Q4 2021 Signify Health Inc Earnings Call

Good morning, My name is one and I will be your conference operator today.

This time I would like to welcome everyone to the signify health fourth quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and that is what session. If you would like to ask a question. During this time simply press the star followed by number one on your tele.

Keep up if you would like to withdraw your question. Please press the star followed by number two thank you at this time I will hand over to your host Jenny Saturday, whereas you know head of Investor Relations. Jennifer you May begin your conference.

Good morning, and welcome to signify Health's fourth quarter and full year, 2020 One earnings conference call.

This call is being webcast live and a recording will be available on the events page of our investor website at signify health Dot com through May three 2022.

Throughout the call. This morning, we will be referencing the financial tables that appeared in our press release dated March 2nd 2022. In addition, the fourth quarter and full year 2021 earnings call summary, slide presentation, we have posted to the events page of the IR website.

This morning, we will discuss signified health business outlook, and we will also make certain statements about our future performance, including projections about our future financial performance, our anticipated growth strategies anticipated trends in our business and our outlook, including estimates for total GAAP revenue total adjusted EBITDA in <unk>.

Evaluations bundled payment program size and bundled payment weighted average savings rate.

These statements are only predictions based on our current expectations and projections about future events and constitute forward looking statements within the meaning of the federal Securities laws.

There are important factors that could cause our actual results level of activity performance or achievements to differ materially from the results.

Level of activity performance or achievements expressed or implied by the forward looking statements.

Please note the cautionary language about our forward looking statements as presented in our earnings press release and in our annual report on Form 10-K , which will be filed later today.

That same cautionary language applies to the statements made in this conference call.

We will also discuss certain certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin reconciliations to the relevant GAAP numbers for these non-GAAP measures are included in the earnings release filed on form 8-K yesterday and also in our Form 10-K , which will be filed later today.

As a reminder, we intend to participate in an industry or a sulfide sponsored conferences in lieu of issuing a press release to announce each conference we'll be hosting our conference attendance on the events page in the calendar of our Investor Relations site at signify health Dot com.

I encourage you to register for alert on the investors site. So that you receive an email notification each time, we add a conference other events or other updates to the Investor Relations calendar.

Joining me on the call today are Kyle arm rest are chief Executive Officer, and Steve <unk>, President and Chief Financial Officer, Kyle will provide a business overview, followed by Steve with a financial overview.

We will have an operator facilitated question and answer session. After our prepared remarks, now I will turn the call over to Kyle.

Thank you Jennifer.

And thank you for joining us.

Here this morning and reflect on the past 14 months I'm proud of and thankful for all we've achieved.

We successfully managed through another year of the pandemic and we continue to evolve with our clients as they turn to us to support them in new ways.

Our accomplishments were many and Geneva few we were recognized by fast company as annual list of the world's most innovative companies, we want new products and programs like transition to home and our partnership program and we continue to successfully execute operationally to exceed our financial targets each quarter.

On Tuesday, we closed on our first significant acquisition as a public company of caravan health, a leader in enabling accountable care organizations or acos to excel in population health management and value based payment programs.

Went through a robust diligence process defined Caribbean and feel this is a great match that they share our passion for partnering with provider organizations to share risk and drive better patient outcomes.

What changed your signify in 2021, what remains constant is our dedication to driving forward our vision of transforming the U S healthcare system from fee for service to value based payment.

Yesterday evening, we announced our financial results for the fourth quarter and full year 2021 and guidance for another strong year in 2022 for.

For 2021 revenue grew by a strong 27% to $773 million and adjusted EBITDA increased 37% to $171 million from a year ago, largely driven by our in home evaluation or IHG volume growth in our home and community service segment, where each yes.

For 2021, we performed over one 9 million I E cheese, reflecting significant expansion with our clients that will continue to drive volume growth into 2022 and beyond.

Results in our episodes of care or ECS segment for 2021 reflected the ongoing impact of COVID-19, with its variants driving pressure in program size and savings rate. We expect these impacts to lessen over time as Covid cases continue to decline, but we've factored in some ongoing impact into our 2022 outlook where per.

<unk> of our significantly improved outcomes, we've helped to achieve for beneficiaries and the savings we've generated for our provider partners and the BP CIA program and with our commercial clients provide.

Provider partners are committed to bundled payment programs and we believe keep in mind is also committed and will announce a new iteration for 2024 within the next 12 months.

We're very excited about the opportunity we have with caravan health.

Ongoing efforts to expand our reach and value based care the.

The combination enhances the value proposition to providers.

Services will have a multi payer applicability to a larger portion of a provider's panel by multi pair we are referring to our deep relationships in existing contracts with private insurers and state and federal governments.

Our strategic focus for signified health has always been driving more participation and success in value based payment arrangements by integrating episodes of care and the total cost of care models.

Episodes of care help providers manage the cost of specialist care within total cost of care models. We believe these two payment models are synergistic and help maximize total savings and clinical outcomes.

