Q2 2022 Evolent Health Inc Earnings Call
Good evening and welcome to the Avalanche Health earnings Conference call for the second quarter ended June 30th 2022.
Your host for the call today from Evelyn Health are split Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer.
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This call will be archived and available beginning later this evening via the webcast on the company's Investor Relations website, which can be found at IR Dot Evelyn Chow dotcom.
I would now like to turn the conference over to Seth Frank evidenced Vice President of Investor Relations. Please go ahead.
Thank you and good evening. This conference call will contain forward looking statements under the U S. Federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations.
A description of some of the risks and uncertainties can be found in the company's reports that are filed with the securities and Exchange Commission, including cautionary statements included in our current and periodic filings.
For additional information on the company's results and outlook. Please refer to its second quarter press release issued earlier today.
Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available on the Investor Relations section of our website or in the company's press release issued today and posted on the IR.
Section of the company's website IR Dot Evelyn health Dot Com and the form 8-K filed by the company with the SEC. This afternoon.
During management's presentation discussion, we will reference certain non-GAAP and GAAP figures and metrics that can be found in our earnings release as well as a summary presentation available on the investor on the events section of the IR website at IR.
Dot com and now I'll turn the call over to epilepsy.
Barclay.
Good evening and thank you for joining the call.
I'll begin by summarizing our second quarter results and as always provide my perspective on the status and progress of Avalon three core operating priorities John will discuss the numbers in more detail and share our updated guidance and as always we'll then take your questions at the end.
First I'm happy to report that everyone continues to meet or exceed all of our key financial targets and operating priorities.
And we're well set up for the remainder of 2022 and beyond with respect to the second quarter I am pleased with our results relative to the outlook. We provided on the May call.
For the quarter ended June 32022, Avalon Health total revenue was $319 $9 million.
With a 44% over the second quarter of 2021.
Adjusted EBITDA totaled $21 $7 million for the quarter, 63% growth and an 800 basis point increase compared to one year ago.
Revenue was particularly strong relative to our outlook and adjusted EBITDA was toward the high end of our expectations for the quarter.
As we communicated at the beginning of the year, we expect our quarterly adjusted EBITDA will vary across the year based on timing of performance based revenue with the second and fourth quarters, a bit lower than the first and third quarters and this quarter is in line with that expectation.
We ended the second quarter was $21 9 million lives on all platforms compared to $12 2 million a year ago growth of 80% driven primarily by new century health.
Across both technology and services and our performance suite solutions.
By segment as of June 32022, we had $2 1 million lives managed enabling health services and $19 8 million lives in our clinical solutions segment.
Matter being inclusive of new century health.
And I only care partners. These.
These figures correspond to $1 5 million lives and everyone health services and $10 7 million lives in the clinical segment at the end of the quarter one year ago.
Looking at segment specific revenue clinical revenue composed of new century health care partners grew 55% year over year, a significant acceleration as new lives came online during the quarter, particularly on the performance week, everyone Health services segment revenue grew 23% in the quarter.
We believe these strong results reflect our successful partnerships with new and existing payer and risk bearing provider clients. We also benefited this quarter from strong performance based revenue in our everyone's health services business, which increased both revenue and adjusted EBITDA in this segment.
Let's now discuss evidenced three core operating priorities.
Updating you on the drivers underlying our strong organic growth.
Expanding margins and op it'll optimal capital allocation, Jon will take the margin discussion in detail.
With regard to the organic revenue growth, we continue to outperform our targets in 2022, and we believe this sets us up well for the future.
Our success is a function of the value we generate for our clients the size of the untapped market opportunity and our value proposition and differentiation in these markets.
Looking historically, we have grown organic revenue excluding revenue from divested assets by approximately 40% on a CAGR basis over the last 12 quarters.
Looking forward. We also continued to grow and add important new relationships in the second quarter, We announced four new operating partnerships three for new century, and one for everyone Health services, taking our year to date total to 10, new operating partnerships just halfway through 2022 exceeding our full year.
Your target of six to eight.
Keep in mind the size these relationships and their path to margin maturity very well. We believe this metric remains an important leading indicator.
Last quarter, we discussed that Avalon grows through the addition of new logos and through the expansion within existing clients.
As we've shared in the recent past, we see tremendous near term opportunity to expand with our existing clients, especially with our value based specialty platform new century health.
In fact, even before adding IPG and of this solution set we believe that new century health.
Reaching 25% penetration with our five largest customers can add approximately $4 billion in annual revenues.
There are three ways, we can address this client expansion opportunities.
One is through expanding geographically to add new msas or new states.
