Q2 2020 Evolent Health Inc Earnings Call
Lets call for the quarter ended June 30 2020.
As a reminder, this conference call is being recorded.
Your house for the call today Mr. Frank Williams.
Chief Executive Officer of Evolent health.
This call will be archived available later this evening and for the next week via the webcast on the company's website.
And the section entitled Investor Relations.
Here are some important introductory information.
This call contains forward looking statements under the U.S. Federal Securities laws.
These statements are subject to risks and uncertainties that could cause actual results to differ materially.
Historically experience that's 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 the current and periodic filings.
For additional information on the company's results and outlook. Please refer to the second quarter News press release issued earlier today.
As a reminder, reconciliations of non-GAAP measures discussed during today's calls to the most directly comparable GAAP measures are available and the company's press release issued today and posted on the Investor Relations section.
The company's website.
Our thought Evolent health Dot com and the 8-K filed with the company.
But the FCC earlier today.
At this time I will turn the call over to the company's Chief Executive Officer, Mr., Frank well yeah.
Thank you and good evening.
Frank Williams, Chief Executive Officer above one and I'm joined by some Walkley our president.
John Johnson, our Chief Financial Officer.
First and foremost I hope you and your families are all staying safe and healthy during what I know has been difficult time for metal.
I'll open the call. This evening with a summary of our recent financial results as well as an update on the markup.
Our current pipeline and overall performance across the <unk>.
Well then had to John's take us through a more detailed financial review of the second quarter.
I'll close with an update on our organization, a summary of our key business and strategic objectives for the year.
As always we'll be happy to take questions at the end of the call.
In terms of our results for the quarter.
Total adjusted revenue for the quarter ended June Thirtyth 2020.
Increased 24.2% to 238.6 billion from the comparable quarter over the prior year.
Adjusted EBITDA for the quarter ended June Thirtyth 2020 was 9 million.
As of June Thirtyth 2020, we had approximately 3.1 million total lives on the platform.
To park or additions this quarter, we welcome five new partners. So they have one national that work already this year.
Overall.
Quite pleased with our top and bottom line results for the second quarter based on the strong financial visibility we have on the third and fourth quarters, we expect to outperform the full year 2020 revenue and profit targets that we outlined at the beginning of the year.
Accordingly, we now anticipate delivering over 30% revenue growth in our service business for calendar year 2020.
In addition, this past quarter, we continued to make solid progress on our margin enhancement initiatives and achieved an important goal of becoming cash flow positive head of our previous timing estimates.
In terms of ongoing response to co but the good news is that the initiatives that we put in place earlier. This year have set us up well to support our partners comprehensively, that's the pandemic evolves into the fall and next year.
In particular, our efforts to enhance our predictive risk stratification models as well as honing our care management outreach to incorporate social determinants of hope for chronic condition patients.
Had a meaningful impact on hope outcomes for the populations that we serve.
Our population health infrastructure serves as an important tool for partners to manage community health a comprehensive integrated way.
That's the pandemic is of course than a ball being an unprecedented situation. We continue to closely monitor each of our businesses and geographies to ensure we're well prepared to address any significant issues should they arise.
Lastly, as we shared several weeks ago, we're pleased with the agreement were able to reach and the sale of certain assets a password health plan to Molina healthcare and anticipate the transaction closing before the end of the year.
We're heartened to see continued strong performance of passport, including the plans, 1.9% operating margin across the last 12 months through June of this year.
This has been a significant achievement since the retroactive rate cut from the Babin administration went into effect. That's represented a 14 point margin improvement since Q1 or 2019.
Looking back at our key strategic and financial goals coming into 2020, we believe we're well on our way to accomplishing our most important objectives.
First we wanted to establish a diversified growth strategy across our total cost of care specialty care and administrative solutions, which could serve the payer position and provider markets.
This is effectively expanded our addressable market to well over 130 billion, while diversifying our customer base substantially and setting up the differentiated strategy to drive consistent growth in the years ahead.
Second we're focused on delivering strong immediate organic topline growth in 2020.
Delivering organic growth of close to 25% year over year. This past quarter is evidence that our revenue strategy and that our solution offerings continue to be well received in the marketplace.
Third we wanted to ensure a successful outcome from our work and investment in passport.
Across the last 18 months, we've delivered a 14 point turnaround at margins and strengthen the balance sheet significantly or.
Our collective effort established passport as an attractive asset from Lena entering the Kentucky market and ensure that the brand and unique clinical approach will continue for several years to call.
The transactional so provides continuity for the community employees and for members.
[laughter] passport maintain its current performance into the second half of the year. We may also have an opportunity to generate a substantial return on invested capital in the plan, while also maintaining ongoing service revenues in Kentucky.
