Q2 2024 Evolent Health Inc Earnings Call

Welcome to the Evolent Earnings Conference Call for the second quarter and this is June 30th, 2024.

Operator: As a reminder, this conference call is being recorded. Your hosts for the call today from Evolent 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 titled Investor Relations. I will now hand the call to Seth Frank, Evolent Vice President of Vester Relations.

Speaker Change: As you're wondering, this call is being recorded. Your host for the call today from Edwards 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 titled Investor Relations.

Speaker Change: I will now hand the call to Seth Frank, Evelyn Spice President of Vester Relations.

Seth Frank: Thank you and good evening. This conference call will contain forward-looking statements under US federal law. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present 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 and periodic filings. For additional information on the company's results and outlook, please refer to our second quarter press release issued earlier today.

Evelyn Spice: 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.

Speaker Change: 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.

Evelyn Spice: For additional information on the company's results and outlook.

Speaker Change: Please refer to our second quarter press release issued earlier today.

Speaker Change: 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.

Speaker Change: and posted on the IR section of the company's website, ir.evolent.com. And the form 8K filed by the company with the SEC earlier today.

Speaker Change: In addition to reconciliations, we provide details on the numbers and operating metrics for the quarter in both our press release and the supplemental investor presentation.

Seth Frank: Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in a summary presentation available in the Investor Relations section of our website or in the company's press release issued today and posted on the IR section of the company's website, ir.evolent.com, and the form 8k filed by the company with the SEC earlier today. In addition to reconciliations, we provide details on the numbers and operating metrics for the quarter in both our press release and the supplemental investor presentation. And now, I'd like to hand the call over to Evolent's CEO, Seth Black.

Evelyn Spice: And now I'd like to hand the call over to Evalyn's CEO, Seth Blackley.

Seth Blackley: Good evening. Thanks for joining the call. Tonight, I'll go through the headline results for the quarter and update you on our three pillars of shareholder value creation before handing it over to John to speak more about our financials and outlook. Evolent delivered revenue just above our anticipated range, while profitability came in within our expected range for the second quarter. Today, we're updating our full-year 2024 Adjusted EBITDA guidance and also reiterating our confidence in our $300 million 2024 year-end exit run rate target.

Seth Blackley: Good evening. Thanks for joining the call. Tonight I'll go through the headline results for the quarter and update you on our three pillars of shareholder value creation before handing it to John to speak more about our financials and outlook.

John Johnson: Evolent deliver revenue just above our anticipated range while profitability came in within our expected range for the second quarter.

John Johnson: Today, we're updating our full-year 2024 Adjusted EBITDA Guidance. We're also reiterating our confidence in our $300 million 2024 year-end exit run rate target.

Seth Blackley: To put the results and our outlook for the year in perspective, we have a number of important updates to share today. First, Recall that in the first quarter of this year, we noted a few performance sweep markets with higher than expected medical costs, due primarily to higher prevalence of... We also noted that our contracting model allows us to update our capitation rates to reflect these changes. Today, we're pleased to update you on our progress regarding rate increases for these performance week customers.

John Johnson: To put the results and our outlook for the year in perspective, we have a number of important updates to share today.

John Johnson: First, recall in the first quarter of this year, we noted a few performance sweet markets with higher than expected medical costs due primarily to higher prevalence of disease.

John Johnson: We also noted that our contracting model allows us to update our capitation rates to reflect these changes. Today, we're pleased to update you on our progress regarding rate increases from these performance suite customers.

Seth Blackley: Specifically, we have aligned with our partners on new rates, which we expect will contribute approximately $60 million in additional revenue on an annualized basis. We expect to capture approximately $35 million of this rate benefit in 2020.

John Johnson: Specifically, we have aligned with our partners on new rates, which we expect will contribute approximately 60 million dollars in additional revenue on an annualized basis.

John Johnson: We expect to capture approximately $35 million of this rate benefit in 2024.

Seth Blackley: Based on the partnership dynamics with our payers in an environment where they are under pressure, we have prioritized setting the correct rates for the balance of 2024 and for 2025 over retrospective ratings. Given that we anticipate the majority of the economic benefit, these rating increases will begin in the third quarter of 2024 and not retrospectively. 2024 came in slightly lower than the midpoint, but we now have high confidence in reaching our target year-end exit run rate of $300 million in adjusted EBITDA, as well as a strong setup for 2025.

John Johnson: Based on the partnership dynamics with our payers in an environment where they are under pressure, we have prioritized setting the correct rates for the balance of 2024 and for 2025 over retrospective rate increases.

John Johnson: Given that, we anticipate the majority of the economic benefit of these rate increases to begin in the third quarter of 2024 and not retrospectively.

John Johnson: 2024 came in slightly lower than the midpoint, but we now have high confidence in reaching our target year-end exit run rate of $300 million in adjusted EBITDA, as well as a strong setup for 2025.

Seth Blackley: More importantly, we believe this outcome clearly underscores the fundamental value creation or solutions delivered to us. With respect to overall utilization trends in our performance suite, expenses were in line with our expectations for Q2, and we're consistent with elevated levels suggested by deleting indicators previously noted in Mark. We saw the same leading indicators decline in Q2, suggesting potential utilization improvement into Q3. However, our full-year guide assumes baseline third and fourth quarter utilization trend levels will remain consistent with Q2 levels. That is, we are assuming the trend to be stable, neither improving nor deteriorating.

John Johnson: More importantly, we believe this outcome clearly underscores the fundamental value creation our solutions deliver to our customers.

John Johnson: With respect to overall utilization trends and our performance suite, expenses were inline with our expectations for Q2 and were consistent with elevated levels, suggested by the leading indicators previously noted in March.

John Johnson: We saw these same leading indicators decline in Q2, suggesting potential utilization improvement into Q3.

John Johnson: However, our full year guide assumes baseline third and fourth quarter utilization trend levels will remain consistent with Q2 levels.

John Johnson: That is, we are assuming trend to be stable, neither improving nor deteriorating, and to achieve our $300 million adjusted EBITDA exit run rate, we are assuming normal margin maturation improvements consistent with our historical experience.

Seth Blackley: And to achieve our $300 million adjusted EBITDA exit run rate, we are assuming normal margin maturation improvements consistent with our historical experience. As John will detail in a moment, his normal course margin maturation, we expect to drive approximately $7 million in increased quarterly adjusted EBITDA by the end of. To achieve the top end of our range or higher, we'd need to slightly outperform our historical margin maturation pace or see utilization trends return to 2023 levels.

John Johnson: As John will detail in a moment, as normal course margin maturation, we expect to drive approximately $7 million in increased quarterly adjusted EBITDA by the end of the year.

John Johnson: To achieve the top end of our range or higher, we'd need to slightly outperform our historical margin maturation pace or see utilization trends return to 2023 levels.

John Johnson: However, because the rate increases are fully in effect by December 31st, 2024, we have high confidence in reaching the $300 million run rate exit EBITDA.

John Johnson: Even if utilization trends remain at the 2024 average levels and don't return to 2023 levels.

Seth Blackley: Regarding Medicaid redeterminations, we believe we have substantially captured the impact of this process in our revenue and earnings through the second quarter, and this issue is now under review. Finally, I'm pleased to announce today four new revenue agreements from the second quarter, adding over $70 million in new annualized revenue bookings across performance suite and technology and services. With the latter, closing out our tech and services, and new business, Eva Don Gogot, towards our 300 million dollar run rate target.

John Johnson: Regarding Medicaid redeterminations, we believe we have substantially captured the impact of this process in our revenue and earnings through the second quarter, and this issue is now in the rearview mirror.

Speaker Change: Finally, I'm pleased to announce today four new revenue agreements from the second quarter, adding over 70 million dollars in new annualized revenue bookings across performance suite and technology and services.

John Johnson: With the latter, closing out our tech and services new business, EVID.GOGIT, towards our $300 million run rate target.

Seth Blackley: Taken together, as a result of these factors, we have confidence in our path to significantly improve the performance suite and enterprise margins and adjusted EBITDA for each of the remaining quarters of 2024 within the range provided today. Evaluating where the business stands today, I continue to feel excited about Evolent's future.

John Johnson: Taken together, as a result of these factors, we have confidence in our path to significantly improve the performance suite and enterprise margins and adjusted EBITDA for each of the remaining quarters of 2024 within the range provided today.

John Johnson: evaluating where the business stands today, I continue to feel excited about Evelyn's future. We continue to see a strong pipeline, which we believe is reflective of high demand for our solutions from the leading players around the country.

Seth Blackley: We continue to see a strong pipeline, which we believe is reflective of high demand for our solutions from the leading payers around the country. We have a $150 billion dollar addressable market and over $50 billion in cross-sell opportunities. We believe our portfolio consists of an attractive balance across different customer types and sizes and revenue models across fees and risk. With that, let me turn to the results.

John Johnson: We have a $150 billion addressable market and over $50 billion in cross-sell opportunity.

John Johnson: We believe our portfolio consists of an attractive balance across different customer types and sizes and revenue models across fees and risk.

Seth Blackley: Second quarter 2024 revenue was $647.1 million, totaling year over year growth of 37.9%, all organically. We averaged 39.9 million unique members in the quarter with an average of two products deployed per unique member for a total of 79.9 million product members, a modest sequential decrease due to anticipated Medicaid redistribution. Given that we'll start to recognize the majority of our anticipated rate increase in Q3 and not Q2, adjusted EBITDA for the quarter was towards the lower part of the range, totaling $52 million.

John Johnson: With that, let me turn to the results.

John Johnson: Second quarter 2024 revenue was $647.1 million, totaling year-over-year growth of 37.9% all organically driven.

John Johnson: We average 39.9 million unique members in the quarter with an average of two products deployed per unique member for a total of 79.9 million product members, a modest sequential decrease due to anticipated Medicaid re-determinations.

