Welcome to Evolent Health's Earnings Conference Call for the Third Quarter Ended September 30, 2022. 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. The call will be archived and available later this evening and for the next week via the webcast on the company's website and the section entitled Investor Relations. We will now hand the call to Seth Frank, Evolent's Vice President of Investor Relations. Please go ahead.

Thank you, and good evening. The conference call will contain forward-looking statements under U.S. federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings. For additional information on the company's results and outlook, please refer to our third quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the company's presentation available in the Investor Relations section of our website or in the company's press release issued earlier and posted to the IR section of the company's website and the Form 8-K filed by the company with the SEC earlier today. During management's presentation and discussion, we will reference certain GAAP and non-GAAP figures 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'll turn the call over to Evolent's CEO, Seth Blackley.

Good evening, and thank you for joining the call. We'll begin by summarizing our third quarter 2022 results, update you on the business and on Evolent's three core operating priorities. John will discuss the numbers in more detail and share our updated guidance. As always, we'll then take your questions after the prepared remarks. Starting with our overall quarterly results, I'm pleased with the results where we delivered another quarter of strong organic growth and profitability. Our consolidated results were at or above expectations with continued momentum towards achieving our goals in 2022 and beyond. For the quarter ended September 30, 2022, Evolent Health's total revenue was $352.6 million, growth of approximately 58.5% over the same period of 2021. Year-over-year organic revenue growth was approximately 49%, excluding the two-month contribution from IPG, which closed at the beginning of August. Third quarter adjusted EBITDA totaled $28.1 million, an increase of $14.3 million or over 100% growth compared to one year ago. Revenue for the quarter was in the middle of our Q3 guidance range, while adjusted EBITDA came in at the high end of the outlook. As communicated across this year, Evolent’s consolidated revenue and adjusted EBITDA were positively impacted in Q3 from the timing of variable performance-based earnings. John will cover these segment details in more detail in his section. Turning to Evolent's key metrics for membership and PMPM pricing, we ended the third quarter with 19.5 million lives compared to 14.7 million one year ago, a growth of 32%. Growth was driven primarily by New Century Health across both Technology & Services and the Performance Suite. By segment, as of September 30, 2022, we had 2.1 million lives managed in Evolent Health Services and 17.4 million lives in our Clinical Solutions segment, which includes New Century Health and Evolent Care Partners. These figures correspond to 1.6 million lives in Evolent Health Services and 13.2 million in the Clinical segment at the end of the third quarter in 2021. We are also providing additional disclosure on cases and average costs for the Vital and IPG businesses on a go-forward basis. Before I move into updates on our three core operating priorities, let's talk about the macro environment. With inflation approaching a 40-year high, it's more important than ever for risk-bearing health care entities to identify ways to deliver high-quality care as efficiently as possible. We believe that one of the best ways to do that is through value-based care, which aligns incentives across the system through clinical IP, scaled services, and technology. Despite the savings and quality improvements over the last decade, the value-based care movement has only penetrated a small fraction of the healthcare system. According to recent estimates, less than 7% of primary care revenues in 2021 were linked to value-based arrangements, and for specialty care, the percentage is even lower. This landscape underpins the significant opportunity for Evolent Health given our position as one of the leading and most proven value-based care organizations in the country. With that backdrop, let's talk about our progress against Evolent's three core operating priorities to guide our operating strategy: one, strong organic growth; two, expanding margins; and three, optimal capital allocation. Starting with organic growth, we are pleased to announce today three new operating partners, bringing our total to 13 for the year, versus our target of six to eight. The first two agreements are the addition of the Performance Suite at Molina for two large states, both of which will go live in the first half of 2023. One of the states will go live for both oncology and cardiology, and the other will go live for cardiology. Inclusive of these two new states, the Molina relationship will contribute over $180 million of Clinical segment revenue in 2023. We're pleased with the impact we're having on