Q4 2022 Evolent Health Inc Earnings Call
Welcome to Avalere Health earnings Conference call for the fourth quarter and year ended December 31 2022.
As a reminder, this conference call is being recorded your host for the call today from Evelyn Health are Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer.
This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section entitled Investor Relations.
I will now hand, the call to Seth Frank.
Vice President of Investor Relations.
Please go ahead.
Thank you and good evening. This conference call will contain forward looking statements under the U S. Federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations.
A description of some of the risks and uncertainties can be found in the company's reports that are filed with the securities and Exchange Commission, including cautionary statements included in our current and periodic filings for additional information on the company's results and outlook. Please refer to its fourth quarter press release that we issued earlier.
Today finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the Investor Relations section of our website or in the company's press release issued today and posted on the Investor Relations section of the Companys.
Website, IR dot everyone health Dot Com and 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 in metrics that can be found in our earnings release as well as a summary presentation available on the events section.
Of evidence IR website, now I'd like to turn the call over to <unk> CEO Seth Blackley.
Good evening and thanks for joining our fourth quarter and year end earnings call.
I'll begin with a summary of <unk> fourth quarter results as well as the highlights for the full year 2022.
I will then provide you with an update on our three core operating priorities.
Tom will discuss the numbers in more detail and share our guidance for 2023, well then look forward to taking your questions.
There are a number of exciting developments to discuss so let's jump in.
First I'm pleased to report Evelyn ended 2022 on a strong note with fourth quarter financial results better than anticipated.
For the quarter ended December 31, 2020 to evolution health total revenue was $382 $4 million growth of 54% over the same period of 2021.
Excluding approximately $37 million of acquired revenue in the fourth quarter of 2022 base business growth was 39%.
Fourth quarter, adjusted EBITDA totaled $32 $3 million above the high end of our guidance range, and an increase of $8 million or 33% growth compared to one year ago.
Evelyn finished 2022 with revenue of $1.352 billion growth of 49%.
Adjusted EBITDA totaled $106 $3 million for the year annual growth of 60%.
More broadly we feel 2022 was an incredibly successful year, we achieved our financial objectives, while also making strong progress against our longer term financial operational and strategic goals.
Underpinning our success is an exceptionally talented team of approximately 4000 employees and a deep executive leadership bench of more than 115 senior leaders.
I'd like to thank the entire team for their contributions to our mission and our 2022 results.
Also want to note that our employee engagement score in 2022 was approximately 90%, which we believe places Avalon among the top public companies on this metric.
Engagement is a critical measure of the cultural health and productivity of our workforce and I believe indicates our readiness to continue to scale, our mission and financial performance.
With that let's now turn to an update on evidenced three core operating priorities, which guide our operating strategy those priorities our strong organic growth.
Expanding margins.
<unk> capital allocation.
Let's start with an update on organic growth, which includes both adding new partners and expanding with existing clients.
We're obviously focused on delivering on both dimensions and we finished 2022, having signed 13, new operating partnerships well.
Well exceeding our annual target of six to eight.
Our total operating partners as defined by the number of distinct corporate entities with whom we do business totaled 47 as of December 31, 2022, and our total lives stood at $20 6 million lives organic growth of approximately 3 million lives from the prior year.
As a reminder, we report our advanced care planning and surgical management businesses on a case basis, which John will report in his section.
We also believe we are executing well on our cross sell opportunity.
During 2022, we added over one 8 million lives at the performance suite, the majority of which were conversions from our technology and services platform.
And actually this conversion dramatically increases our pricing on a per life basis, but on an average fee of 29 <unk> P. M. P. M on technology and services to an average fee of approximately $26 P. M. P. M on the performance suite.
Last year, we sized the total performance suite opportunity at our top five customers as over $16 billion of new annual revenue.
With the closing of the Nia transaction, we now estimate that our cross sell opportunity exceeds $50 billion.
I'm pleased to report today that our growth momentum continues into 2023 with two new agreements to talk about today.
First is a significant cross sell to the performance suite, which we first announced at an Investor Conference in January and the second a new performance suite risk based agreement with an excellent care partners.
To recap what we shared in January the first agreement is a significant expansion of our partnership with Humana through the addition of the performance suite for oncology in Florida and Arizona.
Humana is a valued long standing partner of Avalanche, we have collaborated for years to deliver significant value to support the high quality oncology care for their membership through our technology and services platform historically in 36 states across the country.
This new agreement converts the majority of Humana's Medicare advantage members impacted by a cancer diagnosis in these two states to the performance.
Our expanded relationship could also lay the groundwork for additional state expansions in the future.
We estimate the total revenue from the new contract to exceed $250 million of revenue in 2024.
With a go live date in the second half of 2023, we also expect significant revenue from this agreement this year contributing to our revenue growth outlook of over 25%.
In addition to Humana today, we're announcing a second new performance, we partnership for <unk> 2023, which is a new agreement with a large regional health plan with an excellent care partners. The agreement includes up and downside risk for an initial population of Medicare advantage lives.
