Welcome to Evolent Health's Earnings Conference. Call for the first quarter ended March 30, 2022. As a reminder, with conference call is being recorded, your hosts for the call today from Evolent Health, our Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer. This call will be archived and available beginning later this evening via the webcast on the company's Investor Relations website, which can be found ir.evolenthealth.com. I will now hand the call to Seth Frank. Evolent'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 its 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 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.evolenthealth.com, and the Form 8-K filed by the company with the SEC, earlier today. During management's presentation and discussion, we will reference certain GAAP and non-GAAP figures and metrics that can be found in our earnings release, as well as a summary presentation available on the Events section of Evolent's website, ir.evolenthealth.com. And now I'd like to turn the call over to Evolent's CEO, Seth Blackley.

Good evening, everyone. Thank you for joining the call. I'll start by summarizing our first quarter results and discuss progress on our 3 core operating priorities. John will discuss the numbers in more detail and share our updated guidance. As always, we will close the Q&A. Turning to our results, the first quarter marks a strong beginning of the year for the Company on the heels of a successful 2021 with continued growth, margin expansion, and strategic product innovation. For the first quarter of 2022, Evolent reported total revenue of $297.1 million, growth of 38% over Q1 2021. Adjusted EBITDA for Q1 2022 was $24.3 million, 63% growth over Q1 2021. Significant flow through a revenue growth resulted in adjusted EBITDA margin expansion of 130 basis points to 8.2%, compared to 6.9% in the first quarter of 2021. Relatively guidance to quarter was also success. We exceeded the high end of our revenue outlook range for the quarter of $280 to $295 million, and we delivered at the high end of our outlook for first quarter adjusted EBITDA, which was $20 million to $25 million. We ended the quarter covering 20.3 million lives on all platforms compared to 11.6 million one-year ago. Growth is 74% driven primarily by New Century Health and Evolent Care Partners, which together constitute our Clinical Solutions from a segment reporting perspective. Revenue from New Century Health and Evolent Care Partners combined grew 46% year-over-year, while Evolent Health Services, our administrative segment grew 26%. Its highlights balanced growth across the enterprise with continued out-sized growth from the clinical segment. I want to take a moment to go little bit deeper into New Century Health. Specifically, given our strong continued growth in that area and what we believe to be significant potential growth ahead in that business.…

Good afternoon, everyone. We're pleased with our first quarter results, with our key metrics coming in ahead or near the high end of the guidance we communicated in February. We are building upon the momentum we carried into’22. In total, our quality and cost management solutions covered 20.3 million lives during Q1 and we're well situated to grow that reach both across the remainder of this year, as well as into 2023, we outperformed the high end of our revenue range for the quarter due to stronger-than-projected performance payments within both our Clinical Solutions and Evolent Health Services segments. Our adjusted EBITDA was likewise driven by continued strong outcomes in our Performance-based arrangements. With typical seasonality in working capital during the first quarter, our operating cash flow declined versus the beginning of the year in line with our expectations. And we anticipate during the remainder of 2022 to build upon our cash flow momentum from 2021 with continued focus on our disciplined capital allocation strategy. Now, let me take you through consolidated results before turning to segment-specific results in ending with an update on guidance. Revenue in the quarter was $297.1 million, a 38% increase, compared to the same period in the prior year. This was due to growth from new partner additions, as well as same-store sales growth across our enterprise. Adjusted EBITDA for the quarter was $24.3 million, compared to $14.9 million in the same quarter of the prior year. This represents year-over-year adjusted EBITDA growth of 62.7% and margin expansion as a 123 basis points. Turning to our segment results. Within our Clinical Solutions segment, revenue in the first quarter increased 46.1% to $190.2 million up from $130.2 million in the same period of the prior year. This strong revenue growth is due to continued same-store sales…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. Our first question comes from Richard Close with Canaccord Genuity. Please, go ahead.

Great. Thanks for the questions and the time today, and congratulations on the progress. Seth, I was wondering -- Seth or John, I was wondering if you could talk a little bit about the Oncology Care Partners relationship, and then you also announced Strive Health here recently. So I was just wondering if you could just walk us through the structure of each of those relationships, what the opportunity is, and maybe from a financial perspective, are they relevant for 2022 or how should we be thinking about 2023 contribution?

