Q2 2022 Signify Health Inc Earnings Call
$1 grew 16% on a year over year basis, including 18% growth from home and community services or <unk> HCS as well as strong contributions from carrying home.
Total adjusted EBITDA was $52 6 million, which is the highest level in our company's history.
We announced in July signified health has decided to focus on our fast growing and profitable businesses performing community services and care and home <unk>.
This decision will allow us to invest more on supporting the growth of our in home services. Our total cost of care enablement platform and the needs of our health plans and provider clients.
With our clients and shareholders in mind, we are winding down our episodes of care services, including.
Including ending our participation in bundled payments for care improvement advanced program for <unk>.
We are confident that our HCI and <unk> businesses are well positioned for continued robust growth due to our leading capabilities, including hard to reach gaps in care.
Including engaging people in their homes and connecting primary care providers with the actual insights required to be successful in Diavik model.
We are already having success in converting PTA clients. The total cost of care programs, including several signed contracts in the four weeks since we move pass the BPI program.
Additionally, we are moving quickly to deploy our existing in home capabilities as well as our experience managing specialty and post acute services into our total cost of care contracts in order to drive incremental shared savings.
Client interest in these capabilities is extremely high given that home post acute and specialty settings are all areas that primary care providers have historically struggled to reach.
Overall, we are excited about accelerating our investments and our fast growing businesses.
Going forward <unk> will have a financial profile that has a greater mix of revenue from businesses with strong visibility and growth higher margins and improved free cash flows which positions us to continue to expand and diversify our capabilities in order to help our clients be more successful in their value based care contract to improved outcomes for patients.
And the ACS business, we continue to see strong demand for enrollment evaluation and during Q2, we completed 620000, AEG, which was a record for our company. Our ACS segment is generating robust growth as our health plan clients prioritize access at home as part of their focus on closing clinical behavioral and social care.
Got it.
Clients are seeing the value in our unique capabilities, such as our ability to see patients in the home and refer them to care for pressing needs, particularly the social and behavioral needs that are crucial for improving health that are often easier to identify and assess and home than in traditional care settings.
Our growth in the ETF business is supported by our strong execution and expanding our clinical capacity, while also driving improvements in network productivity and operational efficiency.
Growth in our clinical capacity has been powered by a combination of expansion of our provider network as well as increases in the average number of HD completed per provider, which is supported by our technology platform.
This demonstrates that we are having success recruiting providers and the providers are devoting more of the available time to our platform.
Feedback from the providers in our network indicate that the value of the flexibility we offer to control their own schedule.
It's about your ability to keep reschedule film and productive which was aided by our industry, leading technology platform, our ability to reach members across the country and the strong client relationships you have with leading health plans.
Our operational execution has allowed us to continue to expand our HD volume with new and existing clients, including National and regional health plans, we were having a very successful selling season for incremental business in 2023.
We're also seeing momentum extending our client relationships and to additional books of business such as managed Medicaid and commercial plans as our clients recognize the value of <unk> as an effective method for engaging members to identify and barriers to help addressing health disparities and connecting them to the Vaca <unk>.
These positive trends reinforce our confidence in our ability to continue to deliver robust growth in our ETF business over the coming years.
In addition to our comprehensive in home evaluations many of our health plan partners are working with us.
On initiatives to connect the members we serve with primary care providers specialist mental health resources and care management programs, which we call a return to care offering.
This is something that CMS has been vocal about supporting the key component of the IAG.
An example of one of our return to care initiatives is that earlier. This year, we launched a program with the national payers to engage with members convenient mammogram threat.
Breast cancer is most commonly diagnosed among middle aged and older women with 70% of new cases diagnosed among women 55 and older.
Based on preliminary results of our Mammogram program, we had a 90% retreat and identify that 56% of those members did not have a mammogram scheduled <unk>.
We've been able to meaningfully reduce that percentage by engaging with members.
As noted mammogram, which could lead to earlier detection intervention and improved health outcomes.
We also continue to expand the breadth and complexity of the services, we provide and the homes are a diagnostic preventative services or GPS.
So far this year, we have made significant progress as we evaluate pilot opportunities to expand the menu and home diagnostic preventative services that are available to our clients and the people we serve.