John Johnson: Given that we'll start to recognize the majority of our anticipated rate increase in Q3 and not Q2, adjusted EBITDA for the quarter was towards the lower part of the range, totaling $52 million.

Seth Blackley: We ended the quarter with a strong cash position of $101 million in cash and equivalents after the outflow of $89 million in cash for the earn-out to the former owner of NIA. Turning now to our three pillars of shareholder value creation, I want to update you first on our organic growth. We're announcing today over $70 million across four new revenue agreements that we anticipate will go live in the coming months. Of the four new revenue agreements, two are performance suite and two are for specialty technology. The two performance suite expansions are for Medicaid and commercial in Ohio and Wisconsin for an existing performance suite customer, and they're expected to add approximately $60 million in new annual revenue.

John Johnson: We ended the quarter with a strong cast position of 101 million in cash and equivalents after the outflow of $89 million in cash for the earnout to the former owner of NIA.

John Johnson: Turning now to our three pillars of Shareholder Value Creation, I want to update you first on our organic growth. We're announcing today over $70 million across four new revenue agreements that we anticipate will go live in the coming months.

John Johnson: Of the four new revenue agreements, two are performance suite and two are for specialty technology and services.

John Johnson: The two performance week expansions are for Medicaid and commercial in Ohio and Wisconsin for an existing performance week customer and they're expected to add approximately $60 million in new annual revenue.

Seth Blackley: Specialty Technology and Services. We are seeing exciting growth and growing traction among the Blues plans around the country. In the quarter, we want to receive an RFP to provide our comprehensive oncology, technology, and services solution for one of the five largest blue cross, blue shield plans in the country. This plan was an existing NIA customer and selected Evolent to provide medical and radiation oncology services, as well as care navigation services across over 2 million of their members.

John Johnson: In specialty, technology and services, we are seeing exciting growth and growing traction among the blues plans around the country.

John Johnson: In the quarter, we want an RFP to provide our comprehensive oncology, technology, and services solution for one of the five largest Blue Cross Blue Shield plans in the country.

John Johnson: This plan was an existing NIA customer and has selected Evolent to provide medical and radiation oncology services as well as care navigation services across over 2 million of their members.

Seth Blackley: We also expect this will be our first deployment under the Evolent Umbrella of the Careology Care Navigation product announced in May. Secondly, we secured a significant line of business expansion with the Midwest Blue Cross Blue Shield plan for MSK solutions within technology and services, expanding existing services to this client's Medicare membership as well as beyond existing lines, including Medicaid and commercial.

John Johnson: We also expect this will be our first deployment under the Evelyn Umbrella of the Carology Care Navigation product announced in May.

John Johnson: Secondly, we secured a significant line of business expansion with the Midwest Blue Cross Blue Shield plan for MSK solutions within technology and services, expanding existing services to this client's Medicare membership beyond existing lines, including Medicaid and commercial.

Seth Blackley: We expect these new agreements to contribute approximately $10 million in annual revenue when they go live, and these agreements close out the remaining revenue bookings to get towards our $300 million exit run. The four new revenue agreements announced today bring us to a total of 11 for the 2024 sales cycle with one more quarter. Turning to operations, we completed a number of successful, large-scale go-lives during the quarter. One example worth highlighting was the implementation and deployment of our national radiation and surgical oncology solution during a large national health crisis.

John Johnson: We expect these new agreements to contribute approximately $10 million in annual revenue when they go live. When these agreements close out, the remaining new revenue bookings go get towards our $300 million exit run rate.

John Johnson: The four new revenue agreements announced today brings us to a total of 11 for 2024 sale cycle with one more quarter to go.

John Johnson: Turning to operations, we completed a number of successful, large field goal lives during the quarter. One example worth highlighting was implementation and deployment of our national radiation and surgical oncology solution to a large national health plan.

Seth Blackley: This implementation marked the first time we rolled out our surgical oncology solution and the first time we implemented on a full 50-state basis in one go live. Recall, we announced this agreement back in February, where we already provided national medical oncology technology and services across several. In addition, we also had a successful rollout early in the quarter with our first cross-sell of an existing Evolent client with imaging.

John Johnson: This implementation marked the first time we rolled out our surgical oncology solution and the first time we implemented on a full 50-state basis in one go live.

John Johnson: Recall, we announce this agreement back in February, we'll be already provide national medical oncology technology and services across several dozen states.

John Johnson: In addition, we also had a successful rollout early in the quarter with our first cross-sell of an existing Evolent client with imaging solutions.

Seth Blackley: One other successful large-scale implementation to highlight was with one of our national partners for specialty technology and services in the Midwest. New products included medical and radiation oncology as well as interventional cardiology for over a half a million members across all three major lines. We continue to be pleased with the progress our services and solutions team has made in supporting higher scale and increasingly complex implementations. Looking at the sales pipeline, we see significant demand that we can anticipate to continue to drive meaningful top-line growth for us.

John Johnson: One other successful large-scale implementation to highlight was with one of our national partners for specialty technology and services in the Midwest. New products included medical and radiation oncology as well as interventional cardiology for over a half a million numbers across all three major lines of business.

John Johnson: We continue to be pleased with the progress of our services and solutions team has made in supporting higher scale and increasingly complex implementations.

John Johnson: Looking at the sales pipeline, we see significant demand that we can anticipate to continue to drive meaningful top-line growth for Evelyn. In speaking with payers across the country, it seems clear to us that health plans increasingly need effective strategies to manage high-cost, complex, and rapidly evolving medical specialties.

Seth Blackley: In speaking with payers across the country, it seems clear to us that health plans increasingly need effective strategies to manage high-cost, complex, and rapidly evolving medical specialties. We understand and align with where healthcare is headed, moving beyond the limitations of traditional utilization management to providing advanced condition management solutions. We believe these solutions lower abrasion with providers, improve satisfaction for patients, and provide higher quality. Taken together, our positioning and competitive advantage remain highly differentiated, and we're optimistic regarding the setting for a strong growth year in 2020.

Seth Blackley: However, Robert, John Johnson, and Thomas Keller, Because the rating cruises are fully in effect by December 31, 2024, we have high confidence in reaching the $300,000,000 run rate exit EBITDA, even if utilization trends remain at the 2024 average levels and don't return to 2023.

John Johnson: We understand that a line with where health care is headed, moving beyond the limitations and traditional utilization management to providing advanced condition management solutions.

John Johnson: We believe these solutions, lower abrasion with providers, improve satisfaction for patients and provide higher quality care.

John Johnson: Taken together, our positioning and competitive advantage remain highly differentiated, and we're optimistic regarding the setup for a strong growth year in 2025.

Seth Blackley: Let's turn now to our second operating priority of expanding profitability. Our profitability and our value proposition are built on our ability to drive more clinical value than anyone else in the market. I'd like to share a few examples of what our clinical value creation looks like in real life for our customers. First, in our work with one of the largest community-based cancer specialists in the country, located in the southeast, we drove a 77% decline in designated low-value regimens, which directly leads to higher quality and lower cost.

John Johnson: Let's turn now to our second operating priority of expanding profitability.

John Johnson: Our profitability and our value proposition are built on our ability to drive more clinical value than anyone else in the market.

John Johnson: I'd like to share a few examples of what our clinical value creation looks like in real life for our customers.

John Johnson: First, and our work with one of the largest community-based cancer specialists in the country located in the southeast. We drove a 77% decline in designated low-value regimens, which directly leads to higher quality and lower cost.

Seth Blackley: We achieved this result using the full breadth of our performance wheat model, alternative payment models, scorecarding, and direct peer-to-peer engagement. Another example of clinical vibration can be found in our cardiology performance suite, another state in which we were able to drive a 20% decrease in interventional cardiology costs and year one of an implementation using optimal medical management and guideline-directed medical therapy.

John Johnson: We achieved this result using the full breadth of our performance suite model, alternative payment models, scorecarding, and direct peer-to-peer engagement.

John Johnson: Another example of clinical value creation can be found in our cardiology performance suite, in another state in which we were able to drive a 20% decrease in the interventional cardiology costs in year one of an implementation using optimal medical management and guideline-directed medical therapy.

John Johnson: Importantly, these financial results also improve quality of care for patients.

John Johnson: These examples demonstrate the way our scalable approach can drive value far beyond where the achievable through traditional models.

John Johnson: In fact, we believe our approach of implementing clinician engagement strategies such as peer-to-peer discussions and alternative payment models help reduce denials.

John Johnson: For example, in one Midwestern state, we recently demonstrated an Iowa Boydance rate of over 90% based on high quality peer-to-peer consultations. We believe this is how healthcare should work for complex care.

Seth Blackley: We believe this is how healthcare should work for complex patients, our world-class experts having thoughtful, data-driven conversations with their treating physicians about the right care for them. This model, we believe, improves the experience, but also avoids delays, frustration, and red tape associated with traditional payer utilization management. Let's turn to our third principle of discipline to capital allocation. It's a good time to talk about our operating system.

John Johnson: Our world-class experts having thoughtful, data-driven conversations with the treating physicians about the right care for the patient.

John Johnson: This model, we believe, improves the experience, but also avoids delays, frustration, and red tape associated with the traditional payer utilization management model.

Speaker Change: Let's turn to our third principle of discipline to capital allocation, which is a good time to talk about our operating efficiencies.

Seth Blackley: We're pleased to announce the closing of the Machina 5 transaction we announced back in June and our rapidly ramping integration and implementation activities across our product portfolio. We acquired the Machinify technology and team after a comprehensive search of competing AI technologies that were relevant to our product. We found the technology and platform deployed by Machinify to be the most advanced and the most consistent with our vision for AI and specialty conditions.

Speaker Change: We're pleased to announce the closing of the Machina 5 transaction we announced back in June and are rapidly ramping integration and implementation activities across our product portfolio.