Yes. Great, Richard. Thanks for the question. So I think the way we think about this part of our business is it's around innovation, right? So across all three parts of the business, Evolent Care Partners, Evolent Health Services, New Century, we think about innovation in three buckets. One is, well, things we can build internally and that we do build internally, software development and the like. Second is M&A. Accretive M&A that we use and then in the third bucket we have partnerships from time-to-time, like the couple that you mentioned, they may be in Evolent Care Partners, they may be in New Century, they may be in Evolent Health Services. They tend to be very capital light or zero capital deployed, but add some sort of innovation, the case of Evolent Care Partner, excuse me, oncology Care Partners that you mentioned. We see in certain markets, places where there needs to be new oncology capacity and having a separate company in this company, you mentioned be able to help us in that way in those markets as a value-add doesn't take our capital up. And so it's really part of our broader innovation methodology that we use again, internal development M$A, and then we have select partnerships and targeted areas that are capital light and yet continue to innovate our product. It's all with an eye towards market leadership across all three products.

Thankfully -- yeah, I think the financial point to your question, Richard, it's more about market leadership, and therefore, our ability to continue to grow at really fast rates over time, but also our ability to deliver on our targets and expectations on the earnings front, which really fits within that framework. So I wouldn't think of it as an additive thing from a financial perspective necessarily in the short-term.

Okay. But I'm trying to understand is -- oncology Care Partners, you would be -- I think that's a JV. So would you be -- being that like a revenue share and then Strive? How it seems like that's somewhat like your cardiology or oncology performance on the kidney care. So is that a revenue shares as well?

Hey, Richard, this is John. I will take some of those. On both, think of them as in our network -- partners in our networks. So just like we partner with a number of oncology groups across the country in New Century. Oncology and Care Partners will be part of our network as they grow, and so we're happy to support them in that way. As Seth mentioned, it's not an investment that we've made. On Strive, think of that as a classic sub-capitation agreement where for the Evolent Care Partners lives, which as you know, are mostly in the Medicare Shared Savings Program. We were seeking a partner to help us manage the costs of Kidney care, and selected Strive to do that. And so we're excited to roll that as a pilot with them in a couple of markets and see what kind of savings they can drive on our population.

Okay. Thank you.

Welcome.

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

Hi, guys. Thanks for taking the questions. I'll add, Mike, congratulations on another strong quarter. Seth, you've talked about in your prepared comments, the massive opportunity you have, both the up-sell, New Century, and then cross-sell solutions into that marketplace. So I'm curious if you can speak a little bit to specifically what you're seeing there with clients and with existing clients that are already using you and seeing such good results, how do you push the needle forward more rapidly there to drive growth in that segment from a sales or investment standpoint? Thanks.

Good question, Ryan. So I mean it is down two factors right to your 0.1 is we've got across our biggest clients. We only have say, 10 million lives covered out of their 40, so this is an opportunity to go to different geography or different specialty or something like that. We're not touching it all today. And then the other vector is out of the base of the Technology and Services lives up-selling them to the Performance suite even if they're already our lives that 50-fold increase that we talked about. Those are the two opportunities. They're each a little bit different, right? On the up-sell opportunity of going from tech services to performance. We already have the data. We already are supporting the partner in some way, shape or form. And we can make very specific, credible data in front of them about the opportunity to up-sell to the Performance suite and so those things are happening on an ongoing basis. We've obviously talked about several of those with a couple of our big national payers in the last few calls, there's are going well and it's really about increased savings Ryan, for them in those markets. And particularly where they might have the biggest pain points within their business. With the other dimension where we're not touching a lot of that all today to brand-new market or something like that, that same messages are true, but the sales cycles a little bit different. Because we don't yet perform services on those markets and across both the common theme is, hey, where is there a pain point for our customer? Which is the growth of oncology and cardiology or end-of-life, which ditches into both of those. And I think the good macro news for us is there's a lot of challenge in managing those segments. And I think we have a unique ability to help manage them at a lower rate than they can on their own. And so we're seeing a lot of strong progress across kind of both of those dimensions you asked about.

