Evolent Health Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

Key Takeaways

  • Q1 performance: Revenue reached $427.7 M (+44% YoY) with adjusted EBITDA of $50.5 M, driving a record 11.8% margin.
  • Raised guidance: The bottom end of 2023 revenue outlook was increased, while full-year adjusted EBITDA guidance was maintained at $180 M–$200 M.
  • Secured major wins including a national payer–AmSurg partnership for its surgical management solution and a Centene oncology expansion adding 800 K MA members at above-average PMPM fees.
  • On track to a $300 M adjusted EBITDA run rate by 2024, propelled by Performance Suite margin maturation and growth in high-margin specialty technology services.
  • Expecting an 8%–10% gross Medicaid membership reduction due to redeterminations, implying a modest net revenue and EBITDA headwind for 2023.
AI Generated. May Contain Errors.
Earnings Conference Call
Evolent Health Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Welcome to Evolent Health's Earnings Conference Call for the Quarter Ended March 31, 2023. As a reminder, this conference call is being recorded. Your host for the call today from Evolent Health are Seth Blackley, Chief Executive Officer and John Johnson, Chief Financial Officer. This call will be archived and available later this evening for the next week via the webcast on the company's website in the section entitled Investor Relations. I will now hand the call over to Seth Frank, Evolent's Vice President of Investor Relations.

Speaker 1

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 A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings.

Speaker 1

For additional information on the company's results and outlook, please refer to discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the Investor Relations section of our website or in the company's press release issued today and posted on the Investor Relations section of the company's website, ir.evolenthealth.com, and the Form 8 ks filed by the company with the SEC earlier today. During management's presentation and discussion, we will reference Certain GAAP and non GAAP figures and metrics that can be found in our earnings release as well as a summary presentation Available on the Events section of Evolent's IR website. And now, I will turn the call over to Evolent's CEO, Seth Blackley. Good evening and thanks for joining us. My prepared comments today will focus on updating you on our quarterly results, Progress on our 3 operating priorities and the status of integrating our recent acquisitions.

Speaker 1

As you know, we're hosting an investor meeting in Arlington, Virginia With a live webcast option as well on May 23, and I'll preview that event at the end of this call. John will discuss the quarterly results in more detail And our update on guidance for the year and we'll look forward to taking your questions at the end as always. Reviewing the Q1, Evolent began 2023 with strong results. Adjusted EBITDA exceeded the top end of our guidance range and revenue was within the We also continue to feel good about our guidance range for the full year, and today we're raising the bottom end of the revenue range for the year given our high visibility into growth as

Speaker 2

the year

Speaker 1

progresses. Overall, we're happy with the strong start to the year. For the quarter ended March 31, 2023, Evolent Health's reported revenue was $427,700,000 growth of 44% over the same period of 2022. Excluding the $48,500,000 of revenue contribution from NIA, Which was acquired during the quarter, our revenue growth rate was approximately 28%, consistent with the range of 25% to 28% we guided for 2023. And as John will discuss, we expect meaningful quarter over quarter revenue growth for Q2 And Q3 as we go live with our previously announced performance suite expansions at Molina and Humana.

Speaker 1

Looking at profitability, 1st quarter adjusted EBITDA totaled $50,500,000 an increase of $26,200,000 And more than doubling results from 1 year ago. The growth in adjusted EBITDA was driven both by expansion in the base business as well as of the NIA and IPG acquisitions. Adjusted EBITDA margin for the quarter totaled 11.8%, a new high watermark for the company. Our Q1 results provide a solid starting point of achieving our previously released goal of an adjusted EBITDA run rate of $300,000,000 We look forward to continued operational progress and sales momentum as the year continues. Now, I'll update you on Evolent's 3 core operating priorities of strong organic growth, expanding margins and optimal capital allocation.

Speaker 1

Starting with organic growth, I want to highlight 2 notable agreements signed since we last spoke in February. Recently, a national payer under contract with IPG has entered into an agreement with Anserge, a leading ASC chain to utilize IPG's surgical management solution as its preferred surgical implant provider nationally. This unique National payer ambulatory surgery center agreement utilizing our surgical management solution is a testament to the value this solution creates for payers And ambulatory surgery centers mutually benefiting from site of care shift and reduced device costs. We're thrilled with this opportunity to roll out our surgical management solution into AmSurge's ambulatory surgery centers. Furthermore, this expansion opens doors for cross selling and growing our ambulatory surgery center installed base to other payers, both regionally and nationally, And it creates a blueprint for national payer relationships with other surgical chains.