All in all good resolution given the political dynamics with the previous administration.
Fourth.
We focused on driving demand triple clinical and financial results for our partners. That's I'll touch on later.
Outcome studies or burn engage members versus control groups or clinical programs are delivering meaningful reductions in hospitalizations and total costs as well as improvements in quality of care.
This ability to drive tangible results, which has led to growth within our network as well as new partner additions, including some of the most sophisticated national payers.
Lastly, our continued focus on efficiency and cost improvement has led to margin expansion across this year and has allowed us to meet our objective of generating positive cash flow. This past quarter ahead of our original timing estimates.
Positive cash generation as well as strong returns from the passport transaction well continue to strengthen our balance sheet as we head into next year.
Before providing a summary of the pipeline and some operational highlights I'd like to provide an update on the overall market environment.
Obviously, the pandemic has impacted geographic regions in different ways.
At the time of our last call or much fewer Cobra cases, and vitality is in Texas, and Florida and all the bounced back has reached crisis level and those stage, which is putting significant strain on local health care systems.
We're adjusting our response in terms of regional security and looking to enhance the pace at reach of our clinical support efforts, particularly for the most vulnerable patients.
From a macro perspective, we believe the impact on the overall economy, including pressure on state federal unemployment budgets, well likely cause purchasers of health care services to enhance their focus on cost and value.
We believe this will allow for opportunities to expand our payer and provider partner base. Its industry players look for value based arrangements to diversify their revenue models and reduced health care spending growth.
As we think about how this might translate to our core solution areas. We believe this market dynamic aligns well with new centuries value proposition and ability to deliver cost savings and quality care in a short period of time.
We believe that's one of the reasons, we're seeing strong pipeline momentum in the specialty care management area.
On the total cost of care management front, we feel that the market impact is positive on a medium term basis as CMS continues to roll out pathways to success direct contracting and other programs.
We're hearing from a number of organizations about the importance of having a dual financial model, including fee risk based arrangements as a hedge against utilization and pricing risk on the fee for service side.
Peers are also looking for provider partners that have the ability to manage delegated capitation arrangements, which can be an important driver of growth in this segment.
On the administrative services side, we anticipate the regional payers will focus on operational platforms that integrate clinical and administrative capabilities deliver demonstrably financial and operational improvements.
Prove their provider and member experience.
In terms of the pipeline, we remain on track with our projected range of adding six to eight new partners across the calendar year and maintaining renewal performance in line with last year.
We're excited to announce to new partners this quarter, which brings us to five for this calendar year.
The first is with the regional health plan based in the southeast New century health is fully lunch and providing comprehensive oncology and cardiovascular management services to our partners roughly 20000 Medicare advantage members, we look forward to exploring opportunities to expand the partnership over time.
Second we're also very excited to enter into an agreement with Molina, a national payer with a broad market presence and strong track record of delivering high quality service to well over 3 million members across the U.S.
Well, we will leverage new century specialty care management services for cardiovascular care to support Medicaid plan numbers in Kentucky.
In addition, we're excited to announce a new century will also provide cardiovascular care services to believe those numbers in the state of Washington, We're Molina already had several hundred thousand members and a strong presence in the market.
Well, we know plans to deploy in CHS care approach technology platform evidence based pathways in pure collaboration model in both Kentucky in Washington, starting in early 2021.
In cooperation with the team at Galena. He's century has an opportunity to improve health outcomes, while also driving more efficient care for patients.
Launching in two states represents an exciting opportunity and we're hopeful that we'll continue to expand across time.
Yes, our ability to ultimately deliver on our core value proposition across our three solution areas and drive results that led to the growth this year and that we anticipate over the long term.
First this century health is performing well in terms of driving provider adherence to its high value evidence based clinical pathways and there's also a highly focused on driving strong performance on key cost and quality metrics.
In addition, I'm proud to announce a team recently earned in CQH accreditation and utilization management, which we believe is a credit to the teams operational expertise and the strength of our clinical knowledge base.
Second on the Evolent health services side. The team has continued to perform well operationally in terms of its key member services provider support.
Call Center management activities after rapidly shifting and mobilizing resources to a remote model few months ago.
The platforms use of automation machine learning and they ally delivers a strong value proposition and differentiated offering using the administrative burden for providers and driving efficiency through an integrated solution.
The team is hard at work implementing its platform and services with our partner, Maryland positions care and we're on track to go live at the beginning of 2021 to support more than 200000, Medicaid beneficiaries in Maryland.
Third our Evolent care partners team continues to demonstrate a high level of performance in terms of driving engagement at provider practices.
Proving patient engagement and serving Medicare beneficiaries across the U.S.