Speaker Change: We acquired the Machinify technology and team after a comprehensive search of competing AI technologies that were relevant to our products.

John Johnson: We found the technology and platform deployed by Machina 5 to be the most advanced and the most consistent with our vision for AI and specialty condition management.

Seth Blackley: As a reminder, we've described two immediate benefits of this technology to Evolent. First, in scale deployments with a large payer, machineify has demonstrated up to a 55% reduction in clinician review time. Evolent will spend about $150 million this year on clinical staff, with continued rapid growth forecasted in the years ahead.

Evelyn Spice: As a reminder, we've described two immediate benefits of this technology, Evelyn.

Evelyn Spice: First, in scaled deployments with a large payer, Machinify has demonstrated up to a 55% reduction in clinician review time.

Evelyn Spice: Evelyn will spend about 150 million dollars this year on clinical staff with continued rapid growth forecasted in years ahead.

Seth Blackley: Using this technology to streamline the workflow of our expert clinical teams, we believe will enable them to work at the top of their licenses, deliver incremental value to our members, and absorb our growth, which in turn should drive meaningful operating leverage forever. The second benefit is an expansion of our product offering for clients and prospects. The Machinify product provides a holistic solution for payers for specialties and general authorizations where we do not, including inpatient admission reviews, long-tailed specialties, and other areas that require conformity to help determine medical policy.

Evelyn Spice: Using this technology to streamline the workflow of our expert clinical teams, we believe will enable them to work at the top of their license, deliver incremental value to our members, and absorb our growth, which in turn should drive meaningful operating leverage for Evolent.

Evelyn Spice: The second benefit is an expansion of our product offering for clients and prospects.

Evelyn Spice: The Machinify product provides a holistic solution for payers for specialties and general authorizations where we do not focus, including inpatient admission reviews, long tail specialties and other areas that require conformity to health plan medical policy.

Seth Blackley: Machineify can be sold to our health plan partners as a SaaS solution, enabling our partners to cover the long-tail specialties with their in-house staff while Evolent continues to manage the more complex specialties on an outsourced basis. This combination model, we believe, allows Evolent to serve our payer customers as a one-stop partner for the first time. At the moment, we're taking a measured approach to the implementation of this technology We continue to be excited about the potential of this technology and the impact we believe it will have as we target up to $50 million in annualized EBITDA improvement from the solution in the years ahead.

Speaker Change: The machine if I can be sold to our health plan partners as a fast solution and they have went our partners to cover the long-tailed specialties with their in-house staff for evident continues to manage the more complex special things on an outsourced basis.

Evelyn Spice: This combination model we believe allows everyone to serve our payer customers as a one-stop partner for the first time.

Speaker Change: At the moment, we're taking a measured approach to the implementation of this technology within our current development budget, though we do anticipate a lower capitalization rate of engineering resources as we start the integration.

Speaker Change: We continue to be excited about the potential of this technology and the impact we believe it will have as we target up to $50 million and realize even don't prove it from the solution in the years to come.

Seth Blackley: Looking ahead, our capital priorities remain the same. We continue to reinvest in the business, seek out accretive assets that accelerate our platform, and maintain a strong balance sheet and prudent leverage ratio to maximize financial flexibility and strategic growth. Before I hand the call to John, I want to address a few issues on the policy front since we're in an election year and this topic will take on more oxygen as we get closer to November.

Speaker Change: Looking ahead, our capital priorities remain the same. We continue to reinvest in the business, seek out accretive assets that accelerate our platform and maintain a strong balance sheet and prudent leverage ratio to maximize financial flexibility and strategic growth.

Speaker Change: Before I hand the call to John , I want to address a few issues on the policy front since we're in an election year and this topic will take on more oxygen as we get closer to November .

Seth Blackley: In short, we're keeping our focus on the enduring theme of higher quality and lower cost, which obviously has always enjoyed support by those on both sides of the aisle. Further, we believe our condition management model drives more of our value from patient navigation and provider engagement and further reduces any burdens on providers from the utilization management model. In fact, based on the examples we gave earlier and other data, we estimate that in oncology, over 80% of our value creation comes from actions outside of traditional utilization management, and we believe that percentage will go up in the time at. With that, Oscar.

John Johnson: In short, we're keeping our focus on the enduring theme of higher quality and lower cost, which is obviously has always enjoyed support by those on both sides of the aisle.

John Johnson: Further, we believe our condition management model drives more of our value from patient navigation and provider engagement and further reduces any burdens on providers from the utilization management model.

John Johnson: In fact, based on the examples we gave earlier and other data, we estimate that in oncology, over 80% of our value creation comes from actions outside of traditional utilization management, and we believe that percentage will go up in the time ahead. With that, I'll turn the call over to John .

John Johnson: Thanks, Seth. Let's unpack some of the key financial metrics for the quarter. Revenue of $647 million outperformed our internal expectations. This included the recognition of approximately $5 million in higher revenue in the quarter related to the rate increases driven by elevated prevalence and acuity we experienced in our performance. This $5 million per quarter improvement will persist, contributing $15 million for the year.

John Johnson: Thanks, Seth. Let's unpack some of the key financial metrics to the core.

John Johnson: Revenue of 647 million outperformed our internal expectations. This included the recognition of approximately 5 million in higher revenue in the quarter, related to the rate increases, driven by elevated prevalence and acuity. We experienced in our performance suite.

John Johnson: This 5 million per quarter improvement will persist, contributing 15 million per the year.

John Johnson: We anticipate new increases totaling $10 million per quarter starting in July for a total of $35 million for the year and $60 million annualized. Specific line of business trends were consistent with our expectations, including specialty tech and services revenue of $81.5 million, which was down $7.5 million sequentially, driven by a combination of Medicaid redetermination and lower one-time quarterly revenue compared to Q1 2024. As expected, we did not receive any new data for the Medicare Shares savings program and so did not look for any incremental revenue in the second quarter, impacting comparisons to Q124 and Cost of Revenue. We recognize approximately 10 million in favorable claims development through 2023 that was not offset by revenue refunds.

John Johnson: We anticipate new increases totaling $10 million per quarter starting in July for a total of $35 million for the year and $60 million annualized.

John Johnson: Specific line of business trends are consistent with our expectations.

John Johnson: Including specialty tech and services revenue of $81.5 million, which was down $7.5 million sequentially, driven by a combination of Medicaid redetermination and lower one-time quarterly revenue compared to Q1 2024.

John Johnson: As expected, we did not receive any new data for the Medicare shared savings program, and so did not look any incremental revenue in the second quarter, impacting comparisons to Q124.

John Johnson: In Cost of Revenue, we recognized approximately $10 million in favorable claims development from 2023 that was not offset by revenue refunds. This claims development represents about 1% of specialty performance suite revenue in 2023 and was consistent with our expectations.

John Johnson: This claims development represents about 1% of specialty performance suite revenue in 2023 and was consistent with our expectations. As a comparison, in Q2 of 2023, we recognized $6 million in favorable claims development from 2022, which was also about 1% of specialty performance suite revenue in 2022, for a $4 million net positive prior period development relative to Q2 a year ago and $5 million more compared to Q1 of 2024. This favorability was offset by continued elevated medical expenses during Q2 in certain of our performance suite markets, which I will discuss more in a minute. Overall adjusted growth margin in the quarter was 16.7%, an increase of about 30 basis points from the first quarter of 2024.

John Johnson: As a comparison, in Q2 of 2023, we recognized $6 million in favorable claims development from 2022, which was also about 1% of specialty performance suite revenue in 22,

John Johnson: For a $4 million net positive prior period development relative to Q2 a year ago, and $5 million more compared to Q1 of 2024.

John Johnson: This favorability was offset by continued elevated medical expenses during Q2 in certain of our performance sweep markets, which I will discuss more in a minute.

John Johnson: Overall, adjusted growth margin in the quarter, with 16.7% and increase of about 30 basis points from the first quarter of 2024.

John Johnson: This increase is attributable to favorable claims development offset in part by not recognizing shared savings from MSSP in the quarter, as we mentioned would likely be the case. Adjusted SG&A of 56.1 million is down 13.7 million versus the same period last year, the result of strong execution of our one Evolent M&A integration program. Capitalized software development expense was $5.8 million, about flat to the same period the prior year.

John Johnson: This increase is attributable to favorable claims development offset in parts by not recognizing shared savings from MSST in the quarter, as we mentioned would likely be the case.

Speaker Change: at SGNA, a 56.1 million is down a 13.7 million person in the same period last year. The results are strong execution of our one-evilance M&A integration program.

John Johnson: Capitalized software development expense was 5.8 million, about Black to the same period the prior year.

John Johnson: Page 4 of the presentation posted on our IR website lays out the key drivers of change in adjusted EBITDA from Q2 of last year to Q2 of this year. First, we have overcome two time-bound headwinds totaling 10.5 in quarterly EBITDA impact. Recall, in Q1, we completed the planned wind-down of certain administrative services clients.

John Johnson: Page 4 of the presentation posted on our IR website lays out the key drivers of change in adjusted EBITDA from Q2 of last year to Q2 of this year.

John Johnson: First, we have overcome two time-bound headwinds totaling 10.5 in quarterly EBITDA impact.

John Johnson: Recall, in Q1, we completed the planned wind-down of certain administrative services clients.

John Johnson: Comparing versus Q2 of last year, this represented a $4 million headwind to EBITDA. Note that this represented a $7 million headwind to gross profits, which was offset by a $3 million reduction in SG&A. On Medicaid redeterminations, we ended this quarter in line with our expectations for a total impact of $6.3 million since Q2 of last year. Gross Medicaid membership declines were approximately 15%, consistent with our expectations. Based on stable authorization trends across the second quarter and into July, we believe Evolent's risk business captures the impact of redeterminations within our Q2 results. Importantly, we believe these aforementioned headwinds to be complete death for the third quarter.

