Evolent Health, Inc.

Welcome to the Evelyn Earnings Conference Call for the first quarter ended March 31st, 2024. 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 titled 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. Description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings. For additional information on the company's results and outlook, please refer to our first quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measure 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 form 8K filed with the company, with the SEC earlier today. Finally, in addition to the reconciliations, we've provided details on the numbers and operating metrics for the quarter in both our press release and our supplemental investor report. investor presentation on the IR website. With that done, I'm going to hand the call over to Evelyn's CEO, Seth Blackley.

Good evening and thanks for joining the call. Evelyn had a strong first quarter with above expectations revenue growth and adjusted EBITDA in line with the first quarter guidance. Tonight, we'll cover updates on various fronts, including new customer arrangements, new client go-lives, an announcement of the completion of our M&A integration workstream, and our technology innovation agenda. Let me first provide a few highlights from our first quarter results. Revenue totaled $639.7 million, growth of 49.6% year-over-year. This result exceeded the top end of our Q1 revenue guide of $610 million by almost $30 million. This high revenue growth is driven by strong membership in our performance suite arrangements and new specialty technology and services agreements. Evaluant specialty care offerings now account for 91% of total revenue, up from 60% just three years ago, enabling our organization to focus on our specialty strategy. Year over year, specialty care revenue grew approximately 69%, as reported, and 62% after normalizing for the NIA acquisition in January 2023. On the membership front, we averaged 39.9 million unique members, net of Medicaid redeterminations, and new implementations during the quarter. Total product members eclipsed 80.6 million in the first quarter, or just over two products per unique member on average. On the profitability front, adjusted EBITDA was in line with the midpoint of our guidance at $54.1 million. Our cash position remains strong with $165.1 million in cash and equivalents after what is always a historically high cash outflow quarter associated with higher working capital requirements that moderate as the year progresses. Let me now update you on each of our three principles for shareholder value creation of one, strong organic growth, two, expanding profitability, and three, disciplined capital allocation. On the first principle of organic growth, we are announcing today that we signed three new revenue agreements during the first quarter. Two of our new revenue agreements are with Molina, building on that highly successful long-term partnership. We will be implementing both cardiology and oncology performance suite across both Medicaid and exchange lives in South Carolina and Mississippi. We anticipate implementing these solutions by the fourth quarter of this year. Financially, we anticipate the impact of South Carolina and Mississippi to contribute together at least $50 million of new annual revenue contribution once live. The addition of these states increases our presence with Molina to nine states after these two states go live. Our revenue will be below 50% of the total opportunity at Molina within the current scope of services we provide today, excluding new solutions like MSK Performance Suite, leaving what we believe to be a significant opportunity to continue expanding our partnership and impact for our partner. Our third new revenue agreement is a specialty technology and services contract we signed with a long-standing, evident Medicaid health plan on the East Coast. This health plan will be adding our MSK specialty offering to help manage orthopedic surgery costs, utilization, and outcomes. We anticipate implementing this solution in the third quarter across several hundred thousand Medicaid members. This contract will contribute towards the $4 million of quarterly adjusted EBITDA earnings go-get we provided in our bridge illustration for achieving the 2024 year-end exit adjusted EBITDA target. Today's announcements bring us to seven new revenue agreements year-to-date. In addition to new revenue agreements, Q1 was productive for successful go-lives. In total, we launched 25 specialty go-lives across multiple health plan customers for the performance suite and the technology and services suite. These included major go-lives and new geographies for performance suite, including oncology and cardiology for Molina in Florida and cardiology for Florida Blue. During the quarter, we also began a national implementation with Centene for our MSK technology and services suite covering several million members. Recall we announced this agreement back in February, fulfilling a significant portion of the promised initial revenue synergies from the NIA acquisition. From a macro perspective, industry demand remains very strong. Beyond our normal product value proposition, healthcare utilization pressure and health plan margin pressure are accelerating our core inbound sales opportunities. Our belief is that typical savings levers outside of specialty care are more limited in the current environment, making high-cost specialty management a critical and growing focus for health plans. As a result of these factors, our sales pipeline remains very strong, driven by interest in both regional and large national health plans. As a result of all of these dynamics, we are raising the midpoint of our revenue guidance for 2024 by $115 million, as John will detail shortly. Moving to our second operating priority, expanding profitability, I'm excited to announce that in March we successfully wound down the NIA transition services agreement we had in place since January of 2023 with