Our provider engagement strategy is made possible by having aligned incentives, we ensure that independent provider organizations are rewarded for the value that they generate and can thrive in value based care.
Technology platform identify also plays a critical role in supporting practices with addressing their highest impact opportunities across their panel.
Because of our substance of experience working with Medicare patients across populations in regions, we know, which clinical programs and approaches will result in the highest yield an impact on outcomes and cost.
From Q1 to Q2 the team delivered five times increase in successful patient engagement using identify and our local engagement efforts with the provider network.
In addition, our analytics platform enabled us to identify unexplained variation in local practice patterns and partner with local position champions to drive measurable improvement.
Activities helped our physician partners to craft, a high value referral network to maximize cost and quality outcomes.
Finally, our care management programs continued to be a staple of our approach for Medicare and Medicaid populations.
Recently certain members of our clinical team published an article in the American Journal with managed care demonstrating the success of our care management programs.
The study evaluating other ones complex care program, which targets Medicare beneficiaries with multiple chronic diseases across five Medicare agios over a two year period.
The study found that hospitalizations were 21% lower and total medical spend was 22% lower for high risk beneficiaries, who participated in care management programs versus high risk beneficiaries, who did not.
Additionally, reductions were more than 40% among high fidelity patients those for whom the program was able to achieve the operational can't be eyes that we manage to on a day to day basis.
These are the types of results that drive significant value for payers and provider organization.
Through the ability to deliver high quality care and lower costs.
We also believe the significant financial turnaround at passport demonstrates the clean the value we can create when we bring our three core solutions together you know holistic population health approach.
Overall, we feel very good about our performance, thus far and are confident and meeting our key objectives for 2020.
We feel well positioned in the market in our ability to drive consistent growth.
With that overview I'll turn it over to John to speak about our financial performance on the quarter.
Thanks, Frank and good evening, everyone I Hope you and your families are staying safe and healthy during this unprecedented times.
Thank you for joining us.
Our second quarter results exceeded our expectations on adjusted EBITDA and cash flow largely as a result of strong performance across our customer base the strength of our performance based arrangements and our overall cost containment efforts the strength of our operations also translates to being on track to outperform the high end.
End of our previously stated guidance range for the full year.
Before going through our detailed results I wanted to give a brief update on the covert pandemic and its impact on our financials, which is modestly positive for Q2, and our revised outlook for the year.
As discussed during our first quarter earnings call, we're monitoring the pandemic across all areas of our business, but in particular in the three areas of membership medical utilization trends and liquidity.
On the membership front through June we have seen modest increases in Medicaid enrollments across select clients relative to the first quarter consistent with macro expectations during the cooking and Dennis.
These enrollment increases ramped across the second quarter and thus we're not in a meaningful contributor to our topline performance in the quarter.
That said with over 50% of our lives in Medicaid the continued shift towards higher Medicaid enrollment would likely be a net positive for us.
Turning to medical utilization trends as expected the disruption of care patterns nationwide during the quarter resulted in a reduction in overall medical utilization.
This drove a modest net benefit the economics of our performance based arrangements in the corner as expected with lower utilization, partly offset by expenditures made to enhance the accessibility of our services. During this important time.
Overall medical utilization across the country is largely rebounded from April lows, suggesting that this dynamic is largely behind us.
Finally, we've been focused on operational discipline, the priority on liquidity and financial sustainability, which resulted in a positive cash flow for the quarter ahead of our target date are reaching positive cash flow by this fall.
Now expect to be cash flow positive for the full year 2020.
Now let me take you through our results for the quarter before turning to guidance.
Beginning with our consolidated results adjusted revenue increased 24.2% year over year to 238.6 million.
Adjusted EBITDA grew to 9 million relative to minus 7.7 million in the same period prior year.
Adjusted loss available to common shareholders was minus 2.3 million or minus three cents per common share for the quarter compared to minus 21.4 million or minus 26 cents per common share in the same period and the prior year.
Turning to our segment results in our services segment second quarter adjusted revenue increased 45.1% 217.3 million up from 149.7 million in the same period and the prior year.
The increase was primarily driven by new partner additions and cross sell expansions within our existing partner base.
Adjusted platform and operations revenue accounted for 216.5 million or 99.7% of our total services revenue for the quarter compared to 147.8 million in the same quarter last year.
As of June Thirtyth, we had approximately 3.1 million lives on our full services platform, which excludes members covered by our light service offering.
Our average PMPM fee for the quarter with $22.12 compared to $14.16 in the same period, the prior year and $20.22 in the first quarter 2020.
Adjusted EBITDA remarks services segment for the quarter was 10.5 million compared to minus 8.8 million in the prior year.