John Johnson: Comparing versus Q2 of last year, this represented a $4 million headwind to adjusted EBITDA. Note that this represented a $7 million headwind to gross profits, which was offset by a $3 million reduction in SG&A.

John Johnson: On Medicaid redeterminations, we ended this quarter in line with our expectations for a total impact of $6.3 million since Q2 of last year.

John Johnson: Gross Medicaid membership declines were approximately 15%, consistent with our expectations.

John Johnson: Based on stable authorization trends across the second quarter and into July , we believe Evolent's risk business captures the impact of redeterminations within our Q2 results.

John Johnson: Importantly, we believe these aforementioned headwinds to be complete death of the third quarter.

John Johnson: The timing of revenue recognition for MSSP was a $7.6 million headwind compared to the prior quarter. However, keep in mind this is timing only and does not reflect the change in our outlook for that program. Consistent with expectations, Q2 captured approximately $6.7 million of synergies from the NIA acquisition, with the remainder on track to be in place by the end of the year. Additionally, SG&A reductions beyond what is included in the Administrative Services Runout and NIA Synergies categories contributed an additional $3.5 million.

John Johnson: The timing of revenue recognition for MSSP was a $7.6 million headwind comparing to the prior court.

John Johnson: Though keep in mind this is timing only and does not reflect the change in our outlook for that program.

John Johnson: Consistent with expectations, Q2 captured approximately $6.7 million of synergies from the NIA acquisition, with the remainder on track to be in place by end of year.

John Johnson: Additional SG&A reductions, beyond what is included in the Administrative Services Runout and NIA Synergies categories, contributed an additional $3.5 million.

John Johnson: Maturation of our performance suite added $5.5 million of EBITDA versus Q2 of last year, and other net growth added $6.6 million. In other words, the core organic drivers of our business generated $12.1 million in adjusted e-vehicle growth compared to the same period last year. Now let's pivot to Cost Trend within Performance Suite Year-to-Date. Recall, in Q1, we recognized higher medical costs in some markets based on data from prior authorizations. Specifically, we saw increases in disease prevalence, acuity, and estimated cost per encounter.

John Johnson: Mathuration of our performance suite added 5.5 million of EBITDA versus Q2 of last year. And other net growth added 6.6 million.

John Johnson: In other words, the core organic drivers of our business drove $12.1 million in adjusted EBITDA growth compared to the same period last year.

John Johnson: Now let's pivot to Cost Trend within Performance Suite year-to-date.

John Johnson: Recall in Q1, we recognize higher medical costs in some markets based on data from prior authorizations.

John Johnson: Specifically, we saw increases in disease prevalence, acuity, and estimated cost per encounter.

John Johnson: Based on the most recent data from our partners, these increases have translated into paid claims consistent with our reserves at the end of Q1. Additionally, an overall utilization trend in Q2 was consistent with Q1 levels but down from the March peak and higher than 2023 trend levels. Therefore, we continue to believe these increases were due to changes in the underlying populations and not caused by broader macro trends in our specialty areas.

John Johnson: Based on the most current data from our partners, these increases have translated into paid claims consistent with our reserves at the end of Q1. An overall utilization trend in Q2 was consistent with Q1 levels but down from the March peak and higher than 2023 trend levels.

John Johnson: Therefore, we continue to believe these increases were due to changes in the underlying populations and not caused by broader macro trends in our specialty areas.

John Johnson: Fortunately, we have mechanisms in our contracts to increase our revenues if there are changes in disease prevalence or acuity. During the quarter, we secured increased revenue for several of the impacted markets to cover the elevated costs we highlighted from March and into Q2. We have also reached alignment with our partners for higher revenue in the remaining affected markets, which we expect to start to recognize in Q3. We are also enhancing the mechanisms by which we update these rates with our partners, giving us a good line of sight for rate sufficiency into 2025 and beyond.

John Johnson: Fortunately, we have mechanisms in our contracts to increase our revenues if there are changes in disease prevalence or acuity.

John Johnson: During the quarter, we secured increased revenue for several of the impacted markets to cover the elevated costs we highlighted for March and into Q2.

John Johnson: We have also reached alignment with our partners for higher revenue in the remaining affected markets that we expect to start to recognize in Q3.

John Johnson: We are also enhancing the mechanisms by which we put state-based rates with our partners, giving us good sign of safe or rate efficiency into 2025 and beyond.

John Johnson: With these last rate increases coming into effect this quarter, we believe we will have fully covered the underlying changes in prevalence and acuity for the year. While the timing of this revenue beginning in Q3 impacts our original full year 2024 outlook, we believe our ability to rapidly capture these updates speaks to the value of the aligned partnership we have with our customers. Finally, as a part of our thoughtful approach to risk management.

John Johnson: With these last raid increases coming into effect this corner, we believe we will have fully covered the underlying changes in prevalence and acuity for the year.

John Johnson: While the timing of this revenue beginning in Q3 impacts our original full year 2024 outlook, we believe our ability to rapidly capture these updates speaks to the value of the aligned partnership we have with our customers.

John Johnson: We have also agreed with certain partners to carve a select number of markets out of our scope for 2024, which will modestly reduce our full-year revenue with no expected impact on adjusted EBITDA. However, this reduction in revenue is more than offset by the expected rate increases and new Go Live announcements we have discussed. Turning to other key financial metrics, we completed our repositioning work on schedule during Q2. Spensing the remaining $670,000 in the program. Overall, these repositioning investments have been the principal driver of the $13.7 million year-on-year decline in adjusted SG&A versus Q2 of last year.

John Johnson: Finally, as a part of our thoughtful approach to risk management, we have also agreed with certain partners to carve a select number of markets out of our scope for 2024, which will modestly reduce our full-year revenue with no expected impact to adjusted EBITDA.

John Johnson: This reduction in revenue is more than offset by the expected rating crisis in new goal-life announcements we get discussed.

John Johnson: Stock-based compensation of $12.7 million in the quarter was consistent with our expectations. We paid $88.75 million in the quarter to close off the earnout for NIA, electing to fund that liability entirely in cash, which increased our net debt to 2.5 times adjusted EBITDA at the end of the quarter. Year-to-day cash flow from operations is 26.3 million, which includes 22.2 million of the Arnaut payments. Excluding this classification item, year-to-date cash flow from operations would be $48.5 million.

John Johnson: Turning to other key financial metrics.

John Johnson: We completed our res positioning work on schedule during Q2, Expensing the remaining $670,000 in the program.

John Johnson: Overall, these repositioning investments have been the principal driver of the 13.7 million year on year decline in adjusted SGA versus Q2 of last year.

John Johnson: Stock-based compensation of $12.7 million in the quarter was consistent with our expectations.

John Johnson: We paid $88.75 million in the quarter to close off the earnout for NIA, electing to fund that liability entirely in cash, which increased our net debt to 2.5 times adjusted EBITDA at the end of the quarter.

John Johnson: Year-to-date cash flow from operations is $26.3 million, which includes $22.2 million of the earn-out payment.

John Johnson: That excluding this class vacation item, year-to-date cash flow from operations would be 48.5 million. We remain on track towards our target of generating 150 million or more in cash flow from operations this year.

John Johnson: We remain on track towards our target of generating $150 million or more in cash flow from operations this year. As an organization, our financial North Star for almost two years has been achieving $300 million in adjusted EBITDA on a run rate basis through 2024. We believe securing the rate increases in the back half of the year and other factors lend confidence to our tracking to this target. Let's go through the past from our Q2 results of 52 million to this target. And I'll reference page five in my presentation.

John Johnson: As an organization, our financial North Star for almost two years has been achieving $300 million in adjusted EBITDA on a run rate basis exiting 2024.

John Johnson: We believe securing the rate increases in the back half of the year and other factors lead confidence to our tracking to this target.

John Johnson: Let's go through the path from our Q2 results of $52 million to this target, and I'll reference page 5 in the presentation.

John Johnson: Note that as we think about the starting point for this bridge, normalizing Q2 for a typical amount of prior year development is offset by also normalizing for an average quarter of MSSP revenue recognition. First, we expect to add an additional $10 million per quarter in revenue increases for performance suite markets beginning in Q3. Second, the remaining capture of NIA Synergies adds $2 million. We have captured 6.75 of the original $8.75 million operation.

John Johnson: Note that as we think about the starting point of this bridge, normalizing Q2 for a typical amount of prior year development is offset by also normalizing for an average quarter of MSSP revenue recognition.

John Johnson: First, we expect to add an additional $10 million per quarter in revenue increases for performance-sweet markets beginning in Q3.

John Johnson: Second, the remaining capture of NIA Synergies adds $2 million. We have captured $6.75 of the original $8.75 million opportunity.

John Johnson: Third, go live with the announced but not yet live new business as $4 million by the end of the year. We have captured $5 million of this original $9 million in our Q2 baseline and do not require any new business to reach the run rate target. Finally, the continued maturation of our performance suite margin towards our target expectations adds $7 million. We have captured 5.5 million of the initial 12.5 million target we had for the year.

John Johnson: Third, go live of the announced but not yet live new business as $4 million by the end of the year.

John Johnson: We have captured $5 million of this original $9 million in our Q2 baseline and do not require any new business to reach the run rate target.

John Johnson: Finally, the continued maturation of our performance sweep margin towards our target expectations adds $7 million.

John Johnson: We have captured 5.5 million of the initial 12.5 million target we had for the year.

John Johnson: Overall, we are pleased with the consistency of our progress towards this run rate target. Our outlook for the rest of the year also includes the following assumptions. First, stable disease prevalence and acuity at the elevated levels we have seen since Q1.

John Johnson: Overall, we are pleased with the consistency of our progress towards this run rate target. Our outlook for the rest of the year also includes the following assumptions.

John Johnson: First, stable disease prevalence and acuity at the elevated levels we have seen since Q1.

