Q2 2023 Evolent Health Inc Earnings Call
Yeah.
Welcome to the Evelyn earnings conference call for the quarter ending June 30th 2023.
As a reminder, this conference call is being recorded.
Your host for the call today from Evelyn are Seth <unk>, Chief Executive Officer, and John Johnson, Chief Financial Officer.
This call will be archived and available later this evening and for the next week. So you get the webcast on the company's web site and the section entitled Investor Relations I will now hand, the call the Seth Frank Evelyn Vice President of Investor Relations. Please go ahead.
Yeah.
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 president expectations.
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 periodically filings for additional information on the company's results and out what please refer to our second quarter press release issued earlier today.
Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summer presentation available and the Investor Relations section of our web site or in the company's press release issue today and posted on the Investor Relations section of the companies.
Website I are valuable with health Dot com and inform pay K followed by the company with the I C. C earlier today.
Management presentation discussion of a reference certain gap N got figures metrics can be found in our earnings release as well as a summary presentation available on the events section.
Our our website I R health Dot com and now with that I'll turn the call over the evolution C E O Seth Blockley.
Good evening and thanks for joining us.
We're pleased to be here to discuss another strong quarter of execution against our plan is.
[noise] context for today's call I want to reiterate three key elements of that plan.
First.
Organic growth driven by a conviction that are integrated value base specialty management approach is a winning strategy for both attracting new clients and expanding with existing clients.
Second our ability to drive earnings expansion, given the operating leverage and margin maturation inherent in our business.
Third our commitment to cash generation and thoughtful balance sheet management, including Delevering.
I think I think you'll see a results this quarter affirm all three elements of this plan and that we've taken another step towards our target of $300 million of adjusted EBITDA exiting next year with continued sales momentum thereafter.
Turning to the quarter second quarter revenue was at the high end of our outlook for the quarter well adjusted EBITDA came in right above the midpoint.
Specifically strong revenue growth was driven by substantial organic membership growth both quarter over quarter and year over year or profit growth year on year was driven by the high flow through margins from incremental technology and services fee based business continued maturation of our performance we portfolio.
Wired revenue from Nia plus initial benefits from my integration work.
Given the results for the corner and our visibility for the remainder of 2023, we are raising the mid point of our 2023 adjusted EBITDA outlook.
For revenue, we are maintaining our 20 twenty-three outlook based on the timing of several significant client go lives across quarters, three and four G.
John will provide more detail as well as the third quarter outlook shortly.
As part of the guide for the remainder of the year. We anticipate continued growth from the Humana performance, we announced this past January .
That contract went live in Arizona in July and we plan to go live in Florida later this year.
Our other existing and new contracts are also performing at or above expectations contributing to high confidence in the remainder of 2023.
Looking briefly at the numbers Evelyn second quarter of 2023 revenue was $469.1 million growth of 46.6% over the same period of 2022.
Sequentially revenue grew approximately 10% compared to the first quarter of 2023.
If we focus on Evelyn specialty revenues, representing 83% of this quarter's total revenue total reported growth was 72% with acquisitions contributing 39.8 points of year on year growth. So before the impact of acquisition evidenced core specialty base grew over 30.
2% year over year.
Second quarter, adjusted EBITDA totaled $47.4 million more than doubling compared to the second quarter of last year.
The growth and adjusted EBITDA year over year was driven both by expansion in the base business as well as the addition of the Nia and IPG acquisitions.
Now, let's turn to everyone's three core operating priorities of strong organic growth expanding margins an optimal capital allocation.
Starting with organic growth, we've got a robust quarter of four new agreements consisting of two new operating partners against our target of six to eight per year as well as two new cross sell expansions.
Starting with the two new operating partnerships were first pleased to announce that we will expandable cardiology N oncology performance, we from Olean is Medicaid and exchange members in Florida.
This agreement marks an important milestone for Evelyn as our first Medicaid performance Sweet agreement in Florida on the heels of years of success in the market.
Continue to be pleased with our Molina relationship as we have been able to expand our footprint of multiple minor states and specialties in rapid succession.
Including in Florida, the relationship will cover seven states in approximately 2.4 million product members, representing approximately 8% of the total addressable product members that Molina, leaving the opportunity for further strong expansion ahead.
It's also important to note that this molina expansion into Florida allows everyone to continue to establish critical mass in Florida for the performance Sweet Molly.
One strong performance in Florida makes it increasingly attractive prepares to contract with Avalon because of our existing scale and track record in the market.
And is more payers work with Evelyn our services to providers become more of a standard of care and therefore easier for providers to use.
As provider populations in any given market become increasingly familiar with Avalon and more proficient in our clinical pathways. This network effect can help facilitate additional growth and share opportunities over time.
We anticipate the new Molina agreement will go live in the first quarter of 2024, and we anticipate approximately 100000 unique members a typical Medicaid performance Sweet Pnp M's.
The second operating agreement in the quarter as a new logo and first time corporate level relationship with a regional not for profit health plan with over 1 million members.
As part of the agreement everyone will be replacing several legacy specialty vendors, helping create a more integrated environment for the health plan. This new agreement will be go and live in the third quarter.