Okay. I really appreciate that color. And then you mentioned Vital Decisions, relationship, I think with an existing client where they're doing a pilot, can you dig into that a little bit more? Is that something where they're doing just a small amount of lives in the potential is for expansion or is it just -- I guess, more color on that would be helpful?

Yes. So this is one of our larger Performance suite relationships today, so we're already, you're managing the population and the costs, and we have relationships with these physicians and their patients today. so it's only natural that we would be able to stitch in the capabilities, the Vital brings to help manage that -- that aspect of a, say, cancer patient or a cardiology patient and our team and Vitals fantastic and all the right abilities from an empathy perspective, getting in with the physician and the patient and their families to have those conversations. So I think we're seeing a lot of positive receptivity in terms of the clinical leadership of these plans. And yes, that makes a lot of sense, let's bring it in, stitch it in, and so the pilot is with one of our bigger partners. It is rolling out pretty broadly across that population quickly. And again, we don't really sell it, I think we talked about this early in the Vital. It's not a sales thing. We're bringing the capabilities to bear because it's the right thing for the patient first and foremost. It often results in better care and longer life span alike for the patient, but also has a savings opportunity that can accrue back to us over time, quality first always. And that's how we do and it's working quite well.

Perfect. And then two more and I'll get off. One for John very quickly on the Performance-based fees, were those generally in line with your expectations during the quarter or was there any pull-forward that helped drive the upside to sales and EBITDA?

Yeah, good question, Ryan. I would say they came in slightly ahead of our projections. But not from a pull-forward, but based on the final read of the data that we got to base those performance fees on. So nice to see those in the quarter.

Okay. And then the last one, Seth, you always talked about the third investment platform being M&A opportunity. I'm curious, with the weakness we've seen in the public equity markets, and in particular with the digital health companies of late, have you seen a reset in seller expectations such that you're seeing more attractive opportunities to enhance your product or service offering through M&A going forward, and might that cause a reallocation of capital from internal to external M&A opportunities going forward? Thanks

Yeah, I think what we'd say about the M&A, we don't need to do it, Ryan. We've had this really good organic path and that's ahead of us and we feel really confident in that path, so we don't need to do it. I think what we -- the times when we will do it, Ryan, it's -- there's got to be a couple of things present. One is we'd see a strategic fit. It fits with what we're doing in the core. It needs to be a short-term win, so needs to be accretive quickly. And then the third thing is needs to build when in the long term, which is strategic upside from the transactions. I think that's our main framework for it. When the prices of the assets go down a little bit, it can help on the short-term accretion thing, and I think we are seeing a little bit of that right now. But I think just the broader point is that, especially within the specialty space, really interesting opportunities to meet all three of those criteria, so it helps the business in the short and long-term. We definitely see some opportunities out there. And I think to your point, they should be more attractive even in the 6 months, 12 months ahead as the markets adjust a little bit.

Right. Great. Thank you so much, guys.

Thanks, Ryan.

Our next question comes from Anne Samuel with JPMorgan. Please, go ahead.

Hi, guys. Thanks for taking the question. Maybe just a follow-up to Ryan's question. You talked about opportunity to expand beyond your existing specialties. What areas are your customers asking for that might make some surrender at the portfolio?

So I think it's interesting and we certainly thankfully hear a lot about oncology and cardiology end-of-life. So it feels like the ones that we're at are spot on. There are some other ones that are just big and are also growing musculoskeletal. An example of that, there's some needs around patients and helping the patient navigate a little bit more. That is talked about quite a bit. And I think there are few others, like I'd put neurology on that list, that are also higher cost. And so, there's certainly opportunities across the ones that I just mentioned, and I think the most important factor is we are getting a lot of our customers coming to us, to your points, saying hey, we want you to do more. I think we're doing a good job delivering on what we've got in front of us, which is always job one in life. But I think there's also a dynamic which is date preferred to buy more from one place. And so our ability to add more is certainly part of the commentary around M&A, but also could be organic additions. And we're quite excited about the opportunities around New Century in general.