We view the highly anticipated CMS announcement last week about a refinement of the direct contracting model now I'll call. The ACO, realizing equity access and community health or reach is extremely favorable to a combined signified Caribbean business model.

ACO reach is tightly linked to achieving improvements in clinical outcomes by addressing social determinants of health and reducing in equities.

The reach approach is consistent with other ACO models and will extend the pathway for providers to assume total accountability for the quality and cost of their patient's care.

Signifies in home evaluations are specifically designed to collect social determinants of health data.

Enable the connection of patients to services and together with caravan. We believe we have the right set of capabilities to meet all of the model requirements set forth by CMS.

Models, such as the Medicare shared savings program and reached create an important stepping stone along the pathway for primary care practices.

We recommended to CMS and model focused on chronic condition bundles that would complement MSP and reach and provides specialty providers of similar stepping stone to risks and rewards of advanced alternative payment models.

Dissipation, but all providers primary care and specialty is essential to achieving the innovation centers goal of all patients being aligned to an accountable relationship by 2030, we believe no organization is better suited to achieve cms's goals than signified health.

We look forward to a successful integration of caravan health into our operations and the ability to provide another complementary value based model to our client base, while expanding our provider networks across both lines of business episodes and Acos.

Turning to the home and community services 2021 was a great year for the business and we believe the momentum we have will carry forward into 2020 to.

The value of our in home evaluation for both our customers and Medicare advantage members remains meaningful customers have asked us to do more than one of several ways. We are meeting that demand is through a partnership program, we announced in January we believe in connecting individuals to the rate following care, whether that's seen their primary care physician or behavioral health provider after the in home.

We're activating home care transportation or food assistance after an acute episode.

Developing our partner ecosystem of solutions that connect care and drive alignment more riders is critical for us to deliver a more integrated experience.

For our partners, we provide an opportunity to accelerate innovation through a platform that is projected to engage more than 2 million people. This year through our iag's. Additionally.

Additionally partners have an opportunity to participate in the episode of care programs, we manage.

Our initial focus is on partner technologies and services that support behavioral health remote patient monitoring social determinants of health member engagement distribution channels to employers and care optimization, we're proud to work with our partners who share our vision and our ego and are eager to see innovation, resulting from this program.

Given investor focus on possible regulatory scrutiny of in home evaluation work since the <unk> report last September we would like to note that the recently released Medicare advantage rules part one into contained no referenced and home evaluations and no proposed changes that would negatively impact our business model. We also see the CMS request for comment on the.

Collection of standardized social determinants data is a positive for our in home evaluations.

We capture a range of social factors that can impact beneficiary health and are working with our MA plan clients to identify and address these types of needs for their members.

More social determinants data plans and CMS have the better they are able to design programs to meet those needs.

We continue to believe the value and independence of our comprehensive in home evaluations for MA plans as a tailwind we view our recent announcement that optum expanded their volume commitment with signify through 2026. It was another very positive sign that they and our broader client base are tapping signified health versus in sourcing because they recognize.

And continue to recognize the value they derive from our services.

As a result, we believe that in sourcing risks of volume is very low.

To meet increasing volume demand in 2021 regret network of physicians nurse practitioners and physician assistance to over 10000.

As we increase volumes in certain geographic areas recruiting and Credentialing can experience delays, but largely we're not experiencing the same clinician labor issues being reported more broadly.

As we've often said a significant benefit of our flexible network that we credential or providers in multiple states, allowing us to deploy them wherever evaluation demand requires including rural communities.

You have our logistics and routing technology included within our proprietary iPad application makes it easy for our clinicians to do what they value most spend quality time with patients instead of dealing with the administrative issues in our facilities shutting.

Beyond clinicians technologists are in high demand and lead time to fill these roles have been extended with elevated compensation packages to alleviate this challenge. We are opening a technology center in Ireland to recruit and retain technologists in the market plentiful with Cowen.

We have created an Irish legal entity chosen an office location in Galway and had been recruiting for key roles.

We expect to have a core team in place by the summer. We're excited about the opportunity to have an additional source of qualified talent to add to signify.

In closing we are very pleased with our 2021 results in many of our accomplishments, which established a strong foundation to expand upon as we move through 2022 and beyond when we file for IPO, a little over a year ago, we outlined a bold vision to drive transformation of the U S health care system from deeper service to value based care.

Our 2021 performance and acquisition of caravan health of advanced us in realizing that vision, we simplified participation in highly complex payment programs and enable health plans and providers to successfully transition to value based payments.

We provide comprehensive and highly valued and home evaluations, while facilitating services in and around the home to create synergies between our HCS and ECS businesses with the addition of caravan health, we add further functionality broader populations and innovation to our platform to drive increased value for our customers and patients I will now.

I'll turn the call over to Steve to walk you through our fourth quarter and 2021 financial results.

Thank you Kyle and good morning, everyone I'm happy to report on our fourth quarter and full year 2021 financial results. We had another record revenue and adjusted EBIT year, delivering over 20% plus growth strong EBIT performance margin expansion and significant cash generation from.

