Evolent Health, Inc.

Welcome to Evalent Health's earnings conference call for the fourth quarter and year-ended December 31st, 2022. As a reminder, this conference call is being recorded. Your hosts for the call today from Evalent 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, Evelyn's Vice President of Investor Relations. Seth, 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 fourth quarter press release that we 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 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.ebelinhealth.com, and in form 8K 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. Now, I'd like to turn the call over to Evelyn's CEO, Seth Blackley.

Good evening, and thanks for joining our fourth quarter and year-end earnings call. I'll begin with a summary of Evelyn's fourth quarter results, as well as the highlights for the full year 2022. I will then provide you with an update on our three core operating priorities. John will discuss the numbers in more detail and share our guidance for 2023. We'll then look forward to taking your questions. We have a number of exciting developments to discuss, so let's jump in. First, I'm pleased to report Evelyn ended 2022 on a strong note with fourth quarter financial results better than anticipated. For the quarter ended December 31st, 2022, Evalent Health's total revenue was $382.4 million, growth of 54% over the same period of 2021. Excluding approximately $37 million of acquired revenue in the fourth quarter of 2022, base business growth was 39%. Fourth quarter adjusted EBITDA totaled $32.3 million, above the high end of our guidance range, and an increase of $8 million, or 33% growth compared to one year ago. Evelyn finished 2022 with revenue of $1.352 billion, growth of 49%. Adjusted EBITDA totaled $106.3 million for the year, annual growth of 60%. More broadly, we feel 2022 is an incredibly successful year. We achieved our financial objectives while also making strong progress against our longer term financial, operational, and strategic goals. Underpinning our success is an exceptionally talented team of approximately 4,000 employees and a deep executive leadership bench of more than 115 senior leaders. I'd like to thank the entire team for their contributions to our mission, and our 2022 results. Also want to note that our employee engagement score in 2022 is approximately 90%, which we believe places Evelyn among the top public companies on this metric. Employee engagement is a critical measure of the cultural health and productivity of our workforce, and I believe indicates our readiness to continue to scale our mission and financial performance. With that, let's now turn to an update on Evelyn's three core operating priorities, which guide our operating strategy. Those priorities are strong organic growth, expanding margins, and optimal capital allocation. Let's start with an update on organic growth, which includes both adding new partners and expanding with existing clients. We're obviously focused on delivering on both dimensions, and we finished 2022 having signed 13 new operating partnerships, well exceeding our annual target of six to eight. Our total operating partners, as defined by the number of distinct corporate entities with whom we do business, totaled 47 as of December 31, 2022, and our total lives stood at 20.6 million lives, organic growth of approximately 3 million lives from the prior year. As a reminder, we report our advanced care planning and surgical management businesses on a case basis, which John will report in his section. We also believe we are executing well on our cross-sell opportunity. During 2022, we added over 1.8 million lives to the performance suite, the majority of which were conversions from our technology and services platform. Financially, this conversion dramatically increases our pricing on a per-life basis from an average fee of $0.29 PMPM on technology and services to an average fee of approximately $26 PMPM on the performance suite. Last year, we sized the total performance suite opportunity at our top five customers as over $16 billion of new annual revenue. With the closing of the NIA transaction, we now estimate that our cross-sell opportunity exceeds $50 billion. I'm pleased to report today that our growth momentum continues into 2023 with two new agreements to talk about today. The first is a significant cross-sell to the performance suite, which we first announced at an investor conference in January. And the second, a new performance suite risk-based agreement with benevolent care partners. To recap what we shared in January, the first agreement is a significant expansion of our partnership with Humana through the addition of the performance suite for oncology in Florida and Arizona. Humana is a valued, long-standing partner of Evelyn's. We have collaborated for years to deliver significant value to support the high-quality oncology care for their membership through our technology and services platform, historically in 36 states across the country. This new agreement converts the majority of Humana's Medicare Advantage members impacted by a cancer diagnosis in these two states to the performance suite. Our expanded relationship can also lay the groundwork for additional state expansions in the future. We estimate the total revenue from the new contract to exceed $250 million of revenue in 2024. With a go-live date in the second half of 2023, we also expect significant revenue from this agreement this year, contributing to our revenue growth outlook of over 25%. In addition to Humana, today we're announcing a second new performance sweep partnership for 2023, which is a new agreement with a large regional health plan