John Johnson: Second, the capture of the anticipated rate increases going live this quarter. Third, continued strong execution in our performance suite, driving quality up and medical expense down. Fourth, the Go Live has announced new business. We do not require any additional new business to launch this year to hit this revenue or EBITDA range. And finally, we continue to expect similar economics from the Medicare Shared Savings Program as we had last year.

John Johnson: Second, the capture of the anticipated rate increases going live this quarter.

John Johnson: Third, continued strong execution in our performance suite, driving quality up and medical expense down.

John Johnson: Fourth, the Go Live have announced new business.

John Johnson: We do not require any additional new business to launch this year to hit this revenue or EBITDA range.

John Johnson: Finally, we continue to expect similar economics from the Medicare-share savings programs we had last year.

John Johnson: For the third quarter of 2024, we are projecting revenues of $615 million to $635 million and adjusted EBITDA of $60 million to $68 million. This revenue outlook for Q3 is impacted by an expected one-time true-down related to the narrower risk margin I mentioned earlier. For the full year, based on the anticipated rate increases and new go-lives, we are raising our revenue range to $2.56 billion to $2.6 billion. Beginning in August, as Seth noted, we are reallocating some engineering expenses towards the Machinify rollout.

John Johnson: For the third quarter of 2024, we are projecting revenues of $615 million to $635 million and adjusted EBITDA of $60 million to $68 million.

John Johnson: This revenue outlook for Q3 is impacted by an expected one-time true down related to the narrower risk scope I mentioned earlier.

John Johnson: For the full year, based on the anticipated rating crisis and new goal lives, we are raising our revenue range to 2.56 million to 2.6 million.

John Johnson: Beginning in August, as Seth noted, we are reallocating some engineering expenses towards the machine if I roll out.

John Johnson: This will have a temporary effect of lowering our software capitalization rate and increasing our operating expenses by $5 million, with most of the impact in Q4, and which we do not expect will continue for half December, and therefore will not impact our exit run rates adjusted to $1,300 million. Our updated Adjusted EBITDA range is $230 million to $245 million, given the timing of revenue increases for our performance suites, as mentioned earlier, and the $5 million that, on a cash-neutral basis, shifted out of CapEx to OpEx, as I just mentioned.

John Johnson: This will have a temporary effect of lowering our software capitalization rate and increasing our operating expenses by $5 million, with most of the impact in Q4.

John Johnson: and which we do not expect will continue past December, and therefore will not impact our exit run rate adjusted to $300 million.

John Johnson: Our updated Adjusted EBITDA range is $230 million to $245 million, given the timing of revenue increases for our performance suites mentioned earlier, and the $5 million that, on a cash-neutral basis, shifted out of CapEx to OpEx as I just mentioned.

John Johnson: Our revised expectation of cash for software development capex for the year is $25 million, down from $30 million, and we continue to expect cash flow from operations to exceed $150 million for the year. With that, let's open it up to questions.

John Johnson: Our revised expectation of cash for software development CapEx for the year is $25 million, down from $30 million, and we continue to expect cash flow from operations to exceed $150 million for the year.

John Johnson: With that, let's open it up for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on the telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We would please ask that you limit yourself to one question in the interest of time. At this time, we'll pause momentarily to assemble our roster. Our first question will come from Ryan Daniels with William Blair. You may now...

Operator: We will now begin the question and answer session.

Operator: To ask a question, you may press star then one in your telephone keypad.

Operator: If you're using a speaker phone, please pick up your hands up before pressing the keys.

Operator: To withdraw your question, please first start in two.

Operator: We please ask that you limit yourself to one question in the interest of time.

Operator: Our first question will come from Ryan Daniels with William Blair. You may now go ahead.

Ryan Daniels: Hey guys, thanks for taking the question and congrats on the progress towards the recontracting. Given I can only have one, I'll ask a multi-part one, which you'll probably get a lot of tonight. Can you speak to a few things there? Number one, it mentions in the release that guidance is predicated on the anticipated rate increases to go live, so I'm curious how visible those are at this point when you'll actually get them.

Ryan Daniels: Hey guys, thanks for taking the question and congrats on the progress towards the recontracting.

Ryan Daniels: Given I can only have one, I'll ask a multi-part one, which you'll probably get a lot tonight. Can you speak to a few things there? Number one...

Ryan Daniels: And then, number two, when you talk about updating the mechanisms to get these rate increases in the future, can you double-click on that? I'm curious if it's something that makes it a little bit more formulaic so that it'll just happen without having to go back to negotiations or what that really means. So just a little bit more color on all that. Thanks.

Ryan Daniels: It mentions in the release that guidance is predicated on the anticipated rate increases to go live, so I'm curious how visible those are at this point that you'll actually get them, number one.

Ryan Daniels: And then number two, when you talk about updating the mechanisms to get these rate increases in the future, can you double-click on that? I'm curious if it's...

Ryan Daniels: Something that makes it a little bit more formulaic so that it will just happen without having to go back to negotiations or, you know, what that really means, so just a little bit more color on all that. Thanks.

Seth Blackley: Yeah, thanks, Ryan. It's Seth.

Seth Blackley: Yeah, thanks, Ryan. It's Seth. I'm happy to take those. So, look, on the first question,

Seth Blackley: I'm happy to take those. So, look, on the first question... We've aligned ourselves with our partners. This is across, you know, several different health plans, first of all, and I'd say in about, you know, the $35 million we noted for this year, about 40% of that is paper contractually. About 60% of that, we've reached, I'd say, what I call alignments on what the business terms are, and we expect to paper it over the next couple weeks. So, you know, it's in the final stages.

Seth Blackley: [inaudible]

Seth Blackley: We've aligned with our partners. This is across, you know, several different health plans, first of all, and I'd say in about, you know, the $35 million we noted for this year, about 40% of that is paper contractually, but 60% of that we've reached, I'd say, what I call alignments on what the business terms are, and we expect to paper it over the next couple weeks. So, you know, it's in the final stages. We feel good about it. I think the thing that underlines

Seth Blackley: We feel good about it. I think the thing that underlines the broader point, and this is the most important point for Evolent more broadly, is that, you know, we do feel, Ryan, like we create really unique clinical value. And so when you get to these sort of moments in a relationship, being able to know that, clinically, you feel like you're creating more value than the next best alternative is really important from our perspective.

Seth Blackley: And this is the most important point for Evolent more broadly is that, you know, we do feel, Ryan,

Seth Blackley: create really unique clinical value. And so when you get to these sort of moments in a relationship being able to

Seth Blackley: Know that clinically you feel like you're creating more value than the next best alternative is really important from our perspective.

Seth Blackley: So that's kind of where we are in that process in terms of the formulas. A lot of that is in most of our contracts. There are a few places where we're adding some additional detail, as we noted on the call, and, you know, I don't think it's ever going to be fully formulaic, just how the world is, and, you know, these customer relationships have lots of different facets to them, and we, at the end of the day, are really dedicated to our customers succeeding, Ryan. It's never going to be formulaic, and we' Congratulations again on the win!

Ryan Daniels: Okay. Congratulations again on the progress. I'll hop back in the queue. Thanks, Ryan. Thank you. Our next question will come from Anne Samuel with J.P. Morgan.

Ryan Daniels: That's kind of where we are on that process in terms of the formulas, that's a lot of that is in most of our contracts, there are a few places where we're adding some additional details as we noted on the call and you know, I don't think it's ever going to be fully formulaic, just how the world is and you know.

Ryan Daniels: These customer relationships have lots of different facets to them, and we, at the end of the day, are really dedicated to our customers succeeding, Ryan, so it's never going to be formulaic, and we're all about partnering with them, but I do think it helps to have a framework set up.

Ryan Daniels: Okay. Congrats again on the progress. I'll hop back in the queue.

Anne Samuel: Thanks, Ryan.

Speaker Change: Our next question will come from Anne Samuel with J.P. Morgan.

Anne Samuel: You may now go ahead. Great. Thanks. Congratulations on the quarter.

Anne Samuel: I was hoping maybe you could talk a little bit about the decision to exit certain markets, what went into that decision-making process, and then how to think about the revenue impact for next year, realizing that there is no EBITDA impact. Thanks.

Speaker Change: So this is a couple of markets with one payer that we're working on updating our risk profile given the elevated prevalence and acuity that we saw in some of these areas.

Speaker Change: And, you know, one of the tools that we have, in addition to raising rates, is to narrow our scope. And we and the payer decided collaboratively to do that here for this year, Retro to 1.1.

Speaker Change: I think in terms of scope, you sort of saw our raised revenue guide for the year, it feels quite swallowable to us, and we don't think it impacts next year's growth, either on the top or bottom line opportunity in any particular meaningful way.

Anne Samuel: Thank you.

Jeffrey Garro: Our next question will come from Jeff Garro with Stephen. You may now go ahead.

Jeffrey Garro: [inaudible]

Jeffrey Garro: Our next question will come from Jeff Garro with Stevens.

Seth Blackley: Yeah, good afternoon. Thanks for taking the time to ask the question. I was hoping you could provide a little more context on the margin maturation for the performance suite. So, first of the 7 million remaining, maybe you could comment on visibility into contracts that have launched over roughly the last 12 months, hitting that kind of initial inflection point to, you know, in some cases, I know from contributing zero EBITDA to contributing some once you hit that first initial milestone.

Speaker Change: You may now go ahead.

Seth Blackley: Yeah, good afternoon. Thanks for taking the question. What was was hoping you could provide a little more context on the margin maturation for the performance suite. So first of the 7 million remaining, maybe you could comment on visibility into contract that have launched over roughly the last 12 months. I didn't think that kind of initial inflection point to, in some cases, I know from contributing zero, even though to contributing some, once you hit that first initial milestone. And then if you could also give some similar comments on the 5.5 million that you've already captured from the first time you provided that bridge, how much is from initial contracts hitting that.

