Welcome to the Evolent Earnings Conference Call for the Quarter and Year-Ended December 31, 2023. As a reminder, this conference call is being recorded. Host for the call today from Evolent are Seth Blackley, Chief Executive Officer; and John Johnson, Chief Financial Officer. The call will be archived and available later this evening and for next week via the webcast on the company's website in the section titled Investor Relations. I'll now hand the call over to Seth Frank, Evolent's Vice President of Investor Relations.

Thank you, and good evening. This conference call will contain forward-looking statements under the U.S. Federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the company's reports filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings. For additional information on the company's results and outlook, please refer to our fourth quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the Investor Relations section of our website or in the company's press release issued today and posted on the Investor Relations section of the company's website ir.evolenthealth.com and the Form 8-K filed by the company with the SEC earlier today. And now, I'll turn the call over to Evolent's CEO, Seth Blackley.

Good evening, and thanks for joining us. I'm excited to share with you our results for the fourth quarter and the full-year 2023. We had another outstanding year achieving our profitability, cash flow, new business growth and operating goals for all of our stakeholders, and we remain focused on our mission of improving care for people with complex conditions. Looking ahead, today, we're providing a strong financial outlook for 2024, as well as reiterating confidence in our $300 million adjusted EBITDA run rate exit target for 2024. In addition, we'll be providing a detailed bridge between our Q4 2023 results and our $300 million run rate adjusted EBITDA target. For all the details on the numbers and metrics, please review the press release and our supplemental investor presentation on the IR website as mentioned earlier. John and I will focus our comments on specific call outs that merit comment or context from us, so we have plenty of time for your questions at the end. With that, let's move to the results. Fourth quarter revenue totaled $556.1 million, growth of 45.4% year-over-year, at the top end of our guidance range. Adjusted EBITDA totaled $48.1 million, growth of 48.9%, and at the midpoint of our guide. Evolent's core specialty care offerings drove 88% of total revenue in the quarter. Year-over-year, specialty care revenue grew approximately 74% versus a year ago, with the NIA acquisition contributing approximately 19% to reported growth. The balance of 55% came from organic growth. Cash flow is a critical component of our sustainable financial model, and we ended the fourth quarter in 2024 in a strong position ahead of where we anticipated due to exceptionally strong cash collections. Cash flow from operations in the quarter totaled $89.4 million and we ended the year with $193 million of…

Thanks Seth. I'll focus my remarks tonight on five areas. First, some metrics around our growth. Second, adjusted EBITDA growth, where it's coming from and our path to our $300 million target. Third, a perspective on our 2023 cash flow performance and a look ahead to what we expect for cash production in 2024. Fourth, our view on key factors affecting the managed care environment in 2024 and how they might affect Evolent. And finally, I will close with our Q1 and 2024 outlook and guidance. Beginning with top line growth. I believe Q4 of '23 demonstrates the value of our balanced growth strategy with our cross-sell delivering growth in product members despite a quarter-over-quarter decline in unique members due to Medicaid redeterminations. We're excited to continue delivering on our strategy of more products per unique member and we ended the year at two products per unique member, up from an average of 1.6 in the first quarter of 2023. With the expansion of Evolent's Performance Suite into advanced imaging, as Seth discussed, I want to give investors a few reference points on Performance Suite PMPMs. Our capitation fees are based on the actual underlying costs of the scope that we manage, and so PMPMs can vary by population, geography, and specialty. For example, oncology Performance Suite fees in Medicare are typically between $40 and $70 per member per month. Since cancer prevalence is relatively lower in Medicaid populations, fees for a similar scope of work might be between $10 and $20 per member per month. Similarly, we anticipate advanced imaging performance suite fees will vary by line of business with a smaller average based on typical costs from $3 at the low end to $10 at the high end. Turning to adjusted EBITDA expansion, which remains a consistent long-term…

Yes. Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And the first question comes from Kevin Caliendo with UBS.

Hi guys, it's actually Andrea Alfonso in for Kevin. Thank you so much for taking my question. I appreciate all the color on thinking about the sequential trends into the year. I guess you talked about some of the Admin Service run out, et cetera. And I guess maybe if you sort of extract all those things and extract the Medicaid redeterminations impacted in the first half, how do we think about just kind of the cadence of capture? And then I guess embedded within sort of the expectation for new business wins impacting that, is that sort of more of a third quarter, fourth quarter contribution?