NIA's former owner. The transition was the largest and most complex IT project in the company's history, involving hundreds of professionals globally. Most importantly, we were able to continue serving all of our customers with limited disruption. I want to thank the Evelyn teams who worked tirelessly through weekends to achieve this important transition. This transition in the quarter marks another important step towards our year-end run rate EBITDA target and the achievement of our $15 million of NIA cost synergies. Next, I'm pleased to share that we continue investing in the artificial intelligence opportunity at Evelyn through our initial product testing. Based on our work thus far, we believe that there's a significant opportunity to reduce the cost for specialty case review while maintaining or even enhancing service quality and providing a superior user experience. As an additional benefit of our AI investments, we expect we'd be able to redeploy our human capital pool to higher value word streams that improve our product and our value proposition. We expect these benefits to begin making a more significant impact in 2025. Third, Our results in Q1 demonstrate the benefit of our balanced approach to value-based specialty care, with earnings growth from both our non-risk and risk products, and our non-risk products continue to account for approximately 70% of our annual adjusted EBITDA. As John will share in detail, we saw increased utilization in our performance suite risk business in Q1, and we have lower data visibility than is typical for this point in the year. Those factors do impact our Q2 guide. But because our data visibility will increase across the year, because the increases in utilization have moderated across early Q2, and because of the contractual protections available to us around prevalence and other population changes that John will detail, we remain confident in our 2024 exit run rate adjusted EBITDA commitment of $300 million and our annual guidance. Finally, I'm proud of the team for continuing to drive efficiency as we grow with our SG&A expense down sequentially versus Q4 despite substantial revenue growth. And I feel we've been able to drive these efficiencies while maintaining a strong culture and talent orientation. Regarding our third investment theme of disciplined capital allocation, our principles remain consistent with our communications over the last few years. which are ensuring strong organic innovation, carefully managing to our leverage targets, and pursuing accretive M&A to accelerate our leadership position in value-based specialty care. With respect to organic innovation, we have consistently talked about building more services to help members and their families navigate their conditions in their moments of need. Our strong belief is that shared decision making with an engaged member helps drive the highest quality, most efficient care. We've addressed this opportunity thus far through our end-of-life solution, which we primarily bundle into our performance suite. Our data shows that when our end-of-life solution is integrated with our oncology and cardiology solutions, we have materially higher member engagement rates, generating greater referrals into palliative care, reducing the overall total cost of care, versus the status quo, while most importantly, aligning clinical care with patient-identified goals and values in order to improve their quality of life. Last August, we also announced a pilot program with a large Blue Cross Blue Shield plan partner to offer shared decision-making and better navigation of the healthcare system for patients diagnosed with cancer. Today, we're accelerating this initial navigation work by announcing a strategic partnership with Careology, a privately held UK-based company with what we believe to be the most robust digital cancer care platform available. The Careology platform is being used extensively across the UK National Health Service to connect patients to caregivers, to monitor and report symptoms associated with chemotherapy, and to monitor vital signs and overall well-being. In addition, the platform manages schedules, appointments, and the overall care process. We believe this solution will help manage the cost and quality of our performance suite members as a bundled offering and potentially become an Evalent technology and services offering in the future. From a business perspective, Evalent has secured the exclusive long-term right to distribute and integrate the product in the United States for the payer market. We believe this patient navigation arrangement is another good example of both innovating our solution and doing so in a capital efficient way. Before I hand it to John to talk through our financials and guidance, I want to take a step back and comment on where I believe Evelyn is headed in the future. First, we are proud to have built an incredible and what we believe is a differentiated specialty platform. currently growing organically at over 50% annually, driving strong profitability and cash flow. The strong growth and profitability we believe are indicators of customer confidence in our ability to innovate and execute over the long term. Second, a rising utilization environment creates significant financial and operational pressures on health plans. requiring more innovative solutions given the need to aggressively manage utilization pressures in specialty care. This will create, I believe, an important opportunity for our company for years to come. And third, our innovation across areas like patient navigation, artificial intelligence, and specialty expansion all provide meaningful opportunities to accelerate our platform. We understand the investing environment for small and mid-cap publicly traded healthcare organizations has been challenged as of late, and Evelyn is no exception. However, we remain very optimistic about our future and fully committed to using all the tools available to ensure shareholder value creation. With that, let me hand it to John.