Beyond the two new operated agreements were excited announced to significant cross sales.
The first is with a blue Cross Blue Shield plan in the southeast this agreement reduce and Nia contract expands into a new line of business and simultaneously adds an element specialty technology and services solution.
This agreement is approved case, where one of the strategic elements of the recent acquisitions, whereby health plans using either at acquired product or an envelope product and adopt some or all of the products to the other.
As we believe will off to be the case, the broader and more integrated product platform was a key buying criterion for this particular Blue Cross Blue Shield plan.
Finally, we're announcing the second cross sell arrangement today, whereby <unk> will deploy surgery management offerings.
Formerly known as IPG for certain of their commercial numbers as with the Blue Cross Blue Shield announcement above we're seeing good evidence that are integrated product platform and cross sell approaches are working.
This agreement with <unk> is over and above the $20 million of incremental adjusted EBITDA, We anticipate from San teens expansion of Nia solutions, which was built into our fully synergize estimate of $85 million of EBITDA from Nia by the end of 2024.
Across all four of the agreements announced today, we see our thesis playing out that large payers are looking for innovative value based specialty to solutions that can better integrate care for patients across multiple specialties.
Our strategy of expanding and deepening ambulance capabilities into the largest most complex and challenging medical specialties is resonating and providing a basis for conversations about how we can improve cost cost and quality for the leading risk bearing plans and physician groups in the country.
These agreements announced today bring our total new operating partnership count to six compared to our annual goal of six to eight new operating agreements.
Finally, while new logos like the regional plan, we announced today always remain at target opportunity. Our primary focus as we've indicated the time of the Nia acquisition and reiterated at Investor day, or the large opportunities cross selling into our existing health plan footprint.
Towards noting that the top two plans in the country insure four out of five Americans and I won't know does business with approximately 13 of those 20 plans and we have a direct cross sell Tam of over $50 billion right in front of us.
Regarding our new business pipeline, we're seeing some evidence of clients moving faster on accelerating sales processes to manage their mlr's or to consolidate vendors because they see the value of working with us across more domains.
Further our recent acquisitions are absolutely help and elevate our profile nationally and contributing to an accelerating pipeline in.
In addition, we're starting to see a lot more RFP activity from Bolton specialty solutions consistent with our thesis around our recent acquisitions.
Let's turn to our second core operating priority of expanding adjusted EBITDA.
Justin EBITDA for the second quarter more than doubled year over year to $47.4 million adjusted EBITDA margin for the quarter totaled 10, 1% growing from six 8% one year ago.
While acquisitions contributed a portion of the year over year growth and adjusted EBITDA were also benefiting from a healthy mix of higher flow through a specialty technology and services as well as maturation of the performance we book.
Note. We spent time at the Investor day focused on performance Street margin ramp and that margin maturation is continuing to perform as expected.
Looking forward or focused on reaching $300 million of adjusted EBITDA run rate exiting 2024, while continuing to quickly grow market share and revenues thereafter.
And you can see from our quarterly results in the mix of agreements I discussed we feel confident that we're on plan to achieve the $300 million of adjusted EBITDA.
And our pipeline depth gives us confidence and continued strong sales momentum.
Obviously, it's important that we continue to manage costs utilization and acuity and the populations, where we have performance sweet contracts.
We are aware of conflicting reports of evidence of increased utilization in demand for services higher health care costs post Covid and reports of pent up elective outpatient surgeries, particularly in Medicare.
For our part 2023 is running as expected in terms of overall utilization trends on the heels of preventative screenings, returning to normal over 18 months ago.
You can see the utilization remains consistent with our expectations based on our results and the guy for the remainder of 2023.
In addition to the strong Q2 results and the Q3 Guy Let me provide you a couple of 2023 year to date, leading indicator data points to support our confidence in our results across the quarters ahead.
First our own oncology data for the combination of prevalence of disease and authorizations per member is generally flat. The first half of 2003 versus the first half of 2002 on a mix adjusted for member basis.
Within cardiology, while we've seen some expected increase in both disease prevalence in authorizations. The absolute growth numbers are relatively small in the overall combination of prevalence per member and authorizations per member also remain below 2019 levels on a mix adjusted per member basis.
Overall across both cardiology, and oncology, where we hold direct underwriting risk our utilization trends remain at or better than expectations.
We believe that our utilization experience may be more favorable than other plans because of our robust clinical management of the conditions, we manage and we likely also benefit from a diversified mix across commercial Medicare and Medicaid populations.
We will of course continue to monitor utilization closely.
Our third operating priority is optimal capital allocation.
Dawn will walk you through our cash flow dynamics for the quarter I do want to reiterate our relentless focus on translating profitable growth into cash flow.
Is adjusted EBITDA grows and we Delever you can expect us to focus on capital allocation on our three capital allocation priorities of one investing in the business to further accelerate our leadership in value base specialty care.
Two disciplined and strategic M&A, which as you can see in the results starting to pay off and third maintaining a disciplined and efficient capital structure.
As a cue to we lowered our adjusted net leverage ratio to three three on a trailing 12 month basis compared to three nine times.
