Q3 2022 Evolent Health Inc Earnings Call
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 company's presentation available in the Investor Relations section of our website.
The company's press release issued earlier and posted to the IR section of the company's website IR dot everyone health Dot com and the form 8-K filed by the company with the SEC earlier today during management's presentation and discussion, we will reference certain GAAP and non-GAAP figures and metrics that can be found in.
Our earnings release as well as a summary presentation available on the events section of <unk> IR website.
At IR that will help dot com and now I'll turn the call over to <unk> CEO Seth Blackley.
Good evening and thank you for joining the call.
We'll begin by summarizing our third quarter of 2022 results update you on the business and on evidenced three core operating priorities.
John will discuss the numbers in more detail and share our updated guidance as always we'll then take your questions. After the prepared remarks.
Starting with our overall quarterly results I am pleased with the results, where we delivered another quarter of strong organic growth and profitability.
Our consolidated results were at or above expectations with continued momentum towards achieving our goals in 2022 and beyond for.
For the quarter ended September 32022, Avalon helps total revenue was $352 6 million growth of approximately 58, 5% over the same period of 2021.
Year over year organic revenue growth was approximately 49% excluding the two months' contribution from IPG, which closed at the beginning of August .
Third quarter, adjusted EBITDA totaled $28 $1 million, an increase of $14 $3 million or over 100% growth compared to one year ago.
Revenue for the quarter was in the middle of our Q3 guidance range, while adjusted EBITDA came in at the high end of the outlook.
Consistent with our expectations and have communicated across this year <unk> consolidated revenue and adjusted EBITDA was positively impacted in Q3 from the timing of variable performance based earnings.
Ron will cover these segment details in more detail in his section.
Turning to our <unk> key metrics for membership and <unk> pricing. We ended the third quarter was $19 5 million lives compared to $14 7 million, one year ago or growth of 32% growth is driven primarily by new century health across both technology and services and the performance.
<unk>.
By segment as of September 32022, we had $2 1 million lives in managed and everyone health services and $17 4 million lives in our clinical solutions segment, which includes new century health and I won't care partners.
These figures correspond to $1 6 million lives and Avalon Health services, and $13 2 million and the clinical segment at the end of the third quarter in 2021.
In addition, we are providing additional disclosure on cases and average cost for the vital and IPG businesses on a go forward basis, John will review those metrics in detail in his section.
Before I move into updates on our three core operating priorities, let's talk about the macro environment with inflation approaching a 40 year hi, it's more important than ever for risk bearing healthcare entities to identify ways to deliver high quality care as efficiently as possible.
We believe that one of the best ways to do that is through value based care, which aligns incentives across the system through clinical IP scaled services and technology.
Despite the savings and quality improvements over the last decade, the value based care movement has only penetrated a small fraction of the health care system. According to recent estimates less than 7% of primary care revenues in 2021 were linked to value based arrangements and for specialty care the percentage is even lower.
We believe this landscape underpins the significant opportunity for Avalon health, given our position as one of the leading and most proven value based care organizations in the country.
With that backdrop, let's talk about our progress against evidenced three core operating priorities that guide our operating strategy.
One strong organic growth to expanding margins and three optimal capital allocation.
Starting with organic growth, we are pleased to announce today three new operating partners, bringing our total to 13 for the year versus our target of six to eight.
The first two agreements are the addition of the performance suite at Molina for two large states both of which will go live in the first half of 2023.
One of the States will go live for both oncology and cardiology and the other will go live for cardiology.
Inclusive of these two new states the millionaire relationship will contribute over a $180 million of clinical segment revenue in 2023.
We're pleased with the impact we're having on this partner and also note that our 2023 revenues with this partner still represent less than a quarter of the total opportunity illustrating the power of growth that exists across our installed customer base.
I'm also pleased to announced addition of a large multi specialty group practice in Washington State or I won't care partners network. This.
This organization has a long standing presence in eastern Washington State with over 60 primary care and specialty providers and over the last several years has been building out its value based care capabilities and contracts with local payers.
This practice was drawn to Evelyn care partners for its proven track record of supporting similar organizations transition toward risk based arrangements.
And its long term vision for partnering across payer lines of business.
In addition to signing new partnerships, we continue to grow within our installed base. For example, we have signed a new contract with a large national partner and current customer with new century health to launch the vital decisions product across a number of geographies.
While this revenue contribution from these sorts of cross sells of modest these arrangements contribute above average incremental adjusted EBITDA and we believe that also validate our ability to drive sales momentum after acquiring new specialty assets.
With regard to our broader growth objectives for 2023 and beyond we're seeing significant expansion of our weighted sales pipeline, especially in the value based specialty business.
<unk> early feedback on the IAG IPG platform has been positive and we're seeing confirmation of the primary deal thesis.
Further driving our pipeline expansion is a trend that our customers prefer fewer specialty partners, thereby unlocking multi specialty sales opportunities across new century vital and IPG.
Translating strong pipeline growth into strong earnings growth as our second core operating priority.
