Signify Health, Inc. Class A

Good morning or good afternoon, everyone. My name is Melissa and I'll be your conference operator today. At this time, I would like to welcome everyone to the Signify Health first quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. Thank you. At this time, I will hand the call over to Steve Seneff, Chief Financial Officer, for opening remarks.

Good morning, everyone, and welcome to Signify Health's first quarter 2022 earnings conference call. As many of you know, Jennifer DiBerardino, our investor relations leader, recently retired from Signify Health. Jennifer was a valuable member of my team, and we'd like to thank her for contributions and wish her a long and happy retirement. It is my pleasure this morning to introduce Jason Plagman, who has joined Signify as Vice President of Investor Relations. Jason has extensive experience in healthcare from both a sell side and investor relations perspective, and we are very fortunate and excited to have him on board. Now I'll turn the call over to Jason for introductory remarks.

Thank you, Steve. I'm very happy to be on our team and I look forward to engaging with our shareholders and the investment community on Signify Health. This morning's call is being webcast live and a recording will be available on the events page of our investor website at signifyhealth.com through July 5th, 2022. Throughout the call this morning, we will be referencing the financial tables that appeared in our press release dated May 4th, 2022. We will also be referencing the first quarter earnings call summary slide presentation we have posted to the events page of the Investor Relations website. On today's call, we will discuss Signify Health's business outlook, and we will make certain forward-looking statements within the meaning of the federal securities laws. Please note the cautionary language about our forward-looking statements as presented in our earnings press release and in our quarterly report on Form 10Q, which will be filed later today. That same cautionary language applies to this conference call. We will also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. Reconciliations to the relevant GAAP numbers for these non-GAAP measures are included in the earnings release filed on Form 8K yesterday and also in our Form 10Q, which will be filed later today. Joining me on the call today are Kyle Ironbrester, Chief Executive Officer, and Steve Seneff, President, Chief Financial and Administrative Officer. Kyle will provide a business overview, followed by a financial review by Steve. We will have an operator-facilitated question and answer session after our prepared remarks. Now I will turn the call over to Kyle.

