Evolent Health, Inc.

Welcome to the Evelyn Earnings Conference Call for the quarter ending June 30th, 2023. As a reminder, this conference call is being recorded. Your hosts for the call today from Evelyn 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,

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 U.S. Federal Laws. 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 second 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.ebelinhealth.com, and form 8K, followed by the company with the SEC earlier today. During management's presentation 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 presentation available on the event section of Evalyn's IR website, ir.evalynhealth.com. And now with that, we'll turn the call over to Evalyn's CEO, Seth Blackley.

Good evening, and thanks for joining us. We're pleased to be here to discuss another strong quarter of execution against our plan. As context for today's call, I want to reiterate three key elements of that plan. First, Organic growth is driven by a conviction that our integrated, value-based specialty management approach is a winning strategy for both attracting new clients and expanding with existing clients. Second, our ability to drive earnings expansion given the operating leverage and margin maturation inherent in our business. And third, our commitment to cash generation and thoughtful balance sheet management, including de-levering. I think you'll see our results this quarter affirm all three elements of this plan and that we've taken another step towards our target of $300 million of adjusted EBITDA exiting next year with continued sales momentum thereafter. Turning to the quarter, second quarter revenue was at the high end of our outlook for the quarter while adjusted EBITDA came in right above the midpoint. Specifically, strong revenue growth was driven by substantial organic membership growth, both quarter over quarter and year over year. Our profit growth year on year was driven by the high flow-through margins from incremental technology and services fee-based business, continued maturation of our performance suite portfolio, acquired revenue from NIA, plus initial benefits from our integration work. Given the results for the quarter and our visibility for the remainder of 2023, we are raising the midpoint of our 2023 adjusted EBITDA outlook. For revenue, we are maintaining our 2023 outlook based on the timing of several significant client go-lives across quarters three and four. John will provide more detail as well as the third quarter outlook shortly. As part of the guide for the remainder of the year, we anticipate continued growth from the Humana Performance Suite announced this past January. That contract went live in Arizona in July, and we plan to go live in Florida later this year. Our other existing and new contracts are also performing at or above expectations, contributing to high confidence in the remainder of 2023. Looking briefly at the numbers, Evelyn's second quarter 2023 revenue was $469.1 million, growth of 46.6% over the same period of 2022. Sequentially, revenue grew approximately 10% compared to the first quarter of 2023. If we focus on Evelyn's specialty revenues, representing 83% of this quarter's total revenue, total reported growth was 72%, with acquisitions contributing 39.8 points of year-on-year growth. So before the impact of acquisitions, Evelyn's core specialty base grew over 32% year-over-year. Second quarter adjusted EBITDA totaled $47.4 million, more than doubling compared to the second quarter of last year. The growth in adjusted EBITDA year-over-year was driven both by expansion in the base business as well as the addition of the NIA and IPG acquisitions. Now let's turn to Evelyn's three core operating priorities of strong organic growth, expanding margins, and optimal capital allocation. Starting with organic growth, we had a robust quarter of four new agreements consisting of two new operating partners against our target of six to eight per year, as well as two new cross-sale expansions. Starting with the two new operating partnerships, We are first pleased to announce that we will expand to both cardiology and oncology performance suite for Molina's Medicaid and exchange members in Florida. This agreement marks an important milestone for Evelyn as our first Medicaid performance suite agreement in Florida on the heels of years of success in the MA market. Continue to be pleased with our Molina relationship as we have been able to expand our footprint to multiple Molina states and specialties in rapid succession. including Florida, the relationship will cover seven states and approximately 2.4 million product members, representing approximately 8% of the total addressable product members at Molina, leaving the opportunity for further strong expansion ahead. It's also important to note that this Molina expansion into Florida allows Evelyn to continue to establish critical mass in Florida for the performance week. Molina and their market leadership understand the fact that providers in the market are confident in Evelyn and our ability to collaborate both with