For example, we are significantly expanding the availability of Spirometry testing, which is used to assess respiratory health and identify conditions such as COPD could often go undiagnosed and untreated.
These diagnostic tests provides significant value for health plans and members, we serve earlier simplification and management of chronic conditions.
Our client strategy is to improve health outcomes.
We believe our pipeline of additional add on diagnostic preventative services positions us to drive growth in revenue over the coming years, allowing us to connect to the more than 2 million members, we serve with innovative cost effective diagnostics from the comfort of accruals.
Shifting the Caribbean the team has outperformed our expectations since we closed this acquisition in March our shared savings performance. So far this year has exceeded our projections, we believe our in home capabilities will unlock incremental savings in 2023 and beyond.
Additionally, we plan to leverage the resources and expertise to be developed and managing post acute care transitions and specialty care and episodes business by bringing those capabilities into our total cost of care model.
For example, we plan to deploy our transition to home program with our ACO clients.
Transitional home Thats focused on building and scaling readmission reduction program by leveraging our clinical and social care coordination capabilities to engage with at risk patient, one and patient discharge, including the tax line in addressing social and non medical need.
And launch transition to home in early 2021 and during this program's first year more than 3000, social in terms of hub caps were identified and nearly 55% redress through coordination with local providers community. This was driven organization and family members.
Last month, we reported findings from the first year of the transition to home program and a case study published in the New England Journal of Medicine Cabinet.
So focusing on care plan review, facilitating access to home and community based services and reconnecting patients with primary and specialty care providers. The transition to home program reduced 30 day readmission by 14% and 90 day Readmissions by 13%.
This reduction in avoidable readmissions can generate significant savings for the health system clients since the average cost of the prevented Medicare Readmission is estimated at 15000 to $17000.
When we bring these capabilities in the total cost of care models with our health system partner, we believe it will help drive material savings and better experiences for their patients.
We are wrapping up a very strong selling season for new ACO clients and we are on pace to significantly exceed our targets for growth in attributed lives as we look ahead to 2023.
We're also seeing momentum in transitioning clients that are currently enrolled in the basic track.
Program to the enhanced track for 2023, which allows clients and signify to sharing a greater percentage of the savings generated while also benefiting from our unique collaborative ACO model that reduces downside risks.
Following the decision to exit that business, we met with our clients.
To discuss the roadmap for future participation diabetes care programs. During these discussions many of our <unk> clients expressed interest in evaluating the opportunity to join the <unk> program for 2023 or 2024.
Several clients have already moved into the contracting phase and are expected to add tens of thousands of lives attributed population in 2023, which is a testament to the value and partnership that signified health has created with these clients.
Normally could be shared saving contracts with health systems to take several months.
Were able to transition many of the BPI clients to the MSP program in a matter of weeks did their conviction in our ability to drive savings as well as their desire to participate in stable permanent value based programs such as the Msft ACO program.
We're also seeing growing interest from large multi state health systems, who recognize the power of our unique combination of total cost enablement capabilities, plus signifies ability to exit the home and to manage post acute and specialty care transitions.
In May we hosted <unk> annual client symposium the event brought together more than 600 person attendees of health systems physician practices and other health care providers to discuss the future of patient care developments in health policy and the accountable care landscape over the last few years and our vision for how the combined signifying Cambrian platform.
Well help our clients succeed in total cost of care programs.
Based on my discussion with Teradyne clients, a few things are clear one Caribbean technology, including Kevin coach is viewed very favorably in the true differentiator.
Health systems are looking for partners to signify to help them access the home in order to assess and manage conditions appropriately.
Three health systems also need help with managing care transitions and post acute care.
Overall, it was a very productive and inspiring to them and our team and our clients split the symposium with renewed energy conviction in the value of bringing together the capabilities of signify and Caribbean.
On the regulatory front, we believe the recent Adobe.
'twenty three physician fee schedule proposed rule is indicative of CNS with intention to incentivize participation in value based care through them its a fee structure there.
There are a number of provisions in the proposed rule that will encourage the creation of new acos, including advanced incentive payments for an experienced eight years, serving rural and underserved communities to invest in technology platforms and care redesign.
