Evolent Health, Inc. Q1 FY2021 Earnings Call

Welcome to Evolent Health's earnings conference call for the quarter ended March 31, 2021. As a reminder, this conference call is being recorded. Your host for the call today is Mr. Seth Blackley, Chief Executive Officer of Evolent Health. This call will be archived and available later this evening and for the next week via the webcast on the Company's website in the section entitled Investor Relations. Here is some important introductory information. This call contains forward-looking statements under the U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the Company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in the current and periodic filings. For additional information on the Company's results and outlook, please refer to its second quarter news press release issued earlier today. As a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the Company's press release issued today and posted on the Investor Relations section of the Company's website, ir.evolenthealth.com, and the 8-K filed by the Company with the SEC earlier today. At this time, I will turn the call over to the Company's Chief Executive Officer, Mr. Seth Blackley.

Thank you, and good evening. I'm Seth Blackley, Chief Executive Officer of Evolent Health. I'm joined by John Johnson, our Chief Financial Officer. I'll open the call this evening with a brief summary of our recent results, including an update on the key themes of our strategic plan and momentum in the market. Afterwards, I'll share highlights from across the business and how our differentiated solutions drive value for our partners. I'll then hand it to John to take us through a more detailed financial review of the first quarter results as well as provide second quarter guidance. As always, we'll be happy to take questions at the end of the call. In terms of the financial overview and results for the quarter, total revenue for the quarter ended March 31, 2021 was $215.1 million. Adjusted EBITDA for the quarter ended March 31, 2021 was $14.9 million. As of March 31, 2021, we had approximately 3.4 million lives on the Full Platform, plus an additional 8.2 million lives on our New Century Health Technology & Services Suite platform. Overall, we're pleased that we exceeded our key financial objectives for the quarter. And we are increasing our guidance for 2021 accordingly, as John will discuss later. Now we'll provide an update on progress against the three themes of our strategic plan. With respect to our first theme of strong organic growth, we continue to be on track towards our target of mid-teens organic top line growth as we utilize our value-based care solutions to improve the cost and quality of health care. Payers and risk-bearing providers continue to select Evolent based on our state-of-the-art capabilities and our ability to improve savings and outcomes with high-cost, high-risk members and patients. Today, we're excited to announce two new partnerships that will contribute to our near-term goals and create the opportunity to open new avenues of growth. First, New Century Health has entered into an exciting new agreement with a leading network of risk-based primary care clinics. This partnership will ensure high-quality specialty care for this risk-bearing primary care group's patients who are diagnosed with cancer and heart disease through the application of New Century's health pathways. New Century will be providing medical oncology, radiation oncology, and cardiology services in two large markets, and we anticipate go-lives for both geographies later this year, with plans to explore additional opportunities in the future. We're particularly excited about this partnership for several reasons. First, the organization is a high-growth national organization, and this partnership creates the opportunity to grow with them over time. And second, this relationship more visibly opens the growing risk-bearing primary care segment for us. We believe that the intersection of primary and specialty care has the potential to unlock clinical value and create a better experience for patients and providers. The second new partnership we're announcing today is a signed agreement with a large health plan for our Evolent Health Services solution. This long-term partnership covers multiple markets and lines of business, and it will be an important contributor for us in 2022 and beyond. Additionally, during the quarter, we're pleased with our same-store growth efforts, including adding cardiology services to an existing New Century Health partnership in South Florida. We continue to see strong momentum in our pipeline, and we see our solutions becoming increasingly in demand in the market. Additionally, favorable trends in the overall macro environment are accelerating the adoption of cost-reducing measures, and the administration's commitment to the need to control health care costs will continue to be a tailwind for our solutions. With the two new partnerships announced today, we welcomed four new partners this year and are on track towards our target