That's great. You continue to add new partnerships at the rate you always have. But you've also got a nice base now of larger existing clients. So was just wondering, how should we think about that composition of same-store versus new growth going forward? And might that look different? Or is that supportive of maybe kind of higher growth than you've seen in the past?

Hey, Anne. This is John. I'll take that one. The -- typically, 60% of our growth has come from new partner ads, and about 40% has come from same-store expansions. And I do think that given the dynamic that you described due to the opportunity in front of us to further penetrate our existing customer base, we expect that to shift a little more towards the same-store side. Now, if that's 50/50 or 60/40 or the other way, it's not going to go 80/20. We continue to believe that there's a lot of new flags out there to plant, but we do see that dynamic happening. I think the other thing that you'll see across this year, just to mention it, is that conversion of lives that are in the Tech and Services suite today up to the Performance suite. And so maybe not as much change on the total life count, and more of a change in the aggregate PMPM as we're able to drive more revenue, more profitability, and ultimately, more value for the customer and the patient through that Performance suite.

That's really helpful. Thanks. And maybe just one more housekeeping. Perhaps I missed it, but was hoping maybe you could provide some -- just some color on the lives and PMPM of the new partnerships. And then also just how to think about the expansion at Bright Health and maybe timing of that.

Let me do those in factors order, still on Bright Health, as we mentioned, anticipating to have all of their ISP lives on our platform. In January of next year. I believe on the call this morning, they mentioned about a million lives plus or minus their growth. That will be our membership. So really excited to continue to grow with them and provide really strong service. On a couple of other announcements today. As med the -- as we mentioned, the main focus of this Performance suite is in the Medicare advantage book of business, which is a fraction of their lives. So think of it in the $20 to $30 million zip code to the total revenue, and on the ECP, add, as you know, that is a longer -- it takes longer show open the revenue since it is a shared savings model. So really there we're talking about revenue impact for next year, where we see that anticipated.

Very helpful. Thank you.

The next question comes from Charles Rhyee with Cowen, please go ahead.

Yeah. Thanks for taking questions. Maybe just a -- a follow-up question around Vital Decisions. Seth, with the pilot, maybe I missed it from Ryan's question you the when how long do you expect these kind of pilots to labs and do you see pilots as the primary way you're going to get Vital Decisions into your existing client base or do you see maybe this one pilot being a reference site in Effect for other clients to just starting on for Vital Decisions going forward?

Yes. It's a good question, Charles. So we -- this pilot will flip and I think a full relationship later this year. And it's rolling out pretty quickly. And then we expect a couple more of these this year. So we're not having issues getting our partners to adopt it. And I don't think we're going to really need to use a pilot methodology. That's just where we are with this first big one, given the timing of the integration. But generally speaking, they're going to just roll in and become part of the operational platform that is New Century Health, and so it feels really good and we're not having any issues in terms of adoption.

And then as we move forward for potential new clients at New Century Health, sort of new logons, is the final decision going to be just part of a package when they -- or is it an option they can select into as they sign-off?

Yes, I think it'll often be part of it. It will be a conversation. And so sometimes they can opt out of it, but I think it'll be more of an opt-out than an opt-in in most cases. And it just makes so much sense, right? When you're contacting the oncologists or cardiologists already stitching the same platform. So it'll be I think part of the default relationship.

Great. And then last question for me, just in terms of -- I think on the fourth-quarter call, you guys talked about lives from the Molina expansions, ramping up in the Performance suite lives. But sequentially I think we're still at 1.5 million. How should we think about the ramp those lives to flow through? Is that to be more back-half-weighted and then maybe similarly for BlueCross BlueShield, I know you may have mentioned but I think I missed that.

Yeah, no sweat. The Blue Cross Blue Shield lives are in the number as of 11 on the Molina Performance suite, contracts to went live in April. And we expect the other two will phase in at some point this quarter.

Okay, so we should be stepping up. Should we step up the 500,000 in the Second Quarter or should we have some of that step-up in the third quarter.