Two is to add new specialties for example, oncology when only another specialty like cardiologist implemented or vice versa.
Three is through converting technology and services lives.
The performance suite within the same specialty area.
Today, we're excited to announce an important set of agreements to touch on the second type of client expansion.
Specifically Molina healthcare will launch our new century health oncology performance suite for their Medicaid Medicare and marketplace membership initially in three states by the end of 2022, we expect.
This expansion of our relationship to more than double our overall Molina revenue going forward.
We look forward to continuing our partnership and value based specialty care with Molina.
Beyond core new century health in Canadian history see strong early success with our vital decisions platform.
As you recall the main opportunity with vital is to embed the capability into the new century health performance suite, which we believe improves quality and lowers the cost of care.
I'm excited to share the vital decisions is now live at several existing new century health clients covering more than 400000 lives representing over a quarter of the more mature new century health performance suite lives, which we define as those that were on our performance suite at the end of last year.
We're currently focused on additional client conversations to further expand this figure, including with our newest performance suite partnerships.
More importantly, early performance measurements from the integrated new century health vital partnership indicate the rate of patient engagement platform has increased by more than 50% versus vitals pre acquisition engagement rate, helping increase the number of patients documenting their advanced directives prior to the end of life.
This increase driven by new century's unique link to the treating physicians is the core thesis of the vital solutions acquisition.
So with all of that context, we feel like we're off to a great start with the vital decisions acquisition.
The early success of vital decisions also gives us increased confidence in our IPC IPG acquisition as well as the broader opportunity ahead as an integrated provider of value based specialty solutions.
Turning to have only care partners, our primary care risk based business, we continue to see strong growth potential in the quarters and years ahead, and we look forward to reporting on our final performance year 2021 results in the third quarter.
In addition, Medicare deadlines tend to drive new business growth activity for the pathways to success ACO program and so we anticipate the majority of new provider additions to our network during the third quarter and we're carrying a strong Evelyn care partner sales pipeline and in the quarter.
Regarding the proposed changes to the pathways to success program. We believe the rule adjustments will have a neutral to slightly positive impact on the wound care partners. We also view recent program changes as consistent with CMS as long term goal of accelerating the transition to value based reimbursement, which creates more opportunity for Abbott.
And care partners.
As a reminder, 11 million Medicare beneficiaries participate in Acos today in Medicare's goal is to reach 30 million seniors in an ACO by the year 2030.
Yeah.
Finally, there are a number of productive Evelyn care partner conversations underway with payers for relationship similar to the Blue Cross Blue Shield of North Carolina partnership announced in the first quarter such arrangements go beyond shared savings to risk based management of an entire patient premium.
Okay.
Turning to everyone Health services today, we announced a new technology and targeted services partnership for 250000, Medicare advantage and commercial exchange lives for a major Midwestern Bluecross Blueshield plan.
This plant will utilize our proprietary technology platform to improve member quality and document care gaps.
Given the nature of the services. Our initial pricing is below a dollar P. M. P. M. Similar to the P. M. P M. As we charge for our technology and services offering.
Look forward to expanding opportunities like this with this partner and others over time.
To conclude my section, let me provide you with a brief update regarding our efficient capital allocation priority.
I'm happy to report that we closed the ITG acquisition yesterday.
With the close of the transaction new century now covers.
The top three specialty spend areas in health care and we continue to believe in our opportunity to lead the market in value based specialty care.
Strategically, adding muscular skeletal capabilities, the new century health and evident broadens our health care vertical coverage as an integrated partner for any given payer client, which is what we believe most payers prefer.
With IPG now close we'll be moving quickly to successfully integrate the team began to execute on the large growth in margin opportunity ahead consistent with prior acquisitions.
Since we announced the acquisition in late June I'm also pleased with the inbound response from new century, and evident clients about the opportunity to expand our work together.
So we're ready to hit the ground running with IPG.
With that I'll hand, the call to John to take you through the numbers discuss our margin expansion priority and discuss our updated outlook.
Thanks, Seth we're pleased with another strong quarter of execution across our enterprise growth is ramping across all areas of the business and continues to be particularly strong within our clinical solutions segment during.
During the quarter, we saw accelerated new partner go lives at new century, health, which combined with membership growth and element care partners to drive enterprise revenue above the high end of our guidance range.
Adjusted EBITDA in the quarter was likewise strong near the high end of our guidance range driven in part by timing of performance based revenue in EHS.
Let me talk a little about our operating priority of margin expansion and how it is manifesting in our Q2 results.
There are three key drivers of our margin expansion opportunity cost structure improvements operating leverage and performance suite margin maturation.