of six to eight new partnerships for 2021. Further, if you look back across our last 20 new partner announcements, we see good balance across our solutions of seven from New Century, seven from Evolent Care Partners, and six from Evolent Health Services, indicating nice balance across the portfolio to expect to continue into the future. Regarding our second strategic theme, we continue to drive expanding margins towards our mid-teens goal, with Q1 adjusted EBITDA margin of 6.9%, an increase of 1.6% over 2020. We're seeing nice traction in all three areas of our plan, including lowering our unit costs through target initiatives, new customer maturation, and driving the benefits of scale across our business. Finally, with respect to our third theme, I want to provide an update on our portfolio and efficient capital allocation. The previously announced Miami Children's Health Plan asset sales transaction closed at the beginning of the month. And the sale of True Health New Mexico closed at the end of March. With the completion of these two deals, we have successfully exited the health plan business and monetized all of our health line assets. Delivering on our commitment to exit this business has had a positive cumulative impact on our capital. Going forward, our capital allocation will be focused on accelerating EBITDA within our core services business. In conclusion, we continue to make significant progress on our three key focus areas. Turning to our business updates. Last quarter, we discussed the differentiators that drive payers and providers to select Evolent Care Partners. This evening, we will showcase our specialty management platform, New Century Health. Before we go into depth in New Century, I want to highlight the achievements and recent activities of our other two solutions, Evolent Care Partners and Evolent Health Services. First, Evolent Care Partners, our total cost of care management offering, continues to perform well and represents a large strategic opportunity. In Q1 2021, our network successfully addressed 13 times more panel insight opportunities in our proprietary clinical technology platform, Identifi, compared to Q1 2020. These opportunities allow physicians to be more outcome-centric by identifying and prioritizing high-yield critical interventions. Furthermore, our support of evergreen programs such as MSSP Pathways to Success and contracting with private payers continues to deliver strong results for Evolent and our partners. With respect to Medicare, the new administration is committed to new payment models, and we will carefully evaluate and participate in the ones that we believe have the right long-term economic profile for Evolent. We're using the administration's pause on direct contracting as an opportunity to weigh in with CMMI and other stakeholders on ideal model features and to provide CMMI with new ideas to support value-based care. Overall, across both Medicare and private payers, we continue to see a very bright future and strong tailwinds for our Evolent Care Partners business. As previously announced, we already manage close to $1 billion in premium, benchmarking well with other public assets in this segment. Importantly, we see opportunities to add more markets as well as more lives in existing markets through additional commercial and Medicare Advantage contracts. Market expansion and investments in product development, such as our previously discussed Panel Insight tool, will increase our impact on the lives our community-based partners manage over the next few years. Second, Evolent Health Services, our administrative simplification offering, continues to invest in modernization to lessen the burden and cost on payers and providers and enrich the patients' lives that we serve. We continue to see that our commitment to our partner success and our industry-leading, integrated administrative and clinical platform are differentiators in the market. Recently, Evolent Health Services and partner Maryland Physicians Care implemented an outreach strategy to create awareness and assist with access to the COVID vaccine. The three-pronged strategy utilizes text and email campaigns, practice outreach, and care management intervention to ensure members are fully educated on the vaccine and have access to the vaccine. The membership is prioritized based on the state of Maryland's rollout schedule, along with an assessment of the membership's most at-risk subpopulations, including those with chronic respiratory disease, cancer, diabetes, end-stage renal disease, and those currently receiving hemodialysis. Investing in automation and operational efficiency will continue to be a focus for us across 2021 and in the years ahead. The largest category out of the $1 trillion in waste in U.S. health care is actually administrative spending. And our team intends to drive further cost savings and high-quality outcomes through product innovation, such as our cloud-first and modular architecture, robotic processing, and AI platform launched in 2020 as part of our cost efforts. These savings should yield margin