Turning to our true health segment, we had premium revenue of 25.5 million in the second quarter down 20.2 million from the same quarter last year.
The drivers of this decrease are twofold first.
First year over year revenue is down due to exiting the reinsurance agreement you Mexico, how connections in the fourth quarter of 2019.
Slightly offset by membership growth within the individual federal employee markets.
Secondly, lower medical utilization driven by Cook at 19 restrictions year to date based the potential that premium rebates could be do based on minimum medical loss ratio regulation and the state New Mexico.
As a result in approximately 4 million dollar liability was booked in the corner.
True helps or an average of approximately 24000 members in new Mexico in the quarter up from approximately 17000 members in the same quarter of the prior year.
James expense as a percentage of premium revenue with 71% in the second quarter compared to 73.1% in the first quarter.
Adjusted EBITDA from true health for the quarter was minus 1.5 million.
As we discussed in our 10-K filed in February passports unsuccessful bid in the Kentucky managed Medicaid RFP indicated a triggering event it required us to perform interim impairment testing.
As of May 30, Onest 2020, we determined that one of the three reporting units in our services segment. The one which was most closely associated with the passport services had an estimated fair value less than its carrying value. That's resulted in a charge of 215.1 million it does not impact cash or our forward.
Financial projections.
Turning to the balance sheet, we finished the second quarter with 115.2 million in cash and cash equivalents and investments.
An increase of 28 million versus the end in the first quarter and principally driven by our adjusted EBITDA result, and efficient working capital management.
During the quarter cash provided by operations was 37.7 billion.
Cash used in investing activities was 7.6 million and principally comprised 6.4 million of capitalized software development expense.
Cash used in financing activities during the quarter was 6.7 million and largely comprised decreases to restricted cash account held on behalf of our partner for claims processing purposes.
Finally, as Frank mentioned to password health plan, which we account for using the equity method continues to perform ahead of our initial expectations of an overall profitable year.
Overall, we're pleased with our progress against our financial objectives for the year, thus far.
As Frank mentioned based on the strength of our revenue growth coming into the year. The success of our cost containment efforts and performance in our performance based arrangements with our partners. We now have strong line of sight into outperforming our initial adjusted revenue and EBITDA guidance for the here.
As a result, we're updating our full year guidance as follows.
We are forecasting total adjusted revenue was 995 million to 1.035 billion for the calendar year 2020.
The components of full year 2020, adjusted revenue are as follows.
We expect adjusted service revenue to be in the range of 900 930 million.
We are forecasting true health segment revenues 115 to 125 million.
We are forecasting intercompany eliminations minus 20 million.
With respect to full year adjusted EBITDA, we're now forecasting a range of 32 to 38 million.
For the third quarter, specifically, we are forecasting total adjusted revenue of 258 to 272 million <unk>.
Components and adjusted revenues in the third quarter are as follows.
We expect adjusted services revenues of 235 to 245 million.
We are forecasting true health segment revenues, that's 28 to 32 million.
We are forecasting intercompany eliminations at minus 5 million.
For the third quarter, we are forecasting adjusted EBITDA of 10 to 14 million.
With that I will turn it back over to Frank.
Thanks, John.
Oh, we close with a few words on our executive promotions and our focus heading into 2021 as you already in our press release effective October Onest sub Blockley, Hello, everyone and co founder and our current President will step in to the Chief Executive Officer role I will remain as executive chairman and attend.
To stay intensely focused on the business and look forward to continuing a very productive partnership which saw John and the executive team.
The timing of a decision was largely related to such demonstration of readiness to take on the Chief Executive Officer mantle based on its history of achieving business results is strategic vision in his unique compelling and highly effective leadership style.
My partner as president across the last decade. He has been a force in driving the overall strategy as well as demonstrating across all aspects of the business.
Board and I, both felt strongly but this was an opportune time for Sop to lead the next phase of the company's growth as we approach a billion in revenue this year.
The focused on growth across the core solution or is that SAP has been leading and orienting. So the market already for sometime now.
Well most of you know so well for those of you that don't he's been an absolutely inspiring leader of our management team since the very beginning as a co founder and has led the charge and building our national network of partners across the U.S.
That's helped establish and refine our go to market strategy as well as creatively leveraging M&A to further the differentiation of our key solution areas.
Stuff is also loved the new century health business since its acquisition in 2018.
I'm certain south will have a tremendous impact in his new role as Chief Executive Officer, and personally I'm excited to continue working with him and the team going forward.
With that it's my pleasure to turn the call over to shop and have him discuss our key priorities heading into 2021.
Right. Thank you I am excited and humbled to leave what I believe is a world class organization.