this partner and note that our 2023 revenues with this partner still represent less than a quarter of the total opportunity, illustrating the growth potential across our installed customer base. We also note the addition of a large multi-specialty group practice in Washington State to our Evolent Care Partners Network with over 60 primary care and specialty providers. This practice was drawn to Evolent Care Partners for its proven track record of supporting organizations transition towards risk-based arrangements. Additionally, we continue to grow within our installed base, recently signing a new contract with a large national partner and current customer of New Century Health to launch the Vital Decisions product across several geographies. While this revenue contribution from cross-sells is modest, these arrangements contribute above-average incremental adjusted EBITDA, validating our ability to drive sales momentum after acquiring new specialty assets. With regard to our growth objectives for 2023 and beyond, we are seeing significant expansion of our weighted sales pipeline, especially in the value-based specialty business. Relatedly, early feedback on the IPG platform has been positive, confirming the primary deal thesis. Further driving our pipeline expansion is a trend that our customers prefer fewer specialty partners, thereby unlocking multi-specialty sales opportunities across New Century, Vital, and IPG. Translating strong pipeline growth into strong earnings growth is our second core operating priority. Our adjusted EBITDA grew by more than 100% versus last year, and over 70% of that growth was organic. Our adjusted EBITDA expansion has come from revenue growth, fixed cost leverage, and the maturation of our clinical solution customers. Regarding product mix, pro forma for IPG, over two-thirds of Evolent's adjusted EBITDA year-to-date comes from fee-based products delivered through our Technology & Services assets, with the balance from risk-based offerings in the Performance Suite. While the Performance Suite remains an incredibly important opportunity for us and is the highest PMPM adjusted EBITDA dollar available to the company, we believe this balanced approach is the best way to drive sustained earnings growth and shareholder value. Our third operating priority is optimal capital allocation. We've articulated three principles regarding Evolent's capital allocation strategy. To reiterate those, they are: one, investing in innovation within our core business; two, strategic and accretive M&A; and three, maintaining a disciplined balance sheet. Let me give you an example of the first area around innovation. We're constantly seeking to improve our ability to partner with health plans and clinicians to align towards the best outcomes. During the quarter, in strategic collaboration with a large national payer organization, we developed an enhancement to our Technology & Services suite that we refer to as Pathways Leveling, which further differentiates our platform for medical oncology management. With this innovation, we combine an advanced alternative payment model with nuanced evidence-based pathways, dividing potential treatment regimens into four distinct categories. This allows for improved physician engagement and allows us to focus our highest-value interventions like peer-to-peer consultations more accurately. It also allows us to provide more real-time updates to reflect the latest efficacy and effectiveness data. Our second principle for optimal capital allocation is strategic and accretive M&A. The additions of IPG and Vital and Evolent's specialty unit helped raise our collective profile within our target market and opened additional opportunities for expansion. Our clients are looking for long-term solution partnerships, not vendors or fragmented pieces of the value-based care puzzle. We are pleased with early momentum with IPG as well. Selective M&A can also increase value creation within our existing products. For example, integrating New Century Health authorization data with the Vital Decisions platform has significantly increased the number of individuals identified for advanced care planning services. In fact, over 80% of cancer and cardiology patients using Vital Decisions were identified using New Century Health data inputs. Those patients respond and benefit from the service when we deploy Vital Decisions along with New Century Health. We ended the quarter at approximately 2.5x net leverage on a pro forma basis with continued strong cash generation to fund the next phase of our growth. In summary, we remain focused on our core principles to drive shareholder value and are particularly excited by the opportunity in front of us within value-based specialty care. We have a unique opportunity in this market to continue to emerge as the only payer-agnostic multi-specialty partner with a deep focus on clinical intellectual property and the breadth to serve the highest-priority challenges facing health plans and providers as we transition away from fee-for-service and into value-based care. Now I'll hand the call to John to take you through the numbers and discuss our updated outlook.

