Evolent Health, Inc.

Welcome to the Evelyn Earnings Conference Call for the quarter and year ended December 31st, 2023. As a reminder, this conference call is being recorded. The hosts for the call today from Evelyn are Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer. The call will be archived and available later this evening and for next week via the webcast on the company's website in the section titled Investor Relations. I will now hand the call over to Seth Frank, Evelyn'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 were 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 fourth 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.evelynhelp.com, and the form 8K filed by the company with the SEC earlier today. And now I'll turn the call over to Evelyn's CEO, Seth Blackley.

Good evening, and thanks for joining us. I'm excited to share with you our results for the fourth quarter and the full year 2023. We had another outstanding year achieving our profitability, cash flow, new business growth, and operating goals for all of our stakeholders. And we remain focused on our mission of improving care for people with complex conditions. Looking ahead, today we're providing a strong financial outlook for 2024, as well as reiterating confidence in our $300 million adjusted EBITDA run rate exit target for 2024. In addition, we'll be providing a detailed bridge between our Q4 2023 results and our $300 million run rate adjusted EBITDA target. For all the details on the numbers and metrics, please review the press release and our supplemental investor presentation on the IR website, as mentioned earlier. John and I will focus our comments on specific call-outs that merit comment or context from us, so we have plenty of time for your questions at the end. With that, let's move to the results. Fourth quarter revenue totaled $556.1 million, growth of 45.4% year-over-year at the top end of our guidance range. Adjusted EBITDA totaled $48.1 million, growth of 48.9%, and the midpoint of our guide. Prevalence core specialty care offerings drove 88% of total revenue in the quarter. Year over year, specialty care revenue grew approximately 74% versus a year ago, with the NIA acquisition contributing approximately 19% to reported growth. The balance of 55% came from organic growth. Cash flow is a critical component of our sustainable financial model, and we ended the fourth quarter in 2024 in a strong position, ahead of where we anticipated due to exceptionally strong cash collections. Cash flow from operations in the quarter totaled $89.4 million, and we ended the year with $193 million of cash on hand. Our financial goal for 2023 was to increase our cash balance by more than $120 million before interest, debt activity, acquisition costs, earnouts, and dividends. And with the strong Q4, we ended the year at over $175 million on this metric. Our average product members grew to almost 80 million for the quarter. All of this growth is despite the Medicaid redeterminations headwind we've experienced in the back half of 2023. Before we get into some of our new growth announcements, let me say a few words about 2023 overall. For the year, we ended with revenue of $1.96 billion, 45% year-over-year growth. Adjusted EBITDA for 2023 totaled $194.7 million, both at the high end of our initial guidance from a year ago. I'm incredibly proud of our team of approximately 5,000 committed, mission-driven professionals worldwide who worked so hard to help us collectively deliver what we promised to both shareholders and customers during a year when many in the industry faced headwinds. As we've been communicating for some time, we believe the challenges in managed care represent opportunities for Evelyn, given our unique value proposition and low penetration within our addressable market. Going forward, we continue to be focused on the principles of value creation that John, the team, and I have used to guide the company for the last three and a half years. As a reminder, those principles are one, strong organic growth, two, growing profitability, and three, disciplined capital allocation. On organic growth, we have consistently outperformed our new business targets, announcing an average of 11 new partners annually for the past three years versus a target of six to eight per year. This statistic has been a useful directional indicator but has also underrepresented our growth. For example, counting important same-store expansions, which have become even more important since the NIA acquisition, We had 12 new revenue contracts in 2023 alone versus nine using the operating partner metric. Given that context, beginning with this year, we are simplifying our disclosure and plan to count and track all material new revenue agreements, whether with new or existing partners, and we'll refer to this metric today and going forward as new revenue agreements. So far in 2024, we have added four of these agreements. Two, we announced at the January investor conference, and two additional new revenue agreements today. Today, we are announcing Evelyn's first enterprise oncology technology and services agreement, which we recently signed with an existing health plan client. Specifically, we will now be providing radiation and surgical oncology management services to add to the medical oncology services we are already providing to this health plan, which is one of the ten largest health plans in the country. We believe this is an important agreement as it provides a path for us to bundle our radiation and surgical management capabilities in with our medical oncology in the technology and services suite, creating a PMPM expansion opportunity for the future. For example, surgical oncology costs represent approximately 17% of the PMPM of the cost of oncology in a commercial population, according to