Thank you, Jason. We're glad to have you on the team. Good morning, everyone, and thank you for joining us. Yesterday evening, we announced a strong start to 2022. Team Signify has continued to drive significantly better outcomes for individuals across the continuum of care while supporting our customer success and alternative payment models. Our first quarter performance reflects the hard work and strategic investments we've made to generate results. First quarter financial results were driven by significant positive momentum in our home and community services segment and continued solid execution against our corporate strategy. We grew our overall top line in the quarter by 20% to $216.5 million and delivered $45 million of adjusted EBITDA, an increase of 31% from a year ago, with the corresponding adjusted EBITDA margin of 20.8%. We entered 2022 with two established and highly complementary segments, Home and Community Services, or HCS, and Episode of Care Services, or ECS, each an industry leader for their respective areas. With the addition of Care at MidHealth, a leader in Accountable Care Organization, or ACOs, into our ECS segment, we will be able to leverage both our HCS and ECS assets to provide total cost of care management services for our customer base and drive meaningful shared savings in the ACO Medicare Shared Savings Program, or MSSP. In-home evaluations will be an important tool for condition management and cost containment for our ACO clients. Our established post-acute management and transition to home services within our episodes business will also drive better outcomes for beneficiaries. Caravan customers have already shown early interest and excitement for these expanded services. The ongoing strength in HCS is driven by the growing momentum of clients expanding in-home evaluations delivered nationwide through our network of over 10,000 clinicians. While clients have meaningfully increased their volume commitments with us, there's ample white space for us to continue to grow with them. In addition to the natural growth rate of Medicare Advantage member enrollments, we have the opportunity to continue our expansion into other lines of business with our health plan clients and provide more IHEs to manage Medicaid and commercial plans. Managed Medicaid and commercial plans are off to a great start and are a growing component of our IHE volume. We expect this market and our share of it to grow over time, especially as clients continue to focus on leveraging IHEs as a mechanism for engaging members, identifying barriers to their health, addressing health disparities, and directing them to the right care. Member conversion rate improvement is important to drive future growth for both Medicare Advantage and Managed Medicaid. We continue to invest in advanced analytics and member engagement strategies to improve our conversion rates over time. We want to ensure we can provide these comprehensive, free-to-member clinical evaluations to as many eligible individuals as possible. Expanding our diagnostic testing capabilities provides another meaningful avenue for growth among our client base as demonstrated by early pilot success for new diagnostic devices. Diagnostic testing provides additional data to help health plans better identify and manage their members' chronic conditions early before they result in an acute event and to engage members with the appropriate primary or specialty physician. Turning to our ECS business, ECS revenue increased 7% in the first quarter from a year ago, reflecting growth in program size and one month of caravan revenue. In April, we announced the new episode of care program client, Connecticut, a leading health plan in Connecticut. This new program will be organized around financing a member's entire health episode for both procedures, such as knee surgery, and chronic conditions or conditions, such as asthma and maternity. The addition of Connecticut demonstrates our commercial stacking strategy to build multi-payer relationships with and drive meaningful volume to high-quality, low-cost providers. In Connecticut, our relationship with Connecticut will leverage and build on our extensive episode-based provider network already in place through our work with the state of Connecticut as a major self-insured employer. We deliver savings every day to our partners in the BPTI program despite the ongoing headwinds from COVID-19. We are proud of the work our team does to improve outcomes and reduce costs by influencing the next set of care and length of stay for individuals and episodes, and then managing their transitions back home to prevent readmission. We're excited to be largely back out in the field with our clients after managing much of this work virtually throughout the pandemic. We continue to engage with CMS on an episode strategy to the next iteration of the bundle payments program, which could include an integrated total cost of care model, in line with our strategy of combining caravan health with our BPTIA footprint. Both existing BPTIA and ACO clients are very excited about this combination and created an integrated model. Our integration of caravan following the close of our acquisition on March 1st is proceeding well, and we are thrilled to have the caravan team on board. We recently held a two-day on-site meeting with the key internal stakeholders and established our integration management office, which is centered around two workstreams, Functional alignment and growth. The functional alignment workstream is focused on merging the work of certain functions that should come together like accounting and finance. Growth workstreams are focused on areas where we will have new opportunities to grow as a combined organization by adding to our product portfolio and go-to-market activities. As I mentioned before, a notable growth synergy is our IHE offering. which we are adapting to conform to an annual wellness visit to complement and enhance the ability of our care event client providers to succeed in the ACO model by extending the provider's reach and expanding their capabilities. While the savings levers in our ECS business have been primarily related to the next set of care, fall and acute event, and post-acute management, a key savings lever in the MSSP ACO program is identifying conditions early through an annual wellness visit. Through our combined offering, we believe we will be able to readily engage with Medicare beneficiaries who historically have not visited their primary care physician, as well as conduct our comprehensive in-home evaluation as a part of an annual wellness visit for high-risk members to identify risks and gaps in care. From this work, we will be able to better drive patients to the next best action in their care journey and provide a more complete view of the patient to their PCP. I am very pleased with the positive reaction from our clients who are excited about the prospect of Signify Health providing a total cost of care model. Since the close of the acquisition, the Caravan leadership team and I have been on the road meeting with customers about integrating Caravan's extensive primary care provider relationships with Signify's specialty care provider relationship and industry-leading in-home evaluation and episodes of care capabilities. The combination enhances the value proposition to providers as our services have a multi-payer applicability to a larger portion of the provider's panel. By multi-payer, we are referring to our deep relationships and existing contracts with private insurers and state and federal governments. We now have the capabilities in-house to create a total cost-of-care model to drive better patient outcomes and reduce costs in the system. In addition, the CMS announcement for the ACO REACH program creates another potential avenue of growth for our combined Signify Caravan business model. We recently submitted our application to participate in the ACO REACH and will continue to assess the proposed program structure and how we can best leverage our combined capabilities to maximize the opportunity that launches in January of 2023. As we think about our product roadmap, the core of our strategy is to build out capabilities to connect health plans and other risk-bearing entities with provider groups in an effort to accelerate transformation of the U.S. healthcare system from fee-for-service to value-based care. We plan to contribute to genuine care redesign and be a partner to risk-bearing entities and provider groups to help bridge the gap that creates significant cost, weight, and poor outcomes within the healthcare system. We want to be at the industry forefront as an intermediary providing data and insights, activating the home, managing chronic conditions, and facilitating the launch of programs through a shared savings payment structure to make all parties accountable and work together to drive better outcomes for individuals throughout the country. We believe we can accomplish this over time due to our current capabilities and those we are developing. Data is the key to powering and creating value-based programs. We are able to capture hundreds of data points in each in-home evaluation that our clinician network performs. We have about 40 million members in our data chassis, and we expect to perform approximately 2.4 million evaluations in 2022. This is a meaningful amount of data capture that informs our health plan clients not only on the clinical and social needs of their Medicare Advantage members, but also their managed Medicaid members. The data becomes even more valuable to our clients as we continue to build out more value-centric analytics integration with their systems. Our work capturing, enhancing, and driving results from our data and analytics capabilities is absolutely critical to our client's success in their value-based payment program. The work we are doing will support CMS in their goals around health equity through showcasing and doing analytics on our unique data set that we are capturing across the continuum with the members and the patients that we are honored to serve. Our enhanced analytics also drive better care management and outcomes for the individuals supported by our clients. We improve patient outcomes by sending clinicians into patients' homes to better assess their needs and provide decision support as we drive action and return folks to care. We reduce costs for insurers, employers, and health systems by deploying our data, analytics, software, and contracted networks of health care providers. As an organization, we are very excited about the opportunity in front of us to positively impact a fragmented health care system in partnership with risk-bearing entities and payers to provide patients with better outcomes for maintaining their health. Before I turn the call over to Steve, I want to make you aware that we recently published our inaugural Quality and Social Impact Report, an endeavor about which the board and the management team are very passionate. It establishes a framework for reporting on environmental, social, and corporate governance initiatives focused on driving value for shareholders and stakeholders across healthcare. The report also includes key accomplishments from 2021 and establishes a baseline from which the company will measure progress in several areas of focus. Signify exists to give providers, payers, and the people they serve the information, tools, and support needed to achieve the best possible health outcomes and to do so efficiently and cost-effectively. The quality and social impact report is an important way for us to tangibly demonstrate how we live by our commitment in all that we do. We hope that you have a chance to read the report, which is available on our website, and we look forward to receiving your feedback. I will now let Steve walk you through the first quarter financial results.