Seth Blackley: And then if you could also give some similar comments on the 5.5 million that you've already captured from the first time you provided that bridge, how much is from initial contracts hitting that initial milestone versus the more dated contracts performing better than expected or, I guess, better than in past years. Thanks.

Speaker Change: Transcripts provided by Transcription Outsourcing, LLC.

Seth Blackley: Yeah, good questions, Jeff. You know, it's a little of both. And I'll break it down a little bit.

Seth Blackley: As you know, we sort of think about this margin maturation curve in two ways. One is the initial release of actuarial conservatism that we have right as we go live for the first few quarters of a partnership. And the second is driving the underlying clinical value through the network, which we've noted usually takes some time. As you think about the progress that we've made this year that underlines that 5.5 million that I noted, it is a combination of both of those factors.

Jeff: Yeah, good questions, Jeff.

Seth Blackley: You know, it's a little of both, and let me break it down a little bit. As you note, we sort of think about this margin maturation curve in two ways.

Seth Blackley: One is the initial release of actuarial conservatism that we have right as we go live for the first few quarters of a partnership. And the second is driving the underlying clinical value through the network, which we've noted usually takes some time.

Seth Blackley: As you think about the progress that we've made this year that underlines that $5.5 million that I noted, it is a combination of both of those factors.

Seth Blackley: As we think about then what's in the $7 million, we still have a little bit of that initial actuarial conservatism from some of the most recent go-lives that we would anticipate releasing in the coming quarters. And the normal sort of everyday business of the performance suite in the market driving quality up and cost down continues and represents the rest of that $7 million.

Seth Blackley: As we think about then what's in the $7 million, we still have a little bit of that initial actuarial conservatism from some of the most recent go-lives that we would anticipate releasing in the coming quarters.

Seth Blackley: And the normal sort of everyday business of the performance suite is in the market driving quality up and cost down continues and represents the rest of that $7 million.

Jeffrey Garro: Great, thanks again for taking the question.

Jeffrey Garro: Great, thanks again for taking the question.

Charles Rhyee: Our next question will come from Charles Rhyee with TD Cohen. You may now go ahead.

Speaker Change: Our next question will come from Charles Rhyee with TD Cohen.

Charles Rhyee: Yeah, thanks. Thanks for taking the question.

Speaker Change: You may now go ahead.

Charles Rhyee: Yeah, thanks. Thanks for taking the question.

Charles Rhyee: John , I wanted to ask about sort of the timing impact of Medicare Shared Savings that didn't occur. That was last year, but not this quarter. Should we anticipate...

Charles Rhyee: We could see that in the third quarter then, and is that in the guidance or would that be on top of guidance? And then secondly,

Charles Rhyee: When you talk about the higher rates, sort of, 60 million on the annualized basis, is that right? Then we should see that benefit on a year or a year basis as we go into the first half of the next year.

John Johnson: John wanted to ask about sort of the timing impact of Medicare Shared Savings. That didn't occur. That was last year, but not this quarter. Should we anticipate we could see that in the third quarter then?

John Johnson: Thanks.

Speaker Change: Yep, you got it. So on MSSP, you're exactly right. We would anticipate...

Speaker Change: When we see the final settlement from...

Speaker Change: CMS for PY 2023.

Speaker Change: and we will expect to have a revenue true up there to this final settlement number. And we also, as we talked about the floor, typically start accruing for the current performance year, revenue, and so that would be performance year 24 in Q3, and all of that is incorporated into our guide.

John Johnson: And is that in the guidance? Or would that be on top of guidance? And then secondly, when you talk about the higher rates, sort of $60 million on an annualized basis, is that right? Then we should see that benefit on a year-to-year basis as we go into the first half of next year. Thanks.

Speaker Change: On your second question, yes.

Speaker Change: on a sort of like-for-like basis as we move into next year, the rating creases that we start to recognize here in the second half based on our expectations will be a bit of a tailwind for us going in the next year.

Speaker Change: Great, thank you.

John Johnson: Yep, you got it. So on MSSP, you're exactly right.

Speaker Change: Our next question will come from Kevin Caliendo with UBS. You may now go ahead.

John Johnson: We would anticipate when we see the final settlement from CMS for PY 2023, we will expect to have revenue true up to the final settlement number. We also, as we've talked about before, typically start accruing for the current performance year revenue, and so that would be performance year 24, in Q3. But all of that is incorporated into our guide. On your second question, yes, on a sort of like-for-like basis, as we move into next year, the rate increases that we start to recognize here in the second half, based on our expectations, will be a bit of a tailwind for us going into next year.

Kevin Caliendo: Our next question will come from Kevin Caliendo of UBS.

Seth Blackley: Good afternoon, guys. Thanks for taking my question. Oh, you said that the rate increases are expected to offset anything that you see in terms of the elevated incidence and prevalence or in acuity. I guess what I want to understand is what you've been seeing since 2Q in terms of acuity and incidence. I know you have slightly more exposure to Medicare versus Medicaid, and recognizing that not all utilization is the same, can you maybe frame the relative exposure there versus the other and if what you're saying implies that what you've seen since you've gotten these rate increases or negotiated these rate increases hasn't increased further, if that makes sense.

Speaker Change: Good afternoon, guys. Thanks for taking my question.

Speaker Change: You said that the rate increases are expected to

Speaker Change: offset anything that you see in terms of, you know, the elevated incidence and prevalence.

Seth Blackley: I guess what I want to understand is what you've been seeing since 2Q in terms of acuity and incidence. I know you have slightly more exposure to Medicare versus Medicaid.

Seth Blackley: And recognizing that not all utilization is the same, can you maybe frame the relative exposure there versus the other and if what you're saying implies that what you've seen since you've gotten these rate increases or negotiated these rate increases hasn't increased further, if that makes sense.

Seth Blackley: It sure does, Kevin, and the headline is exactly that, which is from a prevalence and acuity standpoint. We have seen consistent stats, really good sense marks. To dig a little bit deeper on the utilization question, though, let me give you a little bit more color. If you think about our core leading indicator is an authorization. And that authorization might be, let's take a cancer case, for a checkpoint inhibitor where the authorization covers 12 weeks of treatment with an infusion once every three to six weeks. And so it can be said another way that authorization is translating into costs, i.e.

Seth Blackley: It sure does, Kevin. And the headline is exactly that, which is, from a prevalence and acuity standpoint, we have seen consistent stats really since March.

Seth Blackley: To dig a little bit deeper on the utilization question though, let me give a little bit more color.

Seth Blackley: If you think about our core leading indicator is an authorization, and that authorization might be, let's take a cancer case.

Seth Blackley: and might be for a checkpoint inhibitor where the authorization covers 12 weeks of treatment with an infusion once every three to six weeks.

John Johnson: utilization, both in the current month and then often in the subsequent month or so. And so what we saw in the first quarter was a ramp in those leading indicators to a peak in March, that then, as we have now seen, translated into sustained elevated claims into the second quarter. The good news, as Seth mentioned in his prepared remarks, is that we've seen those leading indicators trend down since the peak in March. We're not assuming that that trend continues in our guide; that could be potential upside. But we have seen that trend down over the course of, in particular, the last couple of months.

John Johnson: And so said another way, that authorization is translating into costs, i.e. utilization, both in the current month and then often in the subsequent month or two.

John Johnson: and so what we saw in the first quarter was a ramp in those leading indicators to a peak in March.

John Johnson: That then, as we have now seen, translated into sustained elevated claims into the second quarter.

John Johnson: The good news, as Seth mentioned in his prepared remarks, is that we've seen those leading indicators trend down since the peak in March.

John Johnson: We're not assuming that that trend continues in our guide, that could be potential upside. But we have seen that trend down over the course of, in particular, the last couple of months.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to the channel.

Jailendra Singh: Our next question will come from Jailendra Singh with Truist Securities. You may now go ahead.

Speaker Change: Our next question will come from Jailendra Singh with CHOICE Securities.

Jailendra Singh: Thank you and thanks for taking my question. I actually want to follow up on Kevin's questions.

Jailendra Singh: So, it looks like the costumes in Q2, or essentially the leading indicators in Q2, are training better than what you flagged or what you flagged or what you flagged or matched last quarter. So, maybe in March you called out higher cardiology costs in Medicaid, higher oncology costs in Medicaid, and some of the markets. Maybe you could give some color in the particular category of bear type.

Speaker Change: You may now go ahead.

Speaker Change: Thank you and thanks for taking my question. I actually want to follow up on the on Kevin's question. So looks like the cost trends in Q2 or essentially the leading indicators in Q2

Jailendra Singh: are sending better than what you flagged for much over better than what you flagged for much last quarter.

Speaker Change: So, maybe in March you called out higher cardiology costs in Medicaid, higher oncology costs in Medicare in some of the markets. Maybe give some color, is there any particular category or payer type you're seeing that are those indicators improving? Was it across the board? And how do I reconcile this with the fact that for March you called out 5 million headwinds from higher costs?

Speaker Change: You're getting around like 5 million monthly rate adjustment, which would imply a cost in 7 million range and the rule of thumb of 70% cost relief. I hope those numbers make sense. It's trying to reconcile that trend's improving, but your rate update is actually reflecting higher cost trend.

John Johnson: Yeah, so here's what I'd say on that, Jailendra, and I'd go back to my point here that a leading indicator is just that, right? It's a leading indicator of costs that we expect to incur in the coming weeks and months. And so, while we have seen a decline in the leading indicators, in particular in the back part of the second quarter, the costs remained elevated and were only partially covered by the increase in rate, $5 million, in the quarter that we noted.

John Johnson: Yeah, so here's what I'd say on that, Jailendra, and I'd go back to my point here that a leading indicator is just that, right? It's a leading indicator of costs that we expect to incur in the coming weeks and months.

