Q1 2021 Evolent Health Inc Earnings Call

Welcome to evolution Health earnings conference call for the quarter ended March 31st 2021.

A reminder, this conference call is being recorded.

Hosting the call today is Mr. Seth Blackley, Chief Executive Officer of Avalanche Health.

This call will be archived and available later this evening and for the next week via the webcast on the company's website and the section entitled Investor Relations.

Here is some important introductory information. This call contains forward looking statements under the U S Federal Securities laws.

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 on 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 Inc.

Formation on the company's results and outlook. Please refer to its second quarter News press release issued earlier today.

As a reminder, reconciliations of non-GAAP measures discussed during today's call to the most directly comparable GAAP measures are available on the company's press release issued today and posted on the Investor Relations section of the company's website IR Dot Evelyn health Dot Com and the 8-K filed by the company with the SEC earlier.

And today.

At this time and I will turn the call over to the company's Chief Executive Officer, Mr. Seth Blackley.

Thank you and good evening on.

Seth Blackley, Chief Executive Officer of Ebel, and health I'm joined by John Johnson, Our Chief Financial Officer.

I'll open the call. This evening with a brief summary of our recent results, including an update on the key themes of our strategic plan and momentum and the market.

Afterwards, I'll share highlights from across the business and how our differentiated solutions drive value for our partners. I'll, then hand, it to John to take us through a more detailed financial review of the first quarter results as well as provide second quarter guidance and as always we'll be happy to take questions at the end of the call.

In terms of the financial overview and results for the quarter total revenue for the quarter ended March 31, 2021 was $215 $1 million.

Adjusted EBITDA for the quarter ended March 31, and 2021 was $14 $9 million.

As of March 31, 2021, we had approximately $3 4 billion and lives on the full platform plus an additional $8 2 million lives on our new century health technology and services suite platform.

Overall, we're pleased that we exceeded our key financial objectives for the quarter and we are increasing our guidance for 2021 Accordingly, as John will discuss later.

Now I will provide an update on progress against the three themes of our strategic plan.

With respect our first theme of strong organic growth, we continue to be on track towards our target of mid teens organic topline growth as we utilize our value based care solutions to improve the cost and quality of health care.

Payers and risk bearing providers continue to select government based on our state of the art capabilities and our ability to improve savings and outcomes with high cost high risk members and patients today, we're excited to announce two new partnerships that will contribute to our near term goals and create the opportunity to open new avenues of growth.

Okay.

First new century health has entered into an exciting new agreement with a leading network of risk based primary care clinics.

This partnership will ensure high quality specialty care for this risk bearing primary care groups patients, who are diagnosed with cancer and heart disease through the application of new century's health pathways.

New century will be providing medical oncology radiation oncology and cardiology services and two large markets and we anticipate go lives from both geographies later this year with plans to explore additional opportunities and the future.

We are particularly excited about this partnership for several reasons first the organization is a high growth National organization and this partnership creates the opportunity to grow with them overtime and.

Second this relationship more visibly opens the growing risk bearing and primary care segment for US we believe that the intersection of primary and specialty care has the potential to unlock clinical value and create a better experience for patients and providers.

And if I can do partnership we're announcing today is a signed agreement with a large health plan for everyone's health services solution is long term partnership covers multiple markets and lines of business and it would be and importing contributor for us and 2022 and beyond.

Additionally, during the quarter, we're pleased with our same store growth efforts, including adding cardiology services to an existing new century health partnership and South Florida.

We continue to see strong momentum and our pipeline and we see our solutions are increasingly in demand and the market.

Additionally, favorable trends and the overall macro environment or accelerating the adoption of cost reducing measures and the administration's commitment so need to control health care costs will continue to be a tailwind for our solutions.

With the two new partnerships announced today, we welcome four new partners. This year and are on track towards our target of six to eight new partnerships for 2021.

Further and if you look back across our last 20, new partner announcements, we see good balance across our solutions with seven from new century, seven from Evelyn and care partners and sex from everyone Health services indicated nice balance across the portfolio should we expect to continue into the future.

Yeah.

Regarding our second strategic theme, we continue to drive expanding margins towards our mid teens goal with Q1, adjusted EBITDA margin of six 9% and increase of one 6% over 2020.

We're seeing nice traction and all three areas of our plan, including lowering our unit costs through targeted initiatives, new customer maturation and driving the benefits of scale across our business.

And finally with respect our third thing and want to provide and update on our portfolio and efficient capital allocation.

The previously announced Miami Children's Health plan asset sale transaction closed at the beginning of the month and the sale of true health, New Mexico close at the end of March with the completion of these two deals we have successfully exited the health plan business and monetize all of our health plan assets.