Hey, Andrea, happy to take that one. I'd say two things. First, relative to cadence across the year, the performance overall, and then specific to your question on new business wins, as we look at EBITDA performance in '23 and compare to our key drivers in '24, one of the core observations that we would make is some of the headwinds that we experienced in '23 from the Administrative Services run out and Medicaid redeterminations are mostly now behind us, with a little bit to go on the Medicaid side. And our expectation for continued organic specialty performance in terms of increased adjusted EBITDA is very consistent with our recent performance. Now so that's how I characterize our outlook here as we move towards the $300 million exit run rate. On the new business side, I'd split that into what is already contracted, which you see on the page, about $5 million of quarterly contribution there. That'll be phasing in largely across the first half of this year and the remainder that you see on the page of about $4 million per quarter is likely phasing in more across the full-year.

Thank you. And the next question comes from Jailendra Singh with Truist Securities.

Thank you, and thanks for taking my questions. First, a quick cleanup question. This Medicaid plan for imaging contract is rolled out intra quarter and Q4. We calculate like PMPM in the range of $5. Are we in the ballpark and should we expect the lives to kind of increase from Q4 to Q1 because it was rolled out intra quarter, Seth, one clarification? My main question is around the new contract with an existing health plan to add radiation and surgical oncology services to existing medical oncology services, do you see opportunities with your other medical oncology services contract to add these additional oncology services, or do you think there was something unique about this health plan, and if there is an opportunity, are you willing to quantify?

Hey, Jailendra, I'll take the first part. You're in the zone on the PMPMs, and we would expect an increase in the average Performance Suite lives in Q1 since we'll have a full quarter of that go live. I'll turn it to Seth for the other piece.

Yes, Jailendra, I think the answer to the second question is yes, we do see additional opportunities for both radiation and surgical oncology. Across the Technology and Services side, we do very little of that today. And so, across all of our Technology and Services arrangements where we have Med-Onc, I think that's a clear opportunity. And then on the Performance Suite side, we actually do a little bit of radiation oncology today, and we don't do surgical oncology. So I think there surgical oncology is an opportunity. We wanted to quantify the PMPM around surgery, which we did in the script, just to give you a sense to your point of it's not immaterial what the opportunity is here just for surgery and radiation is also attractive, so this is -- you know, I think it's a real development for the company and will benefit us both on the Technology and the Performance Suite side.

Thank you. And the next question comes from Jeff Garro with Stephens.

Yes, good afternoon and thanks for taking the questions. Maybe ask a little bit more on the $4 million EBITDA go get. And certainly, some positive comments from you guys about the pipeline and the set-up to achieve that target. But I was hoping to get more comments on visibility and whether there's multiple paths to achieve that $4 million target? And any color you could provide on the types of contracts that you think could get you there, I would assume it's more Technology and Services, but would love to hear what you have to say. Thanks.

Yes, sure, Jeff, a good question. I think, look the thing we tried to do in the script, which I'll just reiterate, is that we have been pacing ahead of the schedule that we would need to achieve to get there, on the timeline for the $300 million exit we've been pacing slightly ahead of that. So I think the bottom line is we need to kind of continue what we're doing, and we'll easily get there. In terms of the paths to get there, there are multiple ways to get there. I would say Tech Services is the main part of that. But if you go back to when we talked about this gap and what's there, there's some Performance Suite maturation opportunity as well. That's not in the numbers on the page, and I won't break down what's what on that, but more of one or more of the other could both get us there to your point. And just in terms of the pipeline, which I'm sure we'll talk about at some point in this call in a little more detail, we've got a lot in the pipeline, lots of opportunities, whether they're RFPs or net new opportunities or same-store growth. So we feel really good about the path to kind of closing that gap by the end of the year.

Thank you. And the next question comes from Stephanie Davis of Barclays.

Hi guys. This is Anna Kruszenski on for Stephanie. Thank you for taking my questions. So you noted that the wider guidance range reflects the unknowns around utilization. Just curious if you could speak to what the high-end and what the low-end of guidance assumes? And just any level of visibility you can share beyond the four new revenue agreements?

Yes, let me take that first piece. You know as we think about what could take us to the bottom, what could take us to the top end of the range. As I noted in the prepared remarks, that bottom third is about $10 million, is what we're viewing as our buffer for unexpected medical utilization, which again we're not seeing. But given what we have seen in the industry writ large, we believe it's prudent to have in our outlook. On the top side of the range what could take us to $265 million and beyond this year really is two things. One is timing of go lives largely of our Technology and Services Suite clients, and two outcomes during the year on the Performance Suite. That's how we'd think about the range.

Thank you. And the next question comes from Ryan Daniels with William Blair.