Thank you, Kyle. Good morning, everyone. It is my pleasure to walk you through another quarter of positive improvement in our year-over-year financial results, reflecting our success in growing the business while delivering significant value to customers and individuals. I will be referring to the tables that appeared in the earnings press release issued yesterday, as well as the earnings presentation posted on the events page of our investor relations website. As you can see in table one, we have record total revenue of 216.5 million in the first quarter, up 20% when compared to the same period last year. The increase was primarily driven by HCS growth of 23% to a record quarterly revenue of 186.9 million reflecting strong IHE volume. Total evaluation volume for the first quarter was approximately 564,000, including virtual evaluations, compared to 462,000 in the first quarter of 2021. The mix of in-home evaluations continued to trend upward, with approximately 14% of total evaluations being completed virtually. Given the continued and encouraging level of the client demand for IHEs, we are confident in our projection for IHE volume of approximately $2.4 million for the full year 2022. Our expanded agreement with Optum to extend their volume commitments through mid-2026 is a great example of strong customer demand. As we shared with you last quarter, Optum committed to volume for an additional three and a half years in exchange for a floor agreement that guarantees a minimum dollar value of $118.5 million in relation to the ultimate settlement of the original years. We believe this floor will become irrelevant over time as our continued success is reflected in the stock price. As a reminder, GAAP requires us to record a charge against revenue based on the fair value of the floor agreement at inception and over the term of the contract. We have completed our analysis of the floor agreement impact on revenue for 2022, and including the original years, the charge to revenue will be a total reduction in HCS revenue of $26 million. For the volume commitment extension period 2023 through 2025, each year there will be a $20 million revenue reduction, and in the final half year of 2026, a $10 million revenue reduction. Still on Table 1, ECS revenue grew 7% to $29.6 million, reflecting growth in overall program size and one month of caravan revenue. DPCIA program first quarter revenue was within our expectations as we continue to see COVID exclusion and high inpatient rehabilitation facility utilization. Given the recently relaxed mask mandates and news coverage about the spread of the latest variant, we expect program size to continue to be impacted by COVID exclusion. CMS is not committed to reversing the COVID exclusion, but this remains something they continue to evaluate. As a reminder, we received program reconciliations from CMS in the second and fourth quarters, which is when we typically perform a true-up based on the reconciliation. The next detailed CPCI readout will be when we receive the reconciliation for the sixth performance period, which is expected during the second quarter. Moving to Table 4, total company adjusted EBITDA for the first quarter increased 31% to $45 million, compared to $34.4 million for the first quarter of 2021, driven primarily by strong revenue growth in home and community services. In turn, we had an adjusted EBITDA margin of 20.8% in the quarter. In total, for the full year 2022, we expect margin expansion of between 25 to 70 basis points. Like everyone, we're experiencing impacts from increasing fuel prices and labor costs, but we've been able to offset inflationary trends with productivity improvements. Back to Table 1, the net loss for the quarter of 2022 improved to $16.3 million when compared to a loss of $51.7 million in the first quarter of 2021. We had positive operating income of $10.5 million, but the primary reason we reported a net loss was that we had $28.9 million of expense related to marking the ears to market as we do each quarter. Last year, the impact of revaluing the years was $56.8 million of expense in the first quarter of 2021. Moving on, as you can see in Table 2, our balance sheet is strong as we ended the quarter with $451.3 million of unrestricted cash, down from year-end due to the $190 million cash payment portion of the caravan acquisition. We ended the quarter with debt outstanding of $338 million. with an additional 173 million in capacity under our revolving credit facility, and once again, a negative net leverage position as our cash exceeded the debt levels. Given that we just provided 2022 full-year guidance in March, we are maintaining those estimates and feel very good about achieving the results we've outlined for 2022, which are as follows. Total revenue in the range of $948 million to $971 million and total adjusted EBITDA in the range of $212 million to $222 million. We still expect 2022 revenue phasing for the second half of the year to be about 52% of full-year revenue guidance, as we anticipate stronger ECS program size and IEG capacity to build into the back half of the year. I look forward to updating you on our financial results next quarter. Now I'd like to turn the call back to Kyle for closing remarks.