I would expect that is the magnitude of the step-up in the second quarter.

Great. All right.

But just to be really precise about penetrate, that it's a move from Technology and Services lives to Performance suite. Not a move [Indiscernible].

Okay. Perfect. Thanks. I appreciate and congrats on the quarter.

Thank you.

Thanks, Charles.

Our next question comes from Jessica Tassan with Piper Sandler. Please go ahead.

HI. Thanks for taking my question. And I think just we had estimated that there is a 1-1 Molina Kentucky launch for New Century Performance suite, I guess, which would have added like roughly a 165,000 lives. So I guess just are there any kind of underlying dynamics behind the flat sequential reported lives in and Performance suite within Clinical Solutions.

There's no underlying dynamics there still on track for Kentucky to slip to the Performance suites. And also just in aggregate as we've talked about the Molina relationship this year, continue to expect that $75 million revenues at codes. So that is on track.

That's helpful. And then I guess just within Clinical Solutions Performance suite, what's the mix between Medicare and Medicaid? And within the base, should we be expecting just that population to grow roughly in like overall growth year-over-year outside the contract extension here or around or [Indiscernible]

Medicare revenue in the quarter represented a little more than a half of the total Clinical Solutions revenue. Medicaid was the next largest commercial was 10% Overall in terms of how that shapes I -- is going to depend on specific deal cadence. Generally speaking, Medicare has a bigger market for the oncology and cardiology services. And so I would expect that probably to grow that faster.

Got it. And then can you maybe help us think about what's the potential impact of Medicaid redeterminations might be? How much of that memberships possibly convert to exchange deals? Yes, just what the potential impact of that might be.

Yeah. So just to ballpark it, at the end of 2020, when most of the -- that impact happened, we made an estimate that our member -- the aggregate membership at the time was about two to three percentage points higher. Then it might have been absent the public health emergency and the redetermination pause. So then the question is, how much of that might we give back when the redetermination is turned back on? I think that most of the forecast that are out there have a reasonably slow ramp in terms of that membership rolling off, whether it's across six months or 12 months. And that's consistent with our forecast as well. So we have incorporated that into our guidance. We do expect to see it. We don't think it will be that big of an impact given that two to three percentage points initial impacts to the positive.

Thank you.

Our next question comes from David Larsen with BTIG. Please, go ahead.

Hi. Congratulations on a very good quarter. For the Molina $75 million, how much of that was actually in 1Q’22?

A very little bit, very little. The majority of the relationships went live on for one and are going live later this quarter.

Okay. So the revenue --

just to be precise on that, that's one of the reasons for the step-up in the revenue guidance. Moving from where it will to where it is in Q2.

-- right. So the revenue beat happened despite the fact that most of that Molina will be in future quarters. And then with the Bright lives, those 1 million lives, what exactly are those are you providing to the measure the cardiology or is it the oncology service? I'm just trying to get a sense for the PMPM fee.

Of course, the core services that we're providing, the Bright or out of the Evolent Health Services segment. And that's the administrative platform, claims payments the UMCM, etc., for a portion of those lives. And so PMPM, that's going to vary by markets, scope, services, and so on. Obviously, it's some of the best relationships at number of different pricing models in there, but overall, I think we said in the last call, somewhere between 7 and 11 bucks PMPM as a decent place to start.

So if we assume 10 bucks per member per month, that's like a 100 -- how much is it on an annual basis? Is that like a $120 million?

A little less if you use the midpoint of my $7 to $11 range. But yes, it's a large contract. We're excited to grow with them.

Okay. That's a very large contract. Okay. And then what were the performance fees in the quarter that you recognized? What was the dollar amount?

Yes. I Recall in our Evolent Health’s; this is in our Evolent Health Services segment principally where we saw that out performance in that line this quarter. And those are relationships where we have upside with our customers based on value that we're able to drive for them. Usually and in this case, that is based on savings that we're able to drive relative to a benchmark. And so we got some final data in the quarter that allowed us to recognize that amounts in those areas and contributed to top-line beat. Now, as I mentioned in my prepared remarks, that was offset by some onetime costs associated with that revenue. In past a certain along amount of that downstream, for example, to the EBITDA impact in EHS was a little lower, but really pleased with the magnitude of that result.

