? Is it $4 billion? What are we looking at in terms of dollars?

Yeah, so the way that we've tried to paint that picture, Dave, is if you were to assume that we could penetrate those top customers, by 25% with both oncology and cardiology performance suite products. That would represent revenue in excess of $4 billion. So a significant opportunity there that we are obviously highly focused on attacking.

Okay. Fantastic quarter. Congratulations. Thanks. I'll hop back in the queue.

Thank you. Thanks, David.

Our next question comes from Sandy Draper with Guggenheim. Please go ahead.

Thanks very much and good afternoon and glad to be back on the calls. And as usual, I'm slow in the queue. So really no detailed question, but maybe a high level since you guys are right outside DC. As we come into the midterm elections and thinking about the second half of the Biden administration, is there anything that you guys are particularly watching it could be an upside risk or a downside risk, or do you think it's pretty much status quo, no changes over the next couple of years coming out of D.C.? Thanks.

Hey, Sandy. Yeah, I think the short answer is it's pretty much status quo with respect to our business. And the reason is that almost everything that we're talking about today and all of our opportunities are really oriented back to the private payer risk-bearing provider markets and the dynamics that are driving them are just the core dynamics of managing care and those have been around for a long time and are going to be around for a long time we use value-based care to solve it but you know if policy changes a lot or a little that opportunity is going to still be there so i think because of those dynamics um For us and for Evelyn, no big changes that we're thinking about up or down, really, to what we have going on. I could give you a more nuanced answer around what we see in the macro environment inside the Beltway, and I think it's probably net positive on value-based care, but even those things, they're helpful to us, but it's moderate, and I think the core thesis for Evelyn is a little bit less connected to what happens in elections and the like.

That's helpful and congrats on the quarter.

Thanks. Thanks.

Our final question is a follow-up from Richard Close at Canaccord Genuity. Please go ahead.

Thanks for the follow-up. Seth, I was wondering maybe if you could just comment a little bit about the pipeline. Obviously, you guys have been adding a higher level of new partnerships. Maybe some just commentary on the pipeline, how it maybe compares than last year. And then second on that, and maybe a little follow up on Sandy's question, but really more on the economic side. So I'm curious, you know, if we go into recession or whatnot, how you think that's going to, you know, maybe impact the pipeline? You know, does that stop people from, you know, maybe adding performance services or performance suite? Just, you know, any thoughts in and around that would be helpful.

Yep. Yeah, so I'd say first on the pipeline, it's at the highest point it's been at, and it feels very, very good. So that's a positive, and it's, you know, as John said, it's weighted a bit more towards our existing customers' and that upsell opportunity that we've been talking about versus net new logos. There's, of course, new logos in there too, but the weighting has shifted a little bit per John's earlier answer, and it just feels quite good. I think it's a bunch of different dynamics, including just general pressure on the growth in oncology, cardiology, end of life, et cetera. You know, with respect to your second question, you know, I think it is one of the positive elements of Evelyn from a profile perspective. I don't think that the macroeconomic environment affects us that much one way or the other. You know, recession happens, people unfortunately still get cancer, that cancer needs to be managed, the health plans are still trying to make their numbers and need help doing so. The differentiation of our product and the ability to do that in a way that it saves money but also is good for the patient, these things are evergreen issues and they don't really ebb and flow with the economy. And so, you know, we feel good about our pipeline being in a really nice place a year from now as well, two years from now, kind of independent of what happens in the macro environment. Okay. Thank you.

You're welcome.

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

Thanks for everybody's time. We'll look forward to connecting in the days ahead. Have a good evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.