For the building on Franks legacy and to continue the strong partnership that you know I've had since founded the company together almost 10 years ago.
I like to highlight for business and strategic objectives that will be a key focus areas as we head into 2021.
These objectives aim to ensure that we both continue to build a company that drives transformative change in health care and strong shareholder returns.
First focus will be a theme.
We will remain focused on disciplined execution against the core growth strategy across new century health Evolent care partners and Evolent Health services.
The strategy will allow Evan to continue to scale, our services model with technology and intellectual property at the core of all that we do.
Second we will ensure that our operating cash flow profile and our capital dollars are focused and deployed on our core businesses and then we have the balance sheet flexibility to continue to grow profitably.
This work is highlighted by the expected return of capital from our passport transaction as outlined by Frank and John as well as the fact that we are projected to be cash flow positive in 2020.
Third.
Well, we will continue growing with providers, we are accelerating our work with the payer community as we scale the business and continue our leadership position in value based care.
Our work with payers Leverages all the capabilities, we've built over a decade and leans heavily on our credibility and expertise with providers.
And finally, we will continue to be a leading destination for top talent and we will continue to be a high performance organization.
He has built an incredible foundation for our culture and I believe that our team and culture will be a competitive advantage for many years to come with that I will turn call back to Frank to close.
Thanks.
Thanks to everyone for participating in tonight's call with that will end, our formal remarks, and we're happy to take questions.
Thank you.
Well now begin the question and answer session to ask a question you made press Star and then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing that Keith.
If at any time. Your question has been a trust than you would like to withdraw your question.
Please press Star then too.
Our first question today will come from Ryan Daniels with William Blair. Please go ahead.
Yeah Congrats.
Good for taking the questions from what color can you start with a little bit more on the Molina agreement, it's great to see that they're already expanding into new state, but can you give us a little bit more color about.
Expansion before.
Because even started and then.
As a follow up to that just any key things that they're looking at sea excess expanding into other markets whether its challenges in those markets are ROI from initial deployment. Thank you.
Yeah. Thanks Ryan.
It's been nice getting to know the Molina team across the last several weeks and what I would say is we've had an opportunity to get our clinical people together and go really deep on the new century clinical pathway is on the approach to managing both cost and quality we've learned to also.
So about how Molina approaches specialty management and I think there's been a really good fit.
With our approach and how they're thinking about those specialty areas strategically.
Based on that and with all the pressure that we see on managing medical costs, and a again, making sure that high quality care as being provider than what are complex areas.
I think based on that there was a lot of attachment to the.
The value proposition and a desire to get going early next year not only in Kentucky, but also a in a second markets.
You know as these things go you begin working together and hopefully things go well and we have an opportunity to deliver value for a molina. Its members higher quality care you know hopefully at a high levels of efficiency and then you know can expand that relationship.
Over time, so all I would say at this point is we really quick than our early conversations. We're excited that we have two markets to begin in early 2021, obviously focused on strong deliberating I think if that happens we're hopeful that will have an opportunity to expand the relationship to other markets.
Okay, Great can you talk a little bit about the sales investments, whether its sales and marketing or direct sales team behind the new century, that's obviously been strong growing assets seems like there's a lot of demand and.
Several large new customer.
Reallocating resources from the administrative services or other is to that.
And just give us a little bit of sales office Oh. Thank you.
Sure Ryan its second I can take that one so when we acquired new century. Initially there was a very small team in place than we have over the last 18 plus months reallocated. Some team members some of our stronger talent over to that business on the sales and marketing.
Inside and at this point I think the team as well staffed and they're good position than it's been I think part of the reason a that we've been able to accelerate the growth there over the last a couple of years.
[noise] [noise] what can move onto our next question next question.
Well come from Robert Jones of Goldman Sachs. Please go ahead.
Great. Thanks for taking my questions. This is Jack wrote off on for Bob I.
I wanted to ask about guidance it seems like the midpoint of implied Fourq you services revenue kind of below the midpoint of Threeq you guidance I'm just curious if there anything we should be aware of on cadence or attrition or maybe that's just conservatism on some performance based revenues or you're expecting.
Yeah, I know I see things in their Jack I think [laughter] <unk> nothing specific they were indicating there I think the range or that you see said when it comes.
Permit or flat quarter to quarter. We also do have some one time items that could hit this quarter it next quarter and and so that's what you're seeing there.
Got it makes sense and then you talked about potential expansion with his south eastern quite when you announced this quarter I'm curious what areas you'd be expanded again since you're already deployed both he century modules is this what geography, <unk> Medicaid or is that other apple at offerings to this client.
Yeah, I mean, I think what we've seen in a lot of situations as we start out in one solution area and then we see the opportunity to grow in two ways. One the client is investing in growth and as they add lives we grow with them many times.