for Evolent, and they also help accelerate our sales differentiation in the marketplace. Finally, New Century Health continues to grow in terms of new business and same-store growth. The high cost and high complexity across both oncology and cardiology continue to underpin the strong demand in the market for our New Century services. We've also experienced a recent uptick in engagement as health plan and risk-bearing provider prospects are increasingly able to see the light at the end of the pandemic tunnel. Additionally, New Century Health continues to invest in new programs and technology to further support our partners and their patients or members. I want to share three of those enhancements with you here. First, in January, New Century launched several new services to help plans optimize their drug policies, including new drug reviews, and model the impact of their prior authorization policies. Next, we're also excited to announce the launch of a new genomics module in New Century Health to help oncology teams select the most appropriate tests. This module will enable us to deepen our preferred pathways and encourage the use of broad panel next-generation gene sequencing in specific clinical situations where there are clear benefits. This module enables us to incorporate the latest evidence in our pathways, with an emphasis in supporting treating oncologists and their patients and increasing the confidence that the patients receive the best therapy and with lower risk of wasting time and money on a failed first-line therapy. Beyond helping to ensure that subsequent cancer therapies are appropriate given the patient's genetic mutation, this initiative will also identify candidates for clinical trials. With the accelerating rate of science and new treatments, this module is strategically critical for the future of New Century. And finally, the team has also been hard at work in the development of cardiology enhancements in CarePro, including simplified Q&A, service-first architecture, expansion of pathways, and the ability to include add-on services in a primary request. The cumulative effect of these new enhancements, in addition to our state-of-the-art platform, we believe will allow us to see a strong impact from our solution. To give you a sense of the impact of the platform, I want to share how we believe the New Century Health platform impacts patient care. Often, when we enter a new market, we find that the rate of adherence to our Level 1 pathways is in the mid-60% range. That means that three or even four patients out of 10, we believe, are not receiving optimal care. Once we've been live in a market for 12 months, that figure is often in the high 70% or even 80% range, a very material improvement in the care that patients are receiving. Let me bring this to life by sharing one real example of how we increase the pathway adherence and therefore the quality of care for the patient. Recently, New Century Health, in the normal course of our service to a payer client and the treating oncologist, reviewed a complicated cancer case from one of the patients that we support. The oncologist had diagnosed the patient with what is called large B-cell lymphoma. As part of that diagnosis, the oncologist requested approval from New Century to treat the patient with a drug called Kymriah, which is a brand of CAR-T therapy made by Novartis. After our nurses and oncologists consulted on this case, it was found that the patient had been misdiagnosed and, in fact, the patient had a different form of lymphoma called CNS. The drug requested, Kymriah, is actually contraindicated for CNS lymphoma and would have made the patient incredibly sick or possibly could have been lethal to the patient. Thanks to our team at New Century, we were able to intervene and work with the treating oncologist to adjust the diagnosis and treatment for the patient. As a result, the patient's outlook materially improved. And as a side effect, the cost to the payer will likely be $500,000 to $1 million lower across the next 12 months. I shared this story because it inspires me and my fellow Evolenteers who come to work every day wanting to make an impact. There's a family that's much better off today because of our work, and the health care system now has up to $1 million of additional funding to help other people through lower insurance premiums, investments in care management, and the like. Of course, this is just one example of the kind of interventions that we make every day across all of our patients at Evolent and New Century. Finally, while we're very proud of the work we do to materially increase pathway adherence and help patients in the way I just described, we can go further. Our long-term goal is to move both cardiology and oncology pathway adherence over 90%. That ambition is a roadmap for how we'll continue to invest, but also an indicator for just how big of a future opportunity we believe lies ahead for New Century Health. With that, I'll turn it over to John to give additional details on our financial performance as well as provide Q2 guidance.