Our adjusted EBITDA grew by more than 100% versus last year and over 70% of that growth was organic.
Our adjusted EBITDA expansion has come from revenue growth fixed cost leverage and the maturation of our clinical solution customers.
Regarding product mix pro forma for IPG over two thirds of evidence adjusted EBITDA year to date comes from fee based products delivered through our technology and services assets with the balance from the risk based offerings and the performance suite.
While the performance we remains incredibly important opportunity for us and is the highest <unk> adjusted EBITDA that are available to the company. We believe this balanced approach, where we realized earnings across geographies lines of business and different business models is the best way to drive sustained earnings growth and shareholder value.
Our third operating priority is optimal capital allocation.
You've articulated three principles regarding Netherlands capital allocation strategy and to reiterate those they are one investing in innovation within our core business.
Two strategic and accretive M&A.
And three maintaining a disciplined balance sheet.
We remain focused on these principles today and into the future.
Let me give you an example, the first area around innovation or.
We're constantly seeking to improve our ability to partner with health plans and clinicians to align towards the best outcomes.
During the quarter.
Strategic collaboration with one of the largest national payer organizations in the country. We developed an enhancement to our technology and services suite that we referred to as pathways leveling, which further differentiates our highly differentiated platform for medical oncology management.
Selective M&A can also increased value creation within our existing products. For example, we find that by integrating new century health authorization data with the vital decisions platform. We significantly increased the number of individuals' identified for the advanced care planning service in fact over 80% of the cancer cardiology patients.
<unk> using vital decisions were identified using new century health data inputs. These are individuals who may have otherwise not been identified for our vital decisions advanced care planning services in the first place.
Further once we've identified candidates for vital decisions, we have observed significantly higher patient engagement rates those patients who respond our outreach and we believe benefit from the service when we jointly deploy vital decisions along with new century health.
Regarding IPG the acquisition closed in August and we're pleased with the pace of integration, which we believe will allow us to drive cross sells and new logo conversions for the platform.
John will talk about our third capital allocation principle of maintaining a disciplined balance sheet in more detail, but I'm pleased to have ended the quarter at approximately two five times net leverage on a pro forma basis and continued strong cash generation to fund the next phase of our growth.
In summary, we remain focused on our core principles to drive shareholder value and are particularly excited by the opportunity in front of us within value based specialty care, we have a unique opportunity in this market to continue to emerge as the only payer agnostic multi specialty partner with a deep focus on clinical intellectual property and the.
Breath to serve the highest priority challenges facing health plans and providers as we transition away from fee for service and into value based care.
Now I'll hand, the call to John to take you through the numbers and discuss our updated outlook.
Thank you Seth as we turn to the numbers our headlines for the third quarter are strong in particular adjusted EBITDA consistent with our focus on growing overall earnings I'm also pleased to note that we achieved positive net income for the first time, an important milestone in our ongoing maturation as an enterprise.
There are four areas, where I will focus my comments for the quarter, and then I'll turn to guidance.
First our continued strong revenue growth.
As we have launched our new century performance suite across multiple new markets, we've added more than $140 million in annualized revenue since the first quarter of this year.
This growth earned by delivering strong results for our partners will propel our overall earnings expansion in the years to come.
As a reminder, our performance suite margins do not immediately dropped to the bottom line that ramp over time for example, our year to date margins for performance suite clients, who went live during 2021 or approximately 10% consistent with our margin maturation expectations.
Second as you know we derive some of our revenue across all of our business units through performance based arrangements, including shared savings.
This quarter was a tale of two cities on this dimension.
And Evelyn Health services, we had strong earnings driven in part by approximately $3 million of gain share and the recognition of revenue associated with implementations for Brighthouse.
And Neville and care partners shared savings for the 2021 performance here came in at the low end of our expected range the.
The underlying clinical performance was strong and consistent with our thesis Medicare beneficiaries, who were with ECP for both 2020 and 2021 had total risk adjusted medical expenses that were 7% lower than first year beneficiaries.
This savings along with constructive quality metrics like lower ER visits and more time spent with primary care physicians relative to national Medicare is consistent with strong operational performance.
This performance, however was offset by the effect of Covid on health care utilization during the first wave of the pandemic for which the MSP attribution model did not adjust.
CMS estimated that not including such an adjustment for entities like Netherlands care partners had the effect of increasing 2020 shared savings by about 1% and decreasing 2021 shared savings by the same amount.
Pat CMS included such as adjustments in their model ECP would have shown a 2021 savings rates of three 6% versus 2020 rate of two 8%.
In dollars.
This pandemic driven impact represents a delta of approximately $10 million in shared savings and is the primary driver of the year over year decline in third quarter clinical segment adjusted EBITDA.
We believe this dynamic will be isolated to this unique and now historic comparison period, and we remain optimistic on the underlying value of the model to drive earnings growth and value in the years to come.
Third topic with the acquisition of ITG now in our reported financial results. We are updating our volume metric disclosures to provide additional detail for investors to model the business the.