We'll be in the same population area, but sometime a they will go into you know other populations, which would be either commercial or Medicaid and then also you know once we start working together an opportunity to bring our other solution areas to bear and that could be both in the.
Administrative solution area, where again, there's a number of things we provide in terms of clinical infrastructure. A and then also you know if they're looking at working within the physician networks are delegated risk or we can also use our total cost of care assets and capabilities to help support that.
So right now we're focused again as we are in any new relationship on delivering on the core of what they've asked us to do and then our hope is we build confidence across time and see the type of cross sell that we've seen across the past year, which is going to big source. So our growth this year and hopefully that will apply to our five new partner.
So we've announced thus far this year.
Got it thanks very helpful.
Our next question today will come from Matthew Gilmore of Baird. Please go ahead.
Hey, Thanks for the question and then congrats to SAP I wanted to follow up on on guidance. It looks like you increase the service revenue guide by about 65 million and that's mostly confined to the to the back half of the year could you go through what some of the upside drivers were and then as you think about 2021 that by the higher.
Based for this year impact that kind of mid teens growth target.
Hey, Matt its John.
Well, let me hit doesn't turn so as you look at revenue for this year.
I think as we indicated early on in next year. The possibility. If we could have some strong growth in the back half of this year.
What you're seeing now is that.
The full visibility into that rolling on.
And that comes from the new partners that we've announced this year.
So that's really the dynamic that we're seeing this year along with strong performance in our performance based arrangements.
As we look at next year and setting that up obviously too early to comment on 2021, specifically.
But certainly as we are able to build up our starting point.
That will increase our starting point for next year.
Okay Fair enough and then John one more I think that's probably fault Q2 that platform life tick tick down a little bit again, it's obviously not having a big impact on revenue, but can you just help us understand what caused that metric to go lower this quarter.
Yeah of course as did not unexpected or again is sort of indicated that are likely being the low threes.
Okay and in the middle of the year here and so consistent with our expectations I would expect it from here between now and the ended the year tick back up as we had some of the new go lives coming on that we just talked about.
Okay, great. Thank you.
Our next question today will come from Charles Rhyee of Cowen. Please go ahead.
Yeah, Thanks for taking the questions and congrats to Seth I'm, just wondering if all the little bit on on the passport.
Is it possible to kind of help us think about the revenue differential.
Between the services agreement passport, which expires at the end this year versus the the new century deal with many minutes starts next year.
Yeah, and then you know I think Molina talked about potentially closing the past work deal early upside potential in the fall here Oh, what kind of impact would that have for you guys this year or or anything like that.
Yeah, I mean first of all of the closing date does not impact our revenues for this year, we'll be providing our full suite of services through the end of the year. So.
The close date doesn't impact out in any way you know if you look out a the molina announcements both in Kentucky and in Washington.
You know will start those sometime early next year.
There's still a lot of work to do to understand what membership Molina will end up with in Kentucky, Oh, what the you know the financial analysis will reveal about the population and what the ultimate PMT EMS will be and then as you know a lot of her nch business.
This does ramp across time in the first year. So I would say safely between those two we can expect a couple points of growth.
In 21, Oh, I think that's safe to say and then we would hope that those expand significantly you know as we got to the back half of 21 and into 22, but that's our best guesstimate at this point, there's there's a lot of information we'll need to gather across the next 90 to 120 days before we have a sense of real revenue asking.
Much.
Okay. That's helpful and if I could just follow up on on the question you. We've talked a lot about new century [laughter], maybe in the core in the provider market hospital market and what are some of the dynamics going on obviously, there a lot of Denmark dealing with Covance right now, but that's one thing more broadly the shifted diabetes care. Yeah. Maybe you can just help us understand sort of the.
The general trends and teams and the provider side the provider side of the world I. Thank you.
Sure Oh and good question you first of all from a healthcare payer perspective people that are purchasing health care. It's obviously, a tougher economy Oh, there's a lot of focused on cost and making sure that you know premiums are efficient and so I do think your.
To achieve more pressure in terms of value based arrangements, which really are the best way to address health care cost increases. So we're sharing not in the market and I'd say from the full range of players that are out there from a physician perspective, you know they generally have had a.
Net cash flows as a result of cobot lower office visits in many cases, you know lower elective procedures. So there is an opportunity for physician organizations that are efficient to move to risk based arrangements and to do so very profitably and so we are seeing if you just look at general demand.
From physician organizations that we're talking to a we're seeing increased interest on demand, what we do and potentially working together there still are a lot of issues that need to be sort it out with CMS in terms of their hcl programs everything from beneficiary alignment.