Okay. That's very helpful. I think there's a little bit of a delay in some Performance revenue and like 3Q of 2021 or something like that, was it related to the that like you finally got updated [Indiscernible] you collected all that?

Yes. It was not. And I said it at the outset of the year and I mentioned against today, we do expect quarters one and three of this year to be high points for Performance revenue. The third quarter impact is largely driven by the timing of the Medicare Shared Savings settlement files we received for Evolent Care Partners.

And then just the last one and I'll hop off. In terms of like your TAM or you’re in-cell potential, I heard the phrase 50 fold. Can you put a dollar amount on that? Is it $4 billion? Just what are we looking at in terms of dollars?

So the way that we've tried to paint that picture, Dave, is if you were to assume that we could penetrate those top customers by 25% with both oncology and cardiology Performance suite products, that would represent revenue in excess of $4 billion. So a significant opportunity there that we are obviously highly focused on attacking.

Okay. Fantastic quarter. Congratulations, thanks. I'll hop back in the queue.

Thank you.

Thanks, David.

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

Thanks very much. And good afternoon. And glad to be back on the back on the calls. And as usual, I'm slowing in the queue. So really no detail question that may be a high level since you guys are right outside DC. As we come into the midterm elections and thinking about the second half of the buys administration, is there anything that you guys are particularly watching that could be an upside risk or downside risk or do you think it's pretty much status-quo, no changes over the next couple of years coming out of DC? Thanks.

Hey Sandy. Yeah. I think the short answer is its pretty much status-quo with respect to our business. And the reason is that almost everything that we're talking about today and all of our opportunities are really oriented back to the private payer risk-bearing provider markets and the dynamics that are driving them or just the co re dynamics of managing care. And those have been around for a long time and we're going to be around for a long time. We use value-based care to solve it but if policy changes a lot or a little, that opportunity is going still be there. So I think because of those dynamics for us and for Evolent, no big changes that we're thinking about up or down really to what we have going on. I could give you a more nuanced answer around what we see in the macro environment with inside the Beltway. And I think it's probably net positive on value-based care. But even those things they're helpful to us, but it's moderate and I think the core thesis for Evolent is little bit less connected to what happens in elections and the like.

Great, that's helpful and congrats on the quarter.

Thanks.

Thanks.

Our final question is a follow-up from Richard Close with Canaccord Genuity, please go ahead.

Thanks for the follow-up. Seth, I was wondering maybe if you could just comment a little bit about the pipeline. Obviously, you guys have been adding a higher level of new partnerships, but maybe some just commentary on the pipeline, how it maybe compares in last year. And then second on that and maybe a little follow-up on Sandy's question, but really more on the economics side. So I'm curious if we go into recession or what not, how you think that's going to maybe impact the pipeline? Does that stop people from maybe adding performance services or performance suite? Just any thoughts in and around that would be helpful.

Yes. So I'd say first on the pipeline, it's at the highest point, it's been at, and it's bills very good. So that's a positive and John said it's weighted a bit more towards our existing customers and that up-sell opportunity that we've been talking about versus net new logos. Yes, of course, new logo's in there too, but the weighting has shifted a little bit per John's earlier answer, and it just feels quite good. I think it's a bunch of different dynamics, including just general pressure on the growth in oncology, cardiology, end-of-life, et cetera. With respect to your second question, I think is one of the positive elements of Evolent from a profile perspective that don't think that the macroeconomic environment affects it that much one way or the other. Recession happens, people unfortunately still get cancer, that cancer needs to be managed, the health plans are still trying to make their numbers and need help doing so. The differentiation of our product and the ability to do that and the way that it saves money, but also it's good for the patient. These things are evergreen issues and they don't really [Indiscernible] and flow with the economy. And so we feel good about our pipeline being in a really nice place a year from now as well, two years from now, kind of independent of what happens in the macro-environment.

Okay, thank you.

You are welcome.

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

Thanks for everybody's time. We look forward to connecting in the days ahead. Have a good evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.