For existing ACO participants revisions to the benchmark methodologies are expected to reduce the rushing effects of an atheist historical savings performance on their future benchmarks, which should encourage high performing participants within the program.
Overall, we view the proposed changes as a positive development for signify and our clients and as a sign that Cms's ACO is the primary vehicle to achieve their goal of having all Medicare fee for service beneficiaries and accountable care relationship by 'twenty three.
Also excited to report that signify continued to attract leading talent to our organization in.
In July payment for Us he joined as Chief product officer payment is more than two decades of experience leading product strategy for health care and technology companies, including serving as the chief product officer at Optum insight payments.
Payments deep experience in healthcare payment and technology will be valuable as we expand our portfolio of.
To help our clients improve quality and outcomes for the people they serve.
We've also expanded our footprint by opening new offices in Oklahoma City in Ireland.
The city offices or third regional service Center.
Several hundred employees with a focus on member engagement and returned to care coordination services.
Our office in Galway, Ireland Technology Center, and provide access to a market with significant software development and engineering talent and during the second quarter to show Concannon joined signifies the SVP of engineering based out of Ireland Michel joined US from Microsoft and previously held senior roles at optimum Cisco.
You can probably tell I'm extremely excited about the team. He has built its signify and the momentum we see in our business overall I have never felt better about our strategy and growth trajectory of the organization and our ability to continue to scale our services to help patients have better health care experiences.
I will now turn it over to Steve to discuss our financial results.
Thank you Kyle and good morning, everyone signify had another strong quarter in Q2, reflecting our success in growing the business, while delivering significant value to our clients and individuals.
During my comments I will refer to the tables that appeared in the earnings press release issued yesterday as well as the earnings presentation posted on the best page of our Investor Relations website.
As shown in table, one we had total revenue of $246 million in the second quarter, which was up 16% compared to the year ago quarter. The.
The increase was primarily driven by Acs revenue growth of 18% year over year to $208 million. This was another record high for the company total evaluation volume for the second quarter was approximately 624000.
Virtual valuations represented 15% of our total valuations during the second quarter, which was up from 9% in the year ago period.
On a monthly basis, we saw a steep increase in the percentage of virtual evaluations in April which we attribute to the spike in COVID-19 cases associated with the on the crop.
Around that time.
Our mix of virtual visits in May and June returned to more normalized levels given.
Given the continued strong demand from clients for <unk>, we are increasing our outlook for overall IC volume in 2022 to a range of $2 $42 million to $2 $4 million to $5 million, we expect to increase in volume will offset the slightly higher percentage of virtual visits that we have been experiencing.
ECS revenue in Q2 grew 3% to $39 million caravan contributed $16 6 million of revenue in the second quarter, which was ahead of our expectations due to evidence of a better than expected savings rate and our total cost of care programs and an upward revision of our shared savings revenue estimate provided the.
The true up in the quarter of approximately $3 billion.
Which is not expected to reoccur in Q3 or Q4.
For the episodes business that we are winding down revenue in the second quarter declined sequentially, primarily due to smaller things Gi program side.
As a reminder, our reported episodes revenues based on our estimates as we await CMS is response to objection that most recent speech a reconciliation.
Additionally, we are in the process of evaluating our segment reporting going forward given the changes in our business.
Moving to the table for total company adjusted EBITDA for the second quarter was $62 6 million and grew 15% compared to the year ago period.
Adjusted EBITDA for the ACS segment of $65 2 million grew 17% year over year.
ECS adjusted EBIT in the second quarter was negative $2 6 billion compared to negative $1 2 million in prior year's quarter.
<unk> Bank contributed significant positive adjusted EBITDA in Q2, although this was more than offset by negative adjusted EBITDA of the episodes business.
Back to table, one net loss for the second quarter was $490 million, which includes a $520 million loss on impairment of goodwill and intangible assets related to the wind down of the episodes business.
As shown in table two of our balance sheet remains strong and we ended the quarter with $439 million of cash and equivalents.
Total debt outstanding at the end of Q2 with $338 million and signify remains in a negative net leverage position since our cash exceeds our debt level.
Operating cash flow for the second quarter was negative $3 million compared to negative $21 million in the year ago quarter, our days sales outstanding or DSO for the ACS segment improved by nine days in Q2 compared to Q1.