The economic opportunity for Avalon is importantly, tied heavily to quality of care metrics, an important hallmark of success for MA plans. This new contract also reflects the success of our initial partnership and the commercial line of business. We look forward to continued success and Evelyn care partners as we expand beyond Medicare shared.
Savings and into full risk arrangements with private health plans like this one.
Finally, I want to note the similarities and manage a performance suite contract in our specialty business and managing our performance suite contract and Everland care partners.
We view our work in <unk> care partners is akin to managing additional specialty in this case, we think of the focus area as complex care. This type of population requires care management and coordination for patients who often have multiple chronic conditions simultaneously.
Further the technology clinical IP and human talent required for success in specialty care are very similar to those required in managing complex patients through their primary care provider, allowing us to scale, our work and spread our investments across more clients.
With that update on growth, let's now turn next to an update on our second core operating priority of expanded adjusted EBITDA margins, where we continue to make progress towards our goals.
As a reminder, approximately 75% of our go forward adjusted EBITDA, including Nia will be driven by our technology and services platform SaaS like business model and 25% from our performance suite business model.
We believe this balanced approach, where we realized earnings across different business models. It is the best way to drive sustained earnings growth and shareholder value.
His approach contributed to our ability to expand our adjusted EBITDA margins in 2022 versus 2021, while at the same time, adding over $250 million of new performance suite revenue with margins that increase annually after year, one and ramp to target margins across a three year period.
The acquisition of Nia further reinforces this balanced approach.
Nia, which closed about four weeks ago brings roughly $250 million in annual fee based technology and services revenues and $50 million of additional adjusted EBITDA before any synergies.
With additional contractual commitments from Centene and cost synergies, we believe Nia should contribute adjusted EBITDA of approximately $85 million in Q4 2022.
Okay.
As we discussed in our January Investor presentation. We are now running the business with a focus on reaching a 300 million dollar annual run rate adjusted EBITDA target by the end of 2024, John will share additional details on the path to $300 million in a moment.
Finally, I want to comment on our third operating priority, which is optimal capital allocation.
Overall, we are focused our capital investments on value based specialty care, where we believe we are a market leader.
With NII now close our capital priority is focused on deleveraging the balance sheet through both adjusted EBITDA growth and debt reduction by a cash generation.
John will share additional details here, but I am pleased to note that our net leverage at the end of the year inclusive of our financing for the NII acquisition was lower than our target. Therefore, we feel good about the balance sheet today and looking ahead.
While we're discussing NII I want to provide a brief update on our integration and operational execution efforts, which are an important goal for this year.
We successfully welcomed all Nia staff and systems to evident in late January and the first few weeks proceeded smoothly. Thanks to the efforts of the Avalon Centene and Nia teams as we look out across the year, we organized the remaining integration efforts into a couple of areas.
Organizationally, we have moved the management of Evelyn Health services, Nia and all of our specialty businesses under one leader Dan Mccarthy, our President and as a reminder, Dan has been with Avalon for approximately 10 years and has been a key architect of our specialty health care strategy.
Dan has brought our team is incredibly talented and experienced having successfully led our specialty business for the last several years through a period of strong growth and customer retention.
Going forward I'm highly confident in this team as they take on this larger opportunity ahead.
The organizational alignment we implemented has allowed us to both began immediately reducing our cost structure, while providing exceptional service to our clients. The organizational structure also allows us to share capabilities and resources across multiple products and we believe it will unlock important innovation in areas like artificial intelligence.
<unk> and single platform integration.
Second.
We're off to a strong start generating cross sell opportunities kicking off with an in person customer event. This quarter that will bring together partners from across Avalon and Nia as well as many other sales initiatives underway.
And finally, we are late stages integrating our solutions fully under one brand.
As we transition from legacy brands will increase the power of our cross sell messaging concentrate our investment behind one brand and facilitate the talent and operational integration that's already underway.
All of this work is part of accelerating Netherlands position as a leading multi specialty independent partner for managing vulnerable patients who are experiencing complex health issues.
With those updates I will now turn the call over to John to review additional details from the quarter and review our 2023 guidance.
Good evening.
We're pleased with where we landed the year and the momentum we bring into 2023.
Tonight I will start with an overview of our key financial components of our path to $300 million and adjusted EBITDA, which we are targeting as an exit run rate at the end of 2024.
I will then come back to discuss 2022 results and our 2023 outlook.
Using our 22 adjusted EBITDA of $106 million as a jumping off point there are three components that bridge to our target of $300 million.
First is the full impact of the Nia and IPG acquisitions, which after the capture of identified synergies should add approximately $100 million in annual run rate adjusted EBITDA by the end of 2024.
The second component is the maturation of our existing performance suite book of business to target margins.
Between Q2 of 2022 and the end of 'twenty three we expect to have added several hundred million dollars in incremental organically generated performance suite revenue from contracts already announced which exiting 2024 should be well on its way to target profitability.
Finally, rounding out this pathway is continued profitable growth in our technology and services suite supported by strong cost structure discipline.
