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.

Thanks, Seth. As you see in our release this afternoon, our operating focus and discipline continue to translate into financial results that are at or better than our targets. Let me go through those targets now before turning to the detailed numbers. First, we said we'd drive significant organic growth. As Seth highlighted earlier, specialty revenue for the quarter is up approximately 32% year-on-year, excluding acquisitions. We're excited about this growth engine. Second, we identified cross-selling new solutions into existing customers as one of our primary objectives to drive growth. We're excited to announce some early returns on this strategy in the partnership expansions that Seth outlined. and we continue to be enthusiastic about the integrated specialty model we are taking to market. Third, we expect earnings expansion on our current book of capitation business as we implement our value-based initiatives with new populations. We continue to see steady improvements in performance suite populations that went live in 2021 and 2022. Our second quarter revenue number includes more than $200 million in annualized performance suite revenue that has been under management for less than a year. These new populations contribute minimally to our second quarter earnings, but represent more than $25 million in annual earnings opportunity at maturity. Fourth, we are focused on turning EBITDA into cash. During the second quarter, we added $5 million to our available cash balance, which was impacted by collection timing. The net of increases in our AR and claims reserve consumed about $34 million of cash during the quarter. In fact, we received over $40 million in catch-up payments from customers during July. Excluding these working capital fluctuations, we would have added $39 million of available cash in the quarter. Note that consistent with our plan, we are investing incremental resources this year in integrating and repositioning our business to best capitalize on the value-based specialty opportunity. Without these targeted and non-recurring investments, cash generation in the quarter would have been even higher. Now let's go through the numbers in more detail. Revenue in the quarter was $469.1 million, an increase of 46.6% versus the same period in the prior year. In total, we had an estimated 41.8 million unique members during the second quarter of 2023 with a total of 78.6 million product members for an average of 1.9 products per unique member, an increase compared to the first quarter of this year. Note that most of the sequential increase in average product members is driven by having NIA in the numbers for a full quarter. Excluding that factor, we added about 1.5 million product members in the quarter. Turning to the breakdown of membership, we averaged 3.8 million product members in the performance suite during the second quarter compared to 2.1 million in the second quarter of the prior year, and about 600,000 higher than Q1. Average PMPM fee was $24.20 versus $32.53 a year ago, and in line with both our forecast and flat quarter-on-quarter. As a reminder, the year-over-year change in average PMPM is from sales mix, a result of higher growth in Medicaid and commercial lines of business, which run lower than our corporate average. PMPMs will average higher later this year as the Medicare Advantage business from Humana begins to roll through. Average product membership in our specialty technology and services suite was 73 million members during the second quarter, inclusive of a full quarter of NIA membership, compared to 15.1 million in the same period last year. Average PMPM fees were 35 cents in the second quarter versus 28 cents in the second quarter of 22. Product members in administrative services were 1.8 million, compared to $2.1 million in the same period of the prior year, with an average PMPM fee of $14.22 versus $14.68 in the second quarter of 2022. Recall that we will continue to carry the wind-down lives from Bright Healthcare, totaling roughly $360,000 through the end of this year. Total quarterly cases associated with advanced care planning and surgical management totaled 15,000 for the second quarter, and average revenue per case totaled approximately 2,500 for the second quarter, both in line with seasonal expectations. Note that these numbers reflect billed cases only and do not include cases for our performance suite populations. As a reminder, our strategic priority for these services is deployments as part of our performance suite. Our adjusted EBITDA results was 47.4 million versus 21.7 million in the second quarter of 2022, reflecting organic growth, maturation of our performance suite contracts, and the additions of IPG and NIA. Adjusted EBITDA margin of 10.1% represented expansion of about 330 basis points over the same quarter last year with the same drivers. Recall that our quarter-to-quarter adjusted EBITDA trends this year reflect the pull forward of about $4 million into the first quarter of 23 from quarters two and three, which we addressed back on the May call. Turning now to the balance sheet, we finished the quarter with $142.5 million of cash and cash equivalents, including approximately $12 million in cash held in regulated accounts related to the wind down of Passport. Excluding the cash held for Passport, we had $130.6 million of available cash, an increase of $4.7 million versus the end of the first quarter. Cash deployed for capitalized software development in the quarter was $5.7 million. In addition, we recognized a non-cash lease impairment of $24.1 million from closing our Chicago office as we reduce our overhead footprint and drive efficiencies across the business. Finally, in our 8K this afternoon, we announced an early redemption of our remaining 2024 convertible notes as we continue to execute our delevering priority. Turning now to guidance, as Seth mentioned, we're raising the bottom end of our adjusted EBITDA outlook for the year. Let's go through a couple of macro factors we consider as we think about this outlook. First, Medicaid redeterminations continue to be a focus of many who watch the space. Our expectations here have not changed that we will see a gross decline in Medicaid membership in the mid-teens, which translates to about a 6% gross decline, meaning before new ads, in our overall revenue given our particular Medicaid mix. As we have previously noted, Our Medicaid book is weighted towards states that are moving slower in the redetermination process. For example, more than 50% of our Q2 Medicaid revenue was in states that started the process in July, while less than 3% of our Q2 Medicaid revenue was in Florida and Texas, states that are pursuing redeterminations more aggressively. We will continue to monitor these trends closely throughout the fall and into next year. Second, our revenue guidance implies approximately 17% sequential growth in the second half of 2023 when compared to the first half of 2023, despite the expected redetermination impact. This is largely driven by new go-lives in the performance suite that Seth reviewed. Recall that these will contribute minimally to adjusted EBITDA this year, but start to flow through as they mature into next year and beyond. Turning now to our positive revision to our outlook for the year. With continued strong core business performance, we are raising the bottom end of our full year adjusted EBITDA range to between $185 million and $200 million, and we are maintaining our revenue guidance for the year of $1.935 billion to $1.965 billion. We expect Q3 total revenue of $500 million to $520 million. We continue to expect Q3 to be sequentially lower in EBITDA given the pull forward I mentioned earlier into Q1 of this year. And we are forecasting consolidated adjusted EBITDA of $42 to $47 million before stepping back up in Q4 to finish the year strong. We continue to expect the target net leverage ratio of under three times, including outstanding convertible notes by the end of 2023. And we forecast between 35 million and 40 million in annual capitalized software development expenses. And with that, let's go ahead and open it up for Q&A.