From a capital perspective, we raised more than $600 million and a successful IPO and very quickly thereafter executed on a refinancing that provided us with even more financial flexibility through better terms and a larger revolving line of credit to support our strategic plans.

Strength in our home <unk> community services segment drove performance in the fourth quarter and for the year ended 2021, reflecting substantial expansion with clients supporting our belief that clients continue to see significant value in the services that we provide.

Besides of care services, we continued to deliver strong savings for our partners across the BPI program and our inaugural commercial clients, while ensuring individuals' received excellent care within their episodes.

We continue to see the impact of Covid on skilled nursing facilities and inpatient rehab facility utilization due to the COVID-19 waivers put into effect of the public health emergency.

Additionally, the Amazon Spike in the fourth quarter continues to weigh on program size and savings rate, which is reflected in our 2022 guidance.

Overtime, we do expect this impact to lessen.

As I watched the results I'll be referring to the tables that appeared in the earnings press release issued yesterday as well as the earnings presentation posted on the events page.

You can see in table, one we had total revenue in the fourth quarter of $181 4 million.

Compared to $193 5 million in the same period last year.

<unk> revenue grew in the fourth quarter of 2021 by 5% to $156 2 million total evaluation volume for the fourth quarter was approximately 473000, including virtual evaluations.

Fourth quarter reflected more typical seasonality as we had been expecting and indicating over the course of 2021.

Fourth quarter 2020 volume reflected a COVID-19 related catch up from earlier in the year when as previously indicated in home evaluations were temporarily pause and virtual evaluations were rolled out we have great momentum and valuation volume as we head into 2022.

Still on table, one fourth quarter 2021, ECS revenue was $25 2 million as compared to $44 7 million.

At the same period last year, the decline was related to the adverse impact of COVID-19 on our program size and savings rate.

The Delta and the Omicron variance and CMS is automatic elimination of any episode with a COVID-19 diagnosis. Even those were patients were asymptomatic or only had mild symptoms and may have had no bearing on the success of the bundle had an outsized impact on program size, we delivered significant savings for bundles in spite of the.

Ongoing COVID-19 impact and we have the analytical tools and provider partnerships required to drive even more savings as COVID-19 becomes less prevalent moving forward.

Moving to the table for total company adjusted EBITDA for the fourth quarter was $40 2 million compared to $38 9 million for the fourth quarter of 2020, reflecting the aforementioned HCS and ECS revenue puts and takes that to the table one fourth quarter total net income was $32 four.

Compared to <unk> 7 million for the same period, a year ago. Our strong operating performance. In addition to the $36 $7 million quarterly revaluation of our equity appreciation right agreements or ears drove net income this quarter, we mark the ears to market each quarter and the credit in the quarter reflects the lower value of our stock price at year.

And.

As Kyle mentioned, we are very excited about the extensive options volume commitments through 2026 and return for the incremental volume we entered into a floor agreement with optum to provide for a minimum dollar value in relation to the ultimate settlement of the year's optima satisfy their relevant volume minimums over time in order to earn the floor and as such at year end.

We did not record a liability related to this instrument we expected the floor will become irrelevant as we continue to execute on our strategies and our progress is recognized in the stock price.

There is an accounting requirement for the year is to reduce the revenue based on the valuation of the floor when issued and over the term of the contract we will mark the Florida market going forward and any changes in valuation will be reflected in the other income or expense line for 2022, the revenue reduction related to the floor will be approximately a full person.

<unk> point reduction to reported revenue, but we exclude this impact in our calculation of adjusted EBITDA, resulting in no bottom line impact.

Turning to full year results 2021 was a banner year for signify health as we grew the top line, 27%, while delivering 37% adjusted EBITDA growth and 160 basis points of margin expansion.

Results for full year 2020.

The continued overall strength in our home and community service segment with increasing demand across many clients driving strong and eiichi volume of $192 million for 2021 virtual evaluations as a percentage of total <unk> totaled 17% in 2021 as compared to 36% in 2012.

We anticipate that virtual evaluations as a percentage of the total will be slightly lower than 70% for the full year 2022 with client demand at record levels. We are projecting that volume will be between 2009 and $2 four 2 million for the full year in 2022.

Episodes of care services results for 2021 reflect the COVID-19 impact on health care utilization savings rate and discharge patterns reported in connection with the reconciliations received in June and December .

As we exited 2021, we were on track for a $6 billion bundled payment program size run rate before Covid exclusions, taking into account the fourth quarter Spike in Amazon and the uncertainty around future variance. We felt it was prudent to forecast additional COVID-19 exclusions for 2022 and now estimate.

Weighted average program size to grow from 2021 levels by between $500 million to $1 billion, depending on the impact of Covid.

We expect the savings rate to return to our historical 25 to 50 basis points range of annual improvement during 2022.

With Kevin, adding 10 months of revenue from savings generated from over 500000 ACO lives. We expect the ECS segment to return to strong growth in 2022.

Therefore, we are projecting ECS segment revenue, including caravan to grow in the mid 20% to low 30% range for the full year 2022.