So that's how we are managing the business across the next several years now let's review 2022 through that lens.
During the year, we went live with over $200 million in new performance suite revenue at new century health, including several launches in Q4.
We also had a full quarter from our surgical management offering IPG with total 22 revenue contribution from that product at $58 million right on target.
These factors drove sequential revenue growth in Q4 of 'twenty two of almost 15% versus Q3 of 'twenty, two and the clinical segment with 75% revenue growth year over year.
Our performance suite continues to mature according to our expectations with like for like margins ticking up in Q4, 'twenty two versus Q3 of 'twenty two.
I wanted to give a little more insight on how this works for the first few quarters of a new population.
We target our first year margin between four and 6%.
<unk> typically shows up as an even lower margin for the first couple of quarters as our approvals are by nature, a more conservative while we're building a history of claims experience for that new partner.
This is typically followed by a step up 3% to five quarters. After launch as that track record is established and margins on those initial periods are recognized.
After which margins continue to grow linearly to maturity.
This dynamic naturally lead to margins accelerating slightly more quickly around the year into a new relationship you may recall in the fourth quarter of 2021, we reported a benefit of $6 million and the clinical performance suite roughly four quarters. After a new population went live.
This is a great example of this dynamic in action.
In 2022, we launched several new performance suite populations later in the year.
So our Q4 'twenty two results reflect those early more conservative margins.
This sets us up nicely for margin expansion in 2023.
Finally, we also benefited in Q4 from strong cost discipline, we took early and aggressive actions within edelen health services to rightsize the cost structure entering 2023, as we focus our growth on the clinical segment and the integration activities Seth described earlier.
This improved Q4 EHS segment results by about $4 million.
Now, let's go through the segment details before turning to guidance.
Starting with clinical solutions Q4 revenue grew 75% to $281 5 million up from $161 1 million in the same period of the prior year.
Q4 clinical solutions segment, adjusted EBITDA totaled $26 7 million, a modest decline compared to the prior year as we lapped the onetime revenue and adjusted EBITDA impact in Q4 of 'twenty, One I mentioned earlier.
We ended the quarter with $3 3 million lives on the performance suite compared to $1 5 million as of December 31, 21, with an average <unk> of $25 78.
Versus $32 33, a year ago.
The change in average PM TM as a result of higher growth in Medicaid and commercial lines of business, which runs lower than our corporate average and is not the result of any pricing pressure.
Lives on platform and our technology and services suite were $15 2 million compared to $14 6 million as of December 31, 2021, with an average <unk> of 29.
Versus 31 in the fourth quarter of 'twenty one.
Note that this membership figure is net of transfers to the performance suite during the year.
Similar to the performance suite that PM PM changes year over year and sequentially are driven by mix changes.
Total quarterly cases associated with advanced care planning and surgical management totaled 15700 for the fourth quarter and average revenue per case totaled approximately $2800 for the fourth quarter both in line with expectations.
And Evelyn Health services fourth quarter revenue net of intercompany eliminations increased 16% to $101 million up from $87 2 million in the fourth quarter of 2021.
Adjusted EBITDA was $16 1 million for Q4 of 'twenty, two compared to $7 9 million in the prior year the increase driven in part by the cost actions I described earlier.
Membership for ethylene health services with $2 2 million compared to $1 6 million as of December 31, 2021, with a <unk> of $15 29.
Versus $17 25.
Finally, we continue to remain disciplined on corporate costs with full year 'twenty two costs of $30 2 million compared to $33 7 million in 2021.
While we have continued to invest in the clinical segment as we grow this corporate overhead improvement highlights the operating leverage in the business as we continue to scale.
Turning next to the balance sheet, we finished the quarter with $188 2 million in cash cash equivalents and investments, including $36 7 million in cash held in regulated accounts related to the wind down of passport.
Excluding cash held for passport, we ended the quarter with $151 5 million of available cash a sequential increase of $25 4 million versus September 32022.
While we ended the year with a higher DSO driven specifically by two of our larger clients. We received approximately 47 million and gross receipts from those clients. During the month of January 23, bringing them current and aligning with our historical trends within these specific clients.
Cash deployed for capitalized software development in the quarter was $8 million net.
Net of available cash we ended the year with $270 3 million in net debt for a net leverage ratio of two five times, including all debt and convertible notes.
We closed the Nia transaction and associated financings on January 22023.
Assuming the inclusion of Nia and the financing impact on our financials, our year ending available cash balance would have been approximately $182 6 million and our net leverage ratio would have been two eight times well ahead of our target at the time of the transaction announcement in part due to timing as our.
Working capital needs tend to consume cash during the first quarter of each year.
As we look towards 2023 as Seth mentioned, we are consolidating the operations of our business units to drive enhanced performance for our customers.
With that consolidation, we will no longer track adjusted EBITDA at the reportable segment level and expect to collapse, our reporting into a single segment beginning with the first quarter of 2023.
To enable continued visibility into the components of our business. We will continue to provide detailed revenue metrics in our filings.
