Evolent Health, Inc.

Welcome to the Evelyn Earnings Conference Call for the quarter ended September 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, Evelyn's Vice President of Investor Relations. 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 our third quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable 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 IR section of the company's website, ir.evelynhealth.com, and the Form 8-K filed by the company with the SEC earlier today. And with that, I'll turn the call over to Evelyn's CEO, Seth Blackway.

Good evening, and thanks for joining us. Tonight, we're announcing another strong quarter of execution against our plan. We exceeded our guidance for profitability, continued to see strong business development and cash flow in the quarter, and are tracking towards our short and medium-term targets. We believe we have the leading value-based specialty care platform in the market and continue to believe we are set up for continued success. Third quarter revenue of $511 million represents 44.9% reported growth in the quarter compared to Q3 2022. Our specialty offerings representing 87% of our total revenue grew 80% versus the same quarter last year with the NIA acquisition contributing approximately 24% of that 80% growth. Adjusted EBITDA of $48.7 million exceeded our guidance driven principally by strength in our maturing performance-based arrangements. Our profitability is also translating to cash flow with cash from operations in the quarter of $60.3 million. We averaged over 78 million product lives during Q3, and we believe that we're still in the early days of capturing the market opportunity ahead of us. This product life count is roughly flat with the second quarter of 2023 as we anticipated. due to the offset of new lives added and impact of Medicaid redeterminations. Our shareholder value creation plan remains the same of one, strong organic growth, two, expanding profitability, and three, disciplined capital allocation. Let's review progress on each element of the plan before discussing the macro environment. First, our growth algorithm is simple and powerful. Sign new customers, expand the number of products those customers use, and convert customers from our technology and services product to our performance suite. Today, we announced three new operating partnerships, bringing our total for the year to nine, ahead of our annual target of six to eight. First, we are announcing today that we plan to launch our cardiology performance suite with Florida Blue for their Medicare Advantage population in the first quarter of 2024, expanding on a successful partnership in oncology. We expect the cardiology expansion to contribute over $75 million of revenue on an annual basis. This type of expansion, which is a core part of our growth algorithm, is made possible by strong performance in our existing partnership, and we're excited to more comprehensively serve Florida Blues Medicare members. Within the performance suite, We also have opportunities to manage patients under our complex care area, formerly known as Evelyn Care Partners. When supporting patients under complex care, we take a similar approach to cardiology, oncology, or musculoskeletal care, but delivered through primary care physicians for the benefit of patients who are impacted by complex health conditions. Within complex care, we added two new operating partners for 2024. The first is a multi-specialty risk-bearing group in Texas, and the second is a medical group in the Southeast. Finally, on the heels of our successful rollout of our technology and services for oncology specialty care solutions across Centene and WellCare's Medicare Advantage members nationally, we're happy to announce that Centene has added our cardiology technology and services solution to these Medicare members across the country. demonstrating the value of Evelyn's solutions across multiple specialties. Turning to our sales pipeline, we believe we are well set up heading into Q4 and 2024 across each element of the growth plan. We have large and interesting opportunities to expand the performance suite in cardiology, oncology, and complex care. Performance suite growth opportunities are usually within existing accounts. Our technology and services suite opportunities are available for existing accounts as well as for new customers through RFPs. More importantly, some of these new customer opportunities are ones that we were not able to respond to prior to the NIA and IPG acquisitions. Today, we already serve many of the top health plans in the country, including 13 of the top 20 health plans in the country. Given the size of our installed base, and that over one-third of our total addressable market is addressable from cross-selling opportunities. We continue to expect the majority of new business going into 2024 will come from existing clients, and we continue to feel confident about exceeding our growth targets in the time ahead. Turning to our second theme of expanding profitability, our diversified approach continues to expand our earnings growth. You'll recall that we typically generate about 75% of our earnings from our technology and services suite for our non-risk business and about 25% from our performance suite for our risk business. Our large technology and service suite business gives us a firm foundation of earnings to drive quarter-to-quarter profitability with upside opportunities available from our performance suite. We believe our results this quarter continue to validate our margin expansion model where we continue to see strong results from the technology and services suite. In addition, our total adjusted EBITDA came in ahead of expectations because of our 2022 performance suite launches maturing slightly out of plan. Our third investment theme is disciplined capital allocation, where our priority this year has been to generate cash and de-lever the business. John will go through more details here, but I'm pleased that since closing the NIA transaction in January, we have lowered our gross debt by $71.5 million, made up of a $37.5 million reduction to our revolver, a $23 million reduction from the 2024 note conversion, and another $10 million reduction in principal on our senior term loan. In addition, after September 30th, we repaid the remaining $1 million of our 2024 notes in cash. Finally, relative to the leverage targets we laid out earlier this year, we are on track for our annual cash generation objectives and are ahead of our targets for net leverage ratio. Let's close with a macro view on our competitive position and focus on innovation, where we believe Evalent is uniquely set up. As the U.S. continues to manage through challenges of higher interest rates and continued economic uncertainty, we believe the healthcare ecosystem, particularly the U.S. government as the largest single payer for care as well as state Medicaid programs, will be under even more pressure to identify opportunities for cost savings and look to slow the current course of medical inflation. Similarly, employers and in turn insurance companies are under increasing pressure to manage healthcare costs. As pressure mounts, levers like risk adjustment become less impactful, and the cost of devices and drugs accelerate, we believe that the industry is focusing more on managing specialty utilization. Obviously, this is what Evelyn does. We believe we are the market leader in reducing healthcare specialty costs while improving patient quality and reducing physician friction. We can do this work with a guaranteed savings approach through the performance suite, or on a fee basis through our technology and services suite. Investors sometimes ask me what's the difference about Evelyn versus its competitors. The legacy approach to managing specialty care through so-called utilization management is generally disliked, burdensome, and often adversarial and not clinically oriented. We've all experienced this in our personal lives as well. It's frustrating and only marginally effective. Given our provider-led heritage, even though we work for health plan customers, we have a deep understanding of physician needs and challenges when it comes to managing utilization. Evelyn's model is clinically driven, lower friction, and evidence-based. Evelyn's genesis and historical provider heritage uniquely positions us to engineer solutions that engage physicians and patients in a better way, which I would describe as a clinical pathways model. Under a pathways model, we provide choices to providers, transparency, and clinical evidence in real time. This approach lowers friction with providers, and it allows for more holistic, patient-centered thinking across the continuum of care. Let me give you a few examples of what I mean by this. First, as we integrate NIA into Evalent, we are using expertise in areas like imaging and genetics to support holistic cancer, orthopedic, and cardiology care, in ways that the market has not historically seen. We don't think about a request for imaging or a genetic test in a silo. We think about it in the context of providing the best cancer, cardiac, or orthopedic care possible. Another example is Evelyn's design of alternative payment models for specialists, which provide doctors with financial incentives to follow our pathways. And a third example is in the area of artificial intelligence. where we are investing heavily in technology to reduce administrative burdens on providers while also improving adherence to our pathways. Just last month, Evelyn hosted an artificial intelligence summit with a broad array of senior health plan executives. During the summit, we provided a deep dive to both clients and prospects of our current AI enablement and the new capabilities we are bringing to the market in the time ahead. There was strong consensus that increasing AI-based automation should help us create an even better, lower-friction model of care. These improved services to clients are not just ideas on paper. They include functionality that is already live. As we have in other areas, we expect to aggressively innovate in AI and hope to take a leadership position in the value-based specialty care market. So now John will provide a more detailed commentary on the financial results for the quarter and an updated guidance.