Thanks, Seth. Good evening, everyone. We are pleased with our first quarter results, with our key metrics coming in ahead of the guidance we communicated in February and building upon the momentum we carried into the year. With today's new partnership announcements, we continue our growth track record, and I'm happy to report that we're ahead of plan on our cost reduction efforts for the year. Finally, as Seth mentioned, at the beginning of this month, we closed on the final piece of our asset divestiture plan, achieving our stated goal to divest all health plan assets and focus on our core high-growth services business. In terms of our membership, we had approximately 3.4 million lives on our full services platform as of March 31, 2021, with an average PMPM fee of $19.72. Our New Century Technology & Services Suite ended the quarter servicing approximately 8.2 million lives with an average PMPM fee of $0.43, up from 6.2 million members in Q4. The increase in our Technology & Services Suite lives was largely driven by launches across additional markets for national payer contracts, including Centene. Revenue in the quarter was $215.1 million, with both membership and performance-based revenue exceeding expectations. Our adjusted EBITDA results of $14.9 million were likewise driven by continued strong outcomes in our performance-based arrangements. Adjusted loss available for Class A common shareholders was minus $1.2 million or minus $0.01 per common share for the quarter compared to minus $0.6 million or minus $0.01 per common share in the same period of the prior year. Before I turn to our first quarter results by segment, just a quick reminder that with the divestiture of True Health, we have reorganized our services business into two reporting segments going forward, those being Clinical Solutions, which includes the New Century Health and Evolent Care Partners solutions; and Evolent Health Services, which houses our administrative simplification solution and certain supporting population health infrastructure. In addition, we will report expenses in our corporate overhead as a separate segment. True Health financials are reported as a discontinued operation held for sale, beginning with our Q1 results. Within our Clinical Solutions segment, revenue in the first quarter increased 4.2% to $130.2 million, up from $124.9 million in the same period of the prior year. This increase was primarily driven by new partner additions, including Florida Blue Medicare, Neighborhood Health Plan of Rhode Island, Emblem Health, and Molina, as well as expansion into new markets within current technology and services suite partners. Adjusted EBITDA from our Clinical Solutions segment for the quarter was $16 million compared to $7 million in the prior year. Turning to our Evolent Health Services segment. First-quarter revenue decreased 12.1% to $85.3 million, down from $97 million in the same period of the prior year and was largely driven by the runout of services for Passport, partially offset by new partner additions, including Maryland Physicians Care. Adjusted EBITDA from our Evolent Health Services segment for the quarter was $5.9 million compared to $4.8 million in the prior year. This growth in EBITDA, despite the disposition of Passport to Molina, demonstrates the impact of our ongoing efforts to drive significant cost reductions across our operating model. Finally, adjusted EBITDA in corporate overhead improved 11.6% to minus $7 million, up from minus $7.9 million in the same period of the prior year and up from minus $9.6 million sequentially versus Q4. This improvement was the result of executing on our commitment to reduce overhead while still delivering strong operational and clinical performance for our partner organizations. Turning to the balance sheet. We finished the first quarter with $236.2 million in cash and cash equivalents and investments, including $95.6 million in cash held in regulated accounts related to the wind-down of Passport. Excluding cash held for Passport, this represents $140.6 million, a decrease of $95.3 million versus the end of the fourth quarter, and was principally driven by the repayment of our term loan with Ares Capital Corporation, with the associated warrants granted to Ares from our December 2019 financing also retired in cash. That use of cash was partially offset by a total of $43 million in cash inflows related to Passport Health, in line with expectations of our overall capital return range of $130 million to $170 million. Cash deployed for capitalized software development in the quarter was $5.9 million. We have no outstanding senior debt in place today. And aside from the $26.7 million balance on our 2021 convertible notes, we have no other debt maturities until 2024. We continue to expect adjusted EBITDA less CapEx to be positive for the rest of 2021 and beyond, which provides us with the opportunity to invest in differentiating our core services while maintaining a strong balance sheet. Overall, we are pleased with our progress against our financial objectives for the year so far and are increasing our guidance accordingly. For the full year, we now expect total revenue to be in the range of $845 million to $880 million, and we are forecasting total adjusted EBITDA of $42 million to $52 million. For the second quarter specifically, we are forecasting total revenue of $210 million to $225 million, and we are forecasting total adjusted EBITDA of $10 million to $14 million. With that, I will turn it back over to Seth.