Speaker 1

It's also a proof point The synergies Evolent brings with our relationships and large national payers to elevate and cross sell our portfolio as a one stop specialty value based care Partner. 2nd, we announced a significant oncology specialty, technology and services expansion with Syntene in March. To recap that announcement, Centene will expand its use of Evolent Health Oncology solution across its Centene and WellCare Medicare Advantage members nationally. This agreement expands and deepens the Specialty Care partnership between Centene and Evolent beyond Medicaid and into the rapidly expanding MA market. We began to go live in local markets during April, adding over 800,000 MA members in 26 states by the end of 2023.

Speaker 1

PMPM fees for this agreement are above reported corporate averages for the company's technology and services solution This is an MA book of business. This is also another excellent example of how we grow within our client base by increasing geographic and specialty reach with our proven solution to manage oncology costs and health outcomes. It's also worth noting this was a competitive displacement of a smaller point solution. Avalon continues to benefit from the breadth of offering and the trust we've created with our customer by meeting our operational commitments. Please note that this agreement with Centene is in addition to the $20,000,000 of incremental adjusted EBITDA we anticipate from Centene's expansion of NIA Solutions, which was built into our fully synergized estimate of $85,000,000 from NIA by the end of 2024.

Speaker 1

These agreements announced today bring our total new partnerships Looking ahead, our pipeline of new business remains strong. During March, my team and I hosted a number of current customers and prospective payers. I came away highly encouraged about the power of our integrated platform and the prospects for continuing to drive strong Organic revenue growth in the years ahead. I'm also happy with our progress against our second core operating priority of Expanding adjusted EBITDA margins. As noted earlier, we delivered 11.8% adjusted EBITDA margins in the Q1, the highest in our history And on track with our full year financial guidance for 2023 as well as our path to $300,000,000 of run rate adjusted EBITDA for 20 24 exiting that year.

Speaker 1

Reaching this profitability level will require continued maturation of the Performance Suite book of business we already have, as well as continued sales of our high margin specialty technology and services solution. The announcements today continue to Our progress against Specialty Technology and Services growth, and we remain on track with our Performance Suite margin maturation goals in the latest quarter. We look forward to providing you additional detail on both fronts during our Investor Day. Also want to highlight that we previously indicated that Evolent would generate Approximately 75% of its adjusted EBITDA dollars in 2023 from Evolent's fee based products And 25% from our Performance Suite business. We're seeing the merits of this balanced approach with the strong top and bottom line results in the quarter.

Speaker 1

While the performance seat will continue to drive our highest growth rates in revenue and deliver more significant EBITDA contributions in later years, This balanced approach to delivering revenue growth and adjusted EBITDA growth will yield sustainably strong profitable growth in the years ahead. Our 3rd operating priority is optimal capital allocation. To reiterate, 2023 will be focused on execution of our cost synergy plan and accelerating our value based specialty care position, while we're confident in our market leadership. Our near term capital allocation priority is to deleverage The balance sheet through adjusted EBITDA growth and debt reduction through strong cash generation. We will also continue to evaluate opportunities to As John will discuss in more detail, strong cash generation in the quarter relative to historical seasonal expectations resulted in our net leverage It is better than our previous expectations and we remain on track to meet or exceed our target of generating $120,000,000 or more in cash flow this year prior to interest or debt service.

Speaker 3

To close, let me add a

Speaker 1

couple of points on integration and our agenda for the investor event. Our integration of NIA is on track and progressing well. We have multiple work streams underway that are a focus of the collective teams across both legacy Evolent And new members of our family from NIA. We finalized and implemented the integrated organizational design over the last few months are beginning to see the cost, capability and sales benefits of the combined company. During our Investor Day, we will talk more about the power of the integrated platform, the operating model that's emerging, as well as the future cross sell opportunities and their impact on our margins.

Speaker 1

For our May 23 event, we have 3 primary goals. The first is to give you all a detailed understanding of the problems our You should walk away with a clear understanding of what Evolent does and how we accomplish our work. 2nd, you'll get exposure to a broad cross section of our deep bench of executive talent as well as several video interviews with key clients. And 3rd, John will provide insight into Evolent's financial model, including a deep dive on our unit economics and margin maturation opportunities.

Speaker 2

Thanks, Seth. We are looking forward to seeing many of you in Arlington here in a few weeks. Before we get into our detailed results for Q1, I'd like to highlight a Couple of disclosure updates we're making as we integrate NIA and move towards one Evolent. These were previewed on our February call, And now we have numbers to talk about, so let's review those. First, as discussed, we are now reporting our financial results in one reportable segment As we focus future growth on our specialty value based care business and integrate the entire organization around this specialty led strategy.