We continue to make progress on our cost structure priority, which is most focused in our Atlanta Health services segment. For example, we now have over 1200 employed Evelyn tiers in our office in Pune, India and later this year are launching a new office in the Philippines to support our global operations.
This initiative will further improve service delivery for our partners as they grow with us and ensure EHS continues to scale in a cost effective manner.
Regarding operating leverage I'm pleased that our six month corporate expenses are 5% lower than the same period last year, despite revenue growth of over 40%.
Finally margin in our clinical segment is impacted by the rapid pace of newly added performance fleet contracts as we have previously discussed profits from these contracts grow over time with limited EBITDA flow through in the first year ramping to target profitability over 36 months on average.
This curve is a direct outgrowth of our provider oriented model.
Instead of mandating specific clinical pathways are regimens, which might drive faster upfront savings at the cost of significant provider friction.
We engage with providers through technology, and peer outreach to influence individual practice patterns towards high quality outcomes.
This approach leads to strong provider satisfaction customer retention and based on new century, 20 Years' experience in these arrangements durable profit streams over time for.
For the second quarter, specifically, we had approximately $60 million in new performance sweep revenue versus Q2 of 2021, which contributes meaningfully to our long term earnings opportunity, while weighing on margin expansion in the near term.
Now, let me turn to the numbers.
Revenue in the quarter was $319 9 million or 44, 1% increase compared to the same period in the prior year. This was due to growth from new partner additions as well as same store sales growth across our enterprise adjusted EBITDA for the quarter was $21 7 million compared to $13 3 million in the same quarter of the pre.
Your year, representing year over year, adjusted EBITDA growth of 62, 9% turning to our segment results within our clinical solutions segment revenue in the second quarter increased 54, 6% to $227 6 million up from $147 2 million in the same period.
The prior year. This strong revenue growth is due to continued same store sales and new client growth.
This includes the previously announced partnership with Blue Cross Blue Shield, North Carolina, as well as our expanded relationship with Molina Health, where we are now providing our performance sleep performance suite platform for cardiology across four states and have plans to further expand into oncology by the end of the year.
Second quarter 2022, adjusted EBITDA and clinical solutions was $13 5 million compared to $13 6 million in the prior year and in line with our expectations. The variance in segment profitability relative to last year in the first quarter of 2022 was driven principally by revenue mix and time.
<unk> <unk>.
Very strong growth in new performance suite revenue on the one hand with lower performance based revenue recognized in the quarter on the other.
More broadly medical utilization in oncology and cardiology continues to track according to our forecast.
Lives on platform and performance suite for clinical solutions with $2 5 million compared to $1 4 million in Q2 of the prior year with APM TMT the $34 58.
Versus $32 39.
Membership in our technology and services suite for clinical solutions was $17 3 million compared to $9 2 million last year with APM PMT a 36.
Versus <unk> 37 in Q2 2021.
Within our Avalon Health services segment second quarter revenue net of intercompany eliminations of 500000 increased 23, 3% to $92 3 million up from $74 9 million in the second quarter of 2021.
Growth in this segment was driven primarily by the previously mentioned addition of more than 300000 bright health care lives.
We also benefited from strong performance based revenue in the quarter.
As a reminder, we recognize performance based revenue for example shared savings as the data become available to measure and the timing of that data availability varies by program.
During the second quarter, we finalized the data from several programs and everyone's health services, which translated directly into strong adjusted EBITDA performance of $15 1 million compared to $6 5 million in the prior year.
Membership in our performance suite for everyone's health services was $2 1 million compared to $1 5 million in Q2 of 2021 with a P. M TMT a $14 58.
Versus $13 81.
Finally, corporate costs were approximately flat at $6 9 million versus $6 8 million in the same period of the prior year as we continue to take a disciplined approach to cost management, while scaling our business.
Turning to the balance sheet, we finished the quarter with $193 1 million in cash cash equivalents and investments, including $34 5 million in cash held in regulated accounts related to the wind down of passport.
Excluding cash held for passport, we ended the quarter with $158 6 million of available cash a sequential increase of $2 3 million versus March 31 2022.
Cash deployed for capitalized software development in the quarter was $7 1 million, resulting from continued investments in our platforms.
We also made a $9 million deposit for the ITG acquisition during Q2.
Excluding that payment the increase in available cash would have been $11 3 million for the quarter.
As Seth mentioned yesterday, we closed on the acquisition of IPG, drawing on our new senior credit facility as planned to partially fund the transaction pro forma for those two events. Our June 30 available cash balance would have been approximately $133 million with pro forma net debt excluding infant money convertible.