the health plan and most importantly with providers in the market. Evelyn's strong performance in Florida makes it increasingly attractive for payers to contract with Evelyn because of our existing scale and track record in the market. As more payers work with Evelyn, our services to providers become more of a standard of care and therefore easier for providers to use. As provider populations in any given market become increasingly familiar with Evelyn and more proficient in our clinical pathways, this network effect can help facilitate additional growth and share opportunities over time. We anticipate the new Molina agreement will go live in the first quarter of 2024, and we anticipate approximately 100,000 unique members at typical Medicaid performance suite PMPMs. The second operating agreement in the quarter is a new logo and first-time corporate-level relationship with a regional not-for-profit health plan with over a million members. As part of the agreement, Evan will be replacing several legacy specialty vendors, helping create a more integrated environment for the health plan. This new agreement will be going live in the third quarter. Beyond the two new operating agreements, we're excited to announce two significant cross-sales. The first is with a Blue Cross Blue Shield plan in the southeast. This agreement renews an NIA contract, expands into a new line of business, and simultaneously adds an Evelyn specialty technology and services solution. This agreement is a proof case for one of the strategic elements of the recent acquisitions whereby health plans using either an acquired product or an Evelyn product adopt some or all of the products of the other. As we believe will often be the case, the broader and more integrated product platform was a key buying criterion for this particular Blue Cross Blue Shield plan. Finally, we're announcing the second cross-sell arrangement today, whereby Centene will deploy Evelyn's surgery management offering, formerly known as IPG, for certain of their commercial members. As with the Blue Cross Blue Shield announcement above, we're seeing good evidence that our integrated product platform and cross-sell approaches are working. This agreement with Centene is over and above 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 of EBITDA from NIA by the end of 2024. Across all four of the agreements announced today, we see our thesis playing out that large payers are looking for innovative, value-based specialty solutions that can better integrate care for patients across multiple specialties. Our strategy of expanding and deepening ambulance capabilities into the largest, most complex, and challenging medical specialties is resonating and providing a basis for conversations about how we can improve cost and quality for the leading risk-bearing plans and physician groups in the country. These agreements announced today bring our total new operating partnership count to six compared to our annual goal of six to eight new operating agreements. Finally, while new logos like the regional plan we announced today always remain a target opportunity, our primary focus, as we've indicated at the time of the NIA acquisition and reiterated at Investor Day, are the large opportunities cross-selling into our existing health plan footprint. It's worth noting that the top 20 plans in the country insure four out of five Americans, and Evelyn now does business with approximately 13 of those 20 plans. and we have a direct cross-sell TAM of over $50 million right in front of us. Regarding our new business pipeline, we're seeing some evidence of clients moving faster on accelerating sales processes to manage their MLRs or to consolidate vendors because they see the value of working with us across more domains. Further, our recent acquisitions are absolutely helping elevate our profile nationally and contributing to an accelerating pipeline. In addition, we're starting to see a lot more RFP activity from multi-specialty solutions consistent with our thesis around our recent acquisitions. Let's turn to our second core operating priority of expanding adjusted EBITDA. Adjusted EBITDA for the second quarter more than doubled year over year to $47.4 million. Adjusted EBITDA margin for the quarter totaled 10.1%, growing from 6.8% one year ago. While acquisitions contributed a portion of the year-over-year growth and adjusted EBITDA, we're also benefiting from a healthy mix of higher flow-through of specialty technology and services, as well as maturation of the performance sweep book. I would note we spent time at the investor day focused on performance sweep margin ramp, and that margin maturation is continuing to perform as expected. Looking forward... We're focused on reaching $300 million of adjusted EBITDA run rate exiting 2024 while continuing to quickly grow market share and revenues thereafter. As you can see from our quarterly results and the mix of agreements I discussed, we feel confident that we're on plan to achieve the $300 million of adjusted EBITDA. And our pipeline depth gives us confidence in continued strong sales momentum. Obviously, it's