Speaker 2

To provide insight into the growth drivers of our business, we are continuing to disclose product membership and PMPM fees for our 3 core product types, which we'll describe going forward as Performance Suite, Specialty Technology and Services Suite and Administrative Services. We are also maintaining the metrics for cases and revenue per case we established last year for the parts of our business where revenue is not PMPM driven. Since our clients can have multiple solutions deployed over the same membership, for example, cardiology, oncology, musculoskeletal, Advanced Imaging and so on, we are also introducing a metric of estimated unique members to accompany our existing metrics on members by product. Let me give you a real life example here. A Medicaid plan on the East Coast has approximately 250,000 members And 3 Evolent products deployed: administrative services and specialty technology and services for musculoskeletal and advanced imaging.

Speaker 2

This plan will account for 5,000 Specialty and Technology Services product members and 250,000 Administrative Services product members For a total of 750,000 product members. Under our new disclosure, this plan would contribute 250,000 to our unique member count. In total, we had an estimated 41 23,000,000 unique members during the Q1 of 2023 with a total of 65,600,000 product members For an average of 1.6 products per unique member, given that we have 6 separate categories PMPM based products that we can provide any one member, excluding our case rate products, we believe these metrics together provide visibility into a key element of our strategy, our ability to grow within our clients and cross sell additional solutions, further penetrating their specialty spend categories. Finally, to simplify your modeling efforts, we are now providing average monthly membership and corresponding PMPM fees versus period ending membership. Average membership is the primary driver of revenue for the quarter.

Speaker 2

We have provided a table showing each of these metrics quarterly back through 2022 in the earnings presentation posted to our website. Now let's talk about the Q1. A key theme is our performance suite partnerships, Which continued to progress as expected and drove both our top and bottom line results in the quarter. You'll see in our 10 Q a reduction of about $20,000,000 in claims costs related to 2022 and prior, which falls into 3 categories. First, about $9,000,000 of the $20,000,000 is related to reductions in revenue with minimal impact to adjusted EBITDA.

Speaker 2

This symmetric reduction can happen in Medicaid, in particular, when both we and our partners are performing quite well Relative to minimum medical expense floors, without this one time deduct to revenue from prior periods, Our top line for the quarter would have been approximately $437,000,000 The remaining lower claims expense flowed through to our bottom line in the quarter and was consistent with our expectations for the year. As we discussed on our call in February, We will typically see a pickup in margins in the 1st 3 to 5 quarters of a performance suite go live when we have the data to switch our accruals Finally, during Q1, we also received final performance data driving the release of about $4,000,000 in margin that was originally anticipated Slightly exceeding our Q1 guidance range. Overall, we are pleased with the progress in our performance suite. These sorts of quarter to quarter dynamics are factored into how we forecast and guide on the business as our PerformanceSuite margins continue to mature at the pace we expect. I also want to highlight continued progress in our cash flow and balance sheet.

Speaker 2

As you know, we are highly focused on cash generation and delevering. We ended the quarter with net debt of 523,400,000 We're 3.9 times our reported trailing 12 month adjusted EBITDA. Adding to our trailing 12 month adjusted EBITDA, The full year's worth of the acquired adjusted EBITDA from IPG and NIA, an additional 47,900,000 Results in a ratio of 2.9 times, already lower than our initial target for the end of 2023 and largely driven by cash generation in the quarter after the NIA transaction. In addition, after the quarter closed, Our available cash increased by an incremental $20,000,000 from the Passport wind down. We expect to repatriate Up to an additional $10,000,000 of cash later in this year as we complete the shutdown process for that plan.

Speaker 2

We remain committed to using excess cash to pay down our debt, and we repaid $37,500,000 on our revolving facility $7,700,000 an increase of 44% versus the same period in the prior year. Excluding the addition of 48 $500,000 in revenue from NIA in the quarter, growth was about 28%. Let's break down membership and PMPMs For the quarter, we averaged 3,200,000 product members on the Performance Suite during Q1 Compared to $1,500,000 in Q1 of 'twenty two, with an average PMPM fee of $24.66 versus $38.19 a year ago and in line with our average fees in Q4. As a reminder, the year over year change in average PMPM is a result of higher growth in Medicaid and commercial lines of business, which run lower than our corporate average. Product membership in our Specialty Technology and Services suite was 60,500,000 members during the Q1 Compared to $14,300,000 in the same period last year, average PMPM fees were $0.36 For the Q1 of 'twenty three versus $0.32 in the Q1 of 'twenty two, with the growth in membership principally driven by the addition of NIA.