And on our commitment to exit this business and has had a positive cumulative impact on our capital.

Going forward on capital allocation will be focused on accelerating EBITDA within our core services business.

In conclusion, we continue to make significant progress on our three key focus areas.

Turning to our business updates last quarter, we discussed the differentiators that drive payers and providers to select and won't care partners. This evening, we will showcase our specialty management platform new century health.

Before we go into depth and new century, I want to highlight the achievements and recent activities of our other two solutions and care partners and everyone Health services.

First I won't care partners, our total cost of care management offering continues to perform well and represents a large strategic opportunity.

And Q1 2021, our network successfully address 13 times more panel inside opportunities and our proprietary clinical technology platform identify compared to Q1 2020. These.

These opportunities allow physicians to be more outcome centric by identifying and prioritizing high yield critical interventions.

Furthermore, our supportive evergreen programs such as M. S. S P pathways to success.

And contracting with private payers continues to deliver strong results for <unk> and our partners.

With respect to Medicare and new.

The administration is committed to new payment models, and we will carefully evaluate and participate and the ones that we believe have the right long term economic profile for them on.

Using the administration's pause or direct contracting as an opportunity to weigh in with CMI and other stakeholders.

And on ideal model features and to provide seem to my with new ideas to support value based care.

Overall across both Medicare and private payers, we continue to see a very bright future and strong tailwind forever like care partners business as previously announced we already manage close to $1 billion and premium benchmark and well with other public assets and this segment.

And importantly, we see opportunities to add more markets as well as more lives and existing markets through additional commercial and Medicare advantage contracts market expansion and investments and product development such as our previously discussed panel inside tool will increase our impact on the lives are community based partners manage over the next few years.

Second everyone health services, our administrative simplification offering continues to invest and modernization so low.

And the burden and cost on payers and providers.

And enrich the patients' lives and we serve.

We continue to see that our commitment to our partner's success and our industry, leading integrated administrative and clinical platform, our differentiators and the market.

Recently, everyone health services and partner, Maryland, physicians care implemented and outreach strategy to create awareness and assist with access to the COVID-19 vaccine.

Three pronged strategy utilizes text and email campaigns practice outreach and care management intervention to ensure members are fully educated on the vaccine and have access to the vaccine.

Membership and prioritize based on the state of Maryland rollout schedule, along with an assessment of the memberships most at risk sub populations, including those with chronic respiratory disease cancer diabetes and stage renal disease and those currently receiving hemodialysis.

Investing in automation and operational efficiency will continue to be a focus for us across 2021 and in the years ahead, the largest category out of the one trillion dollars and waste and U S. Health care is actually administrative spending and our team and tends to drive further cost savings and high quality outcomes through product innovation such as our.

First and module architecture robotic processing and AI platform launched in 2020 as part of our cost efforts. These savings should your margin prevalent and they also help accelerate our sales differentiation and the marketplace.

Finally, new century health continues to grow in terms of new business and same store growth.

The high cost and high complexity across both oncology and cardiology continue to underpin the strong demand and the market for new century services.

We've also experienced a recent uptick in engagement and health plan and risk bearing provider prospects increasingly able to see the light at the end of the pandemic Tal.

Additionally, new century health continues to invest and new programs and technology to further support our partners and their patients from members I want to share three of those enhancements with you here.

First and January new century launched several new services to health plans optimize their drug policies, including new drug reviews and model the impact of their prior authorization policies.

Next we're also excited to announce the launch of our new genomics module and new century health to help oncology teams and select the most appropriate tests and.

This module will enable us to deepen our preferred pathways.

And encourage the use of broad panel next generation gene sequencing and specific clinical situations, where there are clear benefits.

And the module and enables us to incorporate the latest evidence and our pathways with an emphasis and supporting treating oncologists and their patients and increasing the confidence of the patients receive the best therapy and with lower risk of wasting time and money on a failed first line therapy.

Beyond helping to ensure that subsequent cancer therapies are appropriate given the patient's genetic mutation.

This initiative will also identify candidates for clinical trials.

And with the accelerating rate of science and new treatments. This module and strategically critical for the future of new century.

And finally the team has also been hard at work and the development of cardiology enhancements and cure pro including simplified Q&A service first architecture expansion of pathways and the ability to include add on services and our primary request.

The cumulative effect of these new enhancements and addition to our state of the art platform. We believe will allow us to see a strong impact from our solution.

To give you a sense for the impact of the platform and want to share how we believe the new century health platform impacts patient care.

Often when we enter a new market, we find that the rate of adherence to our level. One pathways is in the mid 60% range and that means that three or even four patients attitude and we believe are not receiving optimal care.