Yes, thanks for taking the questions, guys. Congrats on the strong performance. Seth, you set this one up. But I do want to hit on the pipeline and let me actually phrase it with a little bit more detail. Obviously, some of the Medicaid plans getting hit with redetermination. You mentioned MA plans, they've got higher utilization in V28. And then you've got things like prior authorization and pressure on utilization management, hitting all payer types, including commercial. So maybe you can unpack the pipeline a little bit and how these various things are kind of driving demand for solutions such as yours and where you're seeing kind of different puts and takes in the pipeline for your product offerings? Thanks.

Yes, happy to Ryan. So look, I'd probably put it into three categories. One is the things that we have been seeing for the last three years have continued, which is kind of traditional demand for the product. I think the second category, which is newer is around what I would call more acute medical loss ratio pressure, right, where payer A is underwriting pressure and has a gap to their goal for their fourth quarter of this year and beyond. And that deal would have taken a year or six months to work on before all of a sudden, it's a much shorter sales cycle, more focused team on their side, and frankly more RFPs and also organic opportunities. So that's kind of the second category that's newer for us over the last, say, six months. And then the third category I would define around more integrated bundled offerings that are available to us now because of NIA and IPG and Vital and Evolent all kind of pulled together in a fully integrated fashion that were really not available to us, call it a year ago. And those have ramped, we've now several of those in different pockets and things like that along the way. But I think that third category is going to kind of be an evergreen category for us at this point and looks very promising. That help, Ryan?

Yes, that's great color. Thank you so much.

Thank you.

Thank you. And the next question comes from Anne Samuel with JPMorgan.

Hey guys, this is Kyle on for Anne tonight. Congrats on the great quarter. I was just going to ask about the Performance Suite offering in imaging. Does this change how you size your total market within your cross-sell plan that you laid out in your Investor Day? Just trying to think about how we frame this in terms of future partnerships. Thank you.

Hey, Kyle. Yes, it does increase our total addressable market. We haven't really quantified that or updated that. Formally, it does increase it a little bit. We're a couple of billion dollars out of $150 billion market. So I think it doesn't really change the big picture for us, which is we have a lot of running room, but yes, it does make the market a little bit bigger.

Thank you. And the next question comes from Jessica Tassan with Piper Sandler.

Hi guys. Thanks for the question. I wanted to just clarify and understand if the scope of your Florida contract with Humana has changed at all. I think initially it was limited to certain counties. Just curious to know, is that contract now statewide? And then beyond that, just maybe hoping you could talk a little bit about the thought process and kind of the pricing precautions that you took in order to price the advanced imaging Performance Suite solution, and just whether you're expecting kind of equivalent margins in those products in year one, two, three, as you would in the rest of the Performance Suite book? Thanks so much.

Yes. Hey, Jess, I'll answer the first one. No, the Humana Florida has not changed since we announced it, and it's kind of launched and on-track relative to what we shared last year.

Yes, underwriting principles on the new advanced imaging Performance Suite product, very similar to the way that we think about the rest of the risk that we take, looking to be quite specific around the scope, for example, around protections for Evolent in terms of the way that we like to manage our risk and be responsive to the customers' needs in terms of delivering to them a guaranteed outcome, which is one of the key buying factors that we see customers opting for the Performance Suite.

Thank you. And the next question comes from Charles Rhyee with TD Cowen.

Yes, thanks for taking the question. I wanted to follow-up on an earlier question around sort of what can kind of get you to the higher end of the range this year? I think you mentioned sort of on Performance Suite maturation. Maybe when we think about that higher end of the range, are you kind of assuming performance Suite maturation to kind of mirror sort of what we saw in '22 and '23, or would you consider it to be more conservative to sort of the recent maturation experience that you've had so far?

Yes, it's a good question, Charles. I think at the top end of the range, that would be experience consistent with what we saw in '22 and '23. And I think one of the items that's giving us confidence there, both for '24 and as we look at the exit run rate of $300 million, is the performance that we saw across '23 on the '22 launches similar to the performance that we saw across '22 on the '21 launches. So we've now got several years here stacked up of performance that's been consistent with over $400 million of new Performance Suite revenue that was launched in 2023, driving performance and margins and quality on that book of business across this year. Obviously, a very important focus and consistent with, I think our performance over the last couple of years.

Great. Thank you.

Thank you. And the next question comes from Richard Close with Canaccord Genuity.

Yes, thanks for the question. Congratulations on the quarter and I appreciate all the details. Maybe, Seth, on the cross-sell that you mentioned to Ryan's question on the pipeline, can you talk a little bit more about the cross-selling? Are you seeing strengths in any particular product on the cross-selling, or where do you think most of the low hanging fruit is there?