Speaker 2

Product members on administrative services, formerly Evolent Health Services, were $1,900,000 compared to $2,100,000 in the same period of the prior year, With an average PMPM fee of $14.91 versus $17.34 in the Q1 of 'twenty 2. Total quarterly cases associated with Advanced Care Planning and Surgical Management totaled 15,433 for the Q1, And average revenue per case totaled approximately $2,555 for the Q1, both in line with expectations. Our adjusted EBITDA result was $50,500,000 versus $24,300,000 in the Q1 of 'twenty 2, Reflecting organic growth, maturation of our Performance Suite contracts and the addition of IPG and NIA. Adjusted EBITDA margin of 11.8 percent represented expansion of 3 60 basis points over the same quarter last year with the same drivers. As a result of the close of the NIA transaction, we made 2 noncash entries related to our tax assets and liabilities, Releasing the majority of our remaining valuation allowance against our deferred tax assets and accruing the remaining liability under the tax receivable agreement we have with our pre IPO investors for a net benefit in the quarter of about $2,000,000 With our historical net operating losses and at current course and speed, we do not expect to have meaningful federal cash tax expenses 2020 5 at the earliest.

Speaker 2

Turning to the balance sheet, we finished the quarter with $157,500,000 in cash and cash equivalents, Including $32,000,000 in cash held in regulated accounts related to the wind down of Passport. Excluding the cash held For Passport, we had $126,000,000 of available cash, a decrease of $26,000,000 versus the end of the 4th quarter I'm slightly ahead of where we'd expect to be with normal working capital seasonality. Cash deployed for capitalized software development in the quarter was 8,100,000 Turning now to our outlook for the year. Based on strong underlying performance, we are reiterating Full year adjusted EBITDA guidance of $180,000,000 to $200,000,000 and modestly raising our revenue guidance for the year To be between $1,935,000,000 $1,965,000,000 an increase of $10,000,000 at the midpoint. A couple of reminders on what goes into this outlook.

Speaker 2

On the top line, we expect to see nice quarter over quarter expansion across each of the next 2 quarters as we go live with previously announced performance suite partnerships with Molina and Humana. Regarding Medicaid redeterminations, we have no meaningful incremental data since the last time we spoke, and we have not changed our assumptions. Three key reminders on those assumptions. First, most of our Medicaid revenue is derived from states like Illinois that we expect will start Terminations later in the year. 2nd, we expect the gross impact on our Medicaid membership to be between 8% 10% by the end of the year, Representing a couple points of net revenue headwind this year, given that Medicaid represents about 40% of our revenue.

Speaker 2

And finally, we have incorporated into our bottom line guidance an assumption that those members who come off of the Medicaid rolls are healthier than those who stay on, representing a modest negative adjusted EBITDA impact as well. We believe our profitability assumptions are conservative here, Given that we typically have contractual rights to adjust up our PMPMs if we do in fact lose healthier members. Given the timing benefit to adjusted EBITDA in Q1 that I referenced earlier, we have revised our expectations Stepping back up in the next quarter to exit 2023 with a strong Q4. Accordingly, for Q2, we are expecting revenues of And with that, let's go ahead and open it up for Q and A tonight.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Sandy Draper from Guggenheim Partners. Your line is now open.

Speaker 4

Great. Thanks very much. I guess the first question, John, I just want to make sure I understand The I think you said it's about a $10,000,000 reduction in revenue. That was from a prior period adjustment. And so with nothing that happened this quarter, I just want You can maybe just walk through those dynamics.

Speaker 4

And then I guess the unrelated follow-up. I appreciate no new information on Medicaid redetermination. But just thinking about some of the commentary out of the payers around 24 that some of the they're expecting maybe a headwind to cost.

Speaker 2

Hey, Sandy. Good questions. On the revenue side, so it was related to 2022. And this sort of thing can happen when in particular, as I mentioned, in Medicaid plans, When you have very strong performance, when you release the hold on claims, claims come in better than expected. If the plan is performing very well, then the plan has a minimum MLR floor.

Speaker 2

And when we do well and the plan does well, It can result in an element like this. I would say generally speaking, so more broadly on this topic, We tend to have very good insight into how these sorts of dynamics will play out over the full course of a year. The timing though of something like this is not at our discretion and is based on when we We received the final data from our partner health plans. And so we had expected something like this, Not a surprise and incorporated into our full year guide, the specific timing is harder to predict. Moving to redeterminations to hit on that point.