Once we've been live and a market for 12 months that figures Austin and the high 70, percents or even 80% range, a very material improvement and the care that patients are receiving let.

Let me bring this to life by giving you one real example of how we increase the pathway adherence and therefore, the quality of care for the patient.

Recently, new century health and the normal course of our service to our payer clients and the treaty and oncologist reviewed a complicated cancer case from one of the patients that we support.

Jan colleges to diagnose the patient with what is called large b cell lymphoma.

And as part of that diagnosis.

Oncologist requested approval from new century to treat the patient with a drug called Kim Ryan.

Which is a brand of car T therapy made by Novartis.

After our nurses and oncologists consulted on this case they found that the patient had been misdiagnosed and in fact, the patient had a different form of lymphoma called CNS the drug requested Cambria.

Contra indicated for CNS lymphoma, and would have made the patient incredibly sick or possibly could have been lethal to the patient.

Thanks to our team at new century, we were able to intervene worked with the treating oncologists and adjust the diagnosis and treatment for the patient.

As a result, the patient's outlook materially improves.

And as a side effect the cost to the payer will likely be 500000 to $1 million lower across the next 12 months.

I share this story because it inspires me.

And my fellow everyone tiers, who come to work every day wanting to make an impact there's a family that's much better off today because of our work and the health care system now has up to a million dollars of additional funding to help other people through lower insurance premiums and investments in care management and the like of.

Of course. This is just one example of the kind of interventions that we made every day across all of our patients that have on and new century.

And finally.

While we're very proud of the work, we do to materially increase pathway adherence and help patients and the way I. Just described we can go further on.

Our long term goal is to move both cardiology and oncology pathway adherence over 90%.

And that ambition as a roadmap for how we will continue to invest but also an indicator for just how big of a future opportunity. We believe lies ahead for new century health with that I'll turn it over to John to give additional details on our financial performance as well as provide Q2 guidance.

Thanks, Seth and good evening, everyone and we're pleased with our first quarter results with our key metrics coming in ahead of the guidance, we communicated in February and building upon and momentum carried into the year with.

Today's new partnership announcements, we continue our growth track record and I'm happy to report that we're ahead of plan on our cost reduction efforts for the year.

Finally, as Jeff mentioned at the beginning of this month, we closed on the final piece of our asset divestiture plan and achieving our stated goal to divest all health plan assets and focus on our core high growth services business.

In terms of our membership we had approximately $3 4 million lives on a full services platform as of March 31, 2021 with an average P. M. P M P and $19.72.

Our new century technology and services suite ended the quarter servicing approximately $8 2 million lives with an average P. M. P M feet or 43 cents up from $6 2 million members and Q4, the increase and our technology and services suite lives was largely driven by launches across additional markets for national payer contract.

Including Centene.

Revenue in the quarter was $215 1 million with both membership and performance based revenue exceeding expectations are.

Our adjusted EBITDA results of $14 9 million with likewise, driven by continued strong outcomes and our performance based arrangements.

Adjusted loss available for class, a common shareholders was minus $1.2 million or minus one cents per common share for the quarter compared to minus <unk> 6 million or minus one cents per common share and the same period of the prior year.

Before I turn to our first quarter results by segment just a quick reminder, with the divestiture of true health, we have reorganized our services business into two reporting segments going forward those being clinical solutions, which includes the new century health and Evelyn care partner solutions, and Evelyn Health services, which houses our administrative simplification.

And solution and certain supporting population health infrastructure.

In addition, we will report expenses and our corporate overhead as a separate segment.

True health financials are reported as a discontinued operation held for sale beginning with our Q1 results.

Within our clinical solutions segment revenue and the first quarter increased four 2% to $132 million up from $124 9 million from the same period of the prior year.

This increase was primarily driven by new partner additions, including Florida, Blue Medicare neighborhood Health plan, and Rhode Island, and little health and Molina as well as expansion into new markets within current technology and services suite partners adjusted.

Adjusted EBITDA from our clinical solutions segment for the quarter was $16 million compared to $7 million and the prior year.

Turning to our Evelyn and health services segment first quarter revenue decreased 12, 1% to $85 3 million down from 97 million and the same period of the prior year and largely driven by the run out of services for passport, partially offset by new partner additions, including Maryland physicians care and.

Adjusted EBITDA from our ethylene and health services segment for the quarter was $5 9 million compared to $4 8 million and the prior year.

And this growth and EBITDA, despite the disposition of passport to Molina demonstrates the impact of our ongoing efforts to drive significant cost reductions across our operating model.

Finally, adjusted EBITDA and corporate overhead improved 11, 6% to minus $7 million up from minus $7 9 million and the same period of the prior year and up from minus $9 6 million sequentially versus Q4. This.