Moving on as you can see in table. Two we ended the year with $678 5 million in unrestricted cash is substantial increase from $72 6 million a year ago, which reflects the IPO proceeds of over $600 million.

We funded the cash portion of our $190 million acquisition of caravan health on March one 2022 with cash on hand, we ended 2021 with debt outstanding of $338 $4 million and $173 million in capacity under our new revolving credit facility.

Given our strong cash position at December 31, 2021, which exceeds our debt levels. We ended the period with negative net leverage.

We have tremendous momentum going into 2022 and are providing the following revenue and adjusted EBITDA guidance ranges for 2022, which includes caravan health results for 10 months of ownership in 2022.

Total depth revenue in the range of 948 million to $971 million and total adjusted EBITDA in the range of $212 million to $222 million we.

We feel very good about our 2022 outlook and expect margin expansion of 25 to 70 basis points quarterly revenue phasing in 2022, we will have some slight differences from 'twenty to 'twenty one as the caravan acquisition will only be included for 10 months of 2022 with only one month of actuals in the first quarter of.

2022.

As a result, total first quarter revenue, including caravan will represent 21% to 22% of the full year revenue.

As we build the capacity for the full year record revenue, we expect the first quarter margin to be about two to three percentage points lower versus full year 2021 margin.

Including caravan, we expect the first half revenue to represent roughly 48% to 49% of full year 2022 revenue in the second half to represent about 51% to 52%.

We look forward to integrating caravan health into our operations to expand our product portfolio and value based care payment programs.

Now I'd like to turn the call back to Tom for closing remarks.

Thanks, Steve.

I'd like to take this opportunity to thank our team at signify for their positives and compassionate focus on the individuals we serve and all of their contributions to expanding and solidifying our business model in 2021.

As mentioned at the beginning of the call. We have a long list of accomplishments of which to be proud. We welcome Kevin how the signified team and look forward to their contributions.

Health plans and providers close gaps in care that people can remain in their homes and enjoy more healthy happy days.

I'd also like to thank all of our stakeholders, who are on this journey with us for the value, we fully expect to generate over the long term.

Now I'll turn the call over to the operator to take your questions operator.

At this time I would like to remind everyone in order to ask a question. Please press the star followed by the number one on your telephone keypad.

What I guess I'm momentum <unk> the Q&A roster.

On your first question comes from the line of Michael Cherny from B O F. A police Michael Your line is now open.

Hi, This is Charlie on for Mike. Thanks for taking my question I just wanted to start out looking at the mix of IHS in person versus virtual could you provide any more color on that and then just the impact to margin.

Yes. So thank you for your question.

So last year was 38% or two years ago to 38% last year, we cut that to about 17%. So this year for 'twenty. Two we didn't really guide do you think it'll be somewhere slightly less than 17%, but still given where we are what we saw in the first quarter with some of the omicron.

Spikes and stuff, we are still using bertolt pretty heavily so that's something we're going to be slightly less than what we did in 2021 from a margin perspective.

It's.

More of our revenue from a margin percent perspective.

There is similar.

Our costs.

Profile and so we don't think that's going to impact our margin percent.

Inefficient way and that's why we're confident.

25% to 70 bps margin improvement for the year that we.

<unk> forecasted.

Great. Thanks, and then just a follow up if you could provide any more color on the visibility into the ECS growth rebound.

Yeah. So look Q4 was we got hit pretty hard with the Amazon.

Viruses and as I said on the call the challenge with that is that Amy.

Any episode that has a diagnosis of COVID-19 , even if it.

Is it domestic and nobody.

Our very mild cases.

We may have delivered incredible savings on that episode, but if they get the COVID-19 diagnosis. It gets removed from our program size and so that's something that we're going to be working with CMS on as we move forward and hopefully get that removed at some point this year and so.

It was a pretty big impact for us with the entire Covid in 'twenty, one we do feel and see that we will start to have some rebound there we're not going back to as I said on the call. We don't feel it's prudent to go back to our $6 billion run rate. We don't think it's going to be that big of a quicker return we still have that ability.

But with the carryover from what we saw in Amazon, we're trying to be a little bit more conservative there in saying that we believe that 500 to a $1 billion of program size will come back in 2022.

Great. Thank you.

Thank you. Your next question comes from the line of unless I'm well from J P. Morgan. Please on your line is now open.

Thanks, so much.

Your commentary on the reach program was really encouraging around value based care I was just wondering how we should be thinking about you know what the read throughs might be offered the BPC I program and how you are thinking about that.

Yeah, great. Thanks, Good question I would say this.

A few things one CMS has been pretty consistent and we just delivered.

Big White paper to them that we have been impacted for several months.

Harvard and brand, new and a bunch of.

Thought leaders talking about the future of value based care, which is <unk>.

<unk> publicly said several time integrating ACO and episodes of care and what's important on the ACO front. Obviously it gives you the broad population, how total cost of care big spend under management, but.

Lower overall savings rate potential.