Speaker 2

So yes, no new information

Operator

that is Significance,

Speaker 2

I think we'll have more information into the Q2, into the Q3 as our major Medicaid states Really get into their processes. Generally speaking, as we think of the bottom line impact on On potential risk pools of the redetermination process, I would say 2 things And our perspective has not changed. The first and the most important is that the way our pricing tends to work, If there is, for example, a change in cancer prevalence in a population, then we have the ability to work with our partners to update our fees accordingly. Secondly, as I mentioned in the prepared remarks, We have incorporated an estimate in the spirit of conservatism of a potential impact The risk pool shifting a little bit. So that's how we're thinking about it.

Speaker 2

Feeling pretty good about where we are and

Operator

Your next question comes from the line of Charles Rhyee from TD Cowen. Your line is now open.

Speaker 3

Great. Thanks for taking the question. Hey, John, just wanted to maybe follow-up there. When you're talking about the ability to Adjust pricing, if there's changes in the population, is that like over Like how periodic are you able to make those changes? And I guess, particularly as when we think about Going with oncology with Humana into Florida, Arizona, obviously, you're starting to get to much bigger populations here.

Speaker 5

Maybe talk

Speaker 3

a little bit about sort of the underwriting process that you guys go through as you think about that. And then as I said asked earlier, And how often are you able to review that?

Speaker 2

Yes, it's a great question, Charles. I think the most important Components of this answer is that it's an ongoing dialogue with our partners. Where are we performing? How are we delivering value for them both on the pure cost side and also on network performance and quality? As we think about the speed of potentially updating the fee schedule, I think the real answer to bracket it is, it's not real time and it's much faster than a health plan speed cap rates.

Speaker 2

And so the key from our perspective is to Be hyper focused on performing for our customers and in regular dialogue with them on what's going on in the market and what are we seeing so that we can best align with them going into the future.

Speaker 3

Okay. And maybe just a follow-up. The $4,000,000 in EBITDA that You discussed being pulled forward from the 2nd and third quarters. Can you talk about what were the triggers that kind of released that Earlier than you would have expected. And is there any additional margin that's sort of tied up in potential performance fees that's Perhaps not in the current guidance that could be that you might see later?

Speaker 3

Thanks.

Operator

Yes.

Speaker 2

So The way that this sort of thing tends to work, and as I mentioned in my earlier answer to Sandy, is highly dependent on when we get Data and mostly what that looks like is when we get claims completion. And in this particular case, The data came in a little earlier than we expected it to. The actuarial standard, as you probably know, is To retain a margin for adverse developments until you see that final claims completion, And that's the standard that we follow and we'll continue to follow over the course of the coming quarters years.

Speaker 3

Okay, great. Thank you.

Operator

Your next question comes from the line of Anne Samuel from JPMorgan. Your line is now open.

Speaker 6

Hi, guys. Thanks for taking the question. You spoke about margin progression for performance suite contracts being beneficial in the quarter. I was wondering how much does that vary by payer in terms of the maturity curve? Or is it relatively consistent?

Speaker 2

It's a good question, Amy. I think if you were to look at the beginning to end, we typically think of it as a 36 month sort of curve, right? If you look at the beginning to end, It looks pretty consistent. And on a quarter to quarter basis, it can be pretty different from customer to customer. And part of that can be driven just like what we were just talking about availability of data, part of it can be driven by the network And so on.

Speaker 2

What I think we've been particularly pleased with over the last several quarters Is the way that we've been able to go live with quite a significant amount of new business across in a number of different states and a number of different lines of business and preserve both The ability to drive that margin maturation and to serve our customers and the ultimate To the consumer here, being the member.

Speaker 6

That's really helpful. Thank you. And then just one more kind of housekeeping question. In your deck, you called out a wind down of legacy clients And Administrative Services, I was just hoping maybe you could explain what that is?

Speaker 7

That's just

Speaker 2

normal churn on the EHS side of the business, Hany.

Speaker 6

Okay. Thank you.

Operator

Your next question comes from the line of Ryan Daniels from William Blair. Your line is now open.

Speaker 8

Hey, guys. Thanks for taking the questions. My first, Seth, I want to get a little bit more detail from you on the payerAnsearch announcement you made tonight. Can you just explain that a little bit more? I guess I'm curious if it's for all of AmSERGE's ASC cases that use implants, number 1.

Speaker 8

And then number 2, is it Just for ortho or does that spill into the opto space? Because I know ophthalmology and GI are kind of the 2 biggest areas of focus.