Thanks, John. In summary, we continue to make progress against our strategic priorities of, one, driving strong organic growth and achieving our mid-teens growth target; two, scaling the business to drive enhanced margins; and three, efficiently allocating capital. We feel confident about meeting our targets for 2021 and in our unique ability to improve the health of the communities we serve. We are proud that Evolent's quality and cost-improving solutions were deployed across more than 11.6 million lives during Q1, and we're excited to continue to grow that reach. Thanks, everyone, for participating in tonight's call. With that, we'll end our formal remarks, and we're happy to take questions.

Our first question today will come from Ryan Daniels with William Blair.

Congrats on the strong start to the year. I want to hit the new partnerships. I know you're not naming the partners, but I'm hoping to get a little bit more visibility, number one, on the risk-bearing organization. First off, what would trigger potential expansion of that into other markets? I don't know how many they're in, but I think you mentioned you'll start with 2. Is it just going to be results in those markets? Or are there kind of savings objectives that would trigger expansion across their book of business?

Ryan, yes, it's Seth, happy to take that, of course. But I'd just say, first of all, we're excited about both the partnerships. We think they are going to be important contributors, less for 2021 but really in '22 and beyond, and excited about both of them. On the risk-bearing primary care front, I mean I think it's important for a couple of reasons, Ryan. One, it's obviously a very fast-growing segment in general. And there are multiple players, some public, some private, in this segment. And it's, we think, going to be a really important part of the health care ecosystem going forward. So opening up that channel more formally is big for us, and we think it will be important and exciting. A particular entity that is our partner here is also fast-growing themselves. And so I think there'll be a big opportunity with them. To your question, we're starting in a couple of markets. But I think over time, it's going to be dozen plus in terms of market opportunities. And we'll move into those markets based on performance in our first 2. Just like with a lot of our other partners, we're very focused on execution, delivering for them out of the gates and then have the opportunity over time to grow. And we do think there will be opportunities there. The other partner is also exciting and important, and it's a large health plan, multiple geographies, multiple lines of business, and I think should also create some growth opportunities. So with both of them, we're excited. I think the other fact point that is sort of relevant to your question, Ryan, is from Q1 of '20 to Q1 of this year, we had 29% organic growth when you hold out the divestitures, and we obviously grew 21% last year. So I'd just say, in general, we feel really good about the environment. These two new partners will be kind of right in line with that, and we continue to feel good about the path ahead.

Okay. I appreciate that color. And then on the large health plan, is there any way to offer some granularity, if not on the potential size of that for 2022, maybe how far that gets you in maintaining the mid-teens growth target, all else equal? It sounds like a potentially larger deal given it's a larger plan, it's in several states, multiple lines of business and they're buying a broader solution set from you, so I assume it's a higher PMPM. So just can you talk a little bit about the potential there?

Ryan, it's John. I'll take that one. It's a good question. You're right that it is a fulsome PMPM given the suite of services and the scope of what we'll be doing for that plan. We're excited about the partnership in that way. And it's very helpful for us as we're thinking about setting up next year. Obviously, still pretty early in the year here, but based on where we are today, we continue to feel quite good about that mid-teens range.

Okay. Fair enough. And then final one, then I'll hop off, just going back to the risk-bearing organizations. Obviously, we've seen a lot of growth in that market. It's a new opportunity for you. So a couple of questions. Number one, is that the first provider group you've signed up for New Century, given that that's traditionally been a payer-focused offering? And then the follow-up there, is that something that you guys got together strategically and discussed? Did they approach you? Was it an RFP? Did you develop a new sales team to go after this? Just how are you approaching that market? Because it does seem to be one, especially with the MA plans and all the MA enablers or direct models, that's going to be a high-growth area. And there's a lot of interest and probably a lot of need for solutions like yours, given the cost and exposure to those two disease states.

Yes. No, Ryan, happy to take that one. So I would just say, historically, yes, we've done some things with providers in New Century. We were part of the oncology care model, which is part of CMS, and we have done some things in the past. I do think we, through our work with Evolent Care Partners, frankly, but also just more broadly, seeing the opportunity to integrate with primary care and use that as a channel, it is strategic for us. We decided it was strategic and we have gone after it in a strategic way. We haven't created a separate sales force because it's a lot of the same competencies, but we have approached it in a little bit of a different way. And I think the product integration opportunities, Ryan, are really interesting, right? When you have the patient very deeply integrated with the primary care physician, the integration you can do in the specialty is great for the patient. You can actually, I think, drive savings that are higher than we normally get because of that integration over time. And it's what I would call just an exciting product space for us. So hope to see a lot in this area in the future.

Our next question comes from Robert Jones with Goldman Sachs.

Maybe just a follow-on there just because, obviously, there was so much focus on New Century on this call and clearly, the win in the risk-bearing clinic space. Are there other interests from your Evolent Care Partners today to pursue this? And did you think you kind of needed to get one kind of marquee win on the board that could really accelerate what might already be a pipeline for other risk-bearing clinics to want to turn on New Century?

Yes, Bob, I believe there will be many opportunities ahead. While there are well-known public companies, there is also a significant amount of risk-bearing primary care available across the country that we can support in various ways. The oncology care model is one possible avenue, particularly effective in settings like Medicare Advantage or the commercial population, where payers provide prior authorizations. This delegation of claims to a physician group and subsequently to us for specialties works effectively. However, for programs such as Medicare CMS, DCE, Evolent Care Partners, and CMMI, the prior authorization isn't present, which makes it different, but I believe opportunities exist there too. In general, to answer your question or Ryan's question, I think there is a considerable opportunity for New Century in the provider space, which we have not explored much yet. With our first significant partner in this area, we have a chance to accelerate our efforts.