On March 31st and we reiterated at Investor Day, our goal is being below two times net leverage by the end of 2024.
Let's close of the macro view on more evident stands at mid year on the integration front and the demand profile for our markets.
Regarding integration innovation and product roadmap, we shared a significant amount of new information during Investor day. Since then we officially rolled out or one Evelyn approach and our new integrated logo to our clients.
The fact is we're bringing to market what our clients, one which is an integrated platform to help improve outcomes for people with the most complex and costly health conditions initial feedback from our clients is extremely positive and they are pleased with the pace of our integration efforts. While we continue to provide strong day to day operational performance.
Our clients also continue to tell us that they are impressed with our focus on product innovation.
As an example, we recently signed a new agreement to pilot an oncology navigation program with the Blue Cross Blue Shield plan. The navigation program will enable us to provide member engagement earlier in the patient journey and to promote shared decision, making that will help the patients and their families better navigate the health care system.
Part of the program, we want Hance are advanced care planning capabilities, which we acquired through vital decisions and make them available to plan members in order to empower them as early as possible in their cancer journey.
This pilot program, we will identify members where there is a suspicion of early cancer or a very recent diagnosis and subset of members provide proactive outreach by a licensed therapist to support members will care coordination navigation to clinical Nonclinical resources education for patients on their diagnosis and <unk>.
<unk> options.
As well as the lining treatment with their goals of care and assisting them with meeting their preferences for advanced care.
All of this will occur in a tightly coordinated and collaborative manner between the Payor primary care providers and oncologists to ensure a seamless experience in coordination with other care programs.
In addition to this navigation product, we continued to drive rapid innovation and several other strategic areas like artificial intelligence.
Across our entire product innovation roadmap, we remain focused on market leadership and value base specialty care with an eye towards a long term plan of capturing larger and larger share and our 150 billion dollar addressable market with that I'll hand, it over to John .
Thanks.
As you see in our released this afternoon or operating focus and discipline continued to translate into financial results that are at or better than our targets.
Let me go through the targets now before turning to the detailed numbers.
First we said we'd drive significant organic growth.
As Seth highlighted earlier specialty revenue for the quarter is up approximately 32% year on year, excluding acquisitions. We're excited about this growth engine.
Second we identified cross selling new solutions into existing customers as one of our primary objectives to drive growth.
We're excited to announce some early returns on this strategy in the partnership expansions that step outline and we continued to be enthusiastic about the integrated specialty model, we are taking to market.
Third we expect earnings expansion on our current book, a capitation business as we implement our value based initiatives with new populations we.
We continue to see steady improvement in performance Sweet populations that went live in 2021 and 2022.
Our second quarter revenue number includes more than $200 million, an annualized performance sweet revenue that has been under management for less than a year.
These new population contribute minimally to our second quarter earnings that represent more than $25 million in annual earnings opportunity at maturity.
Four we are focused on turning EBITDA into cash.
During the second quarter, we added $5 million to our available cash balance which was impacted by collection timing.
The net of increases in R. R and claims reserve consumed about $34 million of cash during the quarter.
In fact, we received over $40 million and ketchup payments from customers during July .
Excluding these working capital fluctuations, we would've added $39 million of available cash in the quarter.
Nope that consistent with our plan, we are investing incremental resources this year in integrating and repositioning our business to best capitalized on the value based specialty opportunity with.
Without these targeted and non-recurring investments cash generation in the quarter with a thin even higher.
Now, let's go through the numbers in more detail.
Revenue in the quarter with $469 $1 million, an increase of $46, 6% versus the same period in the prior year.
In total we had an estimated 41.8 million unique members during the second quarter of 2023 with a total of $78 6 million product members for an average of 1.9 product per unique member and increase compared to the first quarter of this year.
Note that most of the sequential increase in average product members is driven by having nia and the numbers for a full quarter.
Excluding that factor, we added about 1.5 million product members in the quarter.
Turning to the breakdown if membership.
We averaged 3.8 million product members and the performance sweet during the second quarter compared to $2.1 million in the second quarter of the prior year and about 600000 higher than Q1.
As a reminder of the year over year change an average PM PM is from sales mix, a result of higher growth and Medicaid and commercial lines of business, which brought a lower than our corporate average.
Mtm's will average higher later this year as the Medicare advantage business from Humana begins to roll through.
Average product membership in our specialty technology and services Sweet was 73 million members during the second quarter inclusive with a full quarter Nia membership compared to $15.1 million in the same period last year.
Average PM Pmt's with 35 cents in the second quarter versus 28 cents and the second quarter of 2002.
Product numbers and administrative services or $1.8 million compared to $2.1 billion in the same period of the prior year with an average PM PMC the $14.22.
Versus $14.68 and the second quarter of 2022.
Recall that we will continue to carry the wind down lives from bright healthcare totaling roughly 360000 through the end of this year.
Total quarterly cases associated with an advance care planning and surgical management total to 15000 for the second quarter, an average revenue per case totaled approximately 2500 for the second quarter, both in line with seasonal expectations.