Speaker 1

Yes. Hey, Ryan. So I think the way to think about this relationship is we IPG, which We now refer to as our surgical solution, had a relationship with an existing national payer. The national payer, I think it's happy with the work we're doing on their behalf in a small number of states and is expanding Their relationship into some different ASC arrangements and want us to be involved in that to help them manage cost and trend. And so that then pulls us through into a number of new states that we weren't in to begin with, Ryan, drives obviously additional revenue And EBITDA for us, but I think the fact that we're being brought into these new states with this existing ASC that we announced today, but we'll have then the opportunity Go to other ASCs into the same market.

Speaker 1

So I think this is just part of a normal growth strategy and it is beyond MSK. And that's the thing about ASCs, right? It's surgical activity with implantable devices could be across A number of different specialties.

Operator

Okay. And though, if I'm

Speaker 8

a doctor, one of the doctors working in an AMSURG center, Is it going to be for all my cases that I would leverage the IPG solutions? Or is it just for cases that are with that specific payer?

Speaker 1

In this case, it's with that payer, right? Now, of course, it gives us an opportunity to do more and have a Broader growth opportunity in those markets, as I mentioned earlier.

Speaker 8

Okay. That's helpful. And then The comments you had earlier just on the Medicaid redeterminations, we've heard that as well, some of the healthier members may be exiting on redetermination. Do you think that will provide Increased incentive for managed Medicaid companies to look for solutions like yours to help them control MLR in a period where membership could be Reduced and the remaining members could be higher cost. Is that a potential growth stimulant for the business?

Speaker 8

Thanks.

Speaker 1

Brian, I do think that anything that creates pressure on the payer community, this being an example, are generally It's really good for us in terms of creating a sales dynamic that's helpful. I think the risk adjustment efforts that have been going on in the Medicare And if I fall into a similar category, again, anything that puts pressure. And so I think the answer to that is yes. And I think more broadly, one of the things that Lifting us up a little bit in the conversation today that has been useful is I think as payers look at the next horizon of Quality and cost management has done a lot with primary care. There's a lot left on the specialty side, and so we feel like we're still in early innings.

Speaker 1

And as pressure comes, that is

Operator

Your next question comes from the line of Jeff Garro from Stephens. Your line is now open.

Speaker 9

Yes, good afternoon. Thanks for taking the questions. I want to ask a couple on the NIA integration. And so the first would just be any color you Provide on the adjusted EBITDA contribution in the quarter if it's performing kind of in line with the annual expectations you had said earlier?

Speaker 2

Hey, Jeff. It sure is right in line. Only 10 weeks in the quarter, we had NIA, but feeling good about it.

Speaker 1

Yes. And Jeff, it's Seth. I would say more broadly just in terms of the integration. We mentioned it in the remarks earlier, but we feel Like we're on track, a lot of things going quite well. We're very happy with where we are, having kind of Finished the organizational part of the integration and now really focusing on the platform side and cross selling all the things that come after that.

Speaker 1

So we feel Quite good about where we sit right now.

Speaker 9

Yes, that's great. Maybe to follow-up a little bit on that cross sell opportunity. I know it's early, So, I would love to hear about any early successes building the pipeline, but maybe the question is more appropriately, the extent that you are Making sure you're not disrupting any existing sales cycle and kind of any learnings you might have about what's making you maybe more or less Excited about the combined organization's ability to be a more valuable partner to your clients and prospects?

Speaker 1

Yes. Look, I think the things that were in the pipeline prior are proceeding as expected. When you think about cross sell, Jeff, I think as we have talked about with IPG or Vital or anything else in the past, 6 to 9 months in is when you really start to bear fruit. We bought IPG last summer. Q1, I think, was Consistent with when we thought we would start seeing some opportunities like the one we announced today, and I think it would be similar In this situation with NIA, the one thing that's new and different is that we now because of the breadth of what we have with all the assets Pulled together, have the ability to talk about a really broad and deep platform that I think is quite differentiated.

Speaker 1

That, as I mentioned in the comments, We had a bunch of customers and prospective customers in a room not too long ago, and I think the attachment to the platform and where we're headed with it is Excellent. I'll say excellent. It's exciting. I think a lot of positive feedback on where we're headed and It gives us a lot of confidence to keep running the direction we're going.

Speaker 9

Great. Thanks for taking the questions.

Operator

Your next question comes from the line of Jessica Tassen from Piper Sandler. Your line is now open.

Speaker 6

Hi. Thank you guys for taking the questions. We were hoping you could just help us understand the impact of NCH on a plan's provider network. So basically, we'd love to understand how or if MCH actually reduces the friction of prior auth by kind of inserting streamlined workflows and peer to peer consults. Just any anecdotes or metrics on provider satisfaction pre and post NCH deployment?