We expect operating cash flow to continue to improve in Q3, driven by continued sequential improvement in dsos for the Acs business.
Also note that our cash flow in the second half of the year will be impacted by onetime cash costs related to our exit from the episodes business, such as severance and contract termination costs.
Our updated outlook for full year 2022 is as follows.
<unk> revenue in the range of 800 million to $810 million.
<unk> revenue in the range of 45 million to $48 million for the 10 month period. Following the acquisition on March one.
Adjusted EBITDA margin for Acs and caravan combined of approximately 29% to 30%, which is before shared costs that are currently allocated to ECS.
Of the approximately $60 million of annualized shared costs that are currently allocated to the ECS segment. We continue to expect to be able to eliminate approximately $30 million to $35 million in annualized expenses by the end of 2022.
We arent providing guidance for the episodes business given the significant number of moving parts related to the wind down of our episodes business and our pending objection with CMS.
Regarding the episodes business. We were recently notified that CMS declined a request to waive the 90 day termination notice period for our exit from the <unk> program.
As a result, our participation in the program will continue through the fourth quarter and the majority of our expected expense reductions will occur in Q4, as we wind down the business.
As far as sequential trends, we expect <unk> volume and revenue in the third quarter to be flat to down slightly compared to the second quarter, which is consistent with last year. We also anticipate the percentage mix of virtual visits.
In home visits to increase in Q4 similar to what we saw in the fourth quarter last year.
Overall, our Acs and Caribbean businesses had significant momentum heading into the second half of the year in 2023, and we are excited about our go forward financial profile, including improved revenue visibility and growth stronger margins and improved free cash flows now I would like to turn the call back to Kyle for closing remarks.
Thanks, Steve.
The aim is to give providers payers and the people they serve the data tools and support needed to achieve the best possible health outcomes and to do so in a cost effective manner.
As an organization we are pleased with our results for the first six months of the year and excited about our strong growth outlook for the second half of 2022 and beyond.
And we remain focused on the opportunity in front of us.
Positively impact a fragmented healthcare system in partnership with risk bearing providers and payers to get patients better options for maintaining and improving their health rigor.
Regarding recent media reports focused on potential M&A, we do not comment on market speculation, we will not answer questions on this topic during the Q&A session.
I will now turn it over to the operator to take your questions operator.
Sure.
Sure.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press Star then one on your telephone keypad. If you wish to withdraw your question. Please press star followed by number two when presenting to ask a question. Please ensure your phone is on mute locally.
Our first question comes from Jessica <unk> from Piper Sandler.
<unk> over to you.
Hi, Thanks, so much for taking my question good morning.
So I think kind of more recently, we've come to appreciate that IAG has an annual wellness exam, both have a place in the course of the camera and I'm. A member can you just discuss exactly why that that's the case why there is room for both and then just the extent to which that deal is actually resonating with your health plan customer.
Thanks.
[laughter].
Josh.
<unk> did see your note about your experience with your grandmother literally.
It is around all over the office here.
The main pool.
We're now a bunch of employees, who are trying to do secret shopper now to all.
Women, Andy on 19 months, you're going to you're going to get an AUC done now too. So we're going to as everybody's going to be doing that.
That trend.
Okay.
Yes AWD.
Separate reimbursed billable thing.
It's very much focused on it.
Quick check in annual wellness visits they predominantly happen in provider offices, obviously in a pretty quick in duration, but theyre designed in our purpose was to try to draw back Endocare and now we know that doesn't happen all the time.
We do it totally different than that NOL.
Enrollment to the compliant, but when we go in as you saw with an hour long very comprehensive exam were explained senior medication walking them through chronic condition. They might have helping them to understand why do you need to see a specialist and booking a lot of that carrier follow up care for them and so it's a totally different and more comprehensive.
Activation point.
Being in the comfort of the home with them and it's why we've continued to see the three service.
Medicare advantage plans provide for their members and the demand for a continued to rise.
I'd also say we've been excited to see.
The Medicare advantage plan to realize the benefit of it and see the satisfaction that this drive during very intense recruiting periods for Medicare advantage. Many of them are carving in our visits our IHG intended member benefits and actually advertising them very directly is they are talking to a group accounts or even their individual brokers.