For the full year 2023, we expect revenues in the range of $1 92 to 196 billion and adjusted EBITDA in the range of 180 to 200 million, implying adjusted EBITDA margins of approximately 10% at the midpoint.
Our topline guidance anticipates base business growth of 25% to 28% versus the 2022 actual plus approximately $240 million from Nia given the timing of the acquisitions close.
Our expectations for adjusted EBITDA represent margin expansion in the base business plus approximately $48 million from Nia again, given the close of the acquisition in late January .
We expect to deploy between $35 million to $40 million in cash across the year for capitalized software development.
We continue to expect a target net leverage ratio of under three times, including outstanding convertible notes by the end of 2023.
For the first quarter, specifically, we expect revenues between 420 and $440 million and adjusted EBITDA between $45 million $50 million.
With that I will hand, it back to Seth.
Thanks, John .
Those by reiterating our excitement headed into 2023 and our confidence in our multi year product plan and financial path outlined today.
I am confident that our value based specialty focus create value for shareholders customers employees and patients.
Share more detail on our multiyear plan and integrated platform, we're planning to hold an investor conference in the second quarter here in Arlington, Virginia, and we will announce the specific dates soon in the meantime, let's go ahead and open it up for Q&A Tonight.
Thank you very much we will now begin the question and answer session to ask a question you May press star one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw from the question queue. Please press Star then two.
Please limit yourself to one question and one follow up.
At this time, we will pause momentarily to assemble our roster.
The first question. This evening comes from Sean Dodge with RBC capital markets. Please go ahead.
Yes, Thanks, Doug good afternoon, and congratulations on the strong finish to the year.
Maybe just starting with the new performance fee agreement within <unk> care partners.
Any more detail you can share on that maybe how many lives do get involved can.
Can you give us any help sizing the expected revenue contribution from that is that already live now or maybe when is that expected to launch.
Yes happy to Sean So let me first just comment on where this fits in within the broader strategy. If you think back to the work we've been talking about with <unk> care partners for a couple years now we do a lot already on the Medicare shared savings program and a core part of the plan is to do more with private payers and this is a good example.
That expansion and I think it's an important part of the strategic direction of that business. So that's kind of what it is it's with the large regional plan to X you already did some work with it.
Initially not a huge agreement Sean its a couple of thousand lives think of it is in the $15 million a year of revenue.
So I don't want everybody to get over their skis on how big it is initially, but I would say that could easily be a $50 million opportunity in that same MSA with with.
Other Medicare advantage partners and so it has a nice opportunity to expand and I think again, the most important part of the messages were due.
Well already in that geography, with the product creating value for patients and for payers and I think this is a good recognition of that in terms of expansion and Sean that agreement went live in January one.
Okay.
Great and then.
Just on the guidance.
Moving pieces over the course of the year there was the Molina expansion with extended last year.
Nia, which closed recently humana starting mid this year.
And then you've got bright house.
Winding down.
I look at Q1, Youre guiding the EBITDA of $45 million to $50 million, which basically looks like what you are expecting to end the year at <unk>. So maybe just if you could kind of help us understand all the moving pieces the cadence of EBITDA over the course of the year and where you expect to be maybe exiting the year.
Year end.
Yes, great question.
You are right that one of the nice things about coming into this year, because we have very good visibility on to the arc of the topline you've heard us in prior years.
Reference here.
In February looking out at the rest of the year very high confidence in the bottom end of the range I think as we sit here today. The bottom end of our revenue range is fully contracted subject to timing and go live it.
On the EBITDA side as has been the case in prior years the shape of that over the quarters is going to be driven largely by the timing.
Yes.
Performance revenue and payments.
I think sitting here today.
Okay.
We would expect it to be relatively consistent across the year.
The.
It might be up a little bit in one quarter down a little bit another based on timing factors, but we'd expect it to be relatively consistent.
Okay.
That's very helpful. Thanks again.
Mhm.
The next question comes from Anne Samuel with Jpmorgan. Please go ahead.
Hi, congrats on the quarter and thanks for taking the question.
You could speak to your go to market strategy now that you've got NIH closed do you plan to bundle offering or are you going to trying to your foot in the door with maybe one specialty and trying to expand thereafter.
Hey, Danny.
So I think the way I'd frame. It is we're going to have some of both.
And I think the considerations there include.
What are the main buying dynamics for that given payer I think typically when the payers are smaller more regional they tend to buy in bundles, a little bit more of the bigger they are the more national they are and the more they are interested in potentially considering one specialty at a time and so I think it's important that we have the ability to do either depending on the situation.
I do think that over time.
This this sort of more integrated approach, where you're going with multiple specialties will be quite differentiated and I'd say the the early readout from customer conversations on the integrated opportunity has been better than our expectations, meaning.
A lot of attachment Andy to the fact that we can do more than what we historically could and our ambition to do it in a more integrated fashion has really resonated and I think that speaks to the part of my comment which is over time I think it will be more and more bundled.
That's really helpful color and then maybe just one John on the integration.
How do we think about the cadence of synergies as the year progresses, just any seasonality to think about.