This improvement was the result of executing on our commitment to reduce overhead while still delivering strong operational and clinical performance for our partner organizations.

Turning to the balance sheet, we finished the first quarter with $236 2 million and cash and cash equivalents and investments, including $95 6 million and cash held and regulated accounts related to the wind down of passport.

Excluding cash held for passport. This represents 146 million a decrease of $95 3 million versus the end of the fourth quarter and principally driven by the repayment of our term loan with Ares Capital Corporation with the associated warrants granted to areas from our December 2019 financing also retired and cash.

That use of cash was partially offset by a total of 43 million and cash inflows related to passport health in line with expectations of our overall capital return range of 132 $170 million cash.

Cash deployed for capitalized software development and the quarter was $5 9 million.

We have no outstanding senior debt in place today, and aside from the $26 $7 million balance on our 2021 convertible notes, we have no other debt maturities until 2024 weeks.

We continue to expect adjusted EBITDA less capex to be positive for the rest of 2021 and beyond.

Which provides us with the opportunity to invest and differentiating our core services, while maintaining a strong balance sheet.

Overall, we are pleased with our progress against our financial objectives for the year, so far and are increasing our guidance accordingly.

For the full year, we now expect total revenue to be in the range of 845 million to $880 million and.

And we are forecasting total adjusted EBITDA of $42 million to $52 million.

For the second quarter, specifically, we are forecasting total revenue of $210 million to $225 million and we are forecasting total adjusted EBITDA of 10 million to $14 million.

With that I will turn it back over to Seth.

Thanks, John.

In summary, we continue to make progress against our strategic priorities.

One.

Driving strong organic growth and achieving our mid teens growth target to scaling the business to drive enhanced margins.

And three efficiently allocating capital.

We feel confident about meeting our targets for 2021.

And and our unique ability to improve the health of the communities we serve.

We are proud that <unk> quality and cost and proven solutions were deployed across more than $11 6 million lives. During Q1, and we're excited to continue to grow that reach.

Thanks, everyone for participating and tonight's call with that well and our formal remarks, and we're happy to take questions.

Yeah.

We will now begin the question and answer session.

And I ask a question you May Press Star then one on your Touchtone phone.

And we're using a speakerphone please pick up your handset before pressing the keys.

And can withdraw your question. Please press Star then two.

Our first question today will come from Ryan Daniels with William Blair.

Okay.

Yeah, guys. Thanks for taking my questions. Congrats on the strong start to the year I wanted to hit the new partnerships I know, you're not naming the partners, but I'm, hoping to get a little bit more visibility.

And one on the risk bearing organizations.

First off what would trigger a potential expansion of that into other markets I don't know, how many there and but I think he mentioned and you'll start with two is it just going to be results and those markets are there kind of savings objectives and would trigger expansion across their book of business.

Hey, Ryan, Yes, it's up happy to take that of course.

Well I'd just say first of all we're excited about both the partnerships, we think theyre going to be important contributors less for 2021, but really in 'twenty, two and beyond and.

Excited about both of them on the risk bearing primary care front.

I think it's important for a couple of reasons Ryan.

It's obviously, a very fast growing segment in general and there are multiple players some public some private.

And this segment and we think going to be and a really important part of the health care ecosystem going forward, just opening up that channel more formally.

As big for Us and we think it'll be important and exciting and particular entity that is our partner here is also fast grow and themselves and so I think there'll be a big opportunity with them.

To your question, we're starting in a couple of markets, but I think and over time, it's going to be doesn't and plus in terms of market opportunities and.

Well, we'll move into those markets based on performance and our first two.

Just like with with a lot of our other partners, we're very focused on execution delivering for them out of the gates and then.

You now have the opportunity over time to grow and we do think there'll be opportunities there on.

The other partners.

It is also exciting and important and it's a lot.

A large health plan and multiple geographies.

Multiple lines of business I think should also create some some growth opportunities.

And with both of them and we're excited I think the other fact point that that is sort of relevant to your question. Ryan is from Q1 of <unk>.

Q1 of this year, we had 29% organic growth when you hold out the divestitures and we had we grew obviously grew 21% last year. So I'd just say in general.

We feel really good about the environment. These two new partners there'll be kind of right in line with that and we continue to feel good about the path ahead.

Okay and I appreciate the color on and then on the the large health plan.

Is there any weighted to offer some granularity if not on the potential size of that for 2022, and maybe how far that.

Gets you and maintaining the mid teens growth target all else equal and it sounds like a potentially larger deal given its larger plants and several states multiple lines of business and they're buying and a broader solution set from you. So I assume it's a higher P. M. P. M. So just can you talk a little bit about you know.