John Johnson: And so, while we have seen a decline in the leading indicators, in particular at the back part of the second quarter.

John Johnson: The costs remained elevated and were only partially covered by the increase in rate, $5 million in the quarter that we noted.

John Johnson: Anything you can call out on the type of pay or type of category you're seeing the improvement on those leading indicators? Sorry, that part was not on. Nothing in particular to call out there, it's pretty diverse.

John Johnson: Hopefully that makes sense.

Speaker Change: Anything you can call out on the the type of pay or type of category you're seeing the improvement on those leading indicators? Sorry, that part was not answered.

Jessica Tassan: Nothing in particular to call out there. It's pretty diverse, Jailendra. Thank you.

Jailendra Singh: Nothing in particular to call out there. It's pretty diverse, Jailendra.

Jailendra Singh: Okay, thank you.

Seth Blackley: Our next question will come from Jessica Tassan with Piper Sandler.

Speaker Change: For more UN videos visit www.un.org

Seth Blackley: Our next question will come from Jessica Tassan with Piper Sandler.

Jessica Tassan: Hi guys, thanks for taking my question. I was just curious if you could maybe comment on any automatic triggers in your risk-based contracts that allow your rates to keep up with cost trends, just because we've heard about the high single-digit cost trend in Medicare Advantage, and I'm curious to know if your contracts just automatically recalibrate to accommodate that trend, irrespective of the kind of the acuity mix or how that works on an annual basis. Thanks.

Seth: with Seth. Do you mean I'll go ahead?

Jessica Tassan: Hi guys, thanks for taking my question. I was just curious if you could maybe comment on any like any automatic triggers in your risk-based contracts that allow your rates to keep up with cost trend?

Jessica Tassan: just because we've heard about high single digit trend in Medicare Advantage, and I'm curious to know if your contracts just automatically recalibrate to accommodate that trend, your respective of kind of the acuity mix or how that works on an annual basis. Thanks.

Seth Blackley: Yeah, just so you know, as I was mentioning earlier, it's not uniform across all clients.

Seth Blackley: You know, as I was mentioning earlier, it's not uniform across all clients. In certain cases, we do have...negotiated provisions that you automatically adjust the rates in certain other situations. It's more of a broad change event conversation that you didn't sit down with the client. So, you know, it's yes in some cases, no in others. Again, I think the fundamental issue, as we do sit down, whether those exist or not, it's always a broader conversation with these clients because there are usually opportunities to grow, right, into new markets to add different lines of business and so these things do end up being, you know, broader conversations, some of them are more automatic, and some of them are broader, more integrated conversations.

Seth Blackley: Yeah, just so, you know, as I was mentioned earlier, it's not uniform across all clients, in certain cases we do have.

Seth Blackley: Negotiated provisions that do automatically adjust the rates in certain other situations. It's more of a broad change event conversation that you didn't sit down with the client.

Seth Blackley: So, you know, it's, yes, in some cases, no in others. Again, I think the fundamental issue, as we do sit down, whether those exist or not, it's always a broader conversation with these clients, because it's usually the opportunity to grow, right, into new markets.

Seth Blackley: to add different lines of business and the like, and so these things do end up being broader conversations and some of them are more automatic and some of them are broader, more integrated conversations.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Richard Close: Our next question will come from Richard Close with Canaccord Genuity. Please.

Speaker Change: For more UN videos visit www.un.org

Speaker Change: Our next question will come from Richard Close with Canaccord Genuity. You may now go ahead.

Richard Close: Yes, thanks for the questions. Seth, I think in your comments, you talked a little bit about the rate increases, and I think you said something about 2025. Can you go over that again for us, please? Yeah, so, you know, the way we characterize the ritual was around

Richard Close: Yes, thanks for the questions. Seth, I think in your comments, you talked a little bit about the rate increases and I think you said something with respect to 2025. Can you go over that again for us, please?

Seth Blackley: Yeah, so, the way we characterize enrichment is around the portion of the rate increase, $35 million that affects this year. When you annualize that and go into a full run rate for $25, it's about $60 million. And so, you know, that's sort of the way we think about it. Some of those rate increases kick in kind of right at the end of the year going into January, and some of them are, you know, across this fall.

Seth Blackley: Yeah, so...

Seth Blackley: You know, the way we characterized it, Richard, was around the portion of the rate increase, $35 million, that affects this year. When you annualize that and go into a full run rate for $25, it's about $60 million.

Seth Blackley: And so, you know, that's sort of the way we think about it. Some of those rate increases kick in kind of right at the end of the year going into January , and some of them are, you know, across this fall.

Speaker Change: Okay, thank you.

Seth Blackley: Welcome.

Speaker Change: Thank you for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: Our next question will come from Stephanie Davis with SVB Lear, Inc. You may now go ahead.

Stephanie Davis: I see we have a throwback on the call. Very exciting. Guys, thank you for taking my question. Congratulations on throwing the needle this quarter.

Speaker Change: I see we have a throwback on the call. Very exciting. Guys, thank you for taking my question. Congrats on throwing the needle this quarter. I have a bit of a multi-parter, but in your prepared remarks, you talked a continuation of the environment.

Seth Blackley: I have a bit of a multi-parter, but in your prepared remarks, you talked about the continuation of the environment. So to the extent that utilization is higher for longer, how are you thinking about how this factors into your pipeline and conversations with payer clients around specialty care management? Is it more attractive on a relative basis, or is there more distraction, so there's just less conversation to be had? And in terms of how it could impact the forward model, is there anything left to do in a hire for longer environment beyond the recontracting that's behind you?

Seth Blackley: So to the extent that utilization is higher for longer, how are you thinking about how the Seth is into your pipeline and conversations with payer clients around specialty care management? Is it more attractive on a relative basis or is there more distraction so there's just less conversations at the end?

Seth Blackley: And in terms of how it could impact the forward model, is there anything left to do in a hire-for-longer environment beyond the recontracting that's behind you?

Seth Blackley: Yeah, so first of all, in the pipeline, you know, this has been a theme for a while, multiple quarters. I would say that the pressure on the payer side is a positive for us on the pipeline side. And, you know, I think when you think about the ways that payers manage costs. The specialty trend, I'd say, is very, very high, number one, number two on the list for many pairs that we talked to, Stephanie, so we're seeing a lot of them building demand for products. You know, oncology has been an evergreen issue, cardiology, of late, has been a pain point for a lot of pairs and managing that one, but even MSK and down the line.

Seth Blackley: Yeah, so first of all, in the pipeline, you know, this has been a theme for a while, multiple quarters, I would say that the pressure on the payer side is a positive for us on the pipeline side. And, you know, I think when you think about the ways that payers manage costs,

Seth Blackley: Specialty

Seth Blackley: Trend, I'd say, is very, very high, number one, number two on the list for many payers that we talk to, Stephanie, so...

Seth Blackley: We're seeing a lot of inbound demand for our products, you know, oncology has been an evergreen issue, the cardiology of late has been a pain point for a lot of payers and managing that one, but even MSK and down the line. So I think that's, you know, that's certainly

Seth Blackley: I think it's going to be part of the model going forward, I think, you know, to the extent that

Seth Blackley: Utilization ramp back up in some way, you know, we obviously have the ability to go back to and have those conversations that we talked about and I think

Stephanie Davis: We also have additional clinical levers that we continue to pull in this current environment. We can continue to pull in that environment too, Stephanie. So I think, again, our job from our perspective is to be able to

Stephanie Davis: So I think, again, our job from our perspective is to be able to help drive clinical value that's in excess of what our payer partners can do on their own. And I think our view is if we're able to do that, which we think we can, the kind of balance between rate and fair sharing that, you know, increased value creation sort of takes care of itself over time. And I think that kind of goes to both of your questions, both on the pipe side, but also how we'd address it if it, you know, kind of ramped back up again. Very helpful; thank you.

Stephanie Davis: Help drive clinical value that's in excess of what our payer partners can do on their own and I think our view is if we're able to do that, which we think we can.

Stephanie Davis: You know, the kind of...

Stephanie Davis: Valence between rate and fairly sharing that, you know, increased value creations sort of takes care of itself over time. And I think that kind of goes to both of your questions both on the pipe side but also how we address it if it, you know, kind of ramp back up again.

Daniel Grosslight: Very helpful. Thank you.

Daniel Grosslight: Very helpful, thank you.

Daniel Grosslight: Our next question will come from Daniel Grosslight with Citi. You may now go ahead. Pardon me, Daniel. Your line may be muted.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Daniel Grosslight: [inaudible]

Daniel Grosslight: Our next question will come from Daniel Grosslight with City. If we now go ahead.

Daniel Grosslight: [inaudible]

Daniel Grosslight: Pardon me, Daniel, your line may be muted.

Seth Blackley: Oh, sorry about that. Hey, guys, thanks for taking the question. You mentioned that around 60% of the $35 billion in cap rate increases this year, you have alignment with the payer, but it hasn't yet been papered. I'm curious, you know, what's preventing, I guess, that contractual obligation, and is there any risk that some of that either slips a little later, or there's some disagreement, or is it pretty much over the finish line at this point?

Seth Blackley: Oh, sorry about that. Hey guys, thanks for taking the question. You mentioned that around 60% of the 35 billion of cap rate increases this.

Seth Blackley: This year, you have alignment with the payer, but it hasn't.

Seth Blackley: yet been papered. I'm curious, you know, what's preventing, I guess, that contractual

Jeffrey Garro: and Jeffrey Garro, are you all done with cap rate increases at this point in time or are there still some stragglers out there where you're still hoping to get a little more of a rate increase and that could potentially be some upside either this year or early next year?

Seth Blackley: And then secondarily, are you all done with cap rate increases at this point in time, or are there still some stragglers out there where you're still hoping to get a little more of a rate increase, and that could potentially be some upside? You know, this year or early. Yeah, Daniel, on your first question.