Quality report reporting how they're going to handle payment methodologies and co bid. So you have organization sort of step forward and said look we want to move in this direction one ways through CMS programs, we need a little more information, but we want to prepare and then second obviously, it's taking delegated arrangements.
From a local payers, which we support and began there you don't really have to wait for various policy decisions and so I do think we'll see more in terms of delegated arrangements, both with our existing base, but also a in attracting new physician groups for health systems. You know, it's it's the two canoeing.
You got a lot of them.
Hub largely relied on fee for service as the base of their economic model a that's generally hurt them in this recent period and I think there's an acknowledgment that having dual financial models. If they can be well managed is an opportunity to hedge and so if you think about health systems.
I've lost a lot of a volume cash flows been impacted moving towards a more substantial participation Medicare.
Potentially Medicaid risk is surely attractive and we are seeing more activity there, but primarily I would say we're seeing it on the position side, we're seeing a lot of pressure from those paying for health care. It takes a little time to cascade through the system, but I think we'll start to see the impact of that as we get towards the middle of 21.
Into 22.
Great. Thanks, a lot guys.
Thank you.
Our next question will come from Richard close of Canaccord Genuity. Please go ahead.
Great. Thanks, congratulations to all.
Just curious maybe bigger a follow up on a Charles' question I'm passport I think it was 22% of revenue in the first corridor do you have a what it was in the second quarter or for the first half total.
And I think it would be slightly less than that I think it'd be slightly less than not given.
The revenue growth, we thought on the other side and it's been we've had a little bit of membership increase there, but it's been a largely stable John feel free to out any detail for that.
Yeah, it's the same ballpark.
Okay, great. Thanks, there and then so maybe if you could dive in a little bit deeper on the four strategy are you had or four point there in terms of accelerating work, but the payer community is there any additional details that you can give us on that what exists.
Actually or are the intentions there.
Yeah sure Richard Thanks for the question. So you know since we started the of once we've really serve to this bridge between the the payer and provider community from the starts.
And.
Overtime, we've done a lot of work with providers and then that migrates to a ceos or other models up to the payer community of late you've seen a lot of announcements from us starting with the payer and ultimately working with the provider community the capability in the middle to engage physicians.
To change the way health care is delivered deliver higher quality lower cost care that all remains exactly salmon, but as you sort of seen across the last 12 months, we've had I'd say, a disproportionate share of announcements with the payer side and sort of the starting point for these relationships.
And I think what we're finding particularly with new century, but just in general that you can continue to accomplish a lot of the same work with the same capabilities, but the actual original contract starts on the payer side and often those organizations have you know slightly more lives a little bit more scaled out of the gates and some of the provider organizations and so.
So it's it's been a nice way for us the scale and grow and I think the statement is just sort of saying we plan to continue that I'm again doesn't really change what we're doing in the middle as the bridge and it certainly doesn't.
Have any implication for the fact that will still also in certain cases start with a provider health system are often the independent physician group as we do with of what care partners, but they could go to market sales side of what we do is a has shifted a little better than what kind of continue to be a little bit a heavier weighted in that direction as we had four.
Okay. So it's not like adding additional services to the payer community. It's just going with what you have verde and unfold there.
Correct, and it's sort of making it clear that we're finding a fair bit of success. There. When we started this no first announced this around the new century acquisition. It was new for us and it's a it's been a an important part and we just stating we plan to continue continue down that path right.
Great. Thank you I mean, and I'd say, just a out I mean, if you if you look at the penetration.
Within the total opportunity in oncology and cardiovascular services, just within our existing client base. It is a tremendous growth opportunity assess said with what we have today and so we obviously want to take advantage of that and grow off of that exist.
Getting base at the same time, a there are a lot of extensions and additional things we could do within those specialties and also in new specialty areas that surely would fit the strategic vision that's up laid out. So the nice thing is we've got a lot with what we have we've got some nice extensions, we can do off about any huge penetration potential.
And we can also look for opportunities for other specialty areas that makes sense given the feedback we get a in our existing relationships.
Great. Thanks.
Our next question.
Today is from Sandy Draper up Suntrust. Please go ahead.
Oh, thanks, very much and I'll Echo my congrats to you Seth as well as to the whole whole team I guess, maybe just following up on this line of questioning about payers and providers and as you're doing more per day is one of the payers one of the things that you guys talked about a lot I'm going to go way back to the IPO. An early days was yes pretty much sole focus on the pro.
Fighters and you were in the can't put the <unk> provider.
And you know she are doing more payer work.
Have you had any conversations with providers, where there are like yeah, but now that you're starting to pay or can't we're not sure you're really not working for US anymore. How do you manage that relationship where you're working with providers and payers and potentially at times. It may be some some bumps how do you how do you deal with that.