Bonds of two five times, our pro forma trailing adjusted EBITDA slightly improved from our target at the time, we announced the transaction.
Just on continued earnings growth and strong cash flow performance, we now expect that leverage ratio to be below two times within the next several quarters.
Turning now to guidance beginning with the top line given the strong core business growth and the addition of IPG, we are raising our revenue expectations for the full year to between $1, three 2 billion and $1 36 billion.
For Q3, specifically, we expect revenues to be between $343 million and $363 million.
Regarding adjusted EBITA to simplify the addition of IPG to our financial model. This quarter, we are providing forward looking detail for the earnings power of the base business, along with our updated enterprise guidance.
Prior to IPG, we are reiterating our full year expectation of adjusted EBITDA between 85, and $95 million and for Q3, we would expect base business adjusted EBITDA of between 20 and $25 million.
We expect IPG to contribute adjusted EBITDA of approximately $4 million in Q3 and between nine and $11 million for the year.
Our updated adjusted EBITDA guidance, then is $95 million to $105 million for the full year and 24 million to $29 million for the third quarter.
With regard to the core business the quarterly EBITDA rollout across the second half of the year will be driven by the timing of performance based revenue as previously discussed along with modest early investments ahead of revenue in Q4 for our significant expansion with bright health going live in January 2023.
Yeah.
Finally, with the addition of IPG and expected platform integration investments, we now expect cash deployed for software development to be between 30% and $35 million for the year.
And with that we will take your questions.
We will now begin the question and answer session.
If you ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the key.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Ryan Daniels of William Blair. Please go ahead.
Yes, thank you for taking the questions and congrats on the continued momentum.
John Let me start with one for you I think I know the answer to this but core sales look to be up about $100 million, but EBITDA relatively flat is that just what you mentioned due to the timing of startups and ramp to margins and the performance suite as much as anything.
You got it right Ryan that's exactly it.
The real bulk of that growth coming from the performance suite comes with that margin curve that we've talked about of that margin maturing over time, the timing of the performance based revenue as I mentioned in the prepared remarks also impacted in the quarter.
Everyone recalls that we had we expected a Q1 and Q3 high points and our clinical segment for performance based revenue and that's playing out as we expected it to.
Okay, Perfect and then I know the deal just closed but it was announced at the end of June . So I'm curious if you've received any feedback from your customers on IPG I think one of the thoughts on a go forward basis as S. K is a big category on the commercial front and also there is a desire to have a turnkey solution versus.
Working with multiple vendors. So have you actually started the integration and start to hear anything from your sales teams on interest within the current client base.
Hey, Ryan it's up I can take that one.
Obviously, we just closed yesterday. So we're just getting started but we did.
Already get several impound outreach as from the client base and I do feel like there's going to be a significant opportunity in terms of.
The cross sell.
Paths for IPG I think the bigger picture here is this you know there's $4 billion of clients.
Pension opportunity that we've been pointing to just to get to 25% penetration with new century that number will now be bigger as we.
At IPG and I think whats.
Even more interesting to US is this notion that a lot of our clients have told us they'd prefer to have a few.
Fewer partners in the specialty space and the ability to aggregate several different value based specialty platforms into an integrated platform is core to our strategy going forward and I think a lot of traction.
From the from the payer and risk bearing provider community to have that kind of platform pulled together for them. So it's been really positive just on the inbound basis. Obviously now that we're close we can begin to work that actively and you know it always takes a little bit of time with new century vital but as we head into 2023, I think we're gonna be in a really good spot.
And again, it's because a bigger strategy here, which we've been talking about which is leadership around value based specialty care and this asset I think takes us and an important step Brian in that direction. So we're.
We're quite excited about it.
Perfect and then I'll end with a follow up there.
Regards to that $4 billion by penetrating a quarter of your five largest clients I know you've laid out you can move into new markets or states you can add on new disease States. If you will like what you did with Molina and then convert lives is there any one of those three that you are seeing more momentum on are dedicating more resources or hearing more in the marketplace.
And if so how are you tapping into that obviously, great growth already but how do you ensure that continues from an investment standpoint with the sales teams.
Yes.
Yeah, Great Great question, I mean, all three or four very large in terms of opportunities Ryan and they present in different ways with different partners I think it is mathematically the geographic expansion is probably the biggest right now.
Biggest opportunity and what we like about that Ryan is that.
It is.
As is the case with these molina agreements that we announced today.
Does act like a normal sales cycle, where you have to build trust and relationships and prove value to the next constituent which happens to be in lot of cases, a regional or state based leader within one of these larger plans and so it allows us to scale up.