Yes. We exceeded expectations in Q1, and part of the adjustment reflects that strong performance. The increase in our revenue was mainly due to higher-than-anticipated membership, which helps narrow our revenue projections for the remainder of the year. Since we have a high percentage of Medicaid in our mix, an extension of the redetermination process could positively affect our revenue. Additionally, the strong results on the bottom line are largely driven by successful outcomes in our performance-based arrangements, which we will take into account for the rest of the year.

Our next question comes from Sean Wieland with Piper Sandler.

One more question regarding the risk-bearing primary care market. Are there any opportunities beyond New Century, perhaps in Evolent Care Partners or Evolent Health Services for that market?

Yes, I'm glad you asked that question. The answer is yes. We already have some engagement with Evolent Health Services in the primary care provider space. Our partnership with SOMOS in New York, which we have discussed in the past, includes various components and capabilities that serve as a good example of that. There will likely be more opportunities as we continue ongoing discussions. For Evolent Care Partners, our strategy focuses on collaborating with independent physicians who aspire to operate like risk-bearing providers, transitioning from their fee-for-service models to prioritize patient care while also pursuing economic opportunities. They recognize the financial potential in various ways. Therefore, I can say that the pipeline for Evolent Care Partners in its discussions with independent primary care providers is currently very robust.

Great. And you mentioned, I think for the first time, clinical trial recruitment. Can you just touch on that a bit more? What are you thinking about that? And how do you monetize it?

Yes. Sean, we have not yet entered that directly in terms of monetizing it. I think right now, we view it as a service to the treating oncologist and that patient to make suggestions based on our network and reach, and knowing that when you have the genetic mutation information, that is often the key to unlocking access to a trial, right? So we are helping line those things up. It certainly is also a business opportunity for us. But right now, we're doing it as part of our kind of core value proposition to our current partners and the patients they serve.

Our next question comes from Charles Rhyee with Cowen.

I wanted to follow up on primary care. Can you explain how primary care utilizes New Century in this context? From my understanding, it primarily aids specialists by clarifying the best treatments and understanding mutations, thus guiding their decision-making. How is it being applied by primary care partners, especially those bearing risk?

Yes, Charles, that's a great question. It's similar in that when a patient is diagnosed, the New Century team collaborates with the treating oncologist to ensure the treatment pathway is appropriate. If there's a need to modify that pathway, working together with the oncologist to make those adjustments ultimately enhances the patient's quality of care while also lowering costs. In that respect, it's very much like what we typically do. It's important to recognize that primary care physicians often struggle with the complexities of cancer care, even more so than oncologists, making it challenging for them to manage it effectively. Therefore, having additional support for patients from their primary care providers is significant. The new and different aspect here is our potential to integrate back with the primary care physician, which involves effective communication and feedback that is often lacking in healthcare today. When patients transition to specialty care, their primary care physicians may not always be aware of the specifics of their treatment, so it's crucial to bridge that gap. Additionally, cancer care involves coordinating drug regimens and addressing other health issues, as mental health is closely linked to cancer. Being able to connect all of this back to the primary care physician and support their efforts represents an exciting new opportunity for us, in addition to our usual functions.

In this scenario, when you're dealing with risk-bearing primary care, are these groups involving New Century? So if a patient is diagnosed with cancer, before sending them to a specialist, are they working with New Century Health to help navigate the initial pathway? Or is this more about guiding the referral to a specialist? Because, as a specialist, I would think I would be the one to determine the treatment plan.

Yes, it's both. We have implemented a new process for directing referrals. Not all cancer referrals go through primary care, but for those that do, we will assist in directing them using our data to identify the most efficient, high-value oncologists. Once the patient arrives at the oncologist, either through our referral or independently, we will apply our usual methodology of pathway support, which we often informally refer to as a sort of second opinion for that oncologist. We will continue to provide this support in these cases.

Charles, this is John. Let me address those questions one at a time. Regarding the membership purchase price, in the first quarter, we received $23 million, which accounts for 50% of what we've earned. The second $23 million is due in the first quarter of 2022, bringing the total to $46 million. The final $23 million is contingent on a few factors throughout this year. As for total cash back, in addition to that second $23 million expected at the beginning of next year, we are still winding down the plan and anticipate some additional capital back as part of that over the next couple of quarters.