The financials of our advanced care planning and surgical products vital decisions in IPG, respectively are principally driven by case volumes and revenue per case as.
As such beginning this quarter, we are reporting two new metrics total case counts per period and average revenue per case.
Vital decisions lives will no longer be reported in the tech and services suite metric.
The Investor presentation on our website provides updated technology and services lives and <unk> disclosures quarterly since the acquisition of vital in the fourth quarter of 2021 to exclude those lives for comparability.
Finally, let's talk about the balance sheet, where there are three things to note.
First in the quarter, we converted the majority of our 2024 convertible notes early.
The loss on debt retirement on our P&L represents the present value costs as the remaining coupon and a small inducement for the early conversion.
Second excluding cash deployed for acquisitions in the quarter, our cash flow was approximately flat to Q2 impacted in part by the timing of working capital that were normalized in Q4.
We also expect a minimum of $20 million in cash remaining at passport to return to the parent by the end of the first quarter of 2023.
As we think about cash flow as a reminder, we have two main recurring uses of cash outside of adjusted EBITDA.
Cash interest, which currently runs about $6 million per quarter.
And capitalized software development of about $8 million per quarter.
Excluding transactions onetime items and working capital fluctuations this translates to approximately 50% conversion from EBITDA into cash on a go forward basis.
Third balance sheet item with the acquisition of IPG and our first quarter of positive net income we have released a portion of the valuation allowance on our deferred tax assets, resulting in a $46 million noncash benefit in the quarter.
A portion of these tax attributes now on our balance sheet is covered by a tax receivable agreements with our pre IPO investors. So we also recognized an offsetting $43 million noncash liability.
At our current course and speed, we do not anticipate becoming a cash taxpayer until at least 2024.
Now, let's turn to a few detailed numbers before talking about guidance.
At the segment level clinical solutions revenue grew 53, 7% to $245 3 million up from $159 6 million in the same period of the prior year.
Third quarter 2022, adjusted EBITDA from clinical solutions was $16 3 million compared to $23 9 million in the prior year and in line with our expectations.
Turning to operating metrics for clinical solutions lives on platform and performance suites was $2 5 million compared to $1 5 million in Q3 of the prior year with <unk> of $27 and <unk> <unk>.
This is $34 16.
The change in <unk> is driven by a mix shift as we add more Medicaid and commercial members to the platform.
Lives on platform and our technology and services suite was $14 9 million compared to $11 7 million last year with a <unk> of <unk> 29 versus.
Versus 36 in Q3 of 'twenty one.
Similar to our performance suite <unk>. This decrease was in line with expectations. As we have also seen faster growth in Medicaid and commercial lines of business.
Total quarterly cases associated with advanced care planning and the IPG business totaled $12 8000 for the third quarter.
Average revenue per case totaled approximately $2 2000 for the quarter.
Note that average revenue per case will vary quarter to quarter based on a host of factors, including payer mix surgery intensity and types and geographical variance.
Evelyn Health services segment results were strong third quarter revenue net of intercompany eliminations increased 78% to $107 3 million up from $62 9 million in the third quarter of 2021 the.
The addition of great healthcare drove segment year over year growth.
EHS adjusted EBITDA performance of $18 5 million compared to a loss of $3 4 million in the prior year.
Membership in our performance suite for Evelyn Health services with $2 1 million compared to $1 6 million in Q3 of 'twenty, one with a <unk> of $16 41.
Versus $13 19.
Finally, corporate costs were flat at $6 8 million in both the current quarter as well as the same quarter in the prior year, we remain disciplined on our cost structure and expanding our consolidated adjusted EBITDA margin as we continue to grow.
Turning to the balance sheet, we finished the quarter with $156 8 million in cash cash equivalents and investments, including $37 million in cash held in regulated accounts related to the wind down of passport.
Excluding cash held for passport, we ended the quarter with $126 million of available cash a sequential decline of $32 $6 million versus June $30 22.
Cash deployed for capitalized software development in the quarter was $8 million. We also deployed $28 million in cash for our purchase of IPG in August <unk>.
Excluding this payment available cash would have decreased by $4 6 million for the quarter driven by working capital fluctuations, we expect it to be meaningfully cash flow positive in Q4.
Turning to guidance, we are pleased with our progress against our financial objectives for the year. We now expect total revenue for the year to be between $1 33 billion and $1 three 5 billion.
With continued strong core business performance, we are narrowing our full year adjusted EBITDA range to between 98 and $103 million.
For the fourth quarter, specifically, we are forecasting total revenue of 361 million to $381 million and we are forecasting consolidated adjusted EBITDA of 24 million to $29 million now.
Now I will turn the call back to Seth for closing remarks.
Thanks, John .
In summary, I'm pleased with our continued progress across all fronts, including sales execution product development and optimal capital deployment.
Before we move into Q&A I'd like to highlight two enhancements to our leadership structure.
In September we named Dan Mccarthy, President of Avalon Health reporting to me to oversee the company's value based specialty operations and strategy.