As we build confidence with that partner, but it also is sticky and then it builds a whole new set of relationships I'd say, that's probably the first place were started and again. These molina relationships today that we're announcing and three new states or.
Have some consistency with that but there's also an element in those molina relationships of adding a specialty where.
We were doing one specialty and wanted to add the other and so that's kind of a secondary component. So that's that's how I'd think about it Brian .
Great. Thank you so much.
Sure.
Our next question comes from Sean Dodge of RBC capital markets. Please go ahead.
Yes, thanks, good afternoon, and congratulations on the great quarter.
On the the Molina expansion the oncology performance suite launch.
I think you said that this would double the size of the relationship with Molina.
But yes, I think before you guys had scoped them is contributing $75 million for this year is that the number we should think about doubling or am I misinterpreting that.
And then you also said initially oncology, we'd roll it out to three states.
I think you said by the end of this year is that just for this year is there the expectation of plan that you'd rollout to additional states in 'twenty three.
Yeah, Hey, Yeah. Good question Sean.
So it's just to kind of hit on a couple of different aspects of that question. I think 75, doubling 75 is the right general metric that we'd be thinking about.
It's about a seven.
700000 lives that we're adding with these three agreements we didn't disclose the specific states.
Kind of competitive reasons on behalf of our partner Molina.
But its significant and then I think that the right way to think about it is that were getting started here and.
With all these large partners that we have.
There should be additional opportunity overtime.
Okay, Great and then.
Maybe just more of a general update around the pipeline you've now 10, new operating partnership so far this year.
Well beyond your target of six to eight for the full year I guess as we think about.
The next couple of quarters.
Did everything just kind of fall into place in the first half of the year is that a pace you think he can sustain.
Yeah.
I think as I mentioned in the in the script you know we're at 10, that's great. We're halfway through the year and that is a good leading indicator that we're off to a great start.
Each of these things are different in kind and increasingly you got to look at what product is that how many lives et cetera, and importantly, we're adding a lot of a lot of business around the performance suite and so we're very well set up for 2023 is what you should take away from all of this.
And you know as we've talked about a lot.
<unk> revenue growth rate percentage or margin percentages less is less what we're focused on as a company than actual actual EBITDA dollars the gross EBITDA dollars and so.
That's sort of per John's comments, as we add more and more performance suite that has a margin maturation curves.
And that's core to how we think about it and we're very very laser focused on.
Gross EBITDA dollars as are the way, we're managing the company and expanding that EBITDA dollar mix and that really is I think the most important management indicator, but but youre right on the number of clients or even the revenue growth percentages. Those things are obviously in a very strong spot right now.
Okay.
Very helpful. Thanks again.
Welcome.
The next question comes from Anne Samuel of Jpmorgan. Please go ahead.
Hi, Thanks.
You've explained earlier that there are any performance based revenue started at a lower margin and maybe that's why you didn't see as much EBITDA upside as revenue, but was wondering how should we think about how that revenue is going to impact margins over time.
Sure.
Okay Annie.
The.
Margin profile that we've laid out for that style of arrangements.
At maturity is in the mid teens and so the real question is how much what is the mix of new business. That's at a much lower initial margin.
That's in our numbers now and as I mentioned in the prepared remarks, we have a lot of that this quarter, we have $60 million up new performance suite business and the numbers, which has that lower margin over time as we continue to scale, yes that should be a smaller and smaller percentage of our overall mix.
And you'll see our overall margin.
Expand.
But it will be impacted by the pace of that growth and as Seth mentioned.
We're principally focused on driving sustainable EBITDA growth.
Very helpful. Thanks, and then just a housekeeping one as we model IPG is there any seasonality to that business or can we assume similar cadence from.
Dr.
I would assume similar cadence for now and as we.
Get more experience with it under our belt and have a good sense of its growth trajectory over the next few quarters will give some additional guidance on that.
Great. Thank you.
Yeah.
Okay.
The next question comes from Sandy Draper of Guggenheim. Please go ahead.
Thanks, very much and good afternoon.
I'll add my congrats on the very strong results.
And actually Andy just took one of my questions about the margins I think about the new business coming in so thanks.
Thanks for that both you guys.
But I guess, maybe one question on the Avalon Health services.
The lives were basically flat revenue was down I'm, assuming just I want to make sure I'm correct was that all just performance revenue in the first quarter.
Just trying to think about this decline in <unk> and revenue there, but with a live staying the same.
Hey, Sandy.
You have it right.
Just speak for a minute on this performance based revenue topic, we sort of have two flavors. So you could think of it in two flavors. There are some arrangements, where we share some of that revenue with other parties for example.