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 are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jeff Garrow with Stevens. Please go ahead.

Good afternoon and thanks for taking the questions. Maybe following up on Seth's comments about positive feedback on the rebranding efforts, I imagine it's just the kind of initial stage of several future steps to roll out the brand and then also the integrated go-to-market approach and later on technology. So I was hoping you could give a little bit more color on where the next steps might be to really help clients and prospects understand the power of the combined platform.

Yeah, thanks, Jeff. Look, I think the key to the topic is really around the underlying operations and the technology, and therefore the integration that we can provide back to patients. And as we go around and talk to customers and prospects, that's certainly what the market wants. And so the first step was communicating that really clearly. At Investor Day and over the last couple months, as we said, around our strategic product focus, and we're now out having those conversations, I'd say, directly with with our prospects and clients. So that's kind of the phase we're in right now. All the while, of course, the technology integration is going on underneath. And so I think we're kind of in the phase of direct communication to clients, which is going really well, and they love the vision and love the platform that we've put together. And then the technology actually getting fully stitched together underneath is kind of the final step.

Got it. Thanks. That helps. And, you know, maybe to follow up there with a, But more specifically, I've already seen some of the kind of positive fruits of that work, and you announced this regional not-for-profit health plan win in the quarter. Curious to get a little more detail there, maybe what the key drivers were in their decision-making, what key lines of businesses they're exposed to, and what specialties specifically you'll be addressing for them. Thanks.