Note that these numbers reflect build cases, only and do not include cases for our performance Sweet populations. As a reminder, our strategic priority for these services is deployment as part of our performance Sweet.
Our adjusted EBITDA result was $47.4 million <unk>.
Versus $21.7 million in the second quarter of 2022, reflecting organic growth maturation of our performance week contracts and the additions of IPG Nia.
Adjusted EBITDA margin of $10 one per cent represented expansion of about 330 basis points over the same quarter last year with the same drivers Ricky.
Recall that our quarter to quarter adjusted EBITDA trends this year reflect the pull forward about $4 million into the first quarter of 23 from quarters, two and three which we addressed back on the May call.
Turning now to the balance sheet, we finished the quarter with $142.5 million of cash and cash equivalents, including approximately $12 million in cash held in regulated accounts related to the wind down a passport X.
Excluding the cash held for passport, we had $136 million of available cash an increase of $4.7 billion versus the end of the first quarter cash.
Cash deployed for capitalized software development in the quarter was $5.7 million.
In addition, we recognized a non-cash lease impairment of $24.1 million from closing, our Chicago office, as we reduce our overhead footprint and drive efficiencies across the business.
Finally, an hour 8-K. This afternoon, we announced in early redemption of our remaining 2024 convertible notes as we continue to execute our delevering priority.
Turning that the guidance as death mentioned, we're raising the bottom end of our adjusted EBITDA outlook for the year.
Let's go through a couple of macro factors, we consider as we think about this outlook.
First Medicaid Redeterminations continue to be a focus of many who watch this space.
Our expectations here have not changed that we will see a gross decline and Medicaid membership in the mid teens, which translates to about a 6% gross decline, meaning before new ads in.
In our overall revenue given our particular medicate mix.
As we have previously noted our Medicaid book, it's weighted towards states that are moving slower and the redetermination process for.
For example, more than 50% of our queue to Medicaid revenue within states that started the process in July .
<unk> less than 3% of our queue to Medicaid revenue within Florida, and Texas States that are pursuing redeterminations more aggressively.
We will continue to monitor these trends closely throughout the fall and into next year.
Second our revenue guidance implies approximately 17% sequential growth in the second half of 2023, when compared to the first half of 2023, despite the expected redetermination impact.
This is largely driven by new go lives in the performance Sweet that's death reviewed.
Recall that these will contribute minimally to adjusted EBITDA This year.
Start to flow through as they mature into next year and beyond.
Turning now to our positive revision to our outlook for the year.
With continued strong core business performance, we're raising the bottom end of our full year adjusted EBITDA range to between $185 million and $200 million.
And we are maintaining a revenue guidance for the year is 193 $5 billion to 196 5 billion.
We expect to Q3 total revenue of $500 million to $520 billion.
We continue to expect to Q3 to be sequentially lower in EBITDA, given the pull forward I mentioned earlier into Q1 of this year.
We are forecasting consolidated adjusted EBITDA $42 million to $47 million.
Before stepping back up in Q4 to finish the year strong.
We continue to expect the target net leverage ratio of under three times, including outstanding convertible notes by the end of 2023 and.
When we forecast between $35 million and $40 million in annual capitalized software development expenses.
With that let's go ahead and open it up for Q&A.
We will now begin the question and answer session.
To ask a question you May press star one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
If it anytime your question has been addressed and you would like to withdraw your question. Please press Star then too.
At this time, we will paused momentarily to assemble our roster.
The first question today comes from Jess Carole with Stevens. Please go ahead.
Yeah, good afternoon, and thanks for taking the questions maybe following up on <unk> comments about positive feedback on the the rebranding efforts I imagine it's just the the kind of initial stage of several future steps to rule out the brand. It and then also the integrated go to market approach and later on.
<unk>. So I was hoping you could give a little bit more color on where the the next steps might be to really help clients and prospects understand the power of the combined platform.
Yeah. Thanks, Jeff.
Like I think the the key to the topic is really around the underlying operations in the technology and therefore, the integration that we can provide back to patients and as we go round talk to customers and prospects. That's what certainly what the market wants and so the first step is communicating that really clearly investor.
Day and over the last couple of months as we said around our strategic product focus and we're now out having those conversations I'd say directly with our prospects and clients. So that's kind of the phase. We're in right now all the while of course, the technology integration is going on underneath and so I think we're kind of in the face of direct communication to clients, which is Goldman really.
Well and they loved the vision and loved the platform that we put together and then the technology actually getting fully stitched together underneath is kind of the final step.
Got it thanks that helps and maybe a follow up there with a little more specifics you know already seen some of the kind of positive fruits of that work and you you announce this regional not for not for profit health plan win in the quarter curious to get a little more detail. There maybe you know what the key drivers were in their decision maker.
<unk> well queue lines of businesses, they're exposed to and what specialty is specifically you'll be addressing for them. Thanks.
Great Yeah look at some <unk>.
Like a lot of situations with any regional plan I think the <unk> buying criteria are similar with your return on investment and the ability to kind of commit to savings to the organization is certainly you're going to be high on the list and that comes with credibility and experience in reference ability in the lake.