What you saw in EHS in the first quarter, where we booked the revenue we also booked an offsetting expense.
We will do the same thing and the clinical segment as an example.
With Avalon care partners shared savings and the pathways to success program, some of which we share with our physician partners.
The second flavor of performance based revenue is at.
Effectively 100% margin, we get to keep all of it and Thats, what we had a little bit this quarter and everyone health services, which drove the strong EBIT performance sequentially there.
Got it that's really helpful.
And then.
Second question is just on the balance sheet side can you remind me I guess, a couple of things on the debt.
What the interest rate, we should be thinking about in terms of the debt and then are there any restrictions on paying that down and what's the philosophy on using free cash flow youre, not particularly levered, but is it hey get the debt down to zero as quickly as possible, we're fine with that we'll pay it down a little bit.
Just any commentary on the interest rate expense, but then also just on how youre thinking about your debt level going forward.
Yeah. Good question.
So the new senior credit facility is at a blended rate of <unk> plus 500, approximately we filed the credit agreement together with our Q.
As you can pour over how they fall asleep that's helped.
For the.
In terms of prepayments as I think we mentioned.
In the call announcing the IPG transaction, we have the ability to pay down a third of that facility with no penalties whatsoever, and we would plan to do that as.
Cash is generated.
<unk>.
The remainder of the facility has sort of typical one of three one to 101.
Call protection on it.
Overall on the philosophy point to your to your question there I think what we will seek to do.
His.
Focus on our strategic priority is really growing this business and keeping a very disciplined balance sheet approach.
We like this net leverage where we are now.
Well after the converts are.
Our in the money here.
And keeping in this zone.
But I think I said on the prepared remarks is getting under two feels about right to us so that's.
How we will think about it going forward.
Great very helpful. John I appreciate it.
Okay.
The next question comes from David Larsen of BTG. Please go ahead.
Hi, congratulations on the very good quarter.
Can you talk a bit about Avalon care partners and our primary care business.
If you can like maybe how much revenue is coming from there or just sort of size. It in some way. It seems to me with Cms's proposed rule. This could be a very high growth area. You just anything around like the lives the potential growth portion of the overall business, that's coming from Apple and care partners.
<unk>.
Yeah, So hey, David Seth.
We haven't broken out of UCP from new century, it's part of the clinical segment, we have talked about our various relationships and the number of lives that we have and things like that over time.
And I think that's a helpful metric when you think about the life life count and in and around 100000 lives compared to some of these other publicly traded platforms that have a couple of hundred thousand lives or 100000 or in that same zone. So we think it's a pretty significant material platform given the number of lives that we're covering.
David and then I think the next order of questions. Okay. What are those lives and.
Interestingly as Theyre, all really truly full.
Full risk lives some through the ACO program two pathways some through.
A capitation arrangement, we have with a blue Cross plan and I think youre going to see growth in both of those categories going forward, David So more ACO lives of course.
As you think about $30 million of those lives out there as a target opportunity in the years ahead.
Big opportunity for us to continue to grow that side of it and then of course often in those same states, where we have physicians that are participate in the ACO, let's go to the Blue plan, let's go to the other other large national plans to establish.
Really more like capitation style arrangements that are consistent with what you see some of the other risk based primary care groups doing so yes, we think we've talked about this a lot we think its a really nice hidden gem within the broader platform. It leverages. The same technology, the same competencies et cetera that helped drive the success.
With new century health and it's really just approaching it towards a slightly different population, which is the primary care population, but.
But it's very similar to what we do across the rest of the business. So excellent platform I think you're right a lot of growth potential ahead.
Okay.
Very helpful. Thanks, very much any sense for what the P. M. P. M read is for everyone and care partners is it in line with the rest of the book and then just one quick one for IPG. It's my understanding that you don't really get involved in like the clinical decisions as to whether or not to actually get like hip or knee surgeries.
Could that change over time, where you bear risk for IPG and you implement.
Preferred networks kind of similar to the oncology business. Thanks.
Yeah, well one of John can take the first question on <unk> P M and rates and I'll take that P. J.
Hey, David.
Two numbers that we've put out there just to give a sense of the ECP population on rates.
For shared savings with the pathways to success program last year.
The total revenue booked for first performance here translated to about 22 <unk> P M.
In the third.
Capitation like agreements in Blue Cross I believe we put a number out there of around 600 Bucks 10 P M.
Seth can take the I think to your question.
Okay.
Yes, non IPG David the answer is yes, we do we do a little bit of that today in terms of selection of devices, and therefore kind of physician decision, making clearly theres an opportunity to expand what we do which would head a little further towards what we already do in new century with oncology and cardiology around.