And I think the biggest sentiment at all Jeff.
About 80% year over year Reengagement rate, but we're going to see the same person time and time again, because they like your Grandma I'll give you a lot of the benefit.
Understand that we are there to help them understand their conditions explained out Saddam and connect them back to care more than anything.
And that's really helpful and maybe just a quick follow up would be can you help us understand where completion rates are today and how they've trended pre versus post COVID-19 and where you think they have the potential to go.
Again.
Yes, absolutely completion rates today or as you saw we issued an all time high quarter. The number of homes, we have gotten into and so we're doing great on the completion front I would say two things are continuing to happen we're seeing conversion.
This is just the number of attempts that we do outreach somebody via email at <unk>.
<unk> mail et cetera, and then the actual completed visit going up and then our doctors, who are bringing us more capacity and nurses that bringing up more capacity. The number I mean, there is showing up in realizing that.
Signified gives them an opportunity to get <unk> with less administrative burden and offer them a flexible schedule daily and even.
If they decide they want to work in a different state or travel around six months of the year, we offer that flexibility, which I think many of them.
Enjoy even more so.
Whatever the pandemic now so it's both conversion and capacity.
Driver between are behind us.
Our continued success.
Thank you.
Okay.
Thank you. Our next question comes from George Hill from Deutsche Bank, George Your line is open.
Okay.
Good morning, guys. Thanks for taking the question and kind of what's going to be hard to top the energy from that last answer.
So I'll start with <unk>, when we talk about the declining revenue per visit you talked about the impact of virtual can you also talk about whether or not there was an impact from client mix as we think about the first half of the year I know that we've discussed in the past kind of like who you are.
The company is focused on servicing in the first half of the year from an MTO perspective, I'm just wondering if client mix also had an impact.
On the revenue.
Yes, absolutely.
And that said a few times, but this year don't expect a lot from.
The revenue per <unk>, it's going to be slightly down don't read too much into it because if you look at it but when we look at like for like across our client base, it's moving up.
It's just a matter of the mix piece is driving it down.
C 2023 that starts to go back up as it OLED. So this year, it's really just mix a little bit of a reversal in the first half and then.
When we do that virtual obviously, there's less connected devices as well so put those three together, but by far the biggest one is mix.
No. That's helpful. And then I guess as a follow up I guess can you talk about the slope of getting to the stranded costs. There are 60 million now I guess the target is to turned $60 to 25, I guess, so how should we think about the slope and is there any changes as we think about 'twenty three and beyond just trying to think the 25 number lower.
Yes. So look we think we started with the $60 million. We've spent a lot of time over the few weeks youll identify and exactly where all that's going to come from the slope is really going to be given given the notice warning and everything that we've given to employees will be Q4 focused so we will start.
You'll see a little bit of a wind down in Q3, but the majority of that will happen in Q4 with our exit run rate being in that $25 million to $30 million heading into 2023 as far as going farther.
There's always opportunities for us to find efficiencies, but right now we're comfortable with that 25% to 30.
Okay, and then I guess kind of all hit you with one thematic question, which is just as we see more and more patients heading into value based care programs that are led by provider organizations. I guess, how do you expect that to impact the home versus office IAG mix and is there an opportunity to market to these provider organizations given that we.
No that Theres room in the model for both the IAG plus a wellness exam.
Yes, absolutely I mean, we call them <unk>.
Several of them with clients.
Without a doubt.
The plans and the provider as everyone understands that there is just a really unique set of data and access you get from the home. That's why the our clients are always pushing for more in home presence versus virtual.
It's just a way better experience and I think that providers too.
Because of our nationwide reach and scale and the ability to be in every county in the U S.
We're bringing them something that they could not scale easily on their own and cost effective way and we're driving all that volume back into them. So it's super important to remember we never compete with these provider organizations, we don't bill.
Procedures warehouses.
Doing gap in care closures and quality work condition identification, and then driving folks back and it really directly way with a ton of information we've done all of that medical information clinical and social information behavioral information back to those providers. So we're giving them a leg up to better manage risk in this contract and in fact, you can really put an emphasis on it.
That's exactly what we're planning on doing with the Caribbean right. There in these ACO arrangements, we're going to take our in home services to those both into the ACO and I'll make sure that they're going to see their specialists. So they are going to get.