The second thing, though is that we can as as we have completed acquisitions and begin to integrate our components able to stitch together multiple products and offer those in a more integrated fashion and so I think it's really those the combination of those two things that worked in that case.
One of the other announcements we made today I think had a similar theme to it and you know if I looked at the pipeline more broadly via you didn't ask about that I think that's just a big theme in general which is C N and acceleration the pipeline based on our ability to talk about multiple specialties across multiple lines of business, which is the case for this plan and I think it's going to be.
<unk>, which is you know it's going to be commercial Medicare Medicaid multiple specialties, that's going to be something you see a lot of.
Makes sense, Thanks, again hop back on the queue.
The next question comes from Sean Dodge with RBC capital. Please go ahead.
Yeah. Thanks, good afternoon.
There was a lot of new business activity that you walk through <unk> maybe.
Maybe just to help put it all into perspective bridge.
Virginia, Your 300 million dollar EBITDA target from where you expect to end this year about half of that you you said before you anticipated to come from new wins, if we kind of take it for that you've announced today can you give us some sense of how you're tracking toward that it sounds like maybe potentially running a bit better at least up to a bitcoin than you thought.
Yeah look the way I would answered in general is it I'd say, we're certainly on track for that 300 million dollar overall and $50 million a piece of that which is around new business and I think this quarter helps a lot.
You know even the ones that are not technically new operating agreements that across sales help a lot because even though they may not be huge in and of themselves is really high flow through on these so I think what we were attempting to communicate and the tone and certainly in his answers that we feel like we're certainly on plan for the $300 million.
Okay, Great and then in the performance Sweet you mentioned not seen any indication of higher cost trends in your data.
Can you give us just a quick refresher on if you were to see some type of spike or or elevated trajectory do you have.
Some contractual lovers available to you how often are you able to reprice those kind of <unk>, what kind of protections I guess do you have a if you were to see things starting to pick up.
Yeah, Hey, Shawn it's John come out I'll take that one.
I would think of this in two ways. The first and it's an important distinction in our risk bearing business versus a broad based M C O or risk bearing provider where.
Nearly everything that we take risk on and the performance suites.
Is pre op and so we have very good visibility into those off rates and the likely <unk>.
Impact right in future claims.
So that's the first thing that I would say is we would generally speaking be able to know or see that earlier than we would if we were just waiting for claims completion.
The second piece as we think about how we contract for this business.
We will typically include things like a corridor around say cancer prevalence in.
So if prevalence in the population.
Moves up or down outside of that corridor.
Then the parties will come back to the table and adjust the rate accordingly.
And so that that's an important part of the model at and.
It's also important to.
Recall that we can have some visibility into that essentially happening before we see it in the claims.
Okay. That's super helpful. Thanks again.
The next question comes from Ryan Daniels with William Blair. Please go ahead.
Yeah, guys. Thanks for taking the questions wanted to start with a little bit on the pipeline as it relates specifically to the potential for more Medicare business, which I think is a little under a third of your book today. So you talked about some of the pressures that some might be facing there with increased surgical utilization and then we have the lower and Ma.
Rates and risk adjustment pressures for 20.
24, and I'm curious if that is accelerating the pipeline is more and more payers are turning to you to help them manage their MLR and what can be kind of a more challenging outlook for 2024 and 2025.
Hey, Ryan the answer is yes. It is.
Moving the pipeline and a good a good way for us and I think the.
What is the general pressure on MLR around utilization I think the the risk adjustment piece is may be equally important in the sense that I do think that lovers been reduced a little bit and so I was talking to one of our customers a couple of months ago and he said exactly that which is we're gonna have to attack utilization a little bit more aggressively.
<unk> without that lover.
Without without lever being a little bit reduced rates. So I think the answer is yes, we are seeing it as we said in the script today, it's feeling positive in the pipeline and I think the combination of that pressure, but also the broader set of solutions that we can offer tech services model performance sweep model multiple lines of business multiple specialties.
Gives us a lot of different ways to win win partnerships with our with our clients and prospects. So it feels pretty good right.
Okay, Perfect and then maybe one for Ya just on Medicaid for your determination as I want to make sure I heard you correctly.
Can you just go through the the impact that you're contemplating in the guidance regarding churn in revenue impact and then maybe.
Maybe number two it sounds like some states have paused redeterminations in a couple of plans are indicated that maybe it's progressing a little bit better. So net net is it is it right in line with what you're thinking of maybe a little bit better. Thanks.
Yep.
So.
Our thinking on this hasn't changed so give our expectation for this year and then also for into next year, when the redeterminations or complete.
For this year, we anticipate a gross reduction in Medicaid membership of between 8% to 10% <unk>.
Comparing end of last December to end of this December .
Which is about we think two thirds of the way there.
Ending with total redetermination impact on a gross basis.
Probably middle of next year in the mid teens.
On the on the speed question.
I think what I want her to highlight in my prepared remarks, there with the <unk>.
Amounts of our revenue that really just started redeterminations four weeks ago five weeks ago, and so it's still too early for us on our populations to see is it going slower or faster.
Than than expected.
What I would say is we've been encouraged both and talking to our partners and hearing.
