Evolent Health, Inc.

Welcome to Evelyn Health's earnings conference call for the third quarter ended September 30th, 2022. 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. The 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. We will now hand the call to Seth Frank, Evelyn Spice President of Investor Relations. Please go ahead.

Thank you and good evening. The 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 our third 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 company's presentation, available in the investor relations section of our website, or in the company's press release issued earlier, and posted to the IR section of the company's website, ir.avalonhealth.com, and the form 8K filed by the company with the SEC earlier today. During management's presentation and discussion, we will reference certain gap and non-gap 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 at irevelynhealth.com. And now I'll turn the call over to Evelyn's CEO, Seth Blackley.

Good evening and thank you for joining the call. We'll begin by summarizing our third quarter 2022 results, update you on the business and on Evelyn's three core operating priorities. John will discuss the numbers in more detail and share updated guidance. As always, we'll then take your questions after the prepared remarks. Starting with our overall quarterly results, I'm pleased with the results where we delivered another quarter of strong organic growth and profitability. Our consolidated results were at or above expectations with continued momentum towards achieving our goals in 2022 and beyond. For the quarter ended September 30, 2022. Evolent Health's total revenue was $352.6 million, growth of approximately 58.5% over the same period of 2021. Year-over-year organic revenue growth was approximately 49%, excluding the two-month contribution from IPG, which closed at the beginning of August. Third quarter adjusted EBITDA totaled $28.1 million, an increase of $14.3 million, or over 100% growth compared to one year ago. Revenue for the quarter was in the middle of our Q3 guidance range, while adjusted EBITDA came in at the high end of the outlook. Consistent with our expectations and communicated across this year, Evelyn consolidated revenue and adjusted EBITDA was positively impacted in Q3 from the timing of variable performance-based earnings. John will cover these segment details in more detail in his section. Turning to Evelyn's key metrics for membership and PMPM pricing, we ended the third quarter with 19.5 million lives compared to 14.7 million one year ago, or growth of 32%. Growth is driven primarily by New Century Health across both technology and services and the performance suite. By segment, as of September 30, 2022, we had 2.1 million lives managed in Evelyn Health Services and 17.4 million lives in our clinical solutions segment, which includes New Century Health and Evelyn Care Partners. These figures correspond to 1.6 million lives in Evelyn Health Services and 13.2 million in the clinical segment at the end of the third quarter in 2021. In addition, we are providing additional disclosure on cases and average costs for the vital and IPG businesses on a go-forward basis. John will review those metrics in detail in his section. Before I move into updates on our three core operating priorities, let's talk about the macro environment. With inflation approaching a 40-year high, it's more important than ever for risk-bearing healthcare entities to identify ways to deliver high-quality care as efficiently as possible. We believe that one of the best ways to do that is through value-based care, which aligns incentives across the system through clinical IP, skilled services, and technology. Despite the savings and quality improvements over the last decade, the value-based care movement has only penetrated a small fraction of the healthcare system. According to recent estimates, less than 7% of primary care revenues in 2021 were linked to value-based arrangements. And for specialty care, the percentage is even lower. We believe this landscape underpins a significant opportunity for Evelyn Health, given our position as one of the leading and most proven value-based care organizations in the country. With that backdrop, let's talk about our progress against Evelyn's three core operating priorities that guide our operating strategy. of one, strong organic growth, two, expanding margins, and three, optimal capital allocation. Starting with organic growth, we are pleased to announce today three new operating partners bringing our total to 13 for the year versus our target of six to eight. The first two agreements are the addition of the performance suite at Molina for two large states, both of which will go live in the first half of 2023. One of the states will go live for both oncology and cardiology, and the other will go live for cardiology. Inclusive of these two new states, the Molina relationship will contribute over $180 million of clinical segment revenue in 2023. We're pleased with the impact we're having on this partner, and also note that our 2023 revenues with this partner still represent less than a quarter of the total opportunity, illustrating the power of growth that exists across our installed customer base. I'm also pleased to announce the addition of a large multi-specialty group practice in Washington State to our Evaluant Care Partners network. This organization has a longstanding presence in eastern Washington State with over 60 primary care and specialty providers, and over the last several years has been building out its value-based care capabilities and contracts with local payers. This practice was drawn to Evelyn Care Partners for its proven track record supporting similar organizations' transition toward risk-based arrangements and its long-term vision for partnering across payer