Dan has been instrumental in leading a successful and seamless integration of IPG and vital decisions as well as driving the growth of new century health.
Partnering with John and me, Dan will hopefully the strategy to further deepen the capabilities of our value based specialty platform and our target specialties.
Filling out our leadership team and reflecting the company's purpose and our values driven culture. We recently welcome <unk> as <unk> Chief people and brand Officer, Kelly reports to me and will oversee our talent and marketing functions.
Our human capital is one of <unk> greatest assets and <unk> will take the leadership range to further bolster our culture and elevate our talent operations to the next level as well as refresh our brand identity to reflect <unk> unique team mission and impact.
<unk> joins us from the global marketing firm huge as global Chief people Officer.
And before that Delta Airlines, where she served as the head of talent.
We congratulate Dan and welcome colleague to Evelyn and with that we'll move into Q&A.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
Yes Anthony.
Speakerphone, please pick up your handset before pressing the keys.
With trailing a question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Anne Samuel of Jpmorgan. Please go ahead hi.
Thanks.
I was wondering if you could maybe provide some color on your expectations just for revenue contribution from the new announced partnerships today.
And now that Youre at 13 partnerships announced for the year, maybe a little bit of color on how we can think about growth for next year. Thanks.
Great Panty I'll start on some of the revenue specifics and hand, it to Seth could talk about next year.
Taking them in turn the expanded Molina partnership.
We announced together we.
We expect will contribute between 35% and $40 million of run rate revenue and will go live sometime during the first half of next year.
On the evident care partners announcements now this is our 15th partner added to the ECP stable here. This is our average size.
So we'll see that contribution.
As you probably remember in largely in 2004 based on performance year 2023 at Seth and talk about growth.
Andrew Happy to tell you on the 23 growth front, obviously, our target is always to.
Meet or beat the mid teens target, we've been in the <unk> or <unk>.
Or higher organic growth for a while.
If you look at what we've signed year to date at just say, we're very well set up for achieving our goals for next year.
And then by the way we've also got a really big pipeline. The biggest pipeline, we've had which will potentially affect 'twenty three and certainly beyond I think part of that pipeline one of the things I like about it any is it it's a very diversified group of Blue Chip large health plan names.
And I think that diversification is an important part of sort of how we grow. So I think the takeaways were well set up for next year and beyond and I think the pipeline is feeling quite good just in terms of what will deliver for next year, but also in the years after that.
That's great to hear and then maybe just one other one I was hoping you could provide some color on what the recent changes for MSP might mean for Evelyn.
Yes, absolutely I'll take that one so.
The rule has been out for a day. So we are still digesting it but I'd highlight three things.
First and most relevantly actually for our quarter is the dynamic that I mentioned in my prepared remarks.
Around the shifting value from 'twenty to 'twenty, one or vice versa.
CMS saw that too.
And included in the final rule is a fix to their model that had been in place. Our 'twenty one results would have been meaningfully higher.
So we're pleased with that.
Pleased with.
Some of the changes that they are proposing around.
Nuanced way that they calculate the risk adjustments for these sorts of populations.
And also around how they handle re basing pad or acos like ECP.
So overall I think.
Generally positive rule and I think most importantly for our macro perspective.
Feels like it reinforces the over arching thesis.
The continued push to value.
Great helpful color. Thank you.
Okay.
Thanks Ann.
The next question comes from Charles right.
Allen. Please go ahead.
Yes. Thanks, Thanks for taking the question guys.
So obviously, a molina as a very big.
Partner with you guys.
Great success, so far.
You made the comment that.
$180 million contribution from Molina, it's still only 25% of the opportunity.
Feel like Youre up to seven states and if I'm not mistaken I don't think <unk>.
And more than 13 or so can.
Can you talk about sort of what.
When you go into a state with someone like Molina, what percentage of the lives are you typically being asked to manage in the performance suite side.
I'm guessing that is not everybody maybe walk us through in and then how that expands over time.
Yeah happy to Charles So I think Theres a couple of different things. One is when you Interstate yes, you may not have all the lives for a couple of different reasons and I think each state has its own specific set of facts and circumstances that we work with the plan on I think those.
Lives are generally opportunities for the future I wouldn't say, they're big swaps that hey, we just can't do anything with.
And so but there may be some specifics around this state or that state as to why settle lives may not be and to your point, but then the other cut on the data is also kind of which specialties right. So we have.
Both cardiology and oncology available to us some of those states don't have all of it both specialties on the opportunity is to be in both specialty is that obviously with IPG with vital.
There are other things that we can be doing as well that 25% number was sort of pre IPG.
Im thinking.
Thinking about vital to the total opportunity is probably a little bit bigger even now but it is cuts on the geographies as you said of course the populations within the geography in the specialties.
That go against the population that we are serving so.
We work with the plan to kind of get it right and make sure. We have the maximal impact I think the thing I care most about.
Is that that we're doing a good job for the partners for the customer right and we're taking good care of the patients in turn and I think the validation we feel from the growth even getting to say, 25% penetrated is excellent we're happy about that I think.