The broader what I would call pathway design and therefore, what's the full physician decision making.
Path and so that's clearly one of the things that as an opportunity in terms of future product for IPG.
Great. Thanks, very much congrats again.
Yeah Youre welcome Thanks, David.
Yeah.
The next question comes from Jessica Hansen of Piper Sandler. Please go ahead.
Hi, Thanks, so much for taking my questions.
So I was hoping just hoping to follow up on the Avalon how services questions.
I think by our estimate there was about $8 million of EBITDA upside in the quarter. So just I'm curious to know is that related to 2021 performance an MSP or is that MSP reconciliation still kind of yet to come in the third quarter.
And then maybe just if you could talk about how to think about evolution health services margins in the back half of the year that'd be helpful.
Okay.
Hey, Jeff.
The sequential change in EBITDA and EHS was related to the performance based revenue that we talked about.
And I would say that both 2021 and a little bit of early 2022 data coming through.
And from our partners in those arrangements.
That was the principal driver there.
And on overall margin.
If you look at the trailing 12 months.
Average out some of the quarter to quarter noise in EHS, that's a pretty good proxy for the run rate of that business right now.
Of course growing as we add.
Bring bright on in full at the beginning of next year.
Got it that's really helpful. Thanks, and then just you mentioned that medical utilization and the mch performance sleep buckets kind of tracking in line with your expectations can you just maybe go into what your current thoughts are in terms of deferred care coming back online potentially in 2022 or 2023.
And that's it for me thanks.
Yes, great question.
So the similar.
Similar to <unk>.
A number of other commentators on this subject.
<unk> seen screening for cancer and things like that authorization levels.
<unk> and as we've gotten through the pandemic here into whatever this new normal is.
We do anticipate and anticipate in our guidance a bit of that.
Deferred care coming back in the back half of this year.
It's incorporated into our guidance not a giant number.
But we have.
An expectation for that.
And I do think we think that this year. Thanks.
Yeah.
Once again, if you would like to ask a question. Please press Star then one.
And our next question comes from Richard close of Canaccord Genuity. Please go ahead.
Great. Thanks.
So I was wondering if you could elaborate on the timing and the number of lives of the Blue partnership for Avalon Health services.
Maybe you didn't catch that.
Yeah Richard.
It's about 250000 lives, it's a lot like our tech services suite, so low P. M. P M technology oriented relationship.
It won't have a huge revenue impact as it goes lives kind of going live this quarter.
Q3 that is but it's not going to have a huge revenue impact given the P. M. P. M that said, obviously just like on the new century side, establishing a relationship with a major blues plan is important and as we've as we've shown there is good opportunities to build that relationship and turn into something even bigger and so that's I think probably one of them.
More exciting parts, obviously job one is to do a great job with the piece that we have and as we do that we've we've been able to expand these kinds of relationships.
Okay.
And then with respect to the oncology partnerships with Molina.
Just wanted to clarify none of those are transitions from the tech suite are they.
No.
No they're not.
The brand new <unk>.
Relationship and we've only had cardiology historically with Molina and this is our first oncology.
Implementation and obviously, that's big for lots of reasons I think Richard the biggest thing is that we did a good job with the cardiology side and did what we said we're gonna do delivered and have that trust with them and that gives us the opportunity to then talk about oncology and obviously.
That's gone well were going live there now.
You know the next opportunity with Molina or really any of these opportunities were in a handful of states right now and obviously theres a lot more opportunities beyond the couple of states where and so.
We keep our head down and we do a good job we deliver we have some confidence that we'll be able to continue growing and.
We continue.
Continued delivering for these sorts of organizations.
Okay.
That's helpful and with respect to the performance suite, obviously, great on the Marina side of things.
How are you thinking about the pipeline of potential other.
Managed care organizations looking at the performance suite.
Yes, it's a good question.
You know I think the first thing Thats obvious is that we've got these very significant relationships with organizations like the ones. We've been talking about some of our larger existing customers that are national plans, Richard in our penetration rates today with those large.
<unk> is actually quite low.
And that's where we get the $4 billion opportunity just getting to 25% penetration.
So that's kind of an obvious opportunity that we're going to continue to run at I think that'll play out over the years to come and it'll be hopefully consistent then.
Lots of things like we saw this quarter continuing with different partners in different ways, and maybe different solutions, but a lot of it I think will be performance suite oriented.
The second piece, obviously is new logos.
And there's a.
A bunch of different blue plans out there that cover roughly 100 million lives. We only have a couple of those today are there.