Potential, whereas the bundles or the episodes, obviously to attack the specialty care and post acute care in a more focused manner and so bringing those two things together and working through retribution problems and building a more sustainable value centric infrastructure.

As David Medicare Trust, which is under extreme pressure.

The CDO 2026, it might be involvement.

And then CMS has said by 2030, they want everyone any.

Medicare any value country contract and so what we view.

Bringing episodes in ACO together and why we did the Caribbean deal was to accelerate that number one with respect to reach.

Very enthused for two main reasons one.

Social determinants and thinking about health equity any more holistic care model has been in our DNA since day, one and so we are well positioned.

During a really differentiated approach to folks who are interested in participating the reach program and number two we've been planning and preparing for direct contracting glass total cost of care movement with respect to our R&D and our expansion efforts and so we think the caravan acquisition positions.

Linzess extremely well for that move into reach.

And frankly, I believe that signify is the best organization in the country to help.

Its goal of moving more folks into our offer within Medicare towards value centric contracts by 2030.

That's really helpful. Thank you and then maybe just one on caravan can you help us understand.

As we think about the contribution to your your numbers this year and going forward.

How should we be thinking about growth.

Growth and margin expansion opportunity for that business over time.

Yeah look we're excited as very much like the day episodes business as well as the savings rates improve over time, a lot of that is going to drop to the bottom line. So we're we're excited about the margin expansion. It's one of the things that I mentioned on the call that we think.

Heading into 2023, we could potentially double the EBITDA contribution from caravan for those exact reasons.

That's great. Thanks, guys.

Yes. Thank you. Your next question comes from Sarah James from Barclays. Please.

He is now open.

Thank you.

I wanted to clarify the comments you made earlier about not experiencing the same labor pressures.

As the rest of the industry does that mean that there's no step down in labor cost assumed in your 2002 guide.

Yes, so I'll clarify the first comment and then I'll, let you talk about the step down in Cogs.

<unk>.

We've been very fortunate our model is.

One distributed right. So we have nationwide access we credential clinicians in multiple states move them around when and where volume kind of dictate.

Launch and expand our services and so that flexibility model has been great for us I could not folks getting signed up for shifts when they want they can move to different.

Parts of the year.

It's been a tailwind for us independent <unk> and brought US a bunch of new talent, which is why we've been able to successfully scale.

Hit all the capacity constraints that we talked about.

One number to clinicians are turning to us because we're allowing them to spend an hour a really high quality time focus on care with individuals right and they are divorced from all of the administrative burden that they faced the walk and if they're running their own practice of working in a bigger health system dealing with claims dealing with getting bills paid dealing with scheduling deal.

Even with all the prior authorization workflow with us because of our technology suite they wake up.

IPad application.

Built out with all the logistics and routing technology that allows them to go throughout the day spending time in our inside his home with real quality time, helping to diagnose folks and then connect them back to care and so we feel very good about that.

Steve I'll, let you talk about how we've accounted for labor in the model maybe still on the.

I asked that a lot on the inflationary pressures and so like every company we have.

Our challenges in that area, but I think.

As Paul said, we've got a very flexible model that has allowed us to manage that and it's a great part of the model and so we have.

Areas, where there's significant demand and will do special incentives and things like that but we haven't seen a significant pressures that are impacting the P&L or anything that we can't manage and that's why we again confident that we can do the 20 bps to 70.

The 25 to 70 bps of margin expansion. Despite any pressures we also mentioned.

We've seen quite a bit of pressure on the technology side. So one of the areas that we have.

<unk> been able to go go and find more talent is opening up the Ireland office. So we expect that to be a big part of our go forward opportunity as well in that area.

Great and if I could just one more.

Can you give us a little insight on how you think about the adoption curve within your existing client base and maybe how youre seeing that trend from 'twenty one to 'twenty two and then as you think about moving out to CMS as close in 2030, how much opportunity there is to capture more business within your existing client base.

Yes, it's a great question I would say that.

What drove it to do care and with our client base, we were listening to them they've mentioned, both the payers and the health system. So look we need multi payer solution for me to go in and actually bridge that gap between the health system Health plan and they do signify is a key enabler of that and so I think there is substantial growth opportunity.

Inside our existing client base and frankly, its where were focused on initially cross selling and combining episode total cost of care and bringing up multi payer approach the issue and what I mean with multi payer if you show up with a single payer contract at a health system with its own set of guidelines and rules and reporting data ingestion.

Percentage of panel issue right and you need somebody someone like a signified it's going to connect the dots with all of our payer contracts.

<unk> a lot of that workflow have consistent unified reporting and allow us to offer.

For a more integrated approach on the data and analytics side.

For the providers that are actually engaging and care and so what we anticipate doing is bridging all of those.

Strong ACO connection and relationships to Kevin's built out that takes a genuine total cost model, bringing in our episode infrastructure and then working with our plan to bring that multi payer approach, where obviously TNF is the biggest payer and it's the biggest participant in the bundled payments and the ACO program tying all that.