Similar conversations gone with other partners and plans and again it all stems from doing what we said, we're going to do delivering and creating value for patients and our customers and I. Just think we're in a strong place on that front.
That's helpful. And then maybe just two other quick questions. One I know you mentioned that a greater mix shift to Medicaid kind of calls out the decline sequentially in <unk>. It still seems rather significant relative to between first quarter and second quarter, maybe is there anything else in there.
I always think of it and is this really should we expect that as the mix grows we should be temporary our assumptions for.
PMT I'm in pharmacy.
Hey, Charles.
Is just mix.
And it has to do as you can imagine with the prevalence of.
The diseases in our specialties with the different populations Medicare is much higher prevalence of oncology for example, then.
As.
Moms and babies Medicaid plan.
I think where we are now you can see from our revenues pretty nice mix.
No if I model it going down any further.
I think the.
You will see as we grow depending on the composition of that growth that <unk> go up or down.
Got it okay. Thank you very much.
Mhm.
Our next question comes from Sean Dodge of RBC capital markets. Please go ahead.
Yes, thanks, good afternoon.
Maybe just starting on margins.
John before you mentioned, establishing some operations in the Philippines, and I just wanted to better understand.
Meaningful.
Cost savings driver that could be over time, maybe you can you give us a sense of how fast you can scale head count there and then.
I guess the work that youll be doing there is that something that you'll be transferring from auto U S. Based sites. So there'll be a pretty meaningful kind of wage rate differential is that work gets ported over.
Hey, Shawn so a couple of things I'd say.
The macro question.
Of.
Thinking about our operations from a global lens one of the biggest.
Gating items as you can imagine since we work with a lot of government funded Payors is partner permissions. So thats something that we take very seriously and really think through as we scope the size and scale of what we can do offshore.
I think that said, we view the opportunity to expand our operations in the Philippines across both customer service and certain clinical like intake functions as pretty meaningful over a multi year span.
I think we would also view it as it's not.
<unk>.
Sort of light switch as you know.
A process.
As we have stood up.
Our operations in Pune.
India, which are now quite large.
We would anticipate doing something.
Something similar.
I also would say by virtue of being a growth company and meaningfully expanding our.
The operations.
Sort of.
The interest into our planning as we think about next year as we think about 'twenty four.
And so on.
Okay. That's helpful. Thank you and then.
I have only care partners, you've got the ACO lives. There and then you had the full capitation ones like with a Blue Cross plan.
What's the outlook like for Evelyn anymore full capitation relationships and lives are you having a lot of those conversations now you mentioned.
It continued kind of conversion to value based care.
Meaningful growth drivers should we think about that potentially being over the next.
12 months 24 months.
<unk>.
Hey, Sean South I can take that I think it's still an opportunity for us we are in conversations on different opportunities on that front.
And.
I think you should consider it as something that is in the pipeline and is that opportunity. So I think what's interesting is in particular when you look at Medicare advantage plans the opportunity to take on a capitation arrangement through the primary care network, that's sort of a very proven model in the marketplace.
And there are going to be lots of opportunities on that front for any network that has the capability to.
To manage costs. So yes, I would say that is in the pipeline for us and certainly will be an opportunity.
Okay, Alright, great. Thanks, again for taking my questions.
Our next question comes from Ryan Daniels of William Blair. Please go ahead.
Hey, guys. Good evening, Thanks for taking the question maybe a strategic one for you Seth as we think about.
The product offering and how it has advanced with some of the M&A activity for new century have you thought about how you approach your go to market strategy, meaning.
Are you going more with bundled approaches selling multiple offerings as one.
Contract is I assume at least some of them thinking vital decisions in oncology for example might have a bit of.
Value multiplier effect, if you can tag those on with an initial contract.
Yes, Ryan I think it's a great question and the answer is yes. We are definitely go in with a more bundled approach.
<unk> thats, what the payer wants sometimes it isn't but I'd say in general there is this big theme Ryan that we've talked about which is if you look inside the typical large blue chip health plan. They could have it could have.
Many many partners across different specialties, and the fragmentation of the partnership model.
For those payers has not a lot of fun for them to deal with but I think more importantly, misses out on valuable integration opportunities for the patient and you flagged it right.
Vital decisions and end of life with oncology and cardiology is a great example, but you can think of lots of other examples that also fall into that same concept and so I would just say in general that our payers are pushing us to do more want us to do more they were very positive.
We brought the IPG example to the table ammonium SK front and so we are going with more bundled conversations.
Just say that.
The thesis Ryan if you remember some of those those M&A transactions that we could actually grow the revenue rate.
The combined business.
More consistently over time than anybody could on their own because again the payer wants to buy bundles. So I think that thesis has been proven out with what's happening with vital and even the very early conversations with IPG and we.
We feel good about that thesis and feel like it's a structural advantage we have given that we now have multiple specialties in one place.
The answer is yes, and we're going to kind of lean further in that direction over time in terms of bundling things together.