a recent JAMA study. Most importantly, We believe bundling these services will allow us to provide better, more holistic care to patients. We expect this new agreement announced today to add approximately $10 million in annual technology and services revenue once at full run rate in the third quarter of this year. Our second new revenue agreement disclosed today is for the performance week. As we work to thoughtfully expand our risk model across a broader base of specialties, we rolled out Evelyn's first performance suite contract for advanced imaging during the fourth quarter of 2023 with a legacy NIA client in Medicaid. This is a large health plan with a presence in multiple states. This performance suite arrangement, which we anticipate will contribute over $80 million in total annual revenue, is designed with many of the same features as our proven models in oncology and cardiology. This performance suite arrangement builds upon an already successful risk-sharing relationship that was in place at the time of the NIA acquisition, expanding it into our performance suite model. It's important to understand that the cost and scope of care in this arrangement are specific to outpatient advanced imaging, such as MRIs and PET scans and Medicaid. As a result, the PMPMs will be lower than in oncology or cardiology, but we expect with the same general margin profile as our existing performance weed business. Finally, as a reminder, we announced two new revenue agreements in January. The first was a multi-product NIA cross-sell to an existing Eval and health clinic client in the Northeast. And the second, a new logo health plan in the Southwest with over 100,000 unique lives in commercial and Medicare Advantage who will implement our oncology and advanced care planning services through our technology and services platform. So, with four new revenue agreements already signed, we're off to a great start with respect to our organic growth goals. Our pipeline also remains strong. During 2023, we began to see progress because of the NIA acquisition that we believe increases Evelyn's qualifications and competitiveness for large RFPs. We believe Evelyn is positioned to have more conversations with key decision makers, both within existing legacy NIA clients and potential new customers. More importantly, Health plans and risk-bearing physician groups are increasingly turning to us to help manage the cost and quality of specialty care. We have found that many plans have increased their focus on specialty care management over the past six months, some citing the V28 risk adjustment changes and others because of general utilization pressures. We're seeing organizations placing particular importance on engaging partners that can help manage these costs in ways that improve patient experience, and at the same time will not increase friction with providers. We believe this is where Evelyn is truly differentiated. If you look at our work in oncology as an example, many health plans are struggling with the cost of cancer care with many seeing annual cost increases of over 10%. Some of these cost increases are driven by new categories of drugs as well as new indications for existing or new uses of existing medications. One example we've seen in the marketplace is that oncologists are increasingly using immunotherapies for a broad range of cancers. One such therapy, known as checkpoint inhibitors or PD-1s, are continuing to grow rapidly. In fact, just one popular PD-1 called Keytruda had annual revenue of $25 billion in 2023. While the cost per patient of these sorts of therapeutics are dramatic, In certain instances, they are worth the cost as they can be truly life-changing for patients. However, research shows that such treatments are often prescribed when it is known in advance or can be known in advance that they are unlikely to be effective. To discern the effectiveness of therapies, our clinical research has shown that it's critical that a genetic test or other companion diagnostics are completed. Commonly, we partner with the treating oncologist to ensure these companion diagnostics are completed in the hope that the selected therapy will be the most effective for the patient. Our partnership model with oncologists is particularly well suited for these more complex and high-cost situations when all the options that are under consideration are approvable, and the only way to address cost and quality is by entering into a trust-based dialogue with the treating oncologist. Moving to our second operating priority of strong profitability, let me reiterate a few points, and John will also discuss this in more detail. I think the success we had in 2023 and our strong outlook for 2024 is driven by our diversification across Medicare, Medicaid, and commercial. In addition, we have a strong mix between our technology and services and performance-suite businesses. Within the performance, we continue to see strong results in line with our expectations. While many in the industry have experienced higher than expected utilization, Q4 for us continued our prior trend of in-line performance. Our third investment theme is disciplined capital allocation. And in 2023, we made great strides in generating cash, delivering the business, and lowering our cost of debt financing. We ended the quarter at 2.2 times net leverage, well ahead of the exit 2023 target we set at the time we acquired NIA of less than three times. Further, in December, we conducted a successful convertible offering that allowed us to completely swap out our existing term loan, so our only senior facility outstanding consists of $37.5 million through our revolver. And with those comments, let me hand it to John, who will provide a deep dive into our profitability and cash story now and for 2024, as well as our financial outlook.