Some of the <unk> announcements over the last couple of weeks at the way both CMS and the managed care organizations are working to ensure that Medicaid enrollees stay enrolled.
Where they are eligible.
Okay perfect. That's very helpful clarification. Thank you.
Mhm, Thanks right.
The next question comes from Charles for you with T. D. Cowan. Please go ahead.
Yeah. Thanks for taking the questions and then congrats on the quarter.
Maybe if.
We think about the pathway to the 300 million, obviously have a lot of moving parts here with with new <unk> like the Humana partnership kind of ramping up.
And some of the new partnerships you sign can you give us a sense of timing on when you. When we should start expect some of these just started hitting I know with humana ramping it sounds like you're saying is starting to hear the third quarter more with EBITDA contribution something more next year, but you know the new the new.
<unk> sorry.
Check the services partnership that you announced when would that you would expect that once you started that would be one one of next year or is that sometime this year as well maybe just for some of the new ones sent the timing, where we should start to expect contribution.
Either both from top line and EBITDA that'd be great.
Yep.
So on the let me take those intern I'm going to focus first on EBITDA circle back to growth.
If you think about the path to 301 of the things that we have such communicate there is if you look at our TTM EBITDA today is $158 million <unk>.
Add in the remainder of the acquired EBITDA.
Then you would see a pro forma EBITDA about 190.
On top of that as I mentioned in my.
Prepared remarks, we have a couple of hundred million dollars of new performance Sweet revenue that's alive today.
That is not really contributing in that 190, and so that is gonna add by the time, we're exiting next year.
North of $25 million.
Flow through down to the EBITDA line.
Now you start to stack up on top of that some of these announcements that we've made the humana relationship going live which will be at generating EBITDA, probably mid next year.
The the theories.
<unk> and I think one thing that you'll see from is Charles is the an announcement like today with a number of partnerships.
Is an important piece of the path to 300, alright, because while these partnerships are strong margin partnerships. So we can add a lot of value of the clients and they can enhance our EBITDA. They don't have a lot of top line to tend to be pretty small given the pm Pms.
So that's how I would think about it in terms of where are we starting pro forma today about 190.
Harley adding from there based on the current performance Sweet book.
And then adding on top of that to the 300 and the last thing just to be messy.
As the rollout of the Nia synergies that we talked about.
At the time of that deal, which is $35 million total.
Okay, and then I guess, you know to follow up on the the quicker Redeterminations I think in particular, Illinois is a big one and that started July 1st at any kind of sense that you've gotten there on on on the progress or lack of progress perhaps.
Are they wanted to states that are taking into consideration sort of the the procedural issues.
They certainly seem to be yes, I think if you read some of the notes that have come out of the the state governments and health agencies.
It seems to us that they are taking a very deliberate approach there.
To support their citizens.
It's also too early to see in the numbers.
Okay Fair enough I'm, sorry, just one following up on another question I think Sean out at about.
So are the acuity in how you would see you talked about leading indicators how early with those in those leading indicators would you be able to notice something changing I know I know you talked about seemed to <unk>, but maybe any any other factors that would.
Give you some lead time and seeing changes.
<unk>.
You know that's going to be the big one Charles because that contains a lot of information right. It's not just the information or around the requested treatment.
But it's also what's the diagnosis, what's the history of disease and all of those different factors.
So that that is an inclusive set of information.
Okay, great. Thanks, a lot.
The next question comes from David Larsen with P. T. I G. Please go ahead.
Hi, can you talk a little bit about bright health like how much revenue was coming from that in 2023, and then I think Molina is buying a significant portion of them are are you going to recapture that revenue through Molina in 2024.
For any any color there will be very helpful. Thank you.
Yep.
And not related to any of their Medicare advantage lives, which is a plan with leno's purchasing.
That that is a plan that we had not done any work with.
Okay. That's great. Thanks, and then could you maybe talk a little bit more about the expansion with Molina in Florida and does that Medicaid books.
And that process, just any more color there and then our other states looking at that and.
Does that increase your odds of winning business and like Texas for example, Medicaid.
Yeah, David et cetera, it can take that one.
It's a lot like the other six states that came before.
Florida, and it's really a process of working with the local leadership to build confidence around our ability to drive savings and.
The internal reference suitability within the other states in the markets, which we've got to continue to perform and I think each time, we out of state. It's good evidence that we're delivering our commitments and I think it will be the same for states eight nine and beyond and look we're pretty heads down focused on execution, we feel like we do a good job for a class.
<unk>. This is what what comes out of the back of it and we feel really good about that partnership and continuing to deliver a lot of value David Senate I do think the Medicaid peace.
In Florida would be a potential interesting opportunity for other Medicaid plans and the state for that arrangement.
Beyond Molina, so there's a couple of different reasons, we're excited about that announcement.
Okay, great. Thanks, Congrats on your quarter.
<unk>.
The next question comes from Sandy transfer with Guggenheim. Please go ahead.
Thanks, very much most of the.
Daily operational questions have already been asked so maybe jana.
Financial one thinking about a couple of my other company.