Thanks, Steve. We are off to a great start in 2022. Team Signify is relentlessly focused on the incredible market opportunity we have in front of us to drive value-based care models forward while expanding services to better serve our customers and individuals. Adding Caravan provides us with an important component bringing all of our capabilities together to drive a total cost of care model. With Caravan, we now have a solution set that covers risks extensively and fully enables us to use our episodes, post-acute, and in-home capabilities to bridge the gap between providers and payers. It is a great platform for our clients and a unifying asset to further connect our HCS and ECS divisions. Additionally, we've had great conversations with CMS about the integration of these businesses and believe we are well-suited to help them achieve their goals of having everyone in Medicare in an accountable care organization by 2030. With Caravan, We now have the ability to bring our in-home services, already scaled in Medicare Advantage, to the Medicare fee-for-service population through the ACO Book of Business, which should drive significant value for all constituents, including shareholders. Now, I will turn the call over to our operator to take your questions. Operator?

Thank you. At this time, I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question today comes from Sandy Draper of Guggenheim. Sandy, over to you.

Thanks so much, and good morning, everyone. I guess the first question, either for Kyle or Steve, would just love some more commentary around how you view the size. I believe last quarter you guided the program size to around 5.1 to 5.6 billion. I'm trying to understand from your comments, is that still the reasonable range? Should we think about the lower end of that range? Just try to understand sort of how that size is looking today versus when you guided a few months ago.

Hey, Sandy, it's Steve. Yeah, good question. I would say absolutely we're still in that range. We're encouraged by the program size coming back from last year. And really, you know, the difference between whether we end up at the low end or the high end of that range is going to depend on how many COVID exclusions we have going forward. So right now we're still very comfortable with that range.

Okay, great. That's helpful. And then my follow-up, and then I'll jump back in the queue. Obviously, you've got Caravan will be a bigger contributor in the back half of the year. But just remind us, in terms of the higher second half weighting, are there other impacts that we should make sure we're factoring in besides just the higher weight of Caravan revenue in the second half? I'm just thinking about whether it's either volume trends, pricing trends around NHCS or an ECS excluding Caravan. Thanks.

Yeah, it's a little bit of all the above. You're going to have the ECS, which is, you know, with the higher program size versus last year that we just talked about. You're also going to have on the HCS side, you know, we just, as you heard, we had a record volume for quarter one. You know, we're turning towards record volume in quarter two. But we had never done over 500,000 evals in a quarter. We crushed through that last quarter. So we're trending towards 600,000 going forward. So the back half is all going to be about driving that capacity. And the demand, we've never seen higher demand ever for IHE business. And so we're going to see continued strong demand through that second half.

Great. Thanks a bunch. And congrats. And I'll jump back in the queue.

Thank you, Sandy. Your next question comes from the line of Anne Samuel from JP Morgan. Anne, over to you.

Hi, thanks so much for taking the question. Maybe just a follow-up to Sandy's question. You know, you had some really nice outperformance in the first quarter, but initially you'd said, you know, one cue would be a little bit lower. You affirmed the guide and the waiting for the year. So just wondering if there's anything we should be taking into account for the second quarter that might've been the reason for, you know, kind of holding onto the guide or is that just, you know, some embedded conservatism there?

Yeah, you know, I would say that we had a little bit, maybe the slight upside, I'd say it was a little bit of a pull forward from Q2. Back half, as we just talked with Sandy, is looking really strong. And so, you know, that's how I'm thinking about Q2. As far as full year, I feel really good about the numbers. And we're going to get the recon in quarter two. which will give us more insight of where we're going. Right now, internally, all numbers are tracking to our expectations, but we're waiting to get that recon hopefully in the next few weeks.

Makes sense. It's still early. You said that the Caravan integration is progressing well. I was hoping maybe you could share some learnings that you've had so far from that.

Yeah, absolutely, Anne. I spent a lot of time out in the customer base with the Caravan Leadership Team, as I alluded to in the prepared remarks, and it's been fantastic. I mean, when you go out to these clients, they're facing staffing issues, they're facing an inability to get into the post-acute, they don't have the ability to go out and get into folks' homes to find conditions and to capture those conditions or to manage them appropriately after they've been identified. And so what we're bringing to that client base really is all of these services that we've built out inside our home and community service division with all of that network density going into homes. And then all of the specialty and post-acute work via episodes and all the post-acute workflows we have as a part of the episode business. All of those things, when combined, have a tremendous ability to drive better patient outcomes and to remove costs and drive better shared savings. And so it's been a really great kickoff on just those synergy cases that we've talked about that we're Pursuing as we bring all these businesses together number one number two there's their their model and how they Collect revenue from the make revenue from the clients is similar to how our episodes program works So they have a shared savings construct and so it's easy for us internally to merge together a lot of the financials, you know in Steve's world a lot of the system and analytic work that we're doing and And we picked up, frankly, just a bunch of engineering and product and analytic talent as a part of this acquisition. The coach platform that I mentioned last quarter when we mentioned the acquisition being closed is a really big software asset for us that sits on top of physician workflow and helps identify key needs that they need to work on. And we see a bunch of synergies with that as we think about taking more risk to our health plan clients. And as we think about tying together post-acute specialty and some of the in-home workflows as well. So it's been a really good kind of centralizing and unifying asset to the business, bringing together so many of the capabilities that we have. So, yeah, integration is plugging along really well. And we've got the same team here that's done a lot of M&A and a lot of integration together. We always start with the people first and the culture first and don't just manage it. off spreadsheets. So I've been very happy and thrilled, frankly, with the progress that we've had to date.