lines of business. In addition to signing new partnerships, we continue to grow within our installed base. For example, we've signed a new contract with a large national partner and current customer of New Century Health to launch the Vital Decisions product across a number of geographies. While this revenue contribution from these sorts of cross-sells is modest, these arrangements contribute above average incremental adjusted EBITDA, and we believe they'll also validate our ability to drive sales momentum after acquiring new specialty assets. With regard to our broader growth objectives for 2023 and beyond, we're seeing significant expansion of our weighted sales pipeline, especially in the value-based specialty business. Related, early feedback on the IPG platform has been positive, and we're seeing confirmation of the primary deal thesis. Further driving our pipeline expansion is a trend that our customers prefer fewer specialty partners, thereby unlocking multi-specialty sales opportunities across New Century, Vital, and IPG. Translating strong pipeline growth into strong earnings growth is our second core operating priority. Our adjusted EBITDA grew by more than 100% versus last year, and over 70% of that growth was organic. Our adjusted EBITDA expansion has come from revenue growth, fixed cost leverage, and the maturation of our clinical solution customers. Regarding product mix, pro forma for IPG, over two-thirds of Evelyn's adjusted EBITDA year-to-date comes from fee-based products delivered through our technology and services assets. With the balance, from the risk-based offerings in the performance suite. While the performance suite remains an incredibly important opportunity for us and is the highest PMPM adjusted EBITDA available to the company, we believe this balanced approach where we realize earnings across geographies, lines of business, and different business models is the best way to drive sustained earnings growth and shareholder value. Our third operating priority is optimal capital allocation. We've articulated three principles regarding Evelyn's capital allocation strategy, and to reiterate those, they are one, investing innovation within our core business, two, strategic and accretive M&A, and three, maintaining a disciplined balance sheet. We remain focused on these principles today and into the future. Let me give you an example of the first area around innovation. We're constantly seeking to improve our ability to partner with health plans and clinicians to align towards the best outcomes. During the quarter, in strategic collaboration with one of the largest national payer organizations in the country, we developed an enhancement to our technology and services suite that we refer to as Pathways Leveling, which further differentiates our highly differentiated platform for medical oncology management. With this innovation, we combine an advanced alternative payment model with nuanced evidence-based pathways, dividing potential treatment regimens up into four distinct categories. This allows for improved physician engagement and allows us to focus our highest value interventions like peer-to-peer consultations more accurately. It also allows us to provide even more real-time updates to reflect the latest efficacy and effectiveness data. Our second principle for optimal capital allocation is strategic and accretive M&A. The additions of IPG and Vital into Evelyn's specialty unit help raise our collective profile within our target market and has opened up additional opportunities for expansion. Our clients are looking for long-term solution partnerships, not vendors or fragmented pieces of the value-based care puzzle. As I mentioned in my opening remarks, We saw a confirmation of this cross-sell thesis in our recent expansion of the vital decision solution to a large national customer who is a New Century client. And we're seeing an early momentum with IPG as well. Selective M&A can also increase value creation within our existing products. For example, we find that by integrating New Century health authorization data, With the Vital Decisions platform, we significantly increased the number of individuals identified for the advanced care planning service. In fact, over 80% of the cancer and cardiology patients using Vital Decisions were identified using New Century Health data inputs. These are individuals who may have otherwise not been identified for our Vital Decisions advanced care planning services in the first place. Once we've identified candidates for vital decisions, we have observed significantly higher patient engagement rates. Those patients who respond to our outreach and we believe benefit from the service when we jointly deploy vital decisions along with New Century Health. Regarding IPG, the acquisition closed in August and we're pleased with the pace of integration, which we believe will allow us to drive cross-sells and new logo conversions for the platform. John will talk about our third capital allocation principle of maintaining a disciplined balance sheet in more detail, but I'm pleased to have ended the quarter at approximately two and a half times net leverage on a pro forma basis and continued strong cash generation to fund the next phase of our growth. In summary, we remain focused on our core principles to drive shareholder value and are particularly excited by the opportunity in front of us within value-based specialty care. We have a unique opportunity in this market to continue to emerge as the only payer-agnostic, multi-specialty partner with a deep focus on clinical intellectual property and the breadth to serve the highest priority challenges facing health plans and providers as we transition away from fee-for-service and into value-based care. Now I'll hand the call to John to take you through the numbers and discuss our updated outlook.