Speaker 1

Yes. Jess, it's a couple of different ways I might answer the question. At the end of the day, our goal is to improve quality and reduce cost. And the more we can do that without touching a physician's workflow in any meaningful ways, all the better. And that's our objective and how we do things.

Speaker 1

So many times we auto approve something, very high auto approval rates as a for instance, as you mentioned. The next thing I would mention is that very, very rarely do we actually get involved or our payer in denial. We're doing a lot more I would think of as B2B second opinion work, right? Meaning, we're actually providing valuable input to that physician and that, as you mentioned, Comes in the form of peer to peer or some other easy way to do it that's automated. And then the last thing I'd say is we do survey our And I think the last survey I saw was 84% on Extremely satisfied with New Century for I think that was an oncology example.

Speaker 1

And so that gives us A lot of confidence that the way we're doing it is creating value, but doing it in a way that has less friction, Jess. And over time, right, we're going to hopefully improve on that, not just 84%, but on this idea of further automating things. And I think AI could be part of that over time As could our ability to continue to do things with incentives that turn into more of a shared decision making model With the physician, the patient rather than us having to do the intervention. So a lot of innovation in this area and we certainly want to lead the market On moving down the path you're describing.

Speaker 6

Got it. That's really helpful. And then just as a quick follow-up, can you guys Remind us what Evolent has been assuming for the persistence of the Bright relationship in 2023, or what the contribution was in 1Q? And then just whether or to what That relationship was factored into the 2024 adjusted EBITDA run rate guide. And that's it for me.

Speaker 6

Thank you.

Operator

Yes, I'll take that one,

Speaker 2

Jess. I believe we said that we expected between $30,000,000 $40,000,000 of revenue this year Right. No change there. And we do not expect revenue next year.

Speaker 6

Got it. Thanks again.

Operator

Your next question comes from the line of Sean Dodge from RBC Capital Markets. Your line is now open.

Speaker 5

Yes, thanks. Maybe just going back to the Answers deal, with the payer involvement there, I guess the way Evolent gets paid, Should we think about this being like a tech and services kind of arrangement or is there some shared savings element to it too? And then any kind of data points you can give us to help triangulate in on expected revenue and EBITDA contributions from it Either this year or next?

Speaker 2

Yes. So revenue model is ITG is paid Per case. It's a fee for service model that enables value based care and Has extremely predictable margins, something from the CFO chair that I'd like. On size, It's not huge on the top line, but nice contributor on the bottom line given the strong margins. Okay, great.

Speaker 2

And then

Speaker 7

I guess if you could just give us

Speaker 5

a little bit of insight into the dynamics behind why Q3 is now expected to be the low point For EBITDA for the year, is that just simply the $4,000,000 medical cost release that shifted or is this tied to the bright exit or something else or combination of all those?

Speaker 2

It is. Yes, it's a good question, Sean. But the it really is just sharpening our pencils with more data on the timing of these performance margin releases. With the Acceleration of that $4,000,000 into this quarter, we now have a better sense of how that's going to lay out across the year.

Speaker 5

Okay. All right. Thank you, Ken.

Operator

Your next question comes from the line of Jayalindra Singh from Truist. Your line is now open.

Speaker 7

Yes. Thank you and thanks for taking my questions. So I want to go back to Sandy's question around this $9,000,000 revenue reduction. John, you said it's related to minimum MLR rebate. I'm still a little confused at why Evolent is on hook for that.

Speaker 7

Is there some unique arrangement with this particular payer or is this arrangement across all your payer contracts? And how are these rebate dollars even allocated Considering that you guys capitate only on certain specialties and why would this dynamic not put a cap on your Profitability because the trends are better and you should realize that as your profit and just give us like clarify like why this did not impact EBITDA in the quarter?

Speaker 2

Yes. So a couple of thoughts on that one. The first is, as you know, this is mostly limited to a Medicaid type of rate plan. And as I mentioned Earlier, this is typically only relevant when we have a mature Medicaid client It's already operating at or better than our target margins, where that client itself is also doing very well. And you can imagine the look, right, if we're driving outsized margins In a world where a Medicaid client is having to ship money back.

Speaker 2

And so in the spirit of partnership, the way that we seek to align with our partners It is consistent with their own regulations. So as claims complete And you're able to remove holds on in your IBNR based on the final claims Completion, then that can sometimes result in symmetric revenue reduction. That's what happened in this quarter.