Have recently started talking about refinancing, which is kind of interesting because that just raise rates, but it's because their financial conditions were getting better leverages coming down and their comment was that market to actually.
Putting all of that and I'm not Ah certainly Ah that that analysts are dead banker, but would love to hear your thoughts about the.
The potential to refinance are there certain either leveraged metrics. It triggers were gonna like okay. If we get through this leverage ratio we could do it.
Great start to kick down just trying to think about that opportunity and how we would think about tracking what the time you might be on that opportunity. Thanks.
Yeah, that's a good question Sandy.
We really seek.
To balance and optimize three things as we're contemplating essentially refinancing.
Cash interest total leverage.
And and deletion of the common alright, and so as we said and look at it today, if you're pro forma and the acquired the rest of the required EBITDA, we're sitting at about 2.7 times net <unk>.
And we are committed to maximizing and optimizing those three things that we see an opportunity to refinance into something that is cheaper.
Then absolutely would contemplate doing that if it was the right thing to do for the other two metrics leverage and deletion of the caller.
Got it that was helpful and that was my only question congratulated quarter.
Thank you I appreciate.
Appreciate it.
The next question comes from Jessica <unk> with Piper Sandler. Please go ahead.
Hi, guys. Thanks for taking my questions Uhm. So first of all I need to just come back to you on your comment around Humana starting to generate adjusted EBITDA in the second half of 2024 and can you just help us understand kind of the Martin trajectory of performance Sweet deals and maybe in their first six months and then their second six.
<unk>.
Yeah, Yeah, you got it so what we've typically indicated alright as an expectation that.
Advil alive right and for the first couple of quarters as.
As you look at your claims expense and watching the claims complete.
Your claims expenses a lot of <unk> and so you're building for those first couple of quarters.
Ivy in our stack and on a reported basis, you're not generating a lot of earnings.
As as claims complete the Ivy in our come down.
Then you would have a natural release of that initial actuarial conservatism that then translates into what we've typically indicated the first full year of a performance sweet arrangement.
Between four and 6%.
Of.
The total profits none at the bottom line so.
That's how I think about it is quite little and the first couple of quarters, and then ramping up and is that three quarters is it five quarters, that's gonna depend a lot on the specific partnership that specific geography, and so forth.
That is the way that we see it playing out.
And got it that Sarah and then add that's really helpful. And then I was just hoping maybe you could <unk> you could add describe any changes you've seen lately in the competitive landscape for the and tech enabled solutions specifically.
Mostly interested to understand <unk> <unk>. Some reason controversy around the competitors prior authorization algorithm. That's created an opportunity for you guys into 2024.
Yeah, just I mean, I would just say in general without comment on the specific situation like just in general I think our model tends to be clinical highly clinical nature right. That's been our differentiation point from the beginning which is really more around pathways and I think we talked last quarter about dissatisfaction right.
Oncologist using our platform being really high and I think just in general we tend to differentiate based on.
Being more clinical and being more physician friendly and I think added to that our ability to offer multiple specialties. Jess I think we feel like the competitive environment is a little more attractive for us now than it was six months ago 12 months ago, and I think it's really based on less what others are doing a more what we're doing.
That's really how we're focused is continuing to meet the market, where they are and listened to our customers voice of customers.
Core part of how we run the company and I think we continued both in terms of the product that we're delivering but also some of the innovation things that we talked about today with patients with AI, we could have a longer conversation about it but I think that's going to be the determinant of our.
Competitive landscape is our ability to execute and we're going to stay pretty focused on what we can do to control it and we feel what we feel really good about it.
Got it and man that's helpful. And then my last one would just be an yeah can you offer an updated that on the per cent of your N C. H performance Sweet lives.
Or I'm sorry, the excellent performance sleet lives that are <unk> that are covered by a vital decision solution or have access to advance care planning.
And that's it for me thanks.
Hey, Jess we haven't disclosed that it's a it is an important piece of our integrated portfolio right as we're both ramping into existing clients.
Including in new sales.
But we're not breaking out the specific mix.
Alright, thank you.
Thanks Jess.
The next question comes from Richard close with Canaccord Giannini. Please go ahead.
Yes, thanks for the questions maybe I'm just building on Jess is question and your answer.
To Ryan with respect to saying attack the utilization I'm curious with the increased press utilization management.
And then you're calling it out and Medicaid here recently over the last week or so.
Based on your clinical alright.
I guess more.
More being more clinical are you seeing that accelerate the pipeline in terms of.
People deciding to switch out the old <unk> utilization management and go with the more clinical focus but you guys are offering.
Richard I do I do think that it has always been the core of our differentiation and will continue to be the core of our differentiation and when we talk today about things like.
Patient navigation is a new product that we're developing right that takes us further down that path and the more you do directly with the patient and the family.
The less you have to think about utilization management, because you're sort of doing what I would call shared decision, making rather than a utilization management model. So it has always been our our differentiation I think it is helping and it has always helped I think we're pushing that boundary further with the things that we talked about today in AI would go down the same vector.
AI, which we do not talk a lot about on the call and we'll we'll talk about in the future.