Thank you, Seth. As we turn to the numbers, our headlines for the third quarter are strong, particularly adjusted EBITDA, consistent with our focus on growing overall earnings. I'm also pleased to note that we achieved positive net income for the first time, an important milestone in our ongoing maturation as an enterprise. There are four areas where I will focus my comments for the quarter, and then I'll turn to guidance. First, our continued strong revenue growth. As we have launched our New Century Performance Suite across multiple new markets, we've added more than $140 million in annualized revenue since the first quarter of this year. This growth, earned by delivering strong results for our partners, will propel our overall earnings expansion in the years to come. As a reminder, our Performance Suite margins do not immediately drop to the bottom line but ramp over time. For example, our year-to-date margins for Performance Suite clients who went live during 2021 are approximately 10%, consistent with our margin maturation expectations. Second, we derived some of our revenue across all of our business units through performance-based arrangements, including shared savings. This quarter was a tale of two cities on this dimension. In Evolent Health Services, we had strong earnings driven in part by approximately $3 million of gain share and recognition of revenue associated with implementations for Bright Health. In Evolent Care Partners, shared savings for the 2021 performance year came in at the low end of our expected range. The underlying clinical performance was strong and consistent with our thesis. Medicare beneficiaries who were with ECP for both 2020 and 2021 had total risk-adjusted medical expenses that were 7% lower than first-year beneficiaries. These savings, along with constructive quality metrics like lower ER visits and more time spent with primary care physicians are consistent with strong operational performance. This performance, however, was offset by the effect of COVID on healthcare utilization during the first wave of the pandemic, for which the MSSP attribution model did not adjust. CMS estimated that not including such an adjustment for entities like Evolent Care Partners had the effect of increasing 2020 shared savings by about 1% and decreasing 2021 shared savings by the same amount. Had CMS included such an adjustment in their model, ECP would have shown a 2021 savings rate of 3.6% versus a 2020 rate of 2.8%. In dollars, this pandemic-driven impact represents a delta of approximately $10 million in shared savings and is the primary driver of the year-over-year decline in third quarter clinical segment adjusted EBITDA. We believe this dynamic will be isolated to this unique and now historic comparison period, and we remain optimistic on the underlying value of the model to drive earnings growth and value in the years to come. Third topic, with the acquisition of IPG now in our reported financial results, we are updating our volume metric disclosures to provide additional detail for investors to model the business. The financials of our advanced care planning and surgical products, Vital Decisions and IPG, respectively, are principally driven by case volumes and revenue per case. Beginning this quarter, we are reporting two new metrics: total case count per period and average revenue per case. Vital Decisions lives will no longer be reported in the Tech & Services suite metric. The investor presentation on our website provides updated Technology & Services lives and PMPM disclosures quarterly since the acquisition of Vital in the fourth quarter of 2021 for comparability. Finally, let's talk about the balance sheet, where there are three things to note. First, in the quarter, we converted the majority of our 2024 convertible notes early. The loss on debt retirement on our P&L represents the present value cost of the remaining coupon and a small inducement for the early conversion. Second, excluding cash deployed for acquisitions in the quarter, our cash flow was approximately flat to Q2, impacted in part by the timing of working capital that will normalize in Q4. We expect a minimum of $20 million in cash remaining at Passport to return to the parent by the end of the first quarter of 2023. As we think about cash flow, we have two main recurring uses of cash outside of adjusted EBITDA: cash interest, which currently runs about $6 million per quarter; and capitalized software development of about $8 million per quarter. Excluding transactions, one-time items, and working capital fluctuations, this translates to approximately a 50% conversion from EBITDA into cash on a go-forward basis. Third balance sheet item: with the acquisition of IPG and our first quarter of positive net income, we have released a portion of the valuation allowance on our deferred tax assets, resulting in a $46 million noncash benefit in the quarter. A portion of these tax attributes now on our balance sheet is covered by a tax receivable agreement with our pre-IPO investors, resulting in a $43 million noncash liability. At our current course and speed, we do not anticipate becoming a cash taxpayer until at least 2024. Now let's turn to a few detailed numbers before discussing guidance. At the segment level, Clinical Solutions revenue grew 53.7% to $245.3 million, up from $159.6 million in the same period of the prior year. Third quarter 2022 adjusted EBITDA from Clinical Solutions was $16.3 million compared to $23.9 million in the prior year and in line with our expectations. Turning to operating metrics for Clinical Solutions, lives on platform and Performance Suite was 2.5 million compared to 1.5 million in Q3 of the prior year with a PMPM fee of $27.02 versus $34.16. The change in PMPM is driven by a mix shift as we add more Medicaid and commercial members to the platform. Lives on Platform and our Technology & Services suite was 14.9 million compared to 11.7 million last year with a PMPM fee of $0.29 versus $0.36 in Q3 of '21. Similar to our Performance Suite PMPMs, this decrease was in line with expectations as we have also seen faster growth in Medicaid and commercial lines of business. Total quarterly cases associated with advanced care planning and the IPG business totaled 12.8 thousand for the third quarter, with average revenue per case totaling approximately $2.2 thousand for the quarter. Note that average revenue per case will vary quarter-to-quarter based on various factors. Evolent Health Services segment results were strong. Third quarter revenue, net of intercompany eliminations, increased 70.8% to $107.3 million, up from $62.9 million in the third quarter of 2021. The addition of Bright Healthcare drove segment year-over-year growth. EHS adjusted EBITDA performance of $18.5 million compared to a loss of $3.4 million in the prior year. Membership in our Performance Suite for Evolent Health Services was 2.1 million compared to 1.6 million in Q3 of '21 with a PMPM fee of $16.41 versus $13.19. Corporate costs were flat at $6.8 million in the current quarter as well as in the same quarter in the prior year. We remain disciplined on our cost structure and expanding our consolidated adjusted EBITDA margin as we continue to grow. Turning to the balance sheet, we finished the quarter with $156.8 million in cash, cash equivalents and investments, including $30.7 million in cash held in regulated accounts related to the wind down of Passport. Excluding cash held for Passport, we ended the quarter with $126 million of available cash, a sequential decline of $32.6 million versus June 30, '22. Cash deployed for capitalized software development in the quarter was $8 million. We also deployed $28 million in cash for the purchase of IPG in August. Excluding this payment, available cash would have decreased by $4.6 million for the quarter, driven by working capital fluctuations. We expect to be meaningfully cash flow positive in Q4. Turning to guidance, we are pleased with our progress against our financial objectives for the year. We now expect total revenue for the year to be between $1.33 billion and $1.35 billion. With continued strong core business performance, we are narrowing our full year adjusted EBITDA range to between $98 million and $103 million. For the fourth quarter specifically, we are forecasting total revenue of $361 million to $381 million, and we are forecasting consolidated adjusted EBITDA of $24 million to $29 million. Now I will turn the call back to Seth for closing remarks.