That's terrific. Glad to hear it. Thanks, guys.

Yep. Thanks, Anne.

Thank you, Anne. Your next question comes from the line of Cindy Motz of Goldman Sachs. Cindy, your line is now open.

Thanks. Thanks for taking my question. And congrats on a very strong quarter. And welcome, Jason. So my question is on the HCS business. Obviously, that's very, very strong. And it's not just in terms of the record visits, right? I'm just looking for a little clarification. It looks, when I look at the numbers, that your revenue per visit is also rising, at least according to what we had, you know, sequentially in both year over year. So just looking for a little more color on that. And just in terms, Steve, of the thing you said about Optum, you know, and then the ears, that – You always report, and your guidance is X the year's effect on revenue, correct? And then I might have one more follow-up. Thanks.

Yeah, so a couple things there, Cindy. Let's start with the first one on the revenue per HCS. You know, we continue to see really positive trends there. When you look at it holistically, it looks like it's, you know, slight increase, relatively flat, though. And as I've said previously, just want to make sure to remind everyone, There is some client mix impact where some of our largest clients are outpacing the growth rate of others with different price points. But when we look at our individual values and our attachment rates of our diagnostics and preventative devices, we feel really good about where we're going and where we can go with that number in 23 and beyond. As far as the year impact, that's included in all our numbers. So all our guidance and everything that we show, it's included in there. It's our GAAP revenue. And there's no surprises there. I'm just trying to make sure everyone has those numbers so you can put them in your models. And it's been averaging about $20 million a year. This year it's going to be $26 million. The next 2023 it will drop down to $20 million again. So that's all in our numbers. It's all our guidance.

Great. Great. And then also, too, just even on the cost control, you know, with the ATS division, you know, it was like probably 290. I mean, it was very significantly higher than we were expecting. And I guess you're leaving guidance the same for the year just because the ECS, which is obviously much smaller but still has a lot. I guess, you know, what we can expect is a similar cadence to what you were saying, you know, first quarter, and then maybe you'll look to where it is if those trends are continuing. Because I would think with COVID abating some, and if the margins can stay up or ahead of our expectations in HCS, then there's a possibility at the back end that feels like you might go ahead and tweak that later on. Just any color there would be great. Thanks.

Yeah, look, I think one of the things that us and every company out there is worried about is inflation and the impact and We're really proud of the productivity initiatives that we've put in place to really offset a lot of that. And so that's why you're seeing, despite some of those inflationary pressures that we have, that we're still driving really nice margins. And just points at you, if we look for the upside case of where we could even outperform that, it's exactly the items that you just mentioned.

Great. Thanks again. Good quarter.

Thanks, Andy.

Thank you, Cindy. Your next question today comes from Kevin Caliendo of UBS. Kevin, your line is now open.

Hi, this is actually James Carrick on for Kevin. You mentioned in-home evals were 14% of total mix in the quarter. Just maybe where do you see that mix between in-home and telehealth trending for the remainder of the year?

Yeah, I would expect that it's, you know, somewhere in that range. You know, that we've kind of come down from our peaks of, you know, less than 40% a couple of years ago. So, like, I feel that, you know, that 14%-ish of where we were this quarter is kind of in line of where we would expect that it would be.

And the 14 was virtual, just to be clear, not the in-home percentage. Yeah.

Yeah, sorry. Make sure that's clear. Yeah, 14% was virtual. You know, as we've said on previous earning calls, our... clients are really pushing us to do as much in home as possible and so over time I would expect that it will go down as long as there's still you know some variance out there I I think it's fine in the model to keep it around that rate great thanks so maybe just one quick follow-up and more big picture question around ECF how should we think about the pathway to profitability maybe in 2023 and Beyond thanks Yeah, a couple things that are going to be helpful for us in 23. One is we are assuming that we'll get back to break even or profitable in 2023 in the ECS segment standalone. And the drivers of that are really going to be the program size coming back to its full run rate, which we've called out as around $6 billion. And so we feel good that that will happen in 23. We also feel that some of the COVID exclusions that CMS has in place today will go away, which is also going to be beneficial for us and driving that savings rate back up as well. So those are going to be a couple of key components. And then You know, we continue to make traction in our non-BBCI business as far as our commercial side of the house. And so we feel good about, you know, getting additional revenue growth there. And then last but not least is Caravan, you know, acquisition that we feel is going to be a nice driver of additional revenue and EBITDA for us in 23 and beyond.