And the potential there.

Hey, Ryan it's John I'll take that one it's a good question.

And that it is a fulsome PMT and given the suite of services and the scope of what we'll be doing for that plan and.

And we're excited about the partnership and that way.

And it's very helpful for us as we're thinking about setting up next year, obviously still pretty early in the year here.

Based on where we are today and continue to feel quite good about that mid teens range.

Okay Fair enough and then final one and I'll hop off just going back to the well.

And it's bearing organizations, obviously, we've seen a lot of growth in that market. It's a new opportunity for you. So a couple of questions number one is that the first provider group you've signed up for new century, given that that's traditionally been a payer focused offering and then.

The follow up there is that something that you guys got together strategically and discuss did they approach you or was it an RFP did you develop a new sales team to go after this.

How are you approaching that market because it does seem to be one, especially with the.

And my plans and all of the MAA enablers are direct models, that's going to be a high growth area and that there's a lot of interest and probably a lot of need for solutions like yours, given the cost and exposure to those two disease states and thank you.

Yes, yes, and no Brian happy to take that one and so I would just say historically, yes, we've done some things with providers and new century, and we were part of the oncology care model, which is part of CMS and we have done some things in the past I do think we.

Through our work with Apple and care partners frankly, but also just more broadly seen the opportunity to.

To integrate with primary care and use that as a channel. It is strategic for US we decided it was strategic and we have gone after it and a strategic way we haven't created a separate sales force because it's a lot of the same competencies, but we have approached it and a little bit of a different way and I think the product integration opportunities Brian.

Or really interesting right. When you have the patient very deeply integrated with the primary care physician. The integration you can do and specialty is great for the patient you can actually I think drive savings that are higher than we normally get because of that integration over time and it's.

What I would call this and exciting product space for us So hope to see a lot in this area and the future.

Okay.

Our next question comes from Robert Jones with Goldman Sachs.

Alright, Thanks for the question and maybe just a follow on there and just because obviously there was so much focus on on new century on this call and and clearly the when and the risk bearing clinic space.

Are there other interests from your Evelyn and care partners today to pursue this and and did you think you kind of needed to get.

And one kind of marquee went on the board that could really accelerate.

And what might already be a pipeline for other risk bearing clinics to want us to want to turn on new century.

Yeah.

Yes, Bob I think so definitely they are going to be a lot of other I think opportunities here and there the public companies that we all know about but there's a lot of risk bearing primary care.

Out there and around the country that we can also support and different ways I think the oncology care model as a path and this works best and <unk>.

Segments like Medicare advantage or the commercial population, where you have the prior authorization lever that comes from the payers. So the delegation of claims down delegation of Av.

Care down to a physician group and then and turned to us around the specialties and chain that really works well for the Medicare CMS programs, DCE and see them I won't care partners.

CMI programs and those sorts of things you don't have the authorization levels, it's a little bit different but I think theres also going to be opportunities there as well. So just in general to your question. Ryan's question I think there's a whole deep vein for new century around provider and we haven't haven't spent much time, there and now that we have.

First very significant partner and they're in this area I think it gives us a chance to accelerate there.

Got it got it no no that's helpful and John I guess, maybe just on the guidance.

Revised upwards and I, just wanted to get a little bit more of what informed that range. Obviously the quarter was good was there anything else you're looking at across the year differently than the previous update it and then maybe specifically you know delayed redetermination as it relates to Medicaid partners or anything around the special open.

And period isn't really true exchanges, just just trying to get a little bit more of some of the moving pieces behind the guidance range.

Yeah totally so.

Obviously, we beat in Q1, and so part of the raise is acknowledging.

The strong performance there and if you look at the two components of the beat on the topline and.

And I mentioned and that the prepared remarks.

Part of that certainly was driven by higher than expected membership.

And that contributes to tightening of our range on the top line for the rest of the year.

Certainly if.

We are.

Hi, Medicaid percentage in terms of our mix and.

So the Redetermination and delay or is it is extended then that could have some positive.

The impact on our topline.

And then on the bottom line.

And he can.

Principally and performance there driven by strong performance and our performance based arrangements and.

And taking that into accounts for the rest of the year as well.

Okay, great. Thanks, so much.

Yep.

Our next question comes from Sean Wieland with Piper Sandler.

Thank you very much one more if I could on the risk bearing primary care market.

We've is there any opportunities beyond maybe beyond new century, and maybe and Everland care partners at where everyone health services for that market.

Yeah.

Yeah, and I'm glad Sean I'm glad you asked that question and answers yes.

And we actually do some work already with everyone health services into.

Yes.

Primary care provider space I think on our relationship with <unk>, and New York, which we've talked about over time has a lot of.