Great. Yeah, look, it's... Like a lot of situations with any regional plan, I think the buying criteria are similar, which are return on investment and the ability to commit to savings to the organization is certainly going to be high on the list, and that comes with credibility and experience and referenceability and the like. The second thing, though, is that we can, as we have completed acquisitions and begin to integrate our components, able to stitch together multiple products and offer those in a more integrated fashion. And so I think it's really the combination of those two things that worked in that case. One of the other announcements we made today, I think, had a similar theme to it. And if I looked at the pipeline more broadly, even though you didn't ask about that, I think that's just a big theme in general, which is seeing an acceleration in the pipeline based on our ability to talk about multiple specialties across multiple lines of business, which is the case for this plan. And I think it's going to be a big theme, which is it's going to be commercial Medicare, Medicaid, multiple specialties. That's going to be something you see a lot of.

Makes sense. Thanks again. I'll hop back in the queue.

The next question comes from Sean Dodge with RBC Capital. Please go ahead.

Yeah, thanks. Good afternoon. There was a lot of new business activity that you walked through, Seth. Maybe just to help put it all into perspective, bridging to your $300 million EBITDA target from where you expect to end this year, about half of that, you've said before, you anticipated to come from new wins. If we kind of take the four that you've announced today, can you give us some sense of how you're tracking toward that? It sounds like maybe potentially running a bit better, at least up to this point, than you thought.

Yeah, look, I think the way I would answer it in general is that I'd say we're certainly on track for that $300 million overall and the $50 million piece of that, which is around new business. And I think this quarter helps a lot. You know, even the ones that are not technically new operating agreements that are cross sales help a lot because even though they may not be huge in and of themselves, there's really high flow through on these. So I think You know, what we were attempting to communicate in the tone and certainly in this answer is that we feel like we're certainly, you know, on plan for the $300 million.

Okay, great. And then in the performance suite, you mentioned not seeing any indication of higher cost trends in your data. Can you give us just a quick refresher on if you were to see some type of spike or elevated trajectory, do you have – some contractual levers available to you? How often are you able to reprice those? What kind of protections, I guess, do you have if you were to see things start to take up?

Yeah. Hey, Sean, it's John, and I'll take that one. I would think of this in two ways. The first, and it's an important distinction in our risk-bearing business versus a broad-based MCO or a risk-bearing provider, where nearly everything that we take risk on in the performance suites is pre-auth. And so we have very good visibility into those auth rates and the likely impact in future claims. So that's the first thing that I'd say is we would generally speaking be able to know or see that earlier than we would if we were just waiting for claims completion. The second piece, as we think about how we contract for this business, We will typically include things like a corridor around, say, cancer prevalence. And so if prevalence in a population moves up or down outside of that corridor, then the parties will come back to the table and adjust the rate accordingly. So that's an important part of the model. And it's also important to recall that we can have some visibility into that potentially happening before we see it in the claims.

Okay, that's super helpful. Thanks again.

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

Yeah, guys, thanks for taking the questions. I wanted to start with a little bit on the pipeline as it relates specifically to the potential for more Medicare business, which I think is a little under a third of your book today. So, Seth, you talked about some of the pressures that some might be facing there with increased surgical utilization, and then we have the lower MA rates and risk adjustment pressures for 2024. And I'm curious if that is accelerating the pipeline as more and more payers are turning to you to help them manage their MLR, and what could be kind of a more challenging outlook for 2024 and 2025? Hey, Ryan, the answer is yes, it is.

moving the pipeline in a good way for us. And I think it is the general pressure on MLR around utilization. I think the risk adjustment piece is maybe equally important in the sense that I do think that lever has been reduced a little bit. And so I was talking to one of our customers a couple months ago, and he said exactly that, which is we're going to have to attack utilization a little bit more aggressively without that lever. with that lever being a little bit reduced, right? So I think the answer is yes. We're seeing it, as we said in the script today. It's feeling positive in the pipeline. And I think the combination of that pressure but also the broader set of solutions that we can offer, tech services model, performance suite model, multiple lines of business, multiple specialties, gives us a lot of different ways to create win-win partnerships with our clients and prospects. So it feels pretty good, right?