within Evaluant Care Partners. The agreement includes up and downside risk for an initial population of Medicare Advantage lives. The economic opportunity for Evelyn is, importantly, tied heavily to quality of care metrics, an important hallmark of success for MA plans. This new contract also reflects the success of our initial partnership in the commercial line of business. We look forward to continued success in Evelyn Care Partners as we expand beyond Medicare shared savings and into full risk arrangements with private health plans like this one. Finally, I want to note the similarities in managing a performance suite contract in our specialty business and managing a performance suite contract in Evaluant Care Partners. We view our work in Evaluant Care Partners as akin to managing additional specialty. In this case, we think of the focus area as complex care. This type of population requires care management and coordination for patients who often have multiple chronic conditions simultaneously. Further, The technology, clinical IP, and human talent required for success in specialty care are very similar to those required in managing complex patients through their primary care provider, allowing us to scale our work and spread our investments across more clients. With that update on growth, let's now turn next to an update on our second core operating priority of expanded adjusted EBITDA margins, where we continue to make progress towards our goals. As a reminder, approximately 75% of our go-forward adjusted EBITDA, including NIA, will be driven by our technology and services platform, a SaaS-like business model, and 25% from our performance suite business model. We believe this balanced approach, where we realize earnings across different business models, is the best way to drive sustained earnings growth and shareholder value. This approach contributed to our ability to expand our adjusted EBITDA margins in 2022 versus 2021, while at the same time adding over $250 million of new performance suite revenue, with margins that increase annually after year one and ramp to target margins across a three-year period. The acquisition of NIA further reinforces this balanced approach. NIA, which closed about four weeks ago, brings roughly $250 million in annual fee-based technology and services revenues and $50 million of additional adjusted EBITDA before any synergies. With additional contractual commitments from Centene and cost synergies, we believe NIA should contribute adjusted EBITDA of approximately $85 million in Q4 2022. As we discussed in our January investor presentation, we're now running the business with a focus on reaching a $300 million annual run rate adjusted EBITDA target by the end of 2024. John will share additional details on the path to $300 million in a moment. Finally, I want to comment on our third operating priority, which is optimal capital allocation. Overall, we have focused our capital investments on value-based specialty care, where we believe we are a market leader. With NIA now closed, our capital priority is focused on deleveraging the balance sheet through both adjusted EBITDA growth and debt reduction via cash generation. John will share additional details here, but I'm pleased to note that our net leverage at the end of the year, inclusive of our financing for the NIA acquisition, was lower than our target. Therefore, we feel good about the balance sheet today and looking ahead. While we're discussing NIA, I want to provide a brief update on our integration and operational execution efforts, which are an important goal for this year. We successfully welcomed all NIA staff and systems to Evalent in late January, and the first few weeks proceeded smoothly thanks to the efforts of the Evalent, Centene, and NIA teams. As we look out across the year, we organized the remaining integration efforts into a couple areas. First, organizationally, we have moved the management of Evolent Health Services, NIA, and all of our specialty businesses under one leader, Dan McCarthy, our president. As a reminder, Dan has been with Evolent for approximately 10 years and has been a key architect of our specialty healthcare strategy. Dan's broader team is incredibly talented and experienced, having successfully led our specialty business for the last several years through a period of strong growth and customer retention. Going forward, I'm highly confident in this team as they take on this larger opportunity ahead. The organizational alignment we implemented has allowed us to both begin immediately reducing our cost structure while providing exceptional service to our clients. The organizational structure also allows us to share capabilities and resources across multiple products, and we believe it will unlock important innovation in areas like artificial intelligence and single platform integration. Second, we're off to a strong start generating cross-sell opportunities, kicking off with an in-person customer event this quarter that will bring together partners from across Evelyn and NIA, as well as many other sales initiatives underway. And finally, we are late stages integrating our solutions fully under one Evelyn brand. As we transition from legacy brands, we'll increase the power of our cross-sell messaging, concentrate our investment behind one brand, and facilitate the talent and operational integration that's already underway. All of this work is a part of accelerating Evelyn's position as a leading multi-specialty independent partner for managing vulnerable patients who are experiencing complex health issues. With those updates, I'll now turn the call over to John to review additional details from the quarter and review our 2023 guidance.