Evolent Health, Inc.

Welcome to Evelyn Health's earnings conference call for the quarter ended March 31st, 2023. 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 for the next week via the webcast on the company's website in the section entitled Investor Relations. I'll now hand the call over to Seth Frank, Evelyn Health's Vice President of Investor Relations.

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 our 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 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.evalenthealth.com, and the form 8-K filed by the company with the SEC earlier today. During management's presentation and discussion, we'll 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 Evalent's IR website. And now I will turn the call over to Evelyn's CEO, Seth Blackley.

Good evening, and thanks for joining us. My prepared comments today will focus on updating you on our quarterly results, progress on our three operating priorities, and the status of integrating our recent acquisitions. As you know, we're hosting an investor meeting in Arlington, Virginia, with a live webcast option as well on May 23rd, and I'll preview that event at the end of this call. John will discuss the quarterly results in more detail and our update on guidance for the year, and we'll look forward to you taking your questions at the end, as always. Reviewing the first quarter, Evelyn began 2023 with strong results. Adjusted EBITDA exceeded the top end of our guidance range, and revenue was within the range. We also continue to feel good about our guidance range for the full year, and today we're raising the bottom end of the revenue range for the year, given our high visibility into growth as the year progresses. Overall, we're happy with a strong start to the year. For the quarter ended March 31st, 2023, Evalent Health's reported revenue was $427.7 million, growth of 44% over the same period of 2022. Excluding the $48.5 million of revenue contribution from NIA, which was required during the quarter, our revenue growth rate was approximately 28%, consistent with the range of 25% to 28% we guided for 2023. And as John will discuss, we expect meaningful quarter-over-quarter revenue growth for Q2 and Q3 as we go live with our previously announced performance suite expansions at Molina and Humana. Looking at profitability, first quarter adjusted EBITDA totaled $50.5 million, an increase of $26.2 million, and more than doubling results from one year ago. The growth in adjusted EBITDA was driven both by expansion in the base business as well as the addition of the NIA and IPG acquisitions. Adjusted EBITDA margin for the quarter totaled 11.8%, a new high watermark for the company. Our first quarter results provide a solid starting point of achieving our previously released goal of an adjusted EBITDA run rate of $300 million exiting 2024. We look forward to continued operational progress and sales momentum as the year continues. Now we'll update you on Evelyn's three core operating priorities of strong organic growth, expanding margins, and optimal capital allocation. Starting with organic growth, I want to highlight two notable agreements signed since we last spoke in February. Recently, a national payer under contract with IPG has entered into an agreement with Ansurge, a leading ASC chain to utilize IPG's surgical management solution as its preferred surgical implant provider nationally. This unique National payer ambulatory surgery center agreement utilizing our surgical management solution is a testament to the value this solution creates for payers and ambulatory surgery centers mutually benefiting from site of care shift and reduced device cost. We're thrilled with this opportunity to roll out our surgical management solution into AMSURG's ambulatory surgery centers. Furthermore, this expansion opens doors for cross-selling, and grow in our ambulatory surgery center install base to other payers, both regionally and nationally, and it creates a blueprint for national payer relationships with other surgical chains. It's also a proof point of the synergies Evolent brings with our relationships and large national payers to elevate and cross-sell our portfolio as a one-stop specialty value-based care partner. Second, we announced a significant oncology specialty, technology, and services expansion with Centene in March. To recap that announcement, Centene will expand its use of Evelyn Health's oncology solution across its Centene and WellCare Medicare Advantage members nationally. This agreement expands and deepens the specialty care partnership between Centene and Evelyn beyond Medicaid and into the rapidly expanding MA market. We began to go live in local markets during April, adding over 800,000 MA members in 26 states by the end of 2023. PMPM fees for this agreement are above reported corporate averages for the company's technology and services solution, as this is an MA book of business. This is also another excellent example of how we grow within our client base by increasing geographic and specialty reach with our proven solution to manage oncology costs and health outcomes. It's also worth noting this was a competitive displacement of a smaller point solution. Evelyn continues to benefit from the breadth of offering and the trust we've created with our customer by meeting our operational commitments. Please note that this agreement with Centene is in addition to the $20 million of incremental adjusted EBITDA we anticipate from Centene's expansion of NIA solutions. which was built into our fully synergized estimate of $85 million from NIA by the end of 2024. These agreements announced today bring our total new partnerships to four year to date compared to our annual goal of six to eight partnerships and significant expansions. Looking ahead, our pipeline of new business remains strong. During March, my team and I hosted a number of current customers and prospective payers. I came away highly encouraged about the power of our integrated platform and the prospects for continuing to drive strong organic revenue growth in the years ahead. I'm also happy with our progress against our second core operating priority of expanding adjusted EBITDA margins. As noted earlier, we delivered 11.8% adjusted EBITDA margins in the first quarter, the highest in our history, and on track with our full year financial guidance for 23, as well as our path to $300 million of run rate adjusted EBITDA for 2024, exiting that year. Reaching this profitability level will require continued maturation of the performance suite book of business we already have, as well as continued sales of our high margin specialty technology and services solution. The announcements today continue to illustrate our progress against specialty technology and services growth, And we remain on track with our performance suite margin maturation goals in the latest quarter. We look forward to providing you additional detail on both fronts during our investor day. Also want to highlight that we previously indicated that Evelyn would generate approximately 75% of its adjusted EBITDA dollars in 2023 from Evelyn's fee-based products and 25% from our performance suite business. We're seeing the merits of this balanced approach with the strong top and bottom line results in the quarter. While the performance sheet will continue to drive our highest growth rates and revenue and deliver more significant EBITDA contributions in later years, this balanced approach to delivering revenue growth and adjusted EBITDA growth will yield sustainably strong profitable growth in the years ahead. Our third operating priority is optimal capital allocation. To reiterate, 2023 will be focused on execution of our cost synergy plan and accelerating our value-based specialty care position where we're confident in our market leadership. Our near-term capital allocation priority is to deleverage the balance sheet through adjusted EBITDA growth and debt reduction through strong cash generation. We will also continue to evaluate opportunities to simplify our capital structure to yield lower costs to service our debt while at the same time protecting common shareholders. As John will discuss in more detail, strong cash generation in the quarter relative to historical seasonal expectations resulted in our net leverage ratio that is better than our previous expectations. And we remain on track to meet or exceed our target of generating $120 million or more in cash flow this year prior to interest or debt service. To close, let me add a couple points on integration and our agenda for the investor event. Our integration of NIA is on track and progressing well. We have multiple work streams underway that are a focus of the collective teams across both Legacy Evelyn and new members of our family from NIA. We finalized and implemented the integrated organizational design over the last few months and are beginning to see the cost, capability, and sales benefits of the combined company. During our investor day, we will talk more about the power of the integrated product platform, the operating model that's emerging, as well as the future of cross-sell opportunities and their impact on our margins. For our May 23rd event, we have three primary goals. The first is to give you all a detailed understanding of the problems our clients face and how we solve them with our platform. You should walk away with a clear understanding of what Evelyn does and how we accomplish our work. Second, you'll get exposure to a broad cross-section of our deep bench of executive talent, as well as several video interviews with key clients. And third, John will provide insight into Evelyn's financial model, including a deep dive on our unit economics and margin maturation opportunities. We hope you can join us in person or through the webcast. The link will be live on our IR website soon. If you want to attend in person and have not yet received a registration link, please reach out to Seth Frank. With that, I'll turn it over to John.