Okay, perfect. And then, John, maybe one for you just on Medicaid redeterminations. I want to make sure I heard you correctly. Can you just go through the impact that you're contemplating in the guidance regarding churn and revenue impact? And then maybe number two, it sounds like some states have paused redeterminations and a couple plans have indicated that maybe it's progressing a little bit better. So net-net, is it right in line with what you're thinking or maybe a little bit better? Thanks.

Yep. So our thinking on this hasn't changed. So I'll give our expectation for this year and then also for into next year when the redeterminations are complete. For this year, we anticipate a gross reduction in Medicaid membership of between 8% to 10%, comparing end of last December to end of this December, which is about, we think, two-thirds of the way there, ending with total redetermination impact on a gross basis, probably middle of next year, in the mid-teens. On the speed question, I think what I wanted to highlight in my prepared remarks there was the amount of our revenue that really just started redeterminations four weeks ago, five weeks ago. And so it's still too early for us on our populations to see is it going slower or faster than than expected. What I would say is we've been encouraged, both in talking to our partners and hearing some of the MCO announcements over the last couple of weeks, at the way both CMS and the managed care organizations are working to ensure that Medicaid enrollees stay enrolled where they're eligible.

Perfect. That's a very helpful clarification. Thank you. Thanks, Ryan.

The next question comes from Charles Rhee with TD Cowan. Please go ahead.

Yeah, thanks for taking the questions and congrats on the quarter. You know, maybe if we think about the pathway to the $300 million, obviously we have a lot of moving parts here with new, like the Humanity Partnership kind of ramping up. and some of the new partnerships you signed. Can you give us a sense of timing on when we should start to expect some of these to start hitting? I know with Humana ramping, it sounds like you're saying it's starting here in the third quarter more, with EBITDA contribution coming more next year. But the new tech and services partnership that you announced, When would that, you expect that one to start? That would be 1-1 of next year or is that sometime this year as well? Maybe just for some of the new ones, a sense of timing where we should start to expect contribution either both from top line and EBITDA, that'd be great. Yep.

So on the, let me take those in turn. I'm going to focus first on EBITDA and then I'll circle back to growth. If you think about the path to 300, One of the things that we've sought to communicate there is if you look at our TTM EBITDA today of 158 million, add in the remainder of the acquired EBITDA, then you'd see a pro forma EBITDA of about 190. On top of that, as I mentioned in my prepared remarks, we have a couple hundred million dollars of new performance suite revenue that's live today that is not really contributing in that 190. And so that is going to add, by the time we're exiting next year, north of $25 million of flow-through down to the EBITDA line. Now you start to stack up on top of that some of these announcements that we've made. The Humana relationship going live, which will be generating EBITDA probably mid-next year. The series of T&S deals. And I think one thing that you'll see from us, Charles, is an announcement like today with a number of partnerships is an important piece of the path to 300. Because while these partnerships are strong margin partnerships where we can add a lot of value to the clients and they can enhance our EBITDA, they don't have a lot of top line. They tend to be pretty small given the PMPMs. So that's how I would think about it. in terms of where are we starting, pro forma today about 190, how are we adding from there based on the current performance suite book, and then adding on top of that to the 300. And the last thing, just to be measy, is the rollout of the NIA synergies that we talked about at the time of that deal, which is 35 million in total.

Okay. And then I guess, you know, to follow up on the question about redeterminations, you know, I think in particular, you know, Illinois is a big one, and that started July 1st. Any kind of sense that you've gotten there on the progress or lack of progress, perhaps? You know, are they one of the states that are taking into consideration sort of the procedural issues?

They certainly seem to be, yes. I think if you read some of the notes that have come out of the the state government and health agencies, it seems to us that they're taking a very deliberate approach there to support their citizens. It's also too early to see in the numbers.

Okay, fair enough. I'm sorry, just following up on another question I think Sean asked about sort of the acuity in how you would see it. You talked about leading indicators. How early would those, in those leading indicators, would you be able to notice something changing? I know you talked about seeing the pre-ops, but maybe any other factors that would give you some lead time in seeing changes? Thanks.