Okay very helpful color and then maybe one for John if we think of this year and the new contract wins of 13 versus the six to eight guidance a lot of them clearly won't be generating revenue until 2023, some of which probably won't contribute materially to profits till 2024.
Given the revenue recognition and shared savings models does this have an impact kind of on where you initially thought EBITDA would come in because you do have those startup costs without the associated revenue. So it kind of where you're getting more revenue for the future, but incurring a little bit more cost at present to allow that.
Yeah, no. It's a great question.
As we look at our that a multi year trajectory here, what we laid out back in the fall of 2020.
It was growing in the mid teens.
And getting into the mid teens and an EBITDA margin perspective at some point during 2024.
We're in a roll forward that sort of math from where we were in 2020 that would have given.
EBIT target.
Right sometime in 'twenty four of between 150 and $200 million.
I would say on that metric that feels like a good target for us.
I think to your point.
The way that we are getting there is by faster growth with a lot of performance suite business that has this multi year margin curve.
And slower percent EBIT.
Margin.
Expansion.
But the way that we are really oriented to run the business is focused on consistent dollar earnings growth.
And I think thats, what youll see from us going forward.
Okay very helpful. Thank you guys.
Mhm.
The next question comes from Sandy Draper of Guggenheim. Please go ahead.
Great. Thanks very much.
First question, John and I think this is unfortunately, a shame on me now shame on you.
I thought with MSP.
You accrued some revenue during the year and then you true up.
When the numbers came in but it sounds like maybe.
Maybe I was off there is it just all of the revenue come in in the year after or is there some level of accrual.
Yes.
Not a shame on you it's a technical accounting question.
So the accounting rules on this one are quite clear, which are you only recognize revenue if it is more likely than not that you will not have a reversal.
The sentence that only an accounting right.
The.
What that means for us is for something like <unk>.
The MSP shared savings as we are getting data across the year, we are booking to your point towards.
A revenue number that we expect.
We have an extremely high likelihood of achieving.
What that meant for us this year.
Is within the final numbers came through there wasn't a lot left to recognize.
And so that was sort of consistent with my commentary and prepared remarks.
So that's the way that we think about is how we're oriented with all of our risk based products.
Okay got it that's helpful. And then my second question or follow up is that for them.
Im not sure I quite understood in your prepared remarks, you talked about.
The balance and I think of something like two thirds of EBITDA was for one segment versus the other and I guess the message I was getting what youre trying to balance out the mix of business and you don't want to be overweight.
And any one customer segment, where if something goes wrong. It has a big EBITDA hit and I'm thinking here about what happened with bright.
Yes.
Bigger customer when they're dropped out of individuals family wasn't a big EBITDA impact on that side. So I was just trying to understand exactly what you said and are you actually sort of trying to titrate. What's in your pipeline or is it just sort of just is the way it's developing in terms of the mix. Thanks.
Yes, Sandy good question, so I'll, even maybe answer the margin question.
Even more broadly I think.
The comment I made was that two thirds of our EBITDA is coming from technology oriented fee based products and a third is from our performance products.
And I think that's important and we've gotten questions from investors.
How much is tied to these risk based arrangements or performance based arrangements, we want to be really clear that the majority of the company is actually.
On a technology oriented fee based business model.
That we think is a good balanced I'll call. It in terms of how we are able to forecast and think about it I Wouldnt say were titrated at just what the business is.
I'll add more performance suite over time, we'll add more technology over time, so I think thats kind of part one of the question I think the broader margin maturation of the business. When we have two thirds of the business is tech services and a third is performance suite.
The next question is okay for the third that's performance suite, how is it doing right and I think that we talked today on the call about the fact that.
The 2021 cohort of our performance we products is approaching 10% on the EBITDA line and Thats, We think great validation for that third of the business Sandy also performing well and having the margin ramp that we wanted to have some now connecting back to John's earlier comment of in <unk>.
<unk> thousand 20, we said hey by 2024, we're going to be here with the base business. We're on track for that at IPG were.
We're on track and I think with the Tech services piece continuing to mature the way. It is that part feels good and then we have some data now on the one third that is the performance suite risk based side that feels very consistent with the margin maturation model that we've been putting out now for over a year as to what that ramp looks like so.
I think.
Hope you have taken away from this that we feel confident in the margin ramp of the company.
That should be the big takeaway and we're getting more and more data to confirm kind of where we're going and how we feel about that.
Great really helpful. Thanks.
Welcome.
The next question comes from David Larsen of BTG. Please go ahead.
Hi, congrats on a good quarter.
I think I heard you say that Molina was generating about $180 million in annual revenue.
But then I think I heard John Johnson say that the expansions for Molina would result in about $40 million of additional revenue in 2023 did I hear that all of that correctly.
So it's going to be a 180 for next year for all of Molina. The expansions are <unk> 40 on a run rate annualized basis, David. So we won't have all of the 40 next year because starting at some point in the first half of the year. So whenever it starts you can kind of do the do the math on what.
We actually get from that but whatever that number is will be part of the 180.