Together and growing that into our existing very large very scaled very successful very high NPS health.

Health plan business that we have on the in home side is where we're going to be focused over the next several years.

Great. Thank you.

Yes. Thank you.

Thank you. Your next question comes from the line of Kevin Caliendo from UBS. Please Kevin Your line is now open.

Thank you.

I want to understand a little bit.

Your revenue per visit trends Youre virtual visits are going to be down what are you assuming.

Our price per IEEE visit.

For 2022, do you expect it to trend up trend down.

Yeah.

It's going to trend.

Though there is a couple of factors if you disaggregate, it and and look at it.

In total this is going to say, it's relatively flat. There is two things the year impact is going to hit the HCS side and so that.

It's going to impact that number and we have a little bit of a mix.

Impact as well in total where some of our incredible volume that we're getting from it.

Coming from compliance with slightly lower pricing and so.

That's really and in aggregate you're going to see is relatively flat, but when you look at it by client you're going to see that it continues to increase.

So.

Okay.

Okay, Yes, sorry, Kevin yes, the other two things that where you'll see it start to fade in phase and then we mentioned on the last call. We've got more diagnostic preventative services device.

Our revenue coming in as we've got more diversified devices going into the mix. This year and then a big initiatives that we've been doing for several years, but our clients are very focused on is returning to care and so getting booked back with a.

Specialists are booked back to their primary care doctor spending all of that information over digitally we see that as a big synergy with.

Caravan through because we'll have all that digital connectivity into these health system.

So that returned to care expansion that we've talked a lot about it will be phased into that mix as well.

Okay.

Alright, Thats helpful. I'm guessing in the mix in terms of that being United in sort of the re up with United did that have an impact on this.

There wasn't any price changes there, but obviously there is a significant volume coming from there and so again are our higher volume clients are typically you're going to have slightly lower pricing and so you're going to get some mix component in there.

Fair enough.

One quick follow up you had said you've been working with CMS to get the Covid diagnosis.

Headwind removed any any chance there is potential for retroactive adjustments.

Yes.

Dialogues with them right now.

But I don't think we're in a spot that comment on but they certainly have in the past on retroactive on other things they are very reasonable they're very data centric.

Impairments in our health system clients are.

Bringing this up to this isn't just.

Mentioning that the health system clients are there.

Rightfully frustrated just kind of you mentioned if someone in for an effort there. They go through the procedure to health system does everything right and manage the post acute appropriately they get them back to their home and then on day 89 of the episode the eighth and dramatically cut positive with Covid. They get bounce out that's super frustrating for health system, that's investing millions of millions of dollars.

Genuine care redesign, we're just did another phase of the pandemic to and I would say that it's been.

Very reasonable very data centric and a tremendous partner on this front and so we're very hopeful I should say.

That will be able to move past the current kind of policy here in short order.

Okay. If I can ask one last quick one I apologize for asking three.

Is the cadence for this year different than you would normally expect I mean, we don't have a ton of history to go back out and I'm. Just wondering if there was anything specific around 2022 in terms of the cadence or a caravan is impacting the cadence a little bit just any color on how we should think about that even going forward.

On 2022.

When youre talking about cadence that you talked about kind of the quarterly phasing yes.

Yes, the quarterly cadence I'm, sorry, I didn't make that clear.

Yeah, so as.

As I mentioned the call. So we think obviously because the way the caravan you know it could be more back half loaded because we're only going to have 10.

<unk> for the year included only one month in quarter one.

That's why it's a fairly typical youre going to have your ECS with Q2, and Q4 that are going to be the higher quarters.

Just because thats when we get the recon.

Yeah.

I'd say the HCS is relatively.

Insistent, it's going to be probably a little bit less.

Total we said.

First quarter just to get everyone grounded, we think it's going to be 21% to 22% of the total.

And then you know the first half 48% to 49, and then we should be kind of back Q4 will be our softest quarter.

Quarter, just because of the way that the HCS volume typically takes place so.

Other than.

In the past we've had some of the dynamics changed because of the.

Covid impact and so nothing nothing really to call out on that does this go round, we also called out that.

Margin margin percent, yes, if you look back at 19, 2021 'twenty two that would be any different or margin percent is typically the lowest.

Percent to start the year and that's just because we're ramping up and building that could all the capacity. So just wanted to call that out as well.

That's really really helpful. Thanks, guys.

Yes, great question and thank you.

Thank you. Your next question comes from the line of Cindy months from Goldman Sachs. Please Cindy your line is now open.

Thanks.

That's on the quarter and thanks for taking my question I just wanted to follow up a little bit on Kevin's question about.

Implied.

Average revenue per visit so I'm.

I'm getting like about 325, I'm sorry, this quarter. So it usually goes up first quarter. So.

Steve I was just wondering like do you expect the same kind of ramp maybe we start from 'twenty like.

Fourth quarter 'twenty to first quarter 2021.

And sort of maybe flat.