Components and capabilities that would be and example of that and I think there will be others and some conversations that are ongoing today and the prevalent care partners.

Approach there show on really is to work with independent physicians, who want to look and feel like those risk bearing providers that we're all talking about and you know that are bumping along with their fee for service economics and want to transform what they do and and.

And do it first and foremost for the patient, but also the economic opportunity to do that surely they are seeing the economic opportunity and and lots of different ways. So I'd, just say that the pipeline for that and I won't care partners business to having those conversations with independent primary care.

And is very significant right now.

Great.

And you mentioned I think for the first time clinical trial recruitment.

Can you just touch on that a bit more what are you thinking about that and how do you have and monetize it.

Yeah, Shaun we have.

Not yet.

Entered that directly in terms of monetizing it and I think right now we view it as a service to the treating oncologists and that patient to make suggestions based on our network and reach and knowing that when you had the genetic mutation information on.

That is often the key to unlocking access to a trial right. So we are helping line those things up and certainly is also a business opportunity for us, but right now we're doing that as part of our kind of core value proposition to our client partners and the patients they serve.

Alright Super Thank you very much.

Sure Barton.

Our next question comes from Charles <unk> with Cowen.

Yeah. Thanks for taking the question.

I wanted to follow up on this and primary care can can you talk a little bit more about how does primary care and this situation use new century, like I understand how or at least on the way I understood. It is in the <unk>.

And as with specialists right and can help them understand that's treatment and understanding sort of the mutation and guide specialist decision, making how does how is it being used here by primary care partners here and what that particularly on the risk bearing.

Yes, Charles it's a good question and it is similar.

In the sense that when a patient diagnose.

The new century team.

Works with the treating oncologist to make sure that the pathway is correct.

And if there's a need for change and that pathway being able to work.

With with the oncologist to change that pathway, which overtime as you and as we always talk about us and better for quality of that patient and also reduces the cost and so that and that way. It's very similar to what we do and I think it's an acknowledgment.

We see this all the time with primary care physician and the level of complexity and cancers too much to keep up with even for oncologists. So imagine how hard it is for primary care position. So I think having that extra layer of support for the patients that these these primary care groups wrap their arms around is big and I think the thing that's net new and different is it.

We do have an opportunity and part of what we're gonna be doing is integrating back with the primary care physician, meaning communicating back to the physician closing that loop and a way that you know.

It doesn't happen, Unfortunately enough and health care, where a patient goes into the specialty setting primary care physician doesn't exactly know what happens.

On a regular basis, and so being able to close that loop and often and when you think about imagine you have cancer right. It's not just cancer do you actually do need to coordinate the drug regimen and the care that patients receiving with other comorbidities mental health is highly correlated with cancer for and not surprisingly and so being able.

And to tie that back and are the primary care physician all the wonderful work Theyre doing.

And kind of a net new opportunity this year over and above what we normally do.

So in this case, when you're working with with risk bearing primary care is it that the.

And these groups are taking on new century, so that the other patient there.

And they're diagnosed with cancer before referring to them on to a specialist they're engaging with new century health to kind of guide the initial pathway hours or is this a is.

Is this helping guide the referral to a specialist because I would imagine I would think of as the specialist that would determine the treatment plan.

Yes, it's both so we have kind of and started a process again net new that we can't do normally which is around.

Directing the referral not all referrals for cancer and go through their primary care, but those that do.

We are going to be helping direct that using our data and information about who are the most efficient.

High value high quality oncologists, but also once the patient gets to that destination, whether through the edited referral that we might make or on their own applying the same methodologies that we always do a pathway support and effectively what we kind of colloquially referred to as sort of it's on.

Just like a BW second opinion right for that oncologist and we're also obviously continue to do that and these cases.

Okay. That's helpful and maybe if I could switch gears wanted to ask about passport with Molina. If I remember I think you were you sold it for 40 million and a part of that price was contingent on how many lives I'm only and retained I think Billy and to retain the bulk of those lives are so I would imagine you.

Captured the full purchase price and is there any remaining cash we're still waiting to collect Oh, you know on the runoff of lives.

Hey, Tom and Sean and.

And let me take those in order on the net member.

Membership purchase price in the first quarter, we received $23 million, which is 50%.

We've earned the second $23 million.

And is payable in Q1 of 2020 suits and totaled $46 million.

And that last $23 million.

And subject to a couple of.

And if these across this year.

And on total cash back and that part of the question beyond that and $23 million slug.

And that will come next beginning of next year and we are.

Still winding down the plan and.

And we will expect some additional capital back and part of that over the next couple of quarters.

Okay, and then last one from me on Molina, and I know part of the.