Seth Blackley: Yeah, Daniel, on your first question, the kind of 60% that's not yet papered. We feel good about the alignment that we've reached with our partners.

Seth Blackley: Yeah, Daniel, and your first question is...

Seth Blackley: kind of 60% that's not yet papered. We feel good about the alignment that we've reached with our partners and these things just take a little bit of time to get formally contracted.

Seth Blackley: And you know, these things just take a little bit of time, right, to get formally contracted. And usually, when you do an adjustment like this, you might make a few other changes that need to be made at the same time. And these things just take a little while to paper over, but we feel fundamentally good about the alignment that we have. You know, on your second question, no, there really aren't any stragglers. We've got our hands on the things that we need to have our hands on to drive towards the rest of the year guidance that we've provided.

Seth Blackley: Usually when you do an adjustment like this, you might...

Seth Blackley: Make a few other changes that need to be made at the same time, and these things just take a little while to paper, but we feel fundamentally good about the alignment that we have. You know, on your second question, no, there really aren't any stragglers. We've got our hands around the things that we need to have our hands around to drive towards the rest of the year guidance that we've provided.

Jack Wallace: Our next question, pardon me, if you have a question or follow-up, please press star then 1. Our next question will come from Jack Wallace with Guggenheim.

Jack Wallace: Our next question, pardon me, if you have a question or a follow-up, please press star then 1.

Speaker Change: Our next question will come from Jack Wallace with Guggenheim. You may now go ahead.

Jack Wallace: Hey guys, thanks for taking my question. Just a quick question on the third quarter revenue guide. It looks like it's down slightly over $20 million at the midpoint. It should be, let's call it an 80-ish run rate, but you're getting I'll be right back.

Jack Wallace: Thanks for taking my question. Just a quick question on the third quarter revenue guide. It looks like it's down slightly over $20 million at the midpoint. It should be, let's call it, an 80-ish run rate, but you're getting a 60 run rate back.

John Johnson: For more information, visit www.fema.gov. At least in the press release, you talked about the... and the one-time true down of an aero risk group. There is also an element there of a lower jumping-off point from the Medicare redeterminations. How should we think about the bridge to the 3Q guide? Thank you. Yeah, Jack, the principal driver there down from 647 in Q2 to

Speaker Change: is from the rating creases as it is.

John Johnson: At least in the press release you talked about the...

Speaker Change: and the most of you guys have been one time true down to their risk growth. But they're also an element there, just kind of a lower jumping off point from making recommendations. How should we just think about the bridge today? Thank you, guys.

John Johnson: Yeah, Jack, the principal driver there, down from 646.

John Johnson: Yeah, Jack, the principal driver there down from 647 in Q2 to the guide for Q3 is three quarters of that retro true down for that risk scope narrowing.

Jack Wallace: Got it. I appreciate it.

Jack Wallace: [inaudible]

Speaker Change: Got it, we share it.

Sean Dodge: Our next question will come from Sean Dodge with RBC Capital Markets. You may now go ahead.

Speaker Change: Our next question will come from Sean Dodge with RBC Capital Markets.

Thomas Keller: Hey, good afternoon. This is Thomas Keller. I'm on behalf of Sean.

Speaker Change: You may now go ahead.

Thomas Keller: Hey, good afternoon, this is Tom Skeleton, I'm Trishon, congrats on the positive update and thanks for taking the question.

Seth Blackley: Congratulations on the positive update here and thanks for taking the question. Going back to the performance suit margin ramp, you've said 12 to 18 percent is possible there as those mature. How do some of those other capabilities you've acquired, like palliative care and genetic testing, play into that? As you build those into those engagements, does that help you get to the higher end of that range? And I guess maybe ask in more straightforward ways: is it possible to achieve and kind of stay at the 18 percent margin level there, or do you kind of have to maintain a strict alignment around 15 percent? Thanks.

Seth Blackley: Going back to the performance margin ramp, you've said 12 to 18 percent is possible there as those mature. How do some of those other capabilities you've acquired, like palliative care and genetic testing, play into that? As you build those into those engagements, does that help you get to the higher end of that range? And I guess maybe ask in a more straightforward way, is it possible to...

Seth Blackley: Achieve and stay at the 18% margin level there, or do you have to maintain a strict alignment around 15%? Thanks.

Thomas Keller: The mid-teens number that we've had on PerformanceWeed does require continued work. All these things require continued work to continue managing.

Speaker Change: Yeah, look, I mean, I think...

Thomas Keller: The mid-teens number that we've had on PerformanceWeed does require continued work. All these things require continued work to continue managing. That's our clinical innovation. That's the thing that we're doing every year to improve our product. I think that also makes us better on the pipeline side.

Seth Blackley: That's our clinical innovation. That's the thing that we do every year to improve our product. I think that also makes us better on the pipeline side. And, you know, with respect to the end-of-life piece, that, you know, is sort of built into that range that we think about as we continue to manage toward those targets. And, you know, I don't think I would characterize that as a source of upside necessarily for the $7 million this year, but it is part of our multi-year plan to, you know, continue to drive really strong clinical value back to our partners.

Seth Blackley: And, you know, with respect to the end-of-life piece, that, you know, is sort of built into that range that we think about as we continue to manage.

Seth Blackley: towards those targets, and I don't think I would characterize that as a sort of upside necessarily for the 7 million of this year, but it is part of our multi-year plan to continue to drive really strong clinical value back to our partners.

Thomas Keller: All right, thanks. I appreciate it, Kelly.

Speaker Change: Thank you for your call.

Richard Close: Our next question will be a follow-up from Richard Close with Canaccord Genuity. You may now go ahead. Yeah, thanks.

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Speaker Change: Our next question will be a follow-up from Richard Close with Canaccord Genuity. You may now go ahead.

Richard Close: Yeah, thanks for letting me get back in. Seth, on Machinify, you talked about, I guess, allowing customers to use the tool to analyze inpatient and some other things there. When is that actually going live? And, you know, I think with all the managed care talking about higher inpatient trends, that there would be significant demand there. Yeah. Yeah, I agree, Richard.

Richard Close: Yeah, thanks for letting me get back in. Seth, on Machinify, you talked about

Richard Close: I guess allowing customers to use the tool to do stuff, analyze like inpatient and some other items there. When is that like actually live and and

Richard Close: You know, I think with all the managed care talking about in higher inpatient trends that that would be significant demand there.

Seth Blackley: Yeah, I agree Richard. That part of the tool is live today with Machinify's customer that we, you know, are working across there from where we acquired the asset. And it's available for us to bring to the market. And I just say, in general, there is a lot of demand for that platform right now, Richard. There are a lot of payers that I think are looking for creative ways like this to manage the long tail specialties on a more innovative basis that are easier for doctors to deal with and better for patients.

Seth Blackley: Yeah.

Seth Blackley: Yeah, I agree, Richard. That part of the tool is live today with Machinify's customer that we, you know...

Seth Blackley: working across there that they have when we acquired the asset. And it's available for us to bring out to the market. I'd just say in general, a lot of demand around that platform right now, Richard. There's a lot of payers that I think are looking for creative ways like this to

Seth Blackley: Manage the long tail specialties on a more innovative basis that are easier for the doctors to deal with and better for patients. And so I think, you know, that combined with our ability to.

Seth Blackley: And so I think, you know, that combined with our ability to kind of outsource and drive the really complicated specialties, which we think is going to be a pretty unique combination, and we're out in the market pretty aggressively right now with that platform, that demo, and having conversations right now.

Seth Blackley: Outsource and drive the really complicated specialties we think is going to be a pretty unique combination, and we're out in the market pretty aggressively right now with that.

Seth Blackley: That platform, that demo, and having conversations right now.

Speaker Change: Okay, thank you.

Richard Close: It appears we have no further questions. This concludes our question and answer session. I would like to turn the conference back over to Seth Blackley for any closing remarks. All right, thank you for joining us tonight. We'll look forward to speaking with you next time.

Speaker Change: It appears we have no further questions. This concludes our question and answer session. I would like to turn the conference back over to Seth Blackley for any closing remarks.

Seth Blackley: Alright, thank you for joining us tonight. We'll look forward to connecting in the coming days.

Seth Blackley: All right, thank you for joining us tonight. We'll look forward to connecting over the coming days. Thanks for the time.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Seth Blackley: And so these are a couple of markets with one pair that we're working on updating our risk profile given the elevated prevalence and acuity that we saw in some of these areas. And, you know, one of the tools that we have, in addition to raising rates, is to narrow our scope. And we and the payer decided collaboratively to do that here for this year retroactive to 1.1. I think, in terms of scope, you sort of saw our raised revenue guide for the year. It feels quite swallowable to us, and we don't think it impacts next year's growth either on the top or bottom line in any particular meaningful way.

Seth Blackley: Importantly, these financial results also improve the quality of care for people. These examples demonstrate the way our scalable approach can drive value far beyond what is achievable through traditional models. In fact, we believe our approach of implementing clinician engagement strategies, such as peer-to-peer discussions and alternative payment models, helps reduce denial. For example, in one Midwestern state, we recently demonstrated a denial avoidance rate of over 90% based on high-quality peer-to

Stephanie Davis: And so I think that's, you know, that's certainly, um, going to be part of the model going forward. I think, you know, to the extent that utilization ramps back up in some way, you know, we obviously have the ability to go back and have those conversations that we talked about. And I think, you know, we also have additional clinical levers that we can continue to pull in this current environment. We can continue to pull in that environment for Stephanie.

John Johnson: You're seeing all those indicators improving, whether they cross the board. How do we reconcile this with the fact that this could emerge? You called out 5 million heads going from higher cost; you're getting around like 5 million monthly rate adjustment, which would imply that cost in the 7 million range and the root of the number of 70% costs really. It's trying to reconcile that trans-improving, but your rate of return is actually reflecting higher cost.