For the year overall and then my second question was just on ECS to get to that 20% revenue that you're talking about it looks like we do have to look at more the higher end of the sort of average program size guidance as well.

The San Jose mine.

Right about that thanks.

Yes, just to reiterate so on the first question back to the <unk>.

It's going to be relatively flat as I mentioned, if you just do the total calculations. If we looked at it by client you're going to see that continue to raise and again, it's really two things the impact from the ear because that's just taken revenue straight out of HCS.

And it's a technical accounting we back it out of it.

EBIT. So there is no no impact there and then and then the mix issue and it's really those two issues. There is no other.

Dynamics going on there other than us.

Karl brought out we continue to to.

Have additional penetration with our devices new devices and more return to care. So we feel really good about the direction that that is heading.

Then on the ECS.

Kind of a range that we put there.

<unk> the low thirties.

We ran a bunch of different scenarios. There so just to make sure that we could have some flexibility.

On program size on savings rate and are unfolding and caravan into the mix. So we feel we feel comfortable with or is that now and obviously.

Quarters move on and we'll report out and how things are trending obviously some of these things that we've been talking about on weather.

Happens with CMS and announcements coming there could impact that as well so we'll keep everyone well informed.

Okay. Thanks that makes sense and just if I could have one more follow up.

In terms of the EBITDA margins for the segments, obviously HCS is doing.

Feeling pretty well and it looks like it hit already like 30, 31% margins there.

ECS.

Certainly more challenging do you expect the <unk>.

Sort of ECS margin rate to improve.

Improve over the next year.

I'll say to you I guess HCS to remain stable or how do you see margins segment margins going thanks.

Okay.

Yeah. So look on the ECS side Theres, one thing Thats in particular is really driving that one obviously as adding caravan the mix is nice add in.

Savings rates bounce back we're going to see that margin improved because that's going to drop straight to the bottom line, but we are I would like to call out that we still are making pretty significant investments in the commercial side and so that that's one that we've been saying is like we're really going to start to see that in the $23 $24 25 return on <unk>.

That's meant there. So that's one that we're going to have another year I would call. It another year of investment on the ECS side, but we look to look to breakeven in 'twenty three.

Okay makes sense.

Thank you. Your next question comes from the line of Jesse got the Sun from Piper Sandler. Please Jessica your line is now open.

Hi, Thanks for taking my question.

I'll ask one on caravan.

Assuming that they are consolidated from kind of 12 collaborative acos in 2020 that bakes in 'twenty two.

Can you just help us understand when and why that consolidation occurred and then just how are you thinking about ensuring collaboration at the local level.

Given the geographic dispersion of atheists. Thanks.

Yeah, Great question that consolidation was one of the things that has the most excited about.

Doing a deal and frankly, one of the most innovative things that they've pulled together and so what they did and collapsing the <unk> down to fixed to five was pool.

Tool more risk right and so it wasn't that they lost clients. They were just taking the existing clients and putting them any bigger collaborative ACO.

Our regional needs centric and Theres, a lot of engagement and participation in coordination in those regions, where they all fit.

And the purpose of the collaborative is just like an assurance company as you take more lifetime, you can shield yourself from downside risks and so any wins or any one particular.

Hospital Health system.

In one particular quarter aren't going to impact the overall collaborative and when they go into it together.

It provides a more stable consistent and balanced program and frankly at the innovation to Kerrigan pulled off that's helping to spread the total cost of care model throughout so much of the country and so we were very enthusiastic about that innovative approach they pulled off number one number two.

They have a big technology component of their business and it was again one of the things that got US most excited called Caribbean coach and its a overly AC that fits inside the provider workflow.

<unk> and alerts them on the most urgent and emergent things they need to do.

And each and every month they are learning from surveillance throughout the entire ACO network that they're managing and all of the collaborative how to drive more efficiency more effectiveness and to drive a better provider and patient experience.

So they are actively in their coaching folks theyre actively and Theyre doing change management inside the health systems and their technology is helping to enable and power that but they'd be very much heavy strong account management and partnership model with these health systems to help drive performance in that that was very appealing to us.

Said.

Many times that I think tested technology is absolutely necessary, but not sufficient to drive real impactful change in health care and so what we're most excited.

Cited about and we've heard from several of the caravan clients already is signified, bringing that nationwide network of clinicians, bringing a post acute experience, bringing the ability to do condition capture which is big in the ACO market now.

We're going to turbocharge a lot of these resource strapped health systems to perform even better inside their ACO contracts, which I think one will drive shared savings, but number two will help us expand and sell more health systems that are always looking for contracts with payers to signify again can bring that multi payer contract chassis.

We're very excited about the future and what we're going to be able to connect here.

And the technology assets and the team that we picked up from Caribbean.

After a year long diligence process inside the total cost of care space, we felt like it would be absolute.

Thats it for signifying where CMS and our payer clients in our health system clients are going in the future.

That's really helpful. Just a quick follow up so it sounds like things like bus caravan or really well situated for ACO rates.

Interesting you affect that.

Participation in ACO rates to be in addition to orange that participation.