Okay. And then last one for me, on Molina. I know part of the agreement with Molina is serving them in Kentucky, but there was talk of expansion into additional states. Is that something that we expect this year? And if so, is that already in the guidance? Or is that something we expect at a later time?

Yes. Charles, it's Seth. I can take that one. Yes, we are doing work in Kentucky with New Century, as you mentioned, also in the state of Washington. And that was additive. And then we're right now focused on doing a great job with those 2, but we think there could be opportunities beyond those two as well.

Our next question comes from Anne Samuel with JP Morgan.

I was hoping maybe you could give us a little bit of a D.C. update now that we've got a new administration. We've been hearing from a lot of others that maybe the environment is a little bit more favorable for value-based care. So just curious your thoughts there.

Anne, yes, it's Seth. Happy to take that one. I think when we think about the macro environment, the first thing we kind of think about is actually the private payer market, the risk-bearing primary care groups or the MCOs. And there, the macro environment is really good. And we've talked a lot about that today, and there's just a lot going on with value-based care, I think a lot of pressure to manage costs coming out of COVID, et cetera, et cetera. So in many ways, if you think about the macro for us, that's the 80% to 90% of life for us is what happens in that segment, and it's in a great place there. A lot of these announcements are consistent with that. With respect to the administration, that's kind of an upside to us is the way we think about it. It is favorable. To your point, there is a lot of commitment to value. We're very deeply tied into CMS and CMMI and spend a lot of time with them right now. And the good news is it's been kind of accelerating since 2010 or '11, and even through the Trump years, there was continued focus on value. But yes, I would say further acceleration under this administration that I think getting their ducks in a row with respect to what that's going to look like, we're providing a lot of input to that, but we think that's a nice kind of additive piece for Evolent over the years to come.

Our next question comes from Richard Close with Canaccord Genuity.

I was wondering, Seth, if you could just go into a little bit more detail on the new products or services that you were talking about with respect to genomics and I think the drugs in cardiology, just a little bit more detail there. I know you addressed the clinical trials with Sean's question, but if you could.

Yes, of course, Richard. Let me begin with the genomics aspect, as it's the most significant of the three points I mentioned. The challenge with genomics and cancer lies in the increasing availability of expensive drugs that target specific genetic mutations. However, the data often shows that the necessary companion genetic tests are not conducted. Consequently, patients may be prescribed costly therapies without having the relevant mutations. Even worse, patients who do have the mutation and would likely benefit from the appropriate therapy might be given a different first-line treatment that doesn't work, wasting valuable time and delaying access to the more effective, albeit pricier, options. The analogy here would be that an oil company wouldn’t drill without performing geological studies first; similarly, we shouldn’t diagnose and prescribe treatments without the proper genetic tests. This field is very complex and requires careful interpretation. We believe this aligns perfectly with our goals at New Century, where we focus on applying science and evidence to clinical scenarios with patient welfare as our top priority, while also considering efficacy and cost. Currently, there is a limited number of drugs linked to companion diagnostics and genetic mutations, representing a significant savings opportunity. Looking ahead two to five years, we expect this number to increase substantially. Our aim is to establish a leading position in this market, and we believe we are on track to achieve that. The addition of this module will be crucial in maintaining our position and delivering the quality care we aspire to provide. We’re very enthusiastic about this opportunity, as there is substantial potential here. While the other points I’ll mention are also important, they are less central. For instance, understanding how the future drug pipeline changes will interact with plans’ formularies and impact costs can enhance our decision-making capabilities, ultimately affecting cost and quality. This is akin to an analytics product that complements the workflow tools we use daily. That should provide a bit more context.

Well, from a revenue contribution standpoint, so we're really talking fiscal '22 or calendar '22 and beyond on those new offerings?

Yes. I would say, yes, in general, but they can also show up in two other places, just conversions and wins even on the core product, right? This is a value-added thing that even if we are not getting extra PMPM for it this year, it is important and exciting for a buyer. And so I think it will show up as a support there sooner. And then the other thing it does is it drives the performance in terms of cost and quality in the right direction. So it also helps us on our performance side, right, of what we do where we participate in the savings that get created, and that could help us across this year as well. But in general, it is a future thing, but it will help us this year.

Our next question comes from Sandy Draper with Truist Securities.

Congratulations on the quarter. I have a couple of housekeeping questions. First, John, I want to confirm the guidance. You're no longer discussing services revenue, so the guidance is solely GAAP revenue, without adding back any intersegment eliminations, which are quite small now. I just wanted to clarify that.