Thanks, John. In summary, I'm pleased with our continued progress across all fronts, including sales execution, product development, and optimal capital deployment. Before we move into Q&A, I'd like to highlight two enhancements to our leadership structure. In September, we named Dan McCarthy, President of Evolent Health, reporting to me, to oversee the company's value-based specialty operations and strategy. Dan has been instrumental in leading the successful integration of IPG and Vital Decisions as well as driving the growth of New Century Health. Partnering with John and me, Dan will help lead the strategy to further deepen the capabilities of our value-based specialty platform and our target specialties. Filling out our leadership team and reflecting the company's purpose and a value-driven culture, we recently welcomed Kali Beyah as Evolent's Chief People and Brand Officer. Kali reports to me and will oversee our talent and marketing functions. Our human capital is one of Evolent's greatest assets, and Kali will take the leadership reins to further bolster our culture and elevate our talent operations to the next level as well as refresh our brand identity to reflect Evolent's unique team, mission, and impact. Kali joins us from the global marketing firm Huge as Global Chief People Officer, and before that, Delta Airlines, where she served as the Head of Talent. We congratulate Dan and welcome Kali to Evolent. And with that, we'll move into Q&A.

And our first question will come from Anne Samuel of JPMorgan.

I was wondering if you could maybe provide some color on your expectations just for revenue contribution from the new announced partnerships today. And now that you're at 13 partnerships announced for the year, maybe a little bit of color on how we can think about growth for next year.

Great. Anne, I'll start on some of the revenue specifics and hand it to Seth to talk about next year. Taking them in turn, the expanded Molina partnership that we announced together, we expect, will contribute between $35 million and $40 million of run rate revenue. That'll go live sometime during the first half of next year. On the Evolent Care Partners announcement, this is our 15th partner added to the ECP’s table here, this is about average size. We'll see that contribution, as you probably remember, largely in '24 based on performance year 2023. Seth can talk about growth.

Yes, Anne, happy to. I'd tell you on the '23 growth front, obviously, our target is to meet or beat the mid-teens target. We've been in the 30s or 40s or higher organic growth for a while. If you look at what we've signed year-to-date, I'd just say we're very well set up for achieving our goals for next year. And by the way, we've also got a really big pipeline, the biggest pipeline we've had, which will potentially affect '23 and certainly beyond. I think part of that pipeline, one of the things I like about it, Anne, is that it's a very diversified group of blue chip large health plan names. And I think that diversification is an important part of sort of how we grow. So I think the takeaways are we are well set up for next year and beyond. I think the pipeline is feeling quite good just in terms of what we'll deliver for next year, but also in the years after that.

That's great to hear. And then maybe just one other one. I was hoping you could provide some color on what the recent changes for MSSP might mean for Evolent.

Yes, absolutely. I'll take that one. The rule has been out for a day, so we are still digesting it. But I'd highlight three things. The first and most relevantly, for our quarter, is the dynamic that I mentioned in my prepared remarks around the shifting of value from '20 to '21 or vice versa. CMS saw that too and included in the final rule a fix to their model that had it been in place; our '21 results would have been meaningfully higher. So we're pleased with that. Pleased with some of the changes they're proposing around the nuanced way that they calculate the risk adjustment for these populations and also how they handle rebasing for ACOs like ECP. Overall, I think it's generally a positive rule. And I think most importantly, from our macro perspective, it feels like it reinforces this overarching thesis of the continued push to value.