Great question.
I think the.
Two things to highlight there right there is revenue synergies cross selling and as cost synergies.
On the revenue side and with typically talked about our selling cycle is between six to 12 months, we could see some of that in the back part of this year, but I think youre going to see most of that start to come to fruition in 2024.
On the cost side.
That will.
Days and over the course of this year.
And at the same time, while we're doing the integration work.
Dissipating investing some money to ensure that it is very smooth.
And so you heard us.
And Mike Guide effectively a $50 million annualized contribution from Nia.
Just adjusted for the close timing.
And that incorporates both of those things the capture of the synergies as well as the one time investment that will fall off as we go into 'twenty four.
Very helpful. Thank you.
Mhm.
Our next question comes from Ryan Daniels with William Blair. Please go ahead.
Yes, thanks for taking the questions. This evening and I'll add my congrats on the strong outlook. So maybe one for you just hoping you could speak a little bit more to the overall pipeline in the past.
Highlighted.
What segments are really resonating I know clinical solutions, clearly is but any specific payer categories and just maybe any update on the size of the pipeline or what you're seeing in regards to conversion cycle.
Yeah, Ryan happy to take that I think the top line that I would give you is that the pipelines are really good place and a lot of health fitness and the pipeline in terms of the total size of it but also the weighting of it I think youll see if you looked into the pipeline you'd see a lot in terms of opportune.
<unk> with additional cross sell right because we have this large opportunity on the specialty side in particular with our existing payors. So I'd kind of highlight that as one category.
<unk> category I think the Blues segment, Brian where we don't have a huge footprint today, but solid and growing I think a lot of acceleration in conversations there and different relationships that we're building. So I would just highlight that as another one again, probably weighted a little bit more towards the specialty side, because that's been a theme for <unk>.
While.
But there is I think a nice opportunity there as well and then the last thing I'd note is outside of specialty both have wound care partners and everyone health services for that matter have some nice opportunities in the pipeline and so I like to balance across all of those components and it feels very good kind of in total as John said the bottom.
End of our range for this year really already contracted just subject to go live and so we're really focused our efforts right now and setting up 'twenty four 'twenty four and beyond again, I, just close with sort of that earlier comment on Andy's question that the integrated message around what we're doing has has resonated better.
Then I think we would've expected and it feels I mean, we knew was going to be a good opportunity Ryan, but it felt quite good.
Okay Super helpful color and then I know, it's still early on and you have discussed this a little bit and probably will do more so in the analyst day in Q2, but.
Any early thoughts on Nia in regards to kind of key integration milestones for the business, whether it's from a sales a product standpoint.
Go to market and then any other.
Client anecdotes or feedback you're hearing as you continue to put this under the evident brand and looked at broadening your coverages spend among your clients to add value for them.
Sure.
I'll start and maybe John will add a couple of things I would say I would put it in a couple of categories. Ryan first just sort of organizationally. We've made a lot of progress. So I'd say, that's a place where we've done a fair bit of the work already in terms of obviously, bringing the team on but also integrating it fully into the specialty business under Dan's organization and getting the people in the right.
Seats, right, that's a big important moment and get handling that correctly.
Quite good about I think the second component is thinking about cross sell and Thats, a very near term activity that we can begin working on now I mentioned in the setup that we actually already have a session put together for this quarter to begin doing that on top of a lot of other things and so I think that is what I'd say is often running related.
That is brand right, where we are I mentioned in the script that we're pretty far down a process to integrate the brand of the organization altogether and then the <unk>.
Third the third piece is really around the technology and the platform, which that that is the longer pole in the tent Ryan and it will take some time.
Parts of it it is not monolithic we don't get it all done in one day in a big Bang fashion parts of it we're already moving on and parts of it will take over a year to get fully done and so.
I feel really good about the progress we've made in a couple of short weeks actually on a couple of the first two in particular and I think we have a very good plan for the the technology side as well and out of all of that comes to the synergy financial synergies that we've talked about and I think everything we've seen so far we feel very confident about achieving the numbers that we put forth.
The next question comes from David Larsen with BT IAG. Please go ahead.
Hi, congratulations on a fantastic quarter.
Can you maybe talk a little bit more about the humana expansion and in particular like it's obviously a great expansion what led to it and also how much more opportunity is there with Humana did I hear that this is a two state expansion and there's potentially another.
30 states.
Just any thoughts there would be very helpful. Thank you.
Yes, David So I would say first off just in terms of the context to your question, we've been working with Humana for a long time.
Job one for us has always been.
Hit our commitments to our customers and deliver on what we promised I think we've been doing that with humana in the trenches doing our job well with the tech and services platform.
We also had a small small very small performance suite relationship in South Florida.
And so it was an obvious conversation to say, okay. How do we continue to create more value. We were in 36 states on the tech services side and adding these two states. So the performance was very logical and kind of went through that process with their team in a very rigorous fashion. So that was I think a great outcome, reflecting.