Yes, Sandy, that's correct. True Health is now classified as discontinued operations. Regarding our revenue, the services revenue for that plan is currently facing technical difficulties.

We seem to be experiencing some technical difficulties, so please hold for a moment. We've reconnected with our speakers. You may proceed.

All right. I apologize for the technical difficulties there. Back to your question, Sandy. The True Health Services revenue is now between Evolent and Bright, so it's incorporated in the guidance for the rest of the year. And going forward, our revenue is just the services revenue for True Health is in discontinued operations.

Got it. Okay. That's helpful. I have another question regarding the new segment reporting; the numbers look a bit different compared to the old format when you reported transformation clinical and administrative solutions in the 10-Q. Is that just the way you are presenting it now, or is there something else happening? I'm trying to figure out how to connect the information until the Q is released, specifically regarding how you report clinical and Evolent Health Services compared to how you used to report clinical solutions and administrative solutions in your SEC documents.

Yes. Yes, that's a good question. So the prior method of reporting included some contracts that are managed now in our EHS segment as clinical contracts, with their pop health contracts. So that's part of the change there. The SEC filing will be out very shortly. So that will bridge the gap for you.

Okay. Great. And then one final question, which should be quick. Transformation Services has obviously decreased. We had a quarter last year, I believe the second quarter, where it was below $1 million. How should we approach Transformation Services? It isn't a significant part of our business anymore, but regarding the overall guidance, is there a dollar amount we should consider? I don't think it will remain below $1 million each quarter, but I want to ensure I'm not viewing it as less than $1 million going forward.

Yes. As you've seen in the last several quarters, the transformation revenue line tends to go up and down just based on the volume of implementation work that we're doing in that quarter, and we'll see the same thing, I would expect, in future quarters. So if you look at recent history there, it's probably a pretty good indication.

Our next question comes from David Larsen with BTIG.

Congrats on a good quarter. Can you just please remind me what exactly is in Clinical Solutions and what exactly is in Evolent Health Services? Is clinical primarily New Century Health? And Evolent Health Services is mainly Valence and Identifi? And why are the margins on clinical a bit higher?

Dave, thanks for the question. You are right in terms of categorization. Our Clinical Solutions encompass both New Century Health and the Evolent Care Partners solution; where Evolent Health Services is the old Valence business, the administrative services, and some legacy pop health contracts as well. And generally speaking, New Century has a slightly lower gross margin on a percentage basis than did legacy Evolent at the time of the New Century acquisition. And that trend has generally continued.

Okay. Great. And then in terms of the appetite that primary care physicians and provider organizations have for risk. I guess maybe, Seth, can you comment on that? Is it accelerating now? And how much more money can a physician group make when they capture a part of the premium under a risk deal versus traditional fee-for-service? Just any additional color there would be very helpful.

Sure, David. Good question. I'd say it is accelerating right now. I think that's driven by a couple of different factors, including the experience of what fee-for-service is like during a pandemic, I think seeing what else is going on in the marketplace. And just generally, also, when you sit down and talk to primary care physicians about what it's like to practice medicine under more of a value model, it's better health care, more thoughtful health care, more integrated. And I think physicians want to do that when they can. So I'd say, yes, it's accelerating. And I think there's a nice opportunity for us to continue going down that path. And it's going to be a pretty significant contributor, I think, over time for us. So that's how we think about it.

Okay. And then just the last one for me. Like with your Centene and Molina and Blue Cross Medicare Advantage deal in Florida, it's my understanding that these are plans that have contracts with New Century Health for one product, right? It's either oncology or cardiology, not both. So that would still represent an in-sell opportunity for each of those plans. Is that correct?

Yes, correct. We do. We've started with one part of our portfolio, and there's certainly an opportunity to cross over on the other side. We also have had the technology and performance suite has been the focus there. And the other dimension of kind of cross-sell, in-sell, to your point, would be to move to more of the full-suite performance suites, which would also represent some upside. So there's a couple of different ways to expand those relationships and opportunities in both directions.

This concludes our question-and-answer session. I'd like to turn the call back over to Seth Blackley for any closing remarks.

Thanks for everybody's time. We look forward to connecting over the days and weeks ahead. Have a good evening.

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