Hey, Richard. Yes, look I think it comes in a couple of different areas, but let me -- so let me give you a few examples. One place we're seeing some strength is if you're traditional imaging customer, and that's what you had from an NIA perspective, and we have a conversation about the fact that we can incorporate imaging and genetics into a broader condition management model around cardiology or oncology, eventually around MSK, it's obviously just a better proposition for the member and for the plan to look at things holistically rather than just look at a given vertical like imaging, right? So I think that's one good example. Another good example though is where historically it's an Evolent-only customer and we have not included imaging because that was not part of our scope traditionally. And now we step into this radiation oncology -- excuse me, imaging or other types of imaging that makes sense for cardiology or oncology, right? Critical for managing those two conditions, understanding the imaging as, for instance. So I think it's largely around the NIA opportunity. I'd also give you some examples though, around end of life and around IPG. And so, it's little a bit across the board, but I think the imaging NIA example is probably leading the pack, and those others have been attractive as well.

Okay. Thank you.

Thank you. And the next question comes from David Larsen with BTIG.

Hi, this is Jenny Shen on for Dave. So it sounds like utilization has been good with you. Just with the overall increase in hip and knee procedures in the broader space, can you talk about what you're seeing in your MSK business specifically? And also, your longer-term outlook of increasing the amount of risk that you take in that business? Thanks.

Yes, happy to take it. So we do not currently take risk in MSK, so increases in that kind of utilization do not impact us on the risk side. We have talked about building a risk-taking product in musculoskeletal conditions that would look like the rest of our Performance Suite products, and that's on the roadmap for likely a 2025 launch. So it continues to be an important product focus, but not for this year.

Thank you. And the next question comes from Sean Dodge with RBC Capital Markets.

Hey, good afternoon. This is Tommy Schuyler on for Sean. Thanks for taking the question, and thanks for all the detail in the slides. Just wanted to follow-up on the earlier Humana question. How should we think about the potential Performance Suite expansion outside of Florida and Arizona? Is there a fairly structured trial period sort of required before you can expand further, or is this something that could be pushed into some other new states in a relatively short order?

Hey there. Great question. So I think it's actually very akin to our experience with other payers over the last several years in terms of expanding from Performance Suite in one or two states to other states, which is certainly there is an opportunity there and an intention to consider that the first order priority for us is always six to nine months of outstanding performance. We are kind of in that outstanding performance phase right now and really heads down on delivering for our partner there. And I think when we do a good job on delivery, that earns the right to expand into new states. And so that's our expectation that we'll have the opportunity to do that. And it's right answer generally for the payer partners to not just do something in a couple of states but do it more broadly. But right now our priority is on the execution delivery front.

All right. Appreciate it. Thanks a lot.

Welcome.

Thank you. And the next question is from Jack Wallace with Guggenheim.

Hey team. Congrats on the quarter and thanks for taking my questions. Thinking about the imaging opportunity, and when you're upselling that capability, how quickly does that typically turn to revenue? And then I've got a follow-up question.

Yes, Jack look, I think we are already seeing some of that opportunity come to bear fruit for us. We've been -- it's been about a year since we closed the NIA transaction, and we've seen several cross-sells that we've announced. And so, I think we're in that zone now where those opportunities are paying off. It often takes, if you get into one of those conversations, I'll call it six months to have a sales cycle around it. And again, it could be a legacy NIA client, or a legacy Evolent client, it could go in either direction, but it is bearing fruit now.

Excellent. Thanks. And then, really we haven't talked about as much, but the cases business, revenue per case, and they pick-up a bit more fourth quarter, A, what was driving that? And B, you think that it's going to be persistent going forward? Thank you.

Had a tough time understanding you there, Jack.

Jack, could you repeat what you just said? There is an echo.

Yes. Apologies, I'm in an airport, I was wondering about the cases business. It looked like revenue per cases was up a little bit in the fourth quarter, I mean if there's anything structurally going on there that would persist going forward or just timing of activity in the quarter? Thank you.

Yes. Nothing particularly structural. There's a seasonal component and also just regular organic growth.

Excellent. Thank you.

Thank you. [Operator Instructions]. All right. This does conclude the question-and-answer session. I would like to return the floor back to Seth Frank for any closing comments.

Great. Thanks for joining tonight and look forward to connecting with you offline. Have a good evening.

Thank you. The conference has now concluded. Thank you for attending today's presentation. And we now disconnect your lines.