Yeah, I would say that we know we're gonna be effective if the relationship works for both the payer and the providers that are participating and that's true in any relationship where your delegating risk, where you're asking providers to take a more active role and managing care you know it has.
To be the right arrangement there has to be a collaborative philosophy. There has to be alignments and we will only work in situations with payers that are committed to that philosophy and I think.
The fact that you know providers recognize that for them to get scale in value based care. They need lives that payers have a lot of lives and then if they can have an evolent you know bridge the relationship. So they know they're getting reasonable terms, they know that they're going to get delegated appropriately the clinical functions that are necessary.
For them to perform a that there's a fair balance that allows both of those groups to work together very collaboratively. So we haven't gotten pushed back because we have not moved away from our philosophy to make sure. We how about alignments in any relationship that were in between pairs.
Providers and as a result, I think that's why you've seen the growth on the pair side or what it's allowed us to do is go exactly to where our lives exist. Today, you know under managed care under you know value based relationships and therefore get our provider partners to scale and so I think.
Spend a very effective strategy. It obviously diversifies our revenue base, we're not dependent on the market moving we're going directly to a place in the market word exist today and yet we're serving as a catalyst.
In a place where it's been difficult sometimes for payers and providers to work together effectively because we're bringing a philosophy that that really creates that alignment and make sure that these relationships all from one work.
Great appreciate that that's helpful commentary Frank.
And then maybe just a quick follow up for for John When I look at the expenses and I'm, primarily not as much folks on the claims expenses because I understand why that's down but I look at the cost of the core evolent as well as gionee down fairly notably sequentially can you remind me. Besides just the normal cost controls et cetera.
Are there any sort of expenses that you are I can't remember if you took some things off the table that when things get back to normal you're going to bring back in there to step up in expenses like I can't remember a few you know their pay cuts anywhere for one K Max things like that I just can't recall, if there were expenses that are not there now that once it gets back.
To normal you will turn back on.
Hey, Sandy good question I think fundamentally what you're seeing here is just the result of.
The focus that we've had on driving cost efficiency year over year I think if you look at the comparable quarter last year. Our that's DNA line is down 16 million and that's that I would indicate that the real cost reduction.
That is sustainable.
Obviously, there are always ins and outs from working capital, but what you're seeing in the numbers as I said the result of that work that we've done.
Great I appreciate it thanks.
Thanks.
Again. It is star then one to ask a question and our next question will come from.
I'm Samuel uptake P. Morgan. Please go ahead.
Hi, guys. Thanks for taking the question maybe just following up on that that margin question. You know you've done a lot of work on managing expense base. So I've growth returns to a mid teens revenue run rate going forward, how should we be thinking about the piece of margin expansion and how much of that is going to come from leverage persons further expense control.
Annie Good question. So I think what we've generally thought of in terms of multi year margin expansion opportunity here as the ability to add a couple points of adjusted EBITDA margin a year.
From both of those Leathers said, let her a being growth and lever beeping.
Ed Ed cost efficiencies through automation and another wise I think we continue to see both of those levers being important as we move into the future.
That's really helpful. And then maybe one you know it seems far away, but as we approach November do you see any potential disruption to the momentum you've spoken about you know around value based care. If we were to see changing the administration.
Oh, we don't I think.
The good news.
For us is that what we saw.
Obviously going back to the Obama administration was a real commitment to value based care to a lot of the principles that started with the early a C. O programs. We then had a pause when the new administration came on and as you know there was some Tom alts with a director of HHS. So there really was.
As a pause on the market, but now what we've seen as a full commitment.
Value with partners and success with direct contracting with a lot of the things be administration has supported so I think we can say that it is a bipartisan agreement that fee for service payments in Medicare is going to go away in a under a reasonable period of time. So we're confident.
Either way, we're gonna see support for value based care programs and then remember what we just talked about earlier was the diversification of the revenue base to the existing.
Payroll lives that exist today also is a hedge if there were to be some interruption for some reason, we don't see that happening, but that's the whole point of a more diverse revenue base that really allows us to drive you know pretty consistent growth. We believe over the medium term with existing solution or is that we have.
Very helpful. Thank you.
Thanks.
Ladies and gentlemen, this will conclude our question and answer session and at this time I'd like to turn the conference back over to Frank Williams for any closing remarks.
Well. Thank you everyone for participating in the call I know we have some.
Opportunities both through some virtual conferences coming up on.
Individual meetings virtually to interact with many of you when we look forward to it and again appreciate your participating in the call. Thank you.
The conference has now concluded we thank you for attending today's presentation and you may now disconnect your lines.