Rehabilitations on their meds or <unk>.
On track they are a bunch of social issues, they were hoping to close the gap to them.
Great.
Program and a platform to be able to run across all of Medicare.
Couldn't be more excited.
CNS moved risk adjustment in ACD enter the ACO book and that we've got this nationwide platforms really make it work for all Medicare beneficiaries.
That's helpful. Thank you.
Yes.
Thank you. Our next question comes from Michael Academy from Bank of America, Michael Your line is open.
Good morning, congratulations on a really nice quarter.
Maybe to take George's question, but different vein, obviously, you had a pretty meaningful extension expansion earlier this year.
With one of your largest clients can you give us a sense on whether youre seeing any changes or any behavioral dynamics on the broader and deeper partnership and how that's factoring into your IHG volume.
Yes, I would say, it's been pretty good expansion across all of our national plans this year and deeper engagement.
Really been focused on conversion in particular, and how can we get the and activate more and more of their members and their meetings in new population.
Long talked about managed Medicaid to turn into a double digit million business for us.
The last two years and it was effectively zero and that showed up in.
It takes about five years ago, so the new populations and it's getting deeper into the existing population I would also say that.
Got.
Increasingly better co marketing and co branding with the count.
By the plan that we're seeing.
A big group retiree accounts getting involved more during the bidding and governance process with their planned clients and so it's been a really.
Thank you have deeper engagement and deepen member touch point, that's really resonated I would hope that they were seeing a lot of gains from our multimodal member engagement platform and so we're seeing a real uptick in self scheduling E mail SMS engagement from seniors helping.
Helping to meet them, where they are.
And allowing them more flexibility to bulk and reschedule and cancel and rebook or an appointment.
All of that is just getting tighter each and every quarter as our technology teams continue to deliver a lot of this automation and more innovative gating point and so I do think the plan, they're viewing us as a.
We are physically in their members' homes, almost $2 5 million of them. This year all across the country and they see that as a real activation point regain the trust and the license to be there and we're sending any.
Medical professional with a master's degree so someone who is really working at the top of their license and they are asking us to do more and so while we've been very focused for the last five years on just going from 250 to $2 5 million homes on this year.
We're really focused now on expanding and doing more inside of this home, making sure that we're helping to manage conditions returning folks back to care, it's really exciting and the stories that come out of it.
And the impact that we're having in these individuals.
It's really exciting really invigorating for our providers entity employees, you're thinking about.
Got it and then if I can ask just one more.
Since the idea to evaluate M&A, obviously, a lot going on on the one hand with the wind down of ECS yet at the same time carve them out of the box appears to be outpacing your expectations on a pretty nice clip. So how do you feel the organization as a whole is positioned in the event that M&A comes down the pipeline or is this just more thing.
About this was opportunistic in the event that you do find something that is more active.
Active or a passive approach towards the potential for further deals.
For us to do M&A.
Correct, Yes, sorry, yes, yes, yes, no problem. So we've got a good pipeline of organizations and companies that we're engaged with and I think our focus always is.
On tuck in acquisitions, the ones that have out of the gate synergies caravan with that Kate I think what we're really excited about care advantage, we landed integration materially in three months and I think that's a testament to the team.
Built out here and the amount of rigor that we pulled into really having a good capability to manage.
And then the integration tightly and keep in mind, Michael We ran that integration as we were.
Thanks, Lisa wind down the <unk> program. So we were doing a lot of activity.
I couldn't be more proud of the team here and all the hard work that they did and it was a lot of long focus you mean getting all that pulled together, but the results speak for themselves.
<unk> just been a smashing success and I think that more than anything it's given us energy and conviction.
Tuck in acquisitions like that in the future something that we without a doubt earn the right to do and we'll continue to succeed and execute on as we pull them through.
Awesome. Thank you.
Yes, great questions.
I'm always impressed you get your research and around 30 minutes, it's unbelievable.
Thank you.
Our next question comes from Sandy Draper from Guggenheim Sandy Your line is open.
Thanks, So much I'm not sure my questions are going to be quite as.
As pointed as Michael but.
My question probably for Steve.