Is a lot about reducing abrasion and doing things in an automated fashion and so we're gonna we intend to lead on that front across all these different areas and we're really pushing pushing as quickly as we can down a lot of different vectors and I do think the underlying issue in frustration that you're articulating is is an opportunity for us.
And it just as a follow up is it portend I guess, maybe an acceleration in the adoption of the performance sweet versus maybe taking just peck and services.
That's a good question I don't know I don't know if I could forecast that one way or the other on that front I think the.
Way, we've thought about the business I don't feel a huge shift and mix right now, it's a fair bit of growth on both sides, Richard and I think it tends to be a little bit more client specific as to they need to guarantee or are they.
Okay with the Tech Tech services platform.
Okay. Thank you.
You're welcome.
As a reminder, if you wish to ask a question. Please press Star then one to answer the question queue.
The next question comes from each island dressing with two it. Please go ahead.
Thank you and thanks for taking my question Uhm, I actually I kind of like the current question on Molina partnership in Florida, I believe you said like 100000, Medicare lines that typical Medicaid B M. P. M. I would understanding is Monday night has close to 175000 lives maybe they they include <unk>.
Maybe there was a knock part of the contract and if so do those are the main future opportunity for you guys and any color on B M. P. M. For exchange lives is that compatible Medicaid P. M. P M.
Yep.
Two things there to <unk> we.
Only do performance sweet for adults that pizza.
So that's like.
Likely the distinction and I would also say that as we think about this for next year of course, we are including an allowance for Redetermination impact alright, and so those two things are important as you look at aggregate size of that potential partnership.
We would scope it likely over $20 million a top line.
Okay, and <unk>, how much does that.
We typically don't go that granular.
[laughter] that gets pretty new I'm feeling okay, alright, maybe in my follow up on the comments around on <unk>. So clearly you guys have seem pretty stable trans but as you pointed out some common things have been pretty mixed from some entities have you guys done any analysis on the.
The Kansas cleaning data for your population, which keeps you confirm that you'd never saw a screening go down so any such cough is unlikely to pick up in future and a quick follow up on your earlier comment that you had to call. It <unk>, but are there any predictions around the acuity mix like <unk> <unk>.
<unk> early stage cancer cases.
Let me try to take those intern.
On.
Screenings.
We don't take risks on screenings, and so I don't tend to have access to that data, we do have access to.
Is both in conversations with our partners and broad based research report that ethic put out for example back in February .
Indicated what we have seen where we've heard from our partners such as that cancer screenings in particular and Medicare Medicaid.
Have been at normal rates for quite some time and so that the us is pretty definitive and it's consistent with what we're seeing in our data around aggregate prevalent and acuity.
On the second question.
The answer is yes.
The specifics as you can imagine in a risk contracts like this get pretty nuanced around specifically, how we work with our partner to ensure that we're fairly sharing the value that we're creating.
As a population my shifts over time.
And so the headline just as we talk about court orders around prevalence.
And other items.
That we're seeking to drive our lines partnerships with.
Risk bearing with health plans.
And that model to date has.
Generated both significant products and significant growth.
Okay and then my final question on that <unk> business.
C M S came out with <unk>.
Those are some changes in the proposal under those conditions. Please could do it looks like that encouraging more ACO participation can you talk about your thoughts on the changes and including the proposal does that change your view on how you plan to approach at M. S. N B business next to you and the same topic any visibility on implementing it might just be savings called <unk>.
<unk> 22 plan you an expectation that the seal.
Let me take that last one maybe you can talk about that how integrating this into the broader strategy, but on on the fee schedule a drill Indra look there's a bunch of stuff in there that is net positive for primary care inclusive of.
The ACO programs. So that's good.
And that should be supportive of growth both of our ACO and and of that the overall product line.
As we think about the shared savings for 22 at this point in the year, we typically have pretty good sense in line of sight into what that might be.
And I have of course incorporated that into our guy.
You Wanna talk about strategy, Yeah, I would just say John and general <unk> business is performing well as John said and we feel good about it and.
Things are top and bottom line feel good for the sheer as John said baked into the numbers I think as you go forward and you go back to I R day, and look how we talked about the focus of the business, we have $150 billion Tam and the specialty side of the business largely with private payers and a lot of what we're doing whether it's with.
Formerly known as IPG, formerly known as vital I won't care partners stitching, a lot of things together to better serve payers needs and a more integrated fashion. So I think going forward, you're gonna hear us talk a little bit less about care partners as an entity and <unk> is the thing by itself, while it's still important what we're really thinking about is the 150 billion.
Tam, which integrating specialty primary care is is interesting and the things we can do for that but that shows up less <unk> and more direct contracts with private payers right. So I think just sort of set up a table for future quarters, that's really going to be how we think about whether again, it's formerly known as IPG for my throat is vital.
<unk>, you're gonna really [laughter] here a lot more about just Avalon.
How're stitching all of it together.
Okay. Thanks, a lot.
Thanks to Wonder if concludes that question and answer session I would like to turn the conference back over to <unk> for any closing remarks.
Alright, Thanks for joining US Tonight will look forward to connecting with everybody out on the road and.
Have a good night.
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