The next question comes from Charles Rhyee of Cowen.

Yes. Seth, obviously, Molina is a very big partner with you guys. Great success so far. You made the comment that with $180 million contribution from Molina, it's still only 25% of the opportunity. I feel like you're up to seven states, and if I'm not mistaken, I don't think Molina is in more than 13 or so. Can you talk about sort of when you go into a state with someone like Molina, what percentage of the lives are you typically being asked to manage in the Performance Suite side? I'm guessing that it's not everybody. Maybe walk us through and then how that expands over time.

Yes, happy to, Charles. So I think there are a couple of different things. One is when you enter a state, yes, you may not have all the lives for a couple of different reasons. Each state is its own specific set of facts and circumstances that we work with the plan on. Those lives are generally opportunities for the future. I wouldn't say there are big swaths that, hey, we just can't do anything with. There may be some specifics around this state or that state as to why certain lives may not be included. Another cut on the data is also which specialties are available to us. We have both cardiology and oncology available. Some states don't have both specialties available. The opportunity is to be in both specialties. That 25% number was sort of pre-IPG and pre-thinking about Vital, so the total opportunity is probably a little bit bigger now, but it is contingent on the geographies, the populations within each geography, and then the specialties we’re serving. We work with the plan to get it right to maximize our impact. The important thing is that we're doing a good job for the partner and taking good care of patients. The validation we feel from the growth getting to 25% penetration is excellent. We're happy about that. Similar conversations are going on with other partners and plans, stemming from delivering and creating value for patients and customers. We’re in a strong place on that front.

That's helpful. And maybe just two other quick questions. One, I know you mentioned that a greater mix shift to Medicaid kind of calls out the decline sequentially in PMPM. It still seems rather significant relative to the changes between Q1 and Q2. Is there anything else in there that we should think of? And should we expect that as the mix grows, we should temper our assumptions for PMPM and performance?

Charles, it is just mix. It has to do, as you can imagine, with the prevalence of diseases in our specialties with different populations. Medicare has a much higher prevalence of oncology than Medicaid does for moms and babies. Where we are now, you can see from our revenues, is a pretty nice mix. I don't know if I would model it going down any further, but as we grow, depending on the composition of that growth, the PMPMs may go up or down.

The next question comes from Sean Dodge of RBC Capital Markets.

Maybe just starting on margins. John, before you mentioned establishing some operations in the Philippines, and I just want to better understand how meaningful of a cost savings driver that could be over time. Maybe can you give us a sense of how fast you can scale headcount there? And then I guess the work that you'll be doing there, is that something that you'll be transferring from out of U.S.-based sites, so there will be a pretty meaningful kind of wage rate differential as that work gets ported over?

So a couple of things I'd say on the macro question of thinking about our operations from a global lens. One of the biggest gating items is that we work with a lot of government-funded payers, and partner permissions are critical to consider. We view the opportunity to expand our operations in the Philippines across both customer service and certain clinical intake functions as significant over a multiyear span. It’s a process; we have made a lot of progress with our operations in Pune, India. We would anticipate doing something similar in the Philippines, and it's entering into our planning for next year and beyond.

That's helpful. And then in Evolent Care Partners, you've got the ACO lives on and then the full capitation ones like with the Blue Cross plan. What's the outlook like for Evolent regarding more full capitation relationships in lives? Are you having many conversations about that now? You mentioned the continued conversion of value-based care. How meaningful of a growth driver should we think of that?

Sean, it's Seth. I can take that. I think it's still an opportunity for us. We are in conversations on various opportunities on that front, particularly, looking at Medicare Advantage plans is attractive for capitation arrangements through the primary care network. There will be a lot of opportunities there for any network that can manage costs. So yes, I would say that is in the pipeline for us and certainly will be an opportunity.

The next question comes from Ryan Daniels of William Blair.

Maybe a strategic one for you, Seth. As we think about the product offering and how it's advanced with some of the M&A activity for New Century, have you thought about how you approach your go-to-market strategy? Are you going more with bundled approaches, selling multiple offerings as one contract? I assume at least some of them thinking Vital Decisions in oncology, for example, might have a bit of a value multiplier effect if you can tag those on with an initial contract.