And that was those were the two comments.
Okay great.
Then.
John I think I heard you say basically that your EBITDA would have been $10 million higher this quarter. If it wasn't for the adjustments in the CNS sort of calculations is that correct.
Broadly speaking.
If it weren't for the lack of an adjustment is the way that I would phrase it David.
Our read of the new model that CMS just rolled out yesterday is that it would have corrected for this issue.
But the.
Is the lack of an adjustment for <unk>.
<unk> of the attribution methodology in the CMS model Okay.
Okay. So would have been 10 million bucks higher except for that.
Irregularity, Okay and then.
Everyone Health services I think the EBITDA came in at $18 $5 million. This quarter is that up from $8 2 million Q1and that's.
That's a very significant increase.
Is that correct and can you just remind me sort of what's driving that I mean is it just sort of the growth of the overall business.
Yes, two main things in that David your numbers are right.
First.
Was that the recognition of.
<unk> gained share in the quarter.
Yes.
From some of our performance oriented.
The partnerships within EHS and the second was as you know a lot of our implementation work in EHS is driven.
<unk>.
Back half weighted and so we tend to recognize more implementation revenue in the <unk>.
Back half and that was true this quarter.
<unk> contributed nicely to the EHS earnings.
I will say just on the topic of implementations.
Of course, we stopped all bright health implementations on October 11th and that does have an impact on our Q4 guide.
The order of a couple of million dollars.
From from not having those implementations that are active that we had planned on.
As we look into next year as we mentioned on rates to circle up on that.
We anticipate roughly flat revenue.
For that customer year over year.
For Brian flat next year, Okay, and then just yeah, just one more quick one and then I'll hop back in the queue.
Are you are you reaffirming the mid teen EBITDA guide margin for some time in 2024, I think I heard you say that yes. You are and then are you are you still sort of planning at least 15% organic revenue growth going forward, even after accounting for the change on the Brighthouse.
Group Joe Thank you.
Yep.
I mean, the growth first and then EBITDA growth yes.
We still believe that the mid teens or better is a good target for this business.
For years to come.
On the EBITDA side, what we've been saying for a while given the pace of our growth.
And the amount of that growth that has come from the performance suite, which has a lower margin than percent margin, although hard dollar margin.
And does the tech and services suites, we would expect to reach our EBITDA dollar opportunity.
In 2024.
But probably with more growth and less EBITDA percentage margin expansion.
Okay, great. Thanks very much.
Our next question comes from Richard close of Canaccord Genuity. Please go ahead.
Yes, thanks for the question.
Questions just to be clear on the tech and services.
The change from third quarter to fourth quarter. Our lives. That's all just really pulling out the vital decisions and put it in those cases.
Metric now.
That's correct net of that change.
Picked up modestly.
Okay great.
Great and then Seth you talked about the pipeline being.
Larger than ever.
You made some comments on diversification can you talk a little bit about the diversification of the pipeline.
What exactly you're seeing and maybe comment on that.
Blue Cross Blue shield opportunities going forward.
Yes.
Sure Richard So I think the main comment is just when you look across the pipeline while we've over time had some very significant.
Additions with existing customers or even large new ones I think the way I would characterize the pipeline it's across a lot of different logos and really some new names that we haven't talked about in a while which I think is a good thing for the company just in terms of continuing to grow from different places and having.
Lower and lower customer concentration over time, those sorts of those sorts of things. So I think thats. The main way I would characterize it certainly the blue cross opportunity Richard as part of that I think one of the factors with the Blue Cross World.
Maybe more than even the national plans like to do a little bit more one stop shopping on the specialty side and so our ability to do bundling going back to the question earlier from Ryan I think is a positive in that segment and so we're seeing some acceleration I would say with our blue cross opportunities.
Recently.
Okay. Thank you.
Yes Youre welcome.
Okay.
The next question comes from Jessica Carlson of Piper Sandler. Please go ahead.
Hi, Thank you so much for taking the question.
Hoping you can maybe help us understand how the sales process at Marina work and so are you guys a national partner at this point are you selling state by state.
Or from one plant to another via referral and then just <unk> 19 states. How many have you either and engaged and successfully contracted or engaged.
Engaged and not contracted so how much I guess just what is.
The untapped opportunity remaining there.
Yep, Yep, Hey, Jessica So generally I'll answer this question generically, whether it's really any of the national plans that we're partnered with.
And we're in conversations with it often.
As a combination of a national <unk>.
Relationship.
Dialogue, along with a state base sales process and so you need I think least common denominator is you've got as needs be.
Kind of approved at the corporate level I'll call. It and then it's up to US to go have conversations and build the consensus on a state by state basis with the state leadership also the national leadership to actually get agreement on next date next date next state and it depends on what that plans objectives are what they are trying to accomplish in that.
Given year, who has capacity who may be going into an RFP cycle theres lots of different nuances, which states get prioritizing, which Don I think I've said this a bunch over the quarters, which is we really like this model because.