Thank you.

Yes, good question I think.

Number one it's too early to tell.

The announcement, obviously just came out last week I would say, though I expect some right now Kevin had some clients some basic some and enhanced our first priority is to move as many over to enhance its possible more downside risk better upside for us and our clients and the enhanced models. We're big fans of the enhanced model number two we're focused obviously on shared savings this year and maximize.

Better patient outcomes will driving shared savings for the client then I think we're going to go.

Specifically client by client both our episode clients today, the existing ACO clients and take a look at enhanced versus ACO rights and what makes most sense for them and I don't think its going to be the same for everybody.

A lot of nuance every health system is different but we have the <unk>.

They standardized platform that regardless of reach or in hand, theres going to be able to drive success for these folks and so were.

Diving and we had our first session yesterday, I'm, sorry, with the caravan in going through all of their clients. Our clients are starting to map out a strategy of how to best drive success for each of them and what I'm. Most excited about is if you reach gives us more optionality right. It's yet another value centric program that we're going to be able to expand and drive performance in Q and that's great for the help.

Some clients, who are nuanced and each of them very different with respect to their skill set and their competencies and how they want to perform in diabetes care.

Thanks, Ken.

Thank you.

If you relate to ask any question. Please press star followed by number one on your telephone keypad now.

Your next question comes from George Hill from those two bank. Please you're your line is now open.

Yeah, Good morning, Colin Steve and Thanks for taking my question and my ACO reach question was just asked so I can put that on the back burner, but I guess as it relates to the <unk>.

Al.

There's still a lot of investor concern.

It's about the long term horizon of this business and I think a lot of investors are looking for a regulatory clearing event.

Plus the long term sustainability of the ECS business I guess I'd like what you think I'd like to hear what you think about that I kind of thought that the early rate notice from CMS talking about social determinants of health it could have been that.

I just.

There do seem to be some investor questions about it with just kind of love to hear how you think about it in kind of kind of what what removes kind of that negative sentiment that I think are serving as a capital evaluation right now.

Yeah, Great question so.

<unk> been in constant dialogue with CMS three years, there's been nothing just to be clear and the rate notice for years about years and years about.

<unk> to do with major overhaul to risk adjustment or any pressure on the home segment and so we deeply believe it's a big overreaction in the market.

And couldn't agree more that.

It's an unnecessary overhang number one number two.

<unk> been in great conversations with CMS or they've been direct with US, saying look we're big supporters of <unk> homes, but we want to see is continued more follow on care more social in terms of health engagement like you all are doing and so that road map of what we built density with exactly what they're doing and then number two on the growth side. We've also been in talks with CMS.

And we just got into that met the P program about expanding in homes and their viability to other value centric program and so we will be launching in home services alongside this caravan acos right and it's going to be a big differentiator in how we drive better shape saving better condition capture.

And better engagement for individuals in the same way to signify has always been doing it looking at the entire continuum of care from the homes all the way to the facilities.

No.

I think it's a she.

Huge overreaction to folks things that massive changes are coming to risk adjustment none of our planned clients are concerned with it.

They've all been really engaged with us and focused on how to make sure that we're maximizing when we find the condition doing something that's great for the individuals whether it's the de novo diagnosis or getting them back to a specialist or closing out of food and security. There is nothing more sacred than getting to go into an individual's home and seeing the.

Whether it be in on a day to day basis, and CMS is thrilled that it's a free benefit but.

Medicare beneficiaries are getting as a part of the Medicare advantage program and all of our conversations with CMS have been on how to expand that free benefit.

The other parts of the Medicare population as I, just mentioned, we're going to be doing that through our MSP engagement.

But we're seeing no regulatory pressure at all and think it would be.

A complete exaggeration that theres, some bogeyman hiding out there that's going to overhaul this part of the business.

Yes, the proof point really from our clients viewpoint.

Just the amount of volume that they continue to give us.

Q4 was an incredible quarter for us because that's usually a big drop off for us as we wind down the year, we still actually grew over 2020, which had the big Covid impact, where we were doing it a big percentage of our volume in Q4, and then as everyone has seen.

We're guiding to about $2 4 million evaluation in 2022, so really getting a lot of momentum with our clients to drive more and more volume.

This point every single one of our clients are sitting down and asking how we can get into more and do more in the home.

That's across the board. So there is no signs of this business slowing down if anything again, we're having conversations about how to take this into managed Medicaid commercial population other group account.

They are including our services and our holistic care model in their bid through different group account.

We are very bullish on the continued growth and expansion.

That's great color I think you guys framed the answer better than I framed the question, but I appreciate it. Thank you.

Yeah.

We currently have no further questions I will hand, it back to kind of umbrella for any final remarks.

Great. Thank you everybody and thanks to the entire team for a great 2021. Thank you guys for the participation on the call and your continued interest in picking up I hope if you have any additional questions. Please reach out to Jennifer I have a great day.

Yeah.

This concludes today's conference call you may now disconnect your lines.

Uh huh.

Sure.

Okay.