I'm all set.

Thank you.

Thank you. We'll take our next question from Gary Taylor of Cowan. Gary, please go ahead.

Hi, good morning. I had a few questions. Are your caravan revenue EBITDA expectations for 2022 for this year still intact? Is there any change to what you had given us previously on that?

Yeah, no changes. We still feel good about, you know, Caravan and where they're at. And we're in a big sales process for 23 right now, and so big focus on that. But expectations are they'll be able to deliver what we've talked about in previous calls for 22.

Got you. And in terms of you had mentioned a little bit of 1Q pull through from 2Q, What do you think that's related to? I mean, how did Omicron impact the corridor? I would imagine that sort of weighed to some degree on some of the in-home or willingness to do in-home. So I guess I would have thought maybe the opposite of that. So I just wanted to understand kind of what that pull through might have been.

Yeah, it wasn't a significant impact on our HCS side of the house. It was really on the ECS where it continued to reduce program size through the elimination of episodes that had a diagnosis of COVID. But on the HCS side, it wasn't a lot of impact.

And then last one, I haven't really heard you guys talk about fuel before. Obviously, fuel prices are up, so it makes some sense. Is there any way you could give us a quarterly fuel reimbursement or some way to sort of size that just so we can keep an eye on it if it were to become material?

It's not material, Gary. It's pretty small in the grand scheme of things. We just call that out as one of the things that we look at for inflationary that's a little bit higher. Obviously, we do have folks that are out in the field, but it's not material. Even if P.S. price has doubled. We're not going to change guidance for it.

Okay. Thank you.

Thank you, Gary. Your next question today comes from Jessica Tassin of Piper Sandler. Jessica, please go ahead.

Hi. Thank you so much for taking the question. So just interested to know on the quarterly cadence of IEG volumes, is there anything different this year Relative to last, I think you guys mentioned capacity. So just maybe you could elaborate on that a little bit.

Yeah, I think it falls a little bit more. I'm not sure I know what typical is anymore. But as far as more typical year, the one thing that's probably going to make it a little bit off of a standard year is kind of what I was alluding to earlier, is the fact that we've just got so much volume to build and so much demand. that we expect a pretty significant back half of the year. And, you know, we'll probably still have our drop-off in Q4 that we have every year, just as we wind that down. But it might not be quite as significant as in the past, just because there's so much demand that we're keeping up with.

Got it. And is the $10,000... or are the 10,000 people in the field today sort of enough to support that demand? Or do you guys anticipate making some additional hires or need to do some additional hiring over the course of the year in order to support that?

Yeah, I guess the answer is both. We feel great about the capacity to hit our numbers this year, but we always are making hiring and moving capacity around and credentialing new providers and new markets. So that never stops. And frankly, towards the end of the year, we try to load a lot of capacity going into the next year, right? Because as we've talked about, we get a lot of our member files and other things in Q4. And so we start capacity planning, hiring, and laying out our ground game across the nation, you know, in every county of the U.S. on how we're going to deliver that capacity. I will mention, though, you know, something I alluded to earlier. There's a new wrinkle to all of this because we are now going to be doing in-homes inside the fee-for-service book. And so this is a big TAM expansion for us. We are moving the in-home evaluations into the fee-for-service ACO book that is Caravan. And there's a tremendous amount of value to be had there. And so our value prop now when we go into a market is we're going to be doing in-homes for all populations inside Medicare, regardless if they're in fee-for-service or Medicare Advantage. And so this is a really big, exciting expansion that we're excited about and something that we're going to be you know, invest in more capacity, upgrading our technology, making sure that we're connecting these folks back in the healthcare system better than ever, right? Because now that we're in the total cost contract with these provider groups, you know, there's a ton of incentive to go out and do condition identification and to make sure that they're being managed proactively with those provider partners that we have their shared savings contracts with. And so it's a pretty large SAM expansion for us. And one of the, you know, reasons we're so excited about this caravan integration unifying so many of the, you know, capability sets that we have as a part of our business.

That's helpful. And then my last one would just be, I guess, first off, are you going to be reporting the Caravan IETs and the overall IET number? And then can you just remind us of Caravan's historical performance in MSSP, both in terms of dollars and percent savings? Thanks.

Yeah, we won't be breaking them out separate because they're going to be into the shared savings fee structure, right? Like we're going to be doing them as a part of the ACO service model that sits in the ECS division. So we won't be breaking them out separately. And Steve, do you want to comment on historical savings rates?

Yeah, I mean, historically it's been around in the 3% range, and so one of the things that we're really optimistic about is when we start adding all these additional services and assets around this business that we can drive significantly higher savings rate for the business going forward.

Got it. Thank you.

Yep, thank you.

Thank you, Jessica. Our next question comes from Matt LaRue of William Blair. Matt, your line is open.