It builds deep relationships and its very sticky its not a single signature at corporate it has a very deep embedded relationship where we have to create value for the corporate teams, but also the state based teams.
We love it that way so that that.
That that's sort of how how works and also a model that we really like in terms of Molina, specifically I think we're less than halfway.
Across the number of states that they have.
Don't want to get into a plan by plan details on which states, we're engaged with and which ones we are and things like that but we're well less than half in terms of the states that were kind of in place with today, Jessica and I think the 25% number is a really good number in terms of revenue penetration relative to the <unk>.
Opportunity.
That's really helpful.
High hit rate.
I just wanted to switch to I think you guys noted in the press release that <unk> been integrated into an SBA oncology contract can.
Can you just go through what the revenue model is for a multi product.
They all like that so revenue model and then also the <unk>.
The EBITDA.
Thanks.
Yes, I'll start with that and John May add on that one Jessica so theres two ways with vital that we roll it out one way is if in the example, we gave on the call Tonight.
New century health Tech and services customer. They also want to have the vital platform deployed then we will have a tech and services like fee based model right is more on a case level as we've talked about in the past, but it sort of comes out to a reasonable per member per month kind of fee that has the sort of high margins that are.
Typical of that kind of product and so we get paid those fees theyre not huge on the revenue line, but they're pretty.
Pretty helpful insignificant on the EBITDA line.
That's the first way and Thats, what one of the things that we've talked about Tonight showed up like that given that customer in other instances, we wish we've talked about in the past in some ways.
The model that's preferred is where there is a performance suite.
Opportunity or client that is already live meaning we are taking the risk for cardiology oncology, we can switch on vital decisions, we don't get paid for it but it's part of the value proposition that helps deliver for the patient and for that plan on what we're accomplishing in there we recognize no additional revenue, but we.
Hopefully recognize additional profitability through the performance of the performance suite right. So those are sort of the two models.
I think we have a staff that <unk>.
<unk> the number of cases and vital is up by more than 35% since we acquired it and I think thats a good way to look at both together right you've got whether we're getting paid or not getting paid the number of cases that were engaging on is a good metrics up by about 35, 36% since we acquired it.
Thank you.
Welcome.
The next question comes from Joseph <unk> Joseph of Truth Securities. Please go ahead.
Thank you and thanks for taking my questions.
A quick clarification for John on your comment about 150 to 200 million EBITDA for 2000 and forced to being a good number just want to make sure that does include contribution from IPG right. Just wanted to based on only organic growth.
That was the target that we had out there for our base business through it at ITG on top of that.
Got it okay.
And then my main question here.
Great.
Partnerships, but not protein spending well ahead of expectation of six to eight initially would you say that with the recent M&A transactions, providing opportunity and given the industry and macro drivers you highlighted this momentum could continue going forward or what do you see that 2022 has been an exceptional year and annual dive.
Of 6% to a partnership still the right figure to keep in mind going forward.
Yes.
It's a great question, it's similar to the question, we get a lot of Hey, you have been growing at.
35%, 40% is the mid teens to conservative I think we're we like to give conservative numbers and hopefully beat them, that's sort of our objective and how we manage the business.
I do think that that metric in particular, given the number of products. We have that as we look into the future. We feel really good about beating that number and I think we're going to continue to likely exceed that number so whether we rebase that are start to think about it in slightly different way, we havent decided yet that'll be for 2023.
But I'd be surprised if we're not above that number.
Again next year.
Okay, and one last quick follow up here on the.
Clearly with.
The BARDA contract update for the EHS business, and some strong pipeline and growth you've seen new century business, how should we think about.
Strategic investment allocation between the two business just trying to understand if there has been any changes in your view around the long term opportunities in the EHR business.
Yes.
Great question, I think one of the things that we've been saying for several quarters now is that we have focused our M&A capital.
Around the specialty opportunity.
Tremendous growth opportunity low market share good products, we have market leadership.
And.
I would say nothing has changed on that front, meaning we're going to continue focusing our M&A capital there.
Health services business is actually a great business it does not.
It's not as set up to do M&A around it any way in the job there is to.
We do a good job supporting our customers and we think it can be a steady contributor.
Also happens to have whether it's the Philippines operation of Puna operation Our Tech technology team, our utilization management teams that sit inside of that unit.
Also happened to be capabilities that are really important for the specialty opportunity right. So there is some cross support between the business units as well these arent silos completely.
So thats the other dimension that I used to answer your question, which is yes, we're focusing our capital dollars on specialty and we have been for a while not at the expense of Evelyn Health services, you don't need to do it over there as much but I also think there are ways and we'll begin doing this to utilize those capabilities to support this this big time growth.
<unk> that we have in the specialty side.
Perfect. Thanks, guys.
Okay, Great I know, we're getting close to time here.
Any other questions in the queue.
There are no further questions at this time.
Okay, great. Thanks.
Thanks for thanks for everybody joining us and I will look forward to connecting with you over the next couple of days.
Have a good night.
Conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
[music].
Yeah.
[music].
<unk>.
[music].