You know, that's going to be the big one, Charles, because that contains a lot of information, right? It's not just the information around the requested treatments, right? but it's also what's the diagnosis, what's the history of disease, and all of those different factors. So that's an inclusive set of information.

Okay, great. Thanks a lot.

The next question comes from David Larson with BTIG. Please go ahead.

Hi. Can you talk a little bit about Bright Health? How much revenue is coming from that in 2023? And then I think Molina is buying a significant portion of them. Are you going to recapture that revenue through Molina in 2024? Any color there would be very helpful. Thank you. Yep.

So on Bright, we've indicated an expectation for total revenue this year between $30 and $40 million. That is related to the wind down of their IFP lives and not related to any of their Medicare Advantage lives, which is a plan that Melina is purchasing. So that is a plan that we had not done any work with. Okay.

Okay. That's great. Thanks. And then can you maybe talk a little bit more about the expansion with Molina in Florida and that Medicaid book and that process, just any more color there? And then are other states looking at that? And, I mean, does that increase your odds of winning business in, like, Texas, for example, Medicaid?

Yeah, David, it's Seth. I can take that one. You know, it's a lot like the other six states. that came before Florida, and it's really a process of working with the local leadership to build confidence around our ability to drive savings and the internal reference and ability within the other states and the markets, which we got to continue to perform. And I think each time we add a state, it's good evidence that we're delivering our commitments. And I think it'll be the same for states eight, nine, and beyond. And look, we're pretty heads down, focused on execution. We feel like if we do a good job for our clients, this is what comes out of the back of it. And we feel really good about that partnership and continue to deliver a lot of value, David said. I do think the Medicaid piece in Florida would be a potential interesting opportunity for other Medicaid plans in the state for that arrangement, even beyond Molina. So there's a couple different reasons we're excited about that announcement. Okay, great. Thanks. Congrats on your quarter. Thanks, David.

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

Thanks very much. I think most of the salient operational questions have already been asked. So maybe, John, a financial one. Thinking about a couple of my other companies have recently started talking about refinancing, which is kind of interesting because Fed just raised rates. But it's because their financial conditions were getting better. Their leverage was coming down. And their comment was the debt markets are actually – playing a little better. You know, I'm not certainly a debt analyst or a debt banker, but I would love to hear your thoughts about the potential to refinance. Are there certain either leverage metrics that hit triggers where you're like, okay, if we get to this leverage ratio, we can do it? You know, rates start to tick down. You know, just trying to think about that opportunity and how we would think about tracking what the timing might be on that opportunity. Thanks.

Yeah, it's a good question, Sandy. We really seek to balance and optimize three things as we're contemplating potentially refinancing. Cash interest, total leverage, and dilution of the common. And so as we sit and look at it today, if you perform it in the rest of the acquired EBITDA, we're sitting at about 2.7 times net levered. and we are committed to maximizing and optimizing those three things. So if we see an opportunity to refinance into something that is cheaper, then absolutely we would contemplate doing that. If it was the right thing to do for those other two metrics, leverage and dilution of the common.

Got it. That was helpful, and that was my only question. Congrats on a good quarter. Thank you, Eddie.

Appreciate it.

The next question comes from Jessica Toussaint with Piper Sandler. Please go ahead.

Hi, guys. Thanks for taking the questions. So first I wanted to just come back to your comment around Humana starting to generate adjusted EBITDA in the second half of 2024. Can you just help us understand kind of the margin trajectory of performance suite deals maybe in their first six months and then their second six months post-launch?

Yeah. Yeah, you got it. So what we've typically indicated is an expectation that at go-live, for the first couple of quarters, as you look at your claims expense and watching the claims complete, your claims expense has a lot of IV&R in it. And so you're building for those first couple of quarters the IV&R stack. And on a reported basis, you're not generating a lot of earnings. as those claims complete and the IV&R comes down, then you would have a natural release of that initial actuarial conservatism that then translates into what we've typically indicated, the first full year of a performance suite arrangement, between 4% and 6% of the total profits down at the bottom line. So that's how I think about it, is quite little in the first couple of quarters and then ramping up And is that three quarters? Is it five quarters? That's going to depend a lot on the specific partnership, the specific geography, and so forth. But that is the way that we see it playing out.