The trust that we have between the two entities Youre right that we had 36 states on tech and services. So there is more than 30 additional opportunities for this obviously, Arizona, Florida, the Tuesday through editor Big States from a Medicare advantage perspective, so not all states will be created equally but certainly theres a lot of.
Opportunity left that Humana in oncology.
Apology just to kind of reiterate it obviously there are other specialty opportunities that we could address there as well.
But for the moment look our job is to deliver on what we signed up and hit a home run with them on that and we'll have the right to do more of it continues to be our philosophy and it's.
If there's one theme for 2023 and certainly been in the last few years, but it's around execution and that is where it will be focused in the short term.
Okay fantastic. So it sounds like there was more states you could also potentially in salt cardiology and then there's obviously also.
IPG and other solutions that you could in cell and then can you maybe just talk a little bit about the overall market like I think we've seen cigna invest some dollars into like Evercore and then Cvs has been on a spring spring spring of acquisitions, just any color or thoughts on how these.
This deal activity could impact you if at all thanks.
I think in general.
David what I would say is that our core strategy that we've articulated as to be leading independent specialty partner and I think the market values a platform independent specialty partner.
And that's what we've heard over and over again from our customers. We're listening to them. That's what they want and I think our job is to go deliver that to them and I don't think any of these things going on around us really affect that too much right now in the again the opportunity for us is around executing on the opportunities we have in front of us and so I would.
Turn it back and we're just a little bit and to our customers frankly.
Ed.
So shine a light there David I think that's going to be where we're focused.
Okay, great. Thanks, very much so by being independent that might actually help you win more business youre not owned by any major plans you can serve others. Okay. Thanks very much congrats on a good quarter.
Thanks, David.
The next question is from Sandy Draper with Guggenheim. Please go ahead.
Okay.
Thanks, very much first just sort of a housekeeping one for you John So you mentioned.
Our pro forma cash number for the close of Nia, but should we still take I think it look like between.
The revolver and the convertibles about $687 million of debt.
On a pro forma basis at least that's what you had in those original slides is that still.
A good number and how will the preferred equity when you actually put that on the balance sheet as data where exactly will that show up.
Thanks, Andy.
That is the right number.
On the debt side that has not changed and the preferred equity is temporary equity sort of show up as equity.
Okay great.
And then a broader question probably for Jeff.
Obviously.
<unk> you.
Got another expansion with Humana, a smaller yet you talked about.
Deal with.
Regional Payor.
I'm just curious you've clearly that youre additional cross sells it really been gaining momentum as you build that you've talked a lot about this integrated platform.
Just any sense for how much I mean, clearly within an organization humana.
State managers are good geographic managers are going to talk to each other but how much momentum is there.
Payer Aegon Wow look at what Humana or these other people are doing are evident as doing a lot with each other payors, maybe we should talk to them is that flywheel spinning at all or is it really right now you still got to go out and do the groundwork there. The flywheel is really once you've landed youre getting that flywheel.
<unk>, So just would love any thoughts on that thanks.
Yeah, Sandy I think the flywheel is starting to turn and again I've mentioned earlier is a lot of residents with this idea of more integrated platform and it's partly about de fragmenting healthcare healthcare is already pretty fragmented. So if we can do things with fewer partners great. So we are starting to get.
Either inbounds or just sort of folks asking the question about how that could work for their organization I think the other one I'd point out is centene.
They've been a great partner to us in terms of the NIH transaction, but I think part of the logic.
Is is around integration and the proof point that we will have there will we'll have a lot of products.
Across the spectrum in place will also be a nice proof case beyond the ones you mentioned so.
That is starting to turn.
Great really helpful. Thanks, and congrats.
Thanks.
The next question comes from Richard close with Canaccord Genuity. Please go ahead.
Yes, thanks for the questions congratulations on the outlook so I'm curious.
I believe you threw out in January .
300 million adjusted EBITDA run rate exiting 2023.
Obviously significant growth from.
Outlook for that.
That you just provided for this year so.
I'm just curious how you think about capacity and the ability to onboard.
New expansions in new clients and just any thoughts there would be helpful.
Yes, yes, and so that metric Richard is that we've been talking about is exiting 2020 for $300 million run rate EBITDA, which John walked through a little bit of the building blocks of that and we.
We feel like we have a very good path to get there but to point. It does entail a fair bit of growth on top of growth. We have already had so how are we preparing for that and managing that I think is a good question.
One of the biggest things that we've done that we mentioned today and is reflected in our segment numbers frankly for Q4 is being moving talent inside of the organization.
Whether it's from corporate or from some of our other work that we're doing in the other two business units into our specialty side, where most of the growth is coming from.
And that I think has been really helpful and important lever and being able to staff up and be ready to handle both the integration work, but also the growth work because it's not just one of those two things it's both.
A lot of credit to the entire team not just the specialty team, but also some of the folks have moved over moved internally and I think our culture has been part of that being able to.
Hang on to some of those high performers.
Get them to take on a new role right to help manage the growth that we are describing I think he has been part of what we have really focused on over the last few months I'm really really happy with where we are on that and the <unk>.