Hey, good morning. In response to Gary's question, you sort of reiterated the outlook for Caravan in 22. You previously talked about EBITDA doubling in 23, so I guess we just wanted to gauge your confidence in that and maybe how much of that is from success in the selling season, as Steve alluded to, versus improvements in the savings rate, which you just referenced.

Yeah, we're still confident in everything. In fact, it's what Kyle has been talking about. We're even more confident on our ability to be able to do that. And some of it will be through some of the new sales, but a lot of it's going to be just improving the savings rate and our shared savings ability with the program going forward in 23. So yeah, very confident in that.

I mean, I've gone out to the clients too, just to reiterate that. I mean, I always start with the question, what are some of your biggest gaps, some of your biggest needs in this community? And they're like, look, we have no access into the home, and the post-acute is a black hole for us. And if you look at two core competencies of Signify, we are one of the best in the nation at getting doctors and nurses into homes to perform a battery of complex tasks, and we are managing more post-acute risk than anybody. And so it's a really good capability set for us to bring to these organizations where they know that they have gaps and they're looking for a partner to help.

That's great. And then, Kyle, I'm just kind of curious, what are your key technology goals for this year? Obviously, you have Caravan Coach under the hood, and I'm just curious how much of an opportunity there is to create some interoperability with your platform or if there are learnings from your platform versus Caravan that you can share or improve upon.

Yeah, absolutely. First and foremost is technology hiring. Every company in the country that I'm aware of, especially in the healthcare tech space, is making sure that they're staying on top of the hiring curve. And so we've bumped up incentives, compensation, benefits, flexible working environments, a whole battery of things there to make sure that we're getting the best and brightest and feel great. We've got a really strong leader Mike, who's running our recruiting efforts there, and he's continued to just bring in fantastic talent. So we feel like that has been managed extremely well, and it's not a key risk for the business and something I'm really proud of. What those teams are doing is really twofold. One, to your point, is data-level integration, making sure that we're bringing in all of the existing data feeds that we get from our health plan clients and from our health system clients, from the federal government, and from employers, that we're massaging that data, creating a longitudinal view of these individuals. And then number two, going out and filling in the gaps, as I just mentioned, where folks aren't collecting data. They're not getting data inside the home. They're not getting data inside the post-acute. They're not connecting well with specialists. Signify really exists to round out all of those gaps where the traditional system has not been great at getting data and access and activating individuals on their care journey. So that kind of data aggregation and insight piece would be number one. Number two, we are continuing to do workflow expansion inside of our existing products. So connecting to new devices, expanding new return to care options to make sure that if we go in and diagnose someone with dementia that we're able to get them to see a behavioral specialist with one of our partners in short order. So a lot of that integration work and extending workflows to take better care of these individuals is where our product teams are spending a lot of time.

Okay, thanks, Kyle. That's helpful. Sorry, if I could just sneak one more in. Excuse the reference to hiring on the technology side. On the HCS side, you know, the last year or so, you have not had any issues given your workforce really differentiated and specialized. Just curious, given the sort of record demand you've had, what sort of hiring you have in place for 22 on the assessment side, and if you've noticed having to, you know, pay more or longer fill times in terms of the open roles there?

Yeah, we've actually just taken it from the top. I mean, we've had more client demand, to Steve's point, than ever because of our great ability to manage and grow this capacity. And so when they're running into issues across the gamut from doing our traditional valuation work to the work I just mentioned in the ACOs, we are seen as a key technology and service enabler that can fill that gap to really bring folks into the home and the facilities into post-acute areas, again, where folks can't get to. And so that is our big differentiator. We have continued to ramp and scale that nicely. I mean, you guys saw how margin performs. We've done that and have managed through that really well with the team. As Steve has mentioned and I've mentioned on numerous calls, we always have special incentives in certain markets. We move volume and capacity around. Part of our model that makes it so beautiful is that it's flexible, right? People are not static. in a single market. If there's a surge in demand in a particular county, even a rural county, we can move folks there and swarm that demand to make sure that we're making our clients' and those members' lives that we touch, or those patients' lives that we touch, successful and improve their health outlook. And so we've been able to grow substantially. We've kept all kind of incentives and any bonuses paid things in line with all of our expectations. and feel very, very great about our ability to continue to recruit and grow this business to meet all of our client demand.

Okay, thanks a lot.

Yep.

Thank you, Matt. As a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypads. Your next question comes from Vikram Kesava-Bottler of Baird. Vikram, over to you.

Hi, thanks for taking the question. I just wanted to follow up on your prior comments on the labor side. I guess, are you seeing any incremental wage pressure so far this year in your provider network relative to what you expected? And what are you assuming in the guidance for how the labor environment is going to trend throughout the balance of this year? And then as a follow up to that, you know, from a higher level, when you go through these periods of, you know, perhaps higher inflation on some of your cost inputs, whether it's labor or fuel, as you talked about, Are those things you're typically able to pass through to your customers over time on the revenue side? Or are those things that you typically have to manage through just through efficiencies in the business? Thanks.