Got it. That's fair. And then that's really helpful. And then I was just hoping maybe you could describe any changes you've seen lately in the competitive landscape for the tech-enabled solution specifically. Mostly interested to understand if some recent controversy around a competitor's prior authorization algorithm has created an opportunity for you guys into 2024. Sure.

Yeah, Jess, I would just say in general, without commenting on the specific situation, just in general, I think our model tends to be clinical, highly clinical in nature. That's been our differentiation point from the beginning, which is really more around pathways. And I think we talked last quarter about the satisfaction rate of oncologists using our platform being really high. And I think just in general, we tend to differentiate based on being more clinical and being more physician-friendly. And I think added to that our ability to offer multiple specialties, Jess, I think we feel like the competitive environment is a little more attractive for us now than it was six months ago, 12 months ago. And I think it's really based on less what others are doing and more what we're doing. And that's really how we're focused is continuing to meet the market where they are and listen to our customers, voice of customers, a core part of how we run the company. And I think we continue to both in terms of the product that we're delivering, but also some of the innovation things that we talked about today with patients, with AI. We can have a longer conversation about it, but I think that's going to be the determinant of our competitive landscape is our ability to execute, and we're going to stay pretty focused on what we can do to control it, and we feel really good about it.

Got it. And that's helpful. And then my last one would just be, can you offer an updated stat on the percent of your NCH performance suite lives, or I'm sorry, the Evelyn performance suite lives that are covered by a vital decision solution or have access to advanced care planning? And that's it for me. Thanks.

Hey, Jess, we haven't disclosed that. It is an important piece of our integrated portfolio, right, as we're both ramping it into existing clients and including in new sales, but we're not breaking out the specific mix.

All right, thank you.

Thanks, Jess.

The next question comes from Richard Close with Canaccord Genuity. Please go ahead.

Yes, thanks for the questions. Maybe just building on Jess's question and your answer to Ryan with respect to saying attack the utilization. I'm curious with the increased press on utilization management and then, you know, you're calling it out in Medicaid here recently over the last week or so. You know, based on your clinical... I guess, being more clinical. Are you seeing that accelerate the pipeline in terms of, you know, people deciding to switch out the old utilization management and go with the more clinical focus that you guys are offering?

Yeah, Richard, I do think that it has always been the core of our differentiation and will continue to be the core of our differentiation. And when we talk today about things like patient navigation as a new product that we're developing, right, that takes us further down that path. And the more you do directly with the patient and the family, the less you have to think about utilization management because you're sort of doing what I would call shared decision making rather than a utilization management model. So it has always been our differentiation. I think it is helping and it has always helped. I think we're pushing that boundary further with the things that we talked about today. And AI, we go down the same vector, right? AI, which we did not talk a lot about on the call and we'll talk about in the future, is a lot about reducing abrasion and doing things in an automated fashion. And so we intend to lead on that front across all these different areas, and we're really pushing as quickly as we can down a lot of different vectors. And I do think the underlying issue and frustration that you're articulating is an opportunity for us.

And just as a follow up, is it portend, I guess, maybe an acceleration in the adoption of the performance suite versus, you know, maybe tech and just tech and services?

You know, it's a good question. I don't know. I don't know if I could forecast it one way or the other on that front. I think the way we've thought about the business, I don't feel a huge shift in mix right now. It's, a fair bit of growth on both sides, Richard, and I think it tends to be a little bit more client-specific as to they need a guarantee or are they, you know, okay with the tech services platform. Okay. Thank you. You're welcome.

As a reminder, if you wish to ask a question, please press star then one to enter the question queue. The next question comes from Jaylandra Singh with Truist. Please go ahead.

Thank you. And thanks for taking that question. Um, actually a kind of question on Molina partnership in Florida, I believe you said like a hundred thousand Medicaid lives at typical Medicaid PM PM. Our understanding is Molina has close to 175,000 lives. Maybe they include duals and longterm care lives there. Maybe those are not part of the contract. And if so, Do those remain future opportunity for you guys? And any color on PMPM for exchange lives, is that comparable to Medicaid PMPMs?