Agreement with Molina, and serving them in Kentucky, but there was talk of expansion into additional states is that's something that we expect this year and if so is that already in the guidance or is that something we expect at a later time.

Yeah, Charles and Seth I can take that and yes, we are doing work and Kentucky with new century. As you mentioned also the state of Washington.

And that was additive and then we're right now focused on doing a great job and does too, but we think there could be opportunities beyond those two as well.

Great. Thanks, a lot guys.

Our next question comes from and Samuel with J P. Morgan.

Hey, guys. Thanks for taking the question I was hoping maybe you could give us a little bit of a D. C update and now that we've got on New administration, we've been hearing from a lot of others that you know that maybe the environment a little bit more favorable for value based care. So just curious.

And your thoughts there.

And yes happy.

Happy to take that and when I think you know when.

And when we think about macro environment and the first thing we kind of think about as it is actually the private payer market.

And the risk bearing primary care groups or the M. C O's and there the macro environment is really good and we've talked a lot about that today and there's just a lot going on with value based care I think a lot of pressure to manage costs coming out of COVID-19 et cetera, et cetera, and in many ways. If you think about macro for us.

That's the 80% to 90% of of life for US is what happens in that segment and it's and a great place. There are a lot of these announcements are consistent with that with respect to the administration.

That's kind of upside to us the way, we think about it.

It is favorable to your point.

And a lot of commitment to value, we're very deeply tied and to CMS and CMI and spend a lot of time with them right now and the.

And the good news is it's been kind of accelerating since 2010 or 11 and even through the trough years.

There was continued focus on value.

Yes, I would say further acceleration under this administration.

And I think getting their ducks in a row with respect to what that's going to look like and we're providing a lot of input to that but we think that's a nice kind of additive piece for everyone over the years to come.

Great. Thanks, so much.

Sure and welcome.

Our next question comes from Richard close with Canaccord Genuity.

Yeah. Thank you I was wondering if you could just go into a little bit more detail on the new products or services that you were talking about.

With respect to genomics.

And I think the drugs and cardiology, just a little bit more detail. There I know you addressed the clinical trials with Sean's question, but if you could.

Yes, sure Richard Yes on the let me start with the genetics piece, because that and a lot of ways.

Talked about three things, but thats sort of the biggest of the three and you know.

The issue with genomics and cancer is that.

And there are more and more expensive drugs that are coming out that are very targeted towards specific genetic mutations but often.

And if you look at the data is that the companion genetic test.

Isn't ordered.

And there and and the therapy expensive therapies prescribed to patients who don't have the mutation or worst you have a patient who has the mutation and therefore would respond well and the therapy, but they have given a different first line therapy that might fail and you've wasted valuable time for that patient could on straight to the.

And more expensive, but higher efficacy therapy, so and.

And so the analogy would be oil.

Oil company and Youre drilling randomly without and Geo studies, you would never do that and you you really shouldn't be.

Diagnosing and prescribing therapeutics without the proper genetic tests now that space is incredibly complicated and there's a lot of gray areas and it takes a lot of interpretation and so we think it fits very well with what we already do and new century, right, which is take science and evidence and apply it to clinical situations.

The best interest of the patient and mine first but second looking at efficacy and cost and <unk>.

And today there is a smaller subset of drugs that are tied to companion diagnostics and genetic mutations and.

That's a savings opportunity today and if you go out 2345 years that number is going to grow a lot. So we want to be the market leader and what we're doing here and we think we are and adding this module I think is going to be really important.

Staying on that position and being able to drive the kind of quality care that we want to do so we're very excited about this and theres a very deep vein here.

Other couple of things are important too, but they are more around the edges and just to give you one of the two examples.

The ability to understand.

How how future drug pipeline, and how changes and that pipeline overlay with the plan's formulary would affect their cost and our ability to use that to help drive decision, making with a plan, which ultimately affects the cost and quality is another example, and it's almost like and analytics product that kind of overlays with the kind of work.

Flow product that we provide every day so.

And maybe more color than you were looking for but thats a little bit of flavor.

From a revenue contribution standpoint, so we're really talking fits.

Fiscal 'twenty, two or calendar 'twenty, two and beyond on.

And those new offerings.

Yeah, I would say, yes in general, but they can also show up and to other places.

Conversions and wins, even on the core product right. This is a value added thing that.

Even if we are not getting extra <unk> and PM for it. This year. It is important and exciting for a buyer and so I think it will show up as a support there.

Sooner and then the other thing it does is it drives the performance in terms of cost and quality and the right direction. So it also helps us on our performance side right of what we do.

Where we participated and the savings that you've created and that that could help us or cost this year as well, but in general it has a future thing, but it will help us this year.