The cash flow side, and I apologize I had to jump on the call late I don't think you've covered it but yet it was better in the second quarter, but still tracking below last year any commentary there and then I know you don't break it out, but when we think about the cash flow impact.
<unk> business versus the other how much of a drag is that the issue and can you mitigate that in the back half of the year is winding down that business can you do things to sort of impact or slowdown any negative cash flow. So you are not burning cash. If you are in a business you're trying to exit.
Yes. Good question Sandy let me let me go through so as you mentioned cash flow improved over Q1. It improved over last year HCS is incredible growth is driving higher <unk>.
Our dsos improved by nine days.
We'll continue to see that improve in the second half I had mentioned earlier that one of the challenges. We had is we had a couple of health plans with system changes. The majority of that is resolved we have big cash collections in July and so we'll continue to see our cash collections improve in the back half.
Of this year, so that sets us up then to the second part of your question on ECS, absolutely, we've probably got a burn rate of around $10 million on the ECS business that will primarily hit in Q3. It look we've got a lot of obligations, we still have to fulfill for the program but.
In October we will.
See that dramatically come down and so.
Youre, probably about managing the two pieces that will be managing and youll see the big drop off in the burn rate come down dramatically, we'll be on the stranded costs and the ECS direct cost and that will be winding down and we should be in place by.
End of year, where we're down to our projected stranded costs going into 2023, and then you'll you'll see with the business that we have remaining the Acs business, we'll get those dsos in the right place 2023 will be returned to very strong cash collections.
Okay. That's helpful and then just one.
And you may have touched on it at the end of that but I wanted to make sure I'm clear.
You want you plan to wind down the majority of its in the fourth quarter, but just from an accounting perspective is there any residual spillover. So there may be either some some liabilities or assets on the balance sheet at the beginning of 2003 and maybe some even some revenue the triples in or basically is this something that on <unk>.
Timber 31, you shut everything down and the new year comes in you're not under any obligations and so it's just completely clean or is there sort of a de minimis, but still somewhat of a trickle effect of maybe some revenues expenses it spill in to the first quarter.
There is likely to be some that spills into 'twenty, but there'll be diminished and we're also we believe that we'll be able to qualify for discontinued ops.
In Q4, because we will have the majority of it.
Cut down and then that way it will just be a one line item, where you can really highlight what's going through there, but it should be minimal amount in 2023.
Okay perfect. So by the fourth quarter, you can get discontinued ops and then heading into 2003 anything that there would just show up down there and we will have a clean income statement.
Exactly.
Great. Thanks, so much answering my questions.
Thanks, Andy.
Got it.
Okay.
Thank you. Our next question comes from Cindy Motz from Goldman Sachs. Cindy Youre line is open.
Great. Thanks, Thanks for taking my questions here and I've, just sandy cleared up the housekeeping question I had so we start 2023 kind of fresh can you give any guidance in terms of revenue growth or EBITDA growth because.
Anything that you see because it really looks like when we look at the macro picture here Youre not being impact in fact, your momentum picking up I mean, just from Carl's comments and everything so we get a lot of questions on the macro front, but for you guys. It it actually seems like.
If we do go into a downturn if we are in a downturn you actually pretty recession resistant would you agree with that and just any color you could give either on the growth rates or.
The macro comments thanks.
Yes, sure Sandy so yes.
Right like if you look at our back half of the year, we're expecting that our growth rates are going to accelerate so we.
We're projecting Acs is going to be in the mid <unk> to high <unk> growth rate compared to 20% in the first half you add on care of that.
On the upside case, the total of those two combined could be approaching 30% total growth.
So that.
That's really encouraging we're seeing a ton of demand I imagine Q2, Q3, it's usually a toss up every year, which one is going to be a little bit stronger. We think this year Q2 will be but what's interesting is we have so much demand. We think we're going to book some of the seasonality that we historically said about a big drop off in Q4.
As an indication that we're able to be recession proof through all of this and continue to see that demand. So Q4 should be another big quarter for us and we will round out the year with some really nice growth rates care, then as Kyle mentioned is.
Meeting all expectations, and so theyre going to have another great second half and so we're not ready to provide guidance for 'twenty, three but with what the growth momentum we have in the back half with Acs and caravan. We're we have a lot of momentum heading into 2023.