There are other regional plans and there's a few national plans actually IPG has relationships with traditional new century doesn't and so that's going to be our second big priority is also adding some new logos at the same time, we do this this.
This big expansion opportunity that's right in front of us.
We'll want some balance in there over the course of every couple of years you want a nice mix of expansions of both proved that we're doing a good job, but it's just.
The right way to serve our client, but also continue to add new names.
Okay. Thanks congratulations.
Youre welcome Thanks, Richard.
The next question comes from Charles <unk> of Cowen. Please go ahead.
Yeah, Thanks for taking the questions here.
Maybe just wanted to maybe follow up and just think bigger picture stuff.
Think to an earlier question looking at the sales pipeline and I think now it's been the last few years, where you've either come in at the top end or exceeded the number of new partnership signed.
How are you thinking about what the right number is that investors should be thinking about as we look forward, obviously, you're a much bigger.
Any now.
And then maybe a little bit more diving into it as well.
The resources it takes internally to work on <unk>.
Expanding relationships with some of your big existing customers how does that differ.
From the resources that you have invested in sales and Biz Dev for finding new logos.
Yes.
Happy to take it Charles So you know obviously, we've gotten that question a lot about you know mid teens growth target, where we've been at 40%.
Our CAGR for the last four quarters I think we get that question a lot.
We like having a target that we can meet or exceed consistently.
We're going to keep it that way that we can continue to feel good about our ability to deliver as we have done so.
That's.
Just the philosophy, we have of being a little bit Conservative I think we're obviously well set up for 2023 as well with the new logos. So.
That's just a philosophy, but I think we'll continue to see.
Good growth, obviously as I've mentioned earlier I think a lot of it really is about <unk>.
Focusing on the EBITDA dollar and that's how we run the company and sometimes you may grow a lot on a on a percentage basis and the mix is more performance suites. It takes a little time to ramp.
You might also have a different margin percentage, but at the end of the day, we're sort of orienting Charles back to kind of the EBITDA dollars piece. So that's how we think about it.
We're really happy with the results we've had on the growth side.
It's it's it's I think validating with respect to the value proposition of the product and the big opportunity that's out there so.
Not a great answer other than we want to keep beating the numbers and we feel good about the future.
You know on the expansion point resources required et cetera.
In a good way I think a good way it takes a fair bit of work to expand with any given payer. Even if you already have a relationship in three or four or five states. You got to go do the work to convince the next days now you have a little bit of a halo and you've got the kind of sister company feeling within the company.
Lynn support and credibility, so, it's probably a little easier than a net new but it does take work and I think it takes work going on and it also I think insulates it Insulates us.
If there is ever a change in leadership at the corporate level. The states really Austin the regions are actually really where the power resides and so it really does act and feel and look like <unk>.
Incremental clients for us, which is which we think is a feature of positive feature of how these national plans work.
Hopefully that answers your question.
Yeah, that's helpful and I understand where you're coming from.
And obviously a lot of success so far.
Maybe just to follow up on.
Similar to <unk> question about the evolution health services EBITDA margins on the on the clinical solutions side.
I think to a previous question right, it's kind of relatively flat as youre kind of ramping up how should we think about the progression.
For the rest of the year should it be sort of is there any kind of step up that we should see in the third quarter or should we kind of ramp it up.
The more linearly.
We exit the year.
Hey, Charles.
Quarterly dynamics in the next two quarters I would expect.
As we've been saying Q3.
To have.
Meaningful.
<unk>.
Performance based revenue.
<unk> recognized in the quarter.
So you'll likely see a step up there.
And then Q4 likely a little less performance based revenue.
The dynamics within a time span of a couple of quarters are going to be driven by timing of that data and subsequent revenue recognition.
And the maturation of the new business adds.
Typically as measured over a slightly longer time periods, so you're going to start to see that materialize a year from now and into 2024 and so on.
Got it and then if I just have one follow up.
Apologize if someone asked this before.
He lives on the platform a new century Tech and services I think we were all modeling a shift of lives from tech and services to performance suite for the Molina lives, but obviously, we've seen a step up in both can you remind us what the difference here is.
That was added just to both was it any specific ramp up separate from.
What you might have called out previously.
Yep Yep.
So.
Under the <unk>.
Headline number and the details we did have that shifts the molina lives in the tech and services bucket into the performance with bucket. We also saw some nice growth in the quarter from some existing clients expanding our business with them in the tech and services suite.
Okay, great. Thanks, a lot guys congrats.
Thank you.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to Seth Blackley for any closing remarks.
Alright, thanks for joining us this evening and I look forward to seeing you. All soon on video are out on the road.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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Sure.
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