Yep. Two things there, Chalindra. We only do performance suite for adults, not PEDs. So that's likely the distinction. I would also say that as we think about this for next year, of course, we are including an allowance for redetermination impact, right? So those two things are important. As you look at aggregate size of that potential partnership, you know, we would scope it likely over $20 million of top line.

Okay. Exchange BMPM, how much is that?

We typically don't go that granular. Okay. That gets pretty nuanced. Okay.

Okay. All right. Maybe my follow-up on the comments around the oncology cost trends, clearly you guys have seen pretty stable trends, but as you pointed out, some commentaries have been pretty mixed from some entities. Have you guys done any analysis on the cancer screening data for your population, which keeps you comfort that you never saw screening go down, so any such cost is unlikely to pick up in future years? And a quick follow-up on your earlier comment that you have a corridor around your prevalence of cancer rates, but are there any protection around the acuity mix, like more late-stage cancer cases versus early-stage cancer cases?

Let me try to take those in turn. On screenings, We don't take risk on screenings and so don't tend to have access to that data. What we do have access to is both in conversations with our partners and broad-based research. There's a report that Epic put out, for example, back in February that indicated what we have seen, what we've heard from our partners, which is that cancer screenings, in particular in Medicare and Medicaid, have been at normal rates for quite some time. And so that to us is pretty definitive. And it's consistent with what we're seeing in our data around aggregate prevalence and acuity. On the second question, the answer is yes. The specifics, as you can imagine in a risk contract like this, get pretty nuanced around specifically how we work with our partner to ensure that we're fairly sharing the value that we're creating. as a population might shift over time. And so the headline, just as we talk about corridors around prevalence and other items, is that we're seeking to drive aligned partnerships with risk-bearing health plans. And that model to date has generated both significant profits and significant growth.

Okay, and then my final question on your MSSP business. CMS came out with some changes in their proposal under a free schedule. Looks like they're encouraging more ACO participation. Can you talk about your thoughts on the changes including the proposal? And does that change your view on how you plan to approach your MSSP business next year? And on the same topic, any visibility on improvement in MSSP savings for 2022 plan year and expectations this year?

Let me take that last one.

Seth, maybe you can talk about how we're integrating this into the broader strategy. So on the fee schedule, Jalindra, look, there's a bunch of stuff in there that is net positive for primary care, inclusive of the ACO programs. So that's good, and that should be supportive of growth, both of our ACO and of that overall product line. As we think about the shared savings for 22 at this point in the year, we typically have pretty good sense and line of sight into what that might be. And I have, of course, incorporated that into our guide. Seth, you want to talk about strategy?

Yeah, I'd just say in general, business is performing well, as John said, and we feel good about it. Things are top and bottom line, feel good for this year, as John said, baked into the numbers. I think as you go forward and you go back to IR Day and look at how we talked about the focus of the business, we have $150 billion TAM in the specialty side of the business, largely with private payers. And a lot of what we're doing, whether it's with formerly known as IPG, formerly known as Vital, Evelyn Care Partners, is stitching a lot of things together to be able to serve payers' needs in a more integrated fashion. So I think going forward, you're going to hear us talk a little bit less about Evelyn Care Partners as an entity, and ACO is a thing by itself. While it's still important, what we're really thinking about is the $150 billion TAM, which integrating specialty and primary care is interesting and the things we can do for that, but that shows up less as an ACO and more in direct contracts with private payers, right? So I think just sort of setting the table for future quarters, that's really going to be how we think about whether, again, it's formally known as IPG, formally known as VITAL, ECP. You're going to really hear a lot more about just Evelyn and how we're stitching all of it together.

Perfect. Thanks a lot. Thanks, Jolanda.

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

All right, thanks for joining us tonight. We'll look forward to connecting with everybody out on the road. Have a good night.

The conference has now concluded. Thank you for attending today's presentation.