Teams are just doing a fabulous job prepping for that so thats kind of the biggest thing I would say.
I think we're big believers in getting the right people on the bus and the right teams in the right places and when you have that you can handle the growth and scale. So that's been our primary focus if you look out into the year as well other investments we're making.
To make sure that we can also achieve that metric, but it really starts with the people.
Okay. That's helpful and then as I think about specialty management.
Somewhat different than utilization management.
But.
Hi, how are how do you think about in terms of how you guys either help health plans.
<unk> churn.
Membership or.
What role do you guys play on that side, obviously, you are saving money and improving quality, but I'm. Just curious how you think about the role you play on membership for the health plans.
Yes, I would put it into a couple of categories sort of the first being the here and now and I do think we help with membership in two ways one by managing cost.
We're able I think to help a planned price.
To win business price to members to win business via Medicare advantage or commercial or et cetera, and the lower cost that they are the better their ability is to grow we'll retain memberships that's kind of part of the here and now to the other part of the year now is doing that kind of work I just described Richard.
As least embracive way as possible for the patient and we tend to be more clinical more about influencing the physician through providing our guidance and our expertise.
And I do think that is better for the member and is likely also contributes to lower churn that's sort of the here and now and so I think in the in the medium term certainly part of where we're headed is to do more and more directly with the patient.
And do it in ways that are more and more efficient for the provider and the patient so automation and artificial intelligence and some of these things that we've been talking about I think can make the friction to the patient and physician lower which will also help on that end related as you do more things with one specialty is going to be easier for any <unk>.
<unk> position, so I think theres, a hearing I'll answer, which is very real and in the medium term sort of product path that we're on I think we'll kind of accelerate that work.
Just one follow up do you think the MA enrollment declines on the regional and not for profit side in this most recent AEP.
Help drive further pipeline growth for you or accelerate.
Adoption.
I do I do think that any time, our plan is focused on growth and feeling pressure there one of the ways. They have to solve that is figure out how to price more effectively and whether it's pricing or additional benefits to members right. So I do think it will be a stimulus for us in that segment.
Also a benefit on the national side when they take share we can benefit on that side of the house to so there are two ways to look at that.
Okay. Thank you.
Welcome.
The next question comes from Jerry Linda Stein with Chilliest. Please go ahead.
Yeah. Thank you this is <unk> Zhang from tourists.
I want to go back to Sean's question at all.
EBITDA expectations beyond Q1, I understand there's some lumpiness to performance revenues, but overall it sounds like you expect it to be very consistent.
NIH contribution and cost synergies you expect.
Most of the board in the last three quarters versus Q1, the studios have treated a function of you're building some cushion at all in any pickup in utilization auto maybe impact of Medicaid due to elimination of just trying to understand.
Any other moving parts there and it would be good if you can let us know what is in your assumption, Florida and Mississippi than it does in Q T, which might be impacting that you'd be industrial up here.
Thank you Linda.
Yes.
Couple of things to unpack there.
I'd say at the outset, we do expect it to be relatively consistent across the year.
The second thing I would say is relative to Nia, our perception and plan there is to quit.
Mindfully invest in that integration over the course of this year at the same time as we're driving those cost synergies.
So we anticipate the net of that is.
Gets us to the $50 million.
But of course, the investments drop off as we go into next year right.
And we just have the benefit of the cost synergies.
On the Redetermination just to hit that.
The comprehensive and my answer consistent with what we've talked about in the past.
Now we have some clarity right in terms of when that will start to start April 1st different states will take different approaches.
Most seem to be indicating that it will happen over a year, maybe 14 months in certain states that might delay it our guidance contemplates ending the year with Medicaid.
Membership, 8% to 10% lower than where we started on a like for like basis.
Feels reasonably in line with where our partners has also recently guided.
We obviously look to them too.
To help us on this one as well.
That is mostly a top line impact not a big bottom line impact.
And.
On both the MSP piece and the broader performance.
Pete This is one of the key reasons, why we have a $20 million EBITDA.
Range for our guidance for the year and the likely drivers of where we are in that range or.
Where we land in those performance based arrangements.
Okay. That's helpful. Just my quick follow up.
The comments that you made earlier.
With the company's business mix now is 75% SaaS base EBITDA was 25% performance suite business, how do you think about the business mix longer term.
Long term goal is still to move these lives undertaken for this business to your clinical profile of this business industrial of 'twenty 'twenty four outlook any of these <unk> happening over the next couple of years. So that's more like in the out years.
So I'll take that one.
<unk>.
Absolutely continues to be part of the strategy too in targeted regions.
With the right partners move from Tech and services style arrangements into the performance suite, where we can drive the most value for the patients that we care for and for the health plan partner.
I think from a.
Dollar margin contribution perspective, one of the reasons that you didn't hear me talk about that is as much in my walk to the 300 is if we go live with our new performance suite business in Q2 of 24, alright, that's not going to contribute a lot.
As we exit 'twenty four given the margin ramp so where we're particularly focused in getting to that 300 is driving profitability in the performance suite that we have now.