important that we continue to manage costs. utilization and acuity in the populations where we have performance week contracts. We're aware of conflicting reports of evidence of increased utilization and demand for services, higher healthcare costs post-COVID, and reports of pent-up elective outpatient surgeries, particularly in Medicare. For our part, 2023 is running as expected in terms of overall utilization trends on the heels of preventative screenings returning to normal over 18 months ago. You can see the utilization remains consistent with our expectations based on our results and the guide for the remainder of 2023. In addition to the strong Q2 results and the Q3 guide, let me provide you a couple of 2023 year-to-date leading indicator data points to support our confidence in our results across the quarters ahead. First, our own oncology data for the combination of prevalence of disease, and authorizations per member is generally flat, the first half of 23 versus the first half of 22 on a mixed adjusted per member basis. Within cardiology, while we've seen some expected increase in both disease prevalence and authorizations, the absolute growth numbers are relatively small and the overall combination of prevalence per member and authorizations per member also remain below 2019 levels on a mixed adjusted per member basis. Overall, across both cardiology and oncology, where we hold direct underwriting risk, our utilization trends remain at or better than expectations. We believe that our utilization experience may be more favorable than other plans because of our robust clinical management of the conditions we manage, and we likely also benefit from a diversified mix across commercial, Medicare, and Medicaid populations. We will, of course, continue to monitor utilization closely. Our third operating priority is optimal capital allocation. John will walk you through our cash flow dynamics for the quarter. I do want to reiterate our relentless focus on translating profitable growth into cash flow. As adjusted EBITDA grows and we de-lever, you can expect us to focus on capital allocation on our three capital allocation priorities of one, investing in the business to further accelerate our leadership and value-based specialty care. Two, discipline and strategic M&A. which as you can see in the results is starting to pay off. And third, maintaining a disciplined and efficient capital structure. As of Q2, we lowered our adjusted net leverage ratio to 3.3 on a trailing 12 month basis compared to 3.9 times on March 31st. And we reiterated at investor day our goal being below two times net leverage by the end of 2024. Let's close with a macro view on where Evelyn stands at mid-year on the integration front and the demand profile for our markets. Regarding integration, innovation, and product roadmap, we shared a significant amount of new information during Investor Day. Since then, we officially rolled out our OneEvelyn approach and our new integrated logo to our clients. The fact is we're bringing to market what our clients want. which is an integrated platform to help improve outcomes for people with the most complex and costly health conditions. The initial feedback from our clients is extremely positive, and they're pleased with the pace of our integration efforts while we continue to provide strong day-to-day operational performance. Our clients also continue to tell us that they're impressed with our focus on product innovation. As an example, we recently signed a new agreement to pilot an oncology navigation program with the Blue Cross Blue Shield plan. The navigation program will enable us to provide member engagement earlier in the patient journey and to promote shared decision-making that will help the patients and their families better navigate the healthcare system. As part of the program, we will enhance our advanced care planning capabilities, which we acquired through Vital Decisions, and make them available to plan members in order to empower them as early as possible in their cancer journey. In this pilot program, we will identify members where there is a suspicion of early cancer or a very recent diagnosis, and a subset of members provide proactive outreach by a licensed therapist to support members with care coordination, navigation to clinical and non-clinical resources, education for patients on their diagnosis and treatment options, as well as aligning treatment with their goals of care and assisting them with meeting their preferences for advanced care. All of this will occur in a tightly coordinated and collaborative manner between the payer, primary care providers, and oncologists to ensure a seamless experience and coordination with other care programs. In addition to this navigation product, we continue to drive rapid innovation in several other strategic areas like artificial intelligence. Across our entire product innovation roadmap, we remain focused on market leadership and value-based specialty care with an eye towards a long-term plan of capturing larger and larger share in our $150 billion addressable market. With that, I'll hand it over to John.