Great and just on caravan because originally I thought yes. The margins there were going to be about EBITA margin to about 25%, but now you are saying.
It actually I guess, the combined with HCS.
Next year, we can expect 2009% to 30% for the entire thing that would buy it.
Definitely a pick up.
From what you had said that happened before.
Yes, so where.
Going forward, we will just do those two combined so theres, obviously a blended rate.
The Acs and care that but like I have said previously we do expect that that caravan margin will grow over time, and we're starting to see that.
And what they've been able to do in this in the first half.
That's great. Congratulations thanks, Tom I appreciate the color.
Thank you.
Our next question comes from Sean Dodge from RBC capital markets, Sean Your line is open.
Yeah, Thanks, Todd and good morning.
Maybe on care van <unk>.
You mentioned client transitioning from the basic tracks. The advanced one can you give us a sense of.
What proportion of lives there right now are in basic and how big that shift to advanced.
Could it should be next year, and then you mentioned the economic benefits of that to signify when that happens maybe if you could just help quantify that for us what's the potential multiplier effect that has on on revenue when you can get quite to make the shift into.
Two sided risk.
Yes, I'll talk about.
<unk> strategy kind of component of the market dynamics you can go over the specifics of it.
<unk>, so basically enhanced same client same.
Medicare beneficiaries thing workflows theme everything what theyre getting conviction and the big changes you mentioned that moves from downside protection and B, There's no downside risk to two sided risk where there is downside.
We have consistently seen the outperformance and over performance.
Caribbean <unk> and now with the expanded signify services work, we do to post acute work we do.
And all of the additional investment we're putting in.
Those clients into the can which platform they feel more conviction than ever that it is the right time to move over into the enhanced program and the punch line and enhanced the.
The government gives you a bigger chunk of the savings because you are taking that downside exposure and so it is just street.
To ourselves and to our clients while that shared savings.
Moving into it and so it's been a big win for US our clients are excited about it.
Frankly, given us.
The ability to go out and we mentioned in the call to go out and over performed on one of our sales forecast. We had this year a really good spot and many of them are signing up out of the gate into the enhanced track because they see our stories to our historic results.
And it's been something we've really enjoyed and we've also been excited to see larger health systems coming around in signing contracts with as well so we're moving up market.
With the solution set and I'll, just let Steve cover the.
Financial transition specifics, yes, there is.
A nice multiplier just moving even if you keep the same savings rate. So in the basic program roughly 40% goes into the ACO pool, and so we would we would share with our partners in that CMS would keep the other 60%, but when you move to enhanced it accelerates to 75% goes to the ACL pool.
So even if you have the same savings rate youre going from a 40% savings of the pool to 75%.
Really nice multiplier in.
As Kyle said because of the confidence this year, a little over half of our clients moved into the enhanced and we think next year based on our selling process. It's wrapping up this week.
That number is going to go even higher so we're really excited about.
That's going to be a multiplier on our revenue growth as we go forward.
Okay and then.
The instances you mentioned you have been able to convert the PCI program partners and the total cost of care. When those clients are doing that are they typically entering the basic tracker, because they're a little bit more.
First in taking risk or are they going straight to the advanced ones.
So, yes, it's been hand clear, but yes, theyre going more into the enhanced tracking.
If there is a testament to the relationships, we have with them and we hope.
And separately, we manage to that.
Starting to wind down <unk> program will contract and then move.
A full ACO <unk> T program with their Medicare lives in those sales cycles never take weeks.
My time at Athena and selling into hospitals and help with the multi month long sales processes.
Excited to see that and it's going to be a big source of additional pipeline growth for next year, but we're adding tens of thousands of lives.
From the <unk> program this year going to be live in calendar year 'twenty three.
Very excited by that.
To your point going in with more conviction and to the enhanced track and realize that we're going to be able to show them that downside risks they had and they're comfortable downside risk because they havent had that in <unk>.
Yes.
Okay, great. Thanks again.
Yes.
I appreciate you picking up coverage.
Okay.
Thank you.
Lastly, we have no further questions. Therefore, ladies and gentlemen. This concludes today's conference call. Thank you for being with US today have a lovely day ahead you may disconnect your lines.
Okay.
Okay.