We're live with currently and that we will be going live with this year.
Thanks, and congrats on a good quarter.
Thanks.
The next question comes from Jessica <unk> with Piper Sandler. Please go ahead.
Okay.
Jessica Your line is open.
Sorry about that.
Thanks for taking my question. So I think you guys mentioned that your new disclosure is below the segment level adjusted EBITDA.
And I assume it will also add.
You guys will no longer be disclosing segment level gross margin.
Without that data, how should we get comfortable with pricing in the clinical solutions.
Our risk based business.
Yeah. So.
So two things there Jeff is the right question.
The first is just the rationale behind our expected move to one reportable segment is just thats now the way that we're operating the business.
As I think we talked about when we made the Nia announcements this vision of presenting a unified platform to our customers who today even.
Have multiple products.
Some of our largest customers have.
Live on both of them on health services and.
In the specialty business.
And so as we move towards that operating model, we just won't be able to track adjusted EBITDA in the same way.
Same revenue disclosures for the most part that we do today.
And we will discuss more when we have our.
Analyst day in Q2.
What that will look like going forward.
Got it thank you and then on the.
Evelyn care partner side of the business when you guys announced a new partnership there how should we how should we think about just kind of.
Assigning lives to that new partnerships ramping revenue and adjusted EBITDA related to those ethylene care partners. Thanks.
Yes in this case with the one that we announced today.
It is a capitation style contract and so it went live in January about $15 million for the year is our expectation and a couple of thousand lives.
The MSP additions are a little more complicated as you know, but this one is simpler.
Got it and then on the MSP side, if you could just give us kind of add.
General view as to how how to think about revenue or or just incremental margins for those contracts in years 123.
Yeah.
Yeah.
So there the majority of.
Revenue associated with our new partner in MSP will be.
It will start to recognize the year. After we go live with them and it will grow it usually ratably over the first three years.
Got it thank you.
Okay.
The last question today comes from Charles <unk> with Cowen. Please go ahead.
Yes, Thanks for squeezing me in here.
Okay.
Obviously, a lot of great commentary here and maybe just to.
Just to maybe follow up a little bit John on the $300 million EBITDA target just to clarify a little bit, yes, youre, saying 100 million from IPG in Nia with synergies and just to be clear that that's the only cost synergies or does that kind of incorporate some assumptions for revenue synergies and then secondly.
As we think about that $300 million as well.
What kind of assumptions have you built in for further expansion.
Humana and then likewise I know with the NIH transaction.
We're going to be working towards a more strategic relationship with Centene.
And their move towards performance was as well.
Have you built in for either of those into that $300 million.
Run rate.
Yes.
Let me take those in turn so on the $100 million.
You probably recall, we've talked about for the NIH business after.
Additional contractual commitments from Centene or fully live.
And the capture of $15 million of cost synergies, we expect that business to contribute approximately $85 million of annualized EBITDA in Q4 of 'twenty four.
And rounding.
Rounding out to the 100 of courses.
Other seven months.
<unk> that we didn't have <unk>.
2022.
On the further cross sell question.
To broaden your second question a little bit clearly this is a very important component of achieving that $300 million exit run rate number.
At the.
That plus the maturation of the performance suites margins are the two key.
Patents two key steps on the on the path to 300.
And we believe that there are there's a very wide markets for us to attack to drive that growth.
Whether it is continued expansion with our with.
Humana or centene.
Or cross sell into Nia customer for example.
We're adding new customers is that they have.
I think world out there for us to attack.
Attacked in moving towards that $300 million number.
Oh, okay.
Maybe just to follow up.
On the Humana side.
I know you talked about another 30, something states opportunity and I know it was asked before.
Before just to just to understand a little bit better how is humana operationally organized is it very similar in the way.
Molina is on a state by state basis.
Because my understand that thought Humana also operate in kind of larger groups kind of larger operating groups that covered multiple states just trying understand structurally.
Where the touch points are.
For you within Humana.
And how about kind of progresses. Thanks.
Yes.
Yes, I'm happy to take that one I think generally speaking a lot of these national payers are somewhere which is they have corporate leadership and local or regional leadership Humana is similar.
The group some things about regions, which are little different than some that do it just by states when youre more Medicaid you may tend to do it by states when you're more M&A focused you may do it by region. So it all varies a little bit, but I think generally speaking, it's a similar methodology and the goal is to do a great job for each state or region that you are performing in.
Make sure that the corporate team also supportive of your work and when you hit both those things at the same time, that's where youre able to go to a new region or new state and so that's been the methodology really everywhere. We've gone. It's no exception for the question you asked and look I think over the next few years youll see more of that from whether it's.
The payer you asked about or Centene or others, I think theres lots of different opportunities to continue to deliver execute be a good partner to our customers and I think we'll have a chance to continue to expand and grow in the ways that we have.
Sure.
Okay great.
Yes.
Hey, congrats on a great solution.
Great results.
Great. Thanks Charles.
Yes.
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Okay.
Yes.
Okay.