I'll take that one. So, you know, back to my inflationary comment, everything's within our expectations. And as you saw in Q1, we're managing with nice margin improvement. As Kyle said, we will always figure out to meet the demand if there's special incentives that we need to do for a particular market to drive that, which would impact our gross margins. But the beauty of what we've been doing is we saw this coming. We do this every year. We've got productivity initiatives that are always trying to drive the efficiencies. And you're seeing that in the numbers that we're covering off on all the inflationary pressures that we have. We do feel good about that. As far as passing it on to clients, during COVID, there were some things we had to do with PPE and so forth that we were able to pass through. And our clients are very open to that. I mean, at the end of the day, they really want us to drive the volume for them. So that's not out of the question that that's always an avenue we can explore. At this point for this year, we haven't gone down that road. in a significant way, and we've been covering most of it through our productivity initiatives.

Okay. Thank you.

Thank you. Our last question today is a follow-up question from the line of Cindy Motts of Goldman Sachs. Cindy, back to you.

Oh, hi. Thanks again. Yeah, I just wanted to follow up. You had mentioned something, and I've been hearing more about, like, clinical trials, and you were talking about the diagnostic testing. You know, that market, I guess what you're talking about doing there, it makes sense because you're already going to leverage the in-home part of the business with ECS and everything else, so you're already there in the home. So I'm guessing that, you know, you have the data, you can identify people, you can look at that. Like, obviously you don't have anything in your numbers, but when would we maybe start to see that kind of thing? Like, when would that pick up? And just, Kyle, you had mentioned something then, too, about, you know, the overall TAM situation. growing is that is that part of that and are you talking about growing the TAM because I think I had seen a slide a while back about maybe you know 400 billion or something so just curious about how you know the diagnostic testing clinical trial opportunity like when we might see that and then you know how that might impact TAM thanks a lot yeah great question Cindy so I'll take the TAM question first so without a doubt this is a TAM expansion as we're moving from just Medicare Advantage to

with the in-home visits to the Medicare fee-for-service book, too. So now we are doing in-homes across the entire population right now. And on the fee-for-service side, they need to be in one of the ACOs, obviously. But there's a ton of folks, millions of folks inside ACOs across the country. So this really gives us the ability to go in and partner with a health system or partner with a plan and say, anyone that's over 65, we want to do these comprehensive visits on. So we're really excited about that, number one. Number two, the diagnostic testing, that revenue and EBITDA flows into our HCS business today. And it's a very material part of that business. It's a fast-growing part of that business. When I started four years ago, we were effectively doing zero there. Today, we are doing a tremendous amount of volume there for our clients and driving a ton of value. The nature of the majority of that today is focused on... going in and identifying chronic conditions that aren't being managed appropriately, getting them on care plans, getting them back to a specialist, closing gaps in care, helping with STARS and HEDIS measures. So a whole battery of things that really matter for the health plans and the members that they are honored to serve. All that being said, if you take a step back and look, Signify has the most comprehensive clinical data set anywhere. Because we're getting all of the traditional data, as I mentioned, from the health systems, the health plans, the employers. But then we're going to these areas of health care where they've been called, as I mentioned on the call today, black holes. No one has great data on the home. What's the social condition of the individual? What are they actually doing when they take meds? Do they have an extreme fall risk that hasn't been documented? How are they doing with their smoking cessation program when we can see that they're obviously still smoking when we go into the home? In the post-acute world, You know, Seema Verma, when she was running CMS, you know, mentioned it's an area where meaningful use never got to, right? So interoperability standards and the ability to have standardized systems and to have great visibility into the post-acute is not something that many health systems, even those that own post-acute facilities, enjoy. And then finally, that handoff, and many of the new value-based care entrants in the market have talked about how difficult it's been for them to connect with specialists. That's something that Signify excels at as well. And so bringing all of those things together, all of that rich data, without a doubt, has not only extreme benefit for our existing clients and the risk models that we underwrite, but we believe will continue to have a big play in the future with life sciences, real-world evidence, and clinical trial delivery across these various populations. Both on the identification side, we can find that needle in the haystack, but we also can bring healthcare to folks and not make them come into a facility to help execute and keep a trial on the right track. And so we've frankly been continuing to focus on the two divisions and the big growth that we have, but it is without a doubt something we're working on, and it's something that we're excited about in the future to continue to expand on, and we have plenty of conversations and work going on in that space today.

Okay, great. Thank you.

Yep. Thanks, Cindy.

There are no further questions at this time. Mr. Carl Armbruster, I turn the call back over to you.

Great. Thank you, everybody. And thank you to our customers, our employees, and all of our shareholders for supporting us through another great quarter. Thank you all for your interest in Signify Health and for joining the call today. And if you have any additional questions, please reach out to Jason. Thank you, everybody.

This concludes today's conference call. You may now disconnect.