Speaker 7

Okay. That's helpful. And then also like on the second half to first half, like first

Speaker 8

half, second half ramp up

Speaker 7

is revenue. I know you talked about Humana and Molina contract contribution, I know you talked about EBITDA cadence, but fair to say that to the ramp you expect in second half, That's all Humana and Molina contract and partially offset by redeterminations. And in general, if you could just provide some color around Humana arrangement Expect it to begin second half. What's the progress there? Kind of which quarter should we start seeing the revenue coming from that contract?

Speaker 2

Yes. So taking this in reverse order, Humana implementation on track to live in Q3, so I'm good there. And the rest of the sort of revenue shaping across the year is, as I mentioned in the remarks, we'll see a nice step up in Q2 And another nice step up in Q3.

Speaker 7

Okay. Thanks a lot.

Operator

Your next question comes from the line of Richard Close from Canaccord Genuity. Your line is now open.

Speaker 8

Yes. Thanks for the questions. A little surprised with respect to the Centene and WellCare Beginning to go live here in April, can you just talk a little bit more about that rollout and the above corporate average Tech and Services PMPM, in terms of what the magnitude MA is versus like Medicaid?

Speaker 1

Yes. Richard, Seth, I think, good question. Look, I think it's a positive and it Speaks to the depth of the partnership that we have with our partner at Centene, and I think we're doing a nice job for them meeting our commitments. And as we've said, I think for many, many quarters in a row, when we do that, we generally get the right to either go faster, Add things and this is a great example of that, right? And so I love seeing it.

Speaker 1

It's consistent with what we thought we would see And it's a part of our plan to the $300,000,000 of EBITDA, Richard, that we're driving towards. So I think it's a nice piece. As we've talked about in the past, tech and services has A nice margin profile. And so while this kind of relationship might not be huge on the top line, approaching Between $5,000,000 $10,000,000 say at run rate, Richard, it certainly we have a really nice flow through on the bottom line. And so We think about that bridge to the $300,000,000 having a nice set of arrangements like this that contribute nice EBITDA And are very consistent along with the Performance Suite margin maturation.

Speaker 1

I think the biggest thing I'd want people to take away from the call today is that both of those Are progressing as we hoped.

Speaker 8

Okay. And with respect to someone that's doing tech and services, What historically has been maybe the timeline in terms of adopting the tech and services and Potentially transition into the Performance Suite, is there any rule of thumb that you experienced Over the last, call it, 4 years since 4 or 5 years since you've had NTH?

Speaker 1

Yes. It's a good question, Richard. I don't think there is a rule of thumb on that one. We've had a couple that have switched over from tech services to Performance Suite. They've happened on slightly different timelines.

Speaker 1

It depends, I think, largely on what is the issue that our customer is trying to solve and we can guarantee more savings With the Performance Suite, right? So as per the earlier question, the more pressure there is, the more likely we have opportunities, I think. We've also had a bunch of Performance Suites go straight to Performance Suite and skip the whole tech services kind of stop. And I think you're going to continue to see some of both for all the reasons I just said. I don't think there's an easy rule of thumb on it.

Speaker 3

Okay. Thank you.

Operator

Your next question comes from the line of David Larsen from BTIG. Hi.

Speaker 4

I think you mentioned that the Centene win was in addition to the sort of announced Deployments at the time of like this transaction and I think I heard there was another $20,000,000 in addition to the Post synergy, dollars 85,000,000 of EBITDA, did I hear that correctly?

Speaker 2

Hey, Dave. No, we were just making the point that The MA Oncology Tech and Services deal was not a part of the originally announced Centene NIA expansion that went into the $85,000,000 number. There was not an additional $20,000,000

Speaker 4

Okay, thanks. And then in terms of the revenue impact from this Medicaid health plan, I think it was $20,000,000 in the quarter, not 10 or 9, right? It was 20,000,000

Speaker 2

I think I understand. So what I thought to articulate in my prepared remarks We had in the quarter a reduction of $20,000,000 in total in claims expense Related to 2022, about $9,000,000 of that $20,000,000 was associated with the revenue deduct as well. The other 11 dropped off our bottom line. Yes. And David, I

Speaker 1

think, David, just the last comment I'd make For the group, but relative to this question is just highlighting what John said, which is these are things that we understand. We know they're coming. We forecast for them, they're in guidance. We kind of have a sense of when they're going to come up, and I would think of it as normal course things that We factor in, which is why we're continuing to end up inside the guidance ranges.

Speaker 7

Great.

Operator

Your next question comes from the line of Brian Tanquilut from Jefferies. Your line is now open.

Speaker 1

All right. That's the easiest question of the night. Okay, JP, you can wrap the call then if there's no other additional questions, if no one else has pulled in.

Operator

Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker 3

Thank you.

Powered by Quartr