Okay. Thank you.

Sure.

Our next question comes from Andy Draper with true is security.

Thanks, very much and congrats on the quarter.

Couple of sort of housekeeping questions.

One I just wanted to confirm John the guidance Youre no longer talking services revenue. So the guidance is really GAAP revenue. So it's not adding back the inner segment eliminations is very small on that but I just wanted to confirm that first.

Yes, Sandy that's correct.

True health is now in discontinued operations.

And our revenue services revenue to that plan is.

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Alright, I apologize for the technical difficulties there and.

Back to your question Sandy.

The true health services revenue is now between Avalanche and.

And right. So it's incorporated in the guidance and the rest of the year.

And going forward.

Sure.

Revenue. It is just the services revenue was true health and discontinued operations.

Okay. That's helpful. And then another sort of housekeeping and then and the new segment reporting the numbers line up a little bit differently than the old when you had reported transformation clinical and administrative solutions and the 10-Q and is that just the way you're presenting now or is there something else going on and just trying to think about how to.

And at times until the Q comes out time, and how you're reporting clinical and Avalon health services versus what you used to report clinical solutions, and admin solutions and <unk> and the FCC documents.

Yeah, Yeah. It's a good question so the prior method of reporting.

And I included some contracts that are managed now in our EHS segment as clinical contracts and pop health contracts.

And so that's part of the change there the SEC filings will be out very shortly.

So that will push the GAAP question.

Okay, Great and then one final one also probably pretty quick transformation services was obviously.

And we had a quarter I think on second quarter last year, whereas below $1 million and.

And how should we be thinking about transformation services and it's not a huge portion of the business any more but yes as a percentage and the total guide or is there a dollar range, we should be thinking about and my guess is it wouldn't stay below and though.

And a quarter, but I just wanted to make sure I Shouldnt just be basically looking at this as you know.

Less than $1 million each quarter going forward.

Yeah, and you've seen and in the last several quarters at the transformation revenue line tends to go up and down just based on the volume.

Implementation work that we're doing and that quarter and and and we will see the same thing I would expect in future quarters and so.

If you look at recent history, there is probably a pretty good indication.

Got it that's it from me thanks, so much.

Right.

Our next question comes from David Larsen with B T I T.

Hi, Congrats on a good quarter can you just please remind me what exactly is in clinical solutions and what exactly is in Avalon Health services clinical primarily new century health and everyone Health services is mainly valence and identify and why are the margins on clinical a bit higher thanks.

Hey, Dave.

Thanks for the question.

You are right and.

And just the categorization, our clinical solutions encompass both new century health and the Avalon care partners solution the primary care solution.

Were evident health services is.

And Youll Zealand's business, the administrative services and some legacy pop health contracts and as well.

And generally speaking and our new century has slightly lower gross margin on a percentage basis and Dan did legacy Avalanche at the time of day, New century acquisition and that trend has generally continued.

Okay, great. Thanks, and then in terms of.

The appetite that primary care physicians and provider organizations have for risk I guess, maybe maybe Seth can you comment on that is it accelerating now and how much more money can a physician group make.

You know when they capture part of the premium under our risk deal versus traditional fee for service and.

And additional color there would be very helpful.

Thanks.

Sure David.

Good question.

Say it is accelerating right now.

I think that's driven by a couple of different factors, including you know the experience of what fee for services like during a pandemic.

I think seeing what else is going on and the marketplace and you know.

Generally also when you sit down and talk to primary care physicians about what it's like the practice medicine under more of a value model. Its preferred means it's better health care more thoughtful health care more integrated and I think physicians want to do that when they can so I'd say, yes, it's accelerating.

And I think there's a there's a nice opportunity for us to.

Continue going down that path.

And it is it's going to be a pretty significant contributor I think over time for us. So that's.

Shall we think about it.

Okay and then just the last one from me like with your Centene, and Molina and Blue Cross and Medicare advantage deal and Florida. It's my understanding that these are on plans that have contract from new century health for one product right, it's either oncology or cardiology not both so that would still represent an infill on.

Unity from each of those plans is that correct.

Yeah correct we.

We did we started with one one part of our portfolio and there's certainly an opportunity to cross over on the other side. We also have had the the.

Technology and performance suite has been the focus there and the other the other dimension of kind of cross sell and sell to your point would be to move to more of the full full suite performance suite.

Which would also represent some upside and there's a couple of different ways to expand those relationships and.

Opportunities in both directions.

Great. Thanks very much.

Youre welcome David.

This concludes our question and answer session I'd like to turn the call back over to Seth Blackley for any closing remarks.

Thanks for everybody's time, we look forward to connecting over the days and weeks ahead have a good evening.

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