Yes, Ryan, I think it's a great question. The answer is yes; we are definitely going with a more bundled approach. Sometimes that's what the payer wants, sometimes it isn't. But in general, there's this big theme: if you look inside a typical large blue-chip health plan, they could have many partners across different specialties. The fragmentation of that partnership model for those payers is not easy to deal with. Importantly, it misses valuable integration opportunities for the patient. Vital Decisions and end-of-life with oncology and cardiology is a great example of this. Our payers are pushing us to do more, and they were very positive about the IPG example on the MSK front. So we are leaning into these bundled conversations. The thesis we've mentioned in our M&A transactions is that we could grow the revenue rate of the combined business more consistently over time than anyone could on their own. We feel good about this thesis, which provides us with a structural advantage as we have multiple specialties in one place. So yes, the answer is yes, and we're leaning further in that direction over time in terms of bundling things together.

Okay. Very helpful color. And then maybe one for John. If we think of this year and the new contract wins at 13 versus the 6 to 8 guidance, a lot of them clearly won't be generating revenue until 2023, and some probably won't contribute materially to profits until 2024, given the revenue recognition and shared savings models. Does this have an impact on where you initially thought EBITDA would come in? Are you getting more revenue for the future but incurring a little bit more cost at present to allow that?

Yes. It’s a great question. As we look at our multiyear trajectory, we laid out back in the fall of 2020 that we were aiming for mid-teens growth and margins in 2024. That would indicate an EBITDA target run rate sometime in '24 of between $150 million and $200 million. That said, that would include our base business along with IPG. On this trajectory, we're focused on consistent dollar earnings growth, and you’ll see that from us moving forward.

The next question comes from Sandy Draper of Guggenheim.

Great. First question, John. I thought with MSSP, you accrued some revenue during the year and then you trued up when the numbers came in, but it sounds like maybe I was off there. Does all the revenue come in the year after, or is there some level of accrual?

Yes. It's not a shame on you; it's a technical accounting question. The accounting rules are clear: you only recognize revenue if it is more likely than not that you will not have a reversal. Essentially, for something like the MSSP shared savings, we book towards a revenue number that we expect and have a high likelihood of achieving, but when the final numbers came in, there wasn't a lot left to recognize. That's the process for all of our risk-based products.

Okay. That's helpful. And then my second question or follow-up is for Seth. In the prepared remarks, you talked about the balance and I think something like two-thirds of EBITDA was for one segment versus the other. The message I got was you're trying to balance out the mix of business, and you don't want to be overweight in any one customer segment, as that could impact EBITDA significantly. Can you help me understand exactly what you said? Are you sort of trying to titrate what's in your pipeline, or is it just the trajectory of the business developing in a certain way?

Yes, Sandy. Good question. My comment was that two-thirds of our EBITDA comes from technology-oriented fee-based products, and one-third is from our Performance Suite products. It's important; we've received questions regarding how much is tied to risk-based arrangements. We want to clarify that the majority of our company operates on a technology-oriented fee-based business model. I believe this gives us a good balancing ability in forecasting. We’re currently opening up opportunities, not just while adding more Performance Suite business, but also continuing to develop our technology over time. I feel confident in the margin ramp of the company. We're getting more data to confirm our direction.

The next question comes from David Larsen of BTIG.

Congrats on a good quarter. I think I heard you, Seth, say that Molina is generating about $180 million in annual revenue. But then I think I heard John Johnson say that the expansions for Molina would result in about $40 million of additional revenue in 2023. Did I hear all that correctly?

So it's going to be $180 million for next year for all of Molina. The expansions are $40 million on a run rate annualized basis, David. We won't have all of that $40 million next year because it will start at some point in the first half of the year. So that number will be part of the $180 million, as those are the two comments.

Great. And then, John, I think I heard you say that your EBITDA would have been $10 million higher this quarter if it wasn't for the adjustments in the CMS calculation. Is that correct?

Broadly speaking, yes, if it weren't for the lack of an adjustment. Our read of the new model that CMS just rolled out is that it would have corrected for this issue. So, it was the lack of an adjustment based on the CMS model.

Okay. And then for Evolent Health Services, I think the EBITDA came in at $18.5 million this quarter. Is that up from $8.2 million in Q1? Can you remind me what's driving that? Is it just the growth of the overall business?

Yes. Your numbers are right. The first reason was the recognition of some gain share in the quarter from performance-oriented partnerships within EHS. The second reason is that our implementation work in EHS is back-half weighted, meaning we recognize more implementation revenue in the back half, which contributed significantly to our EHS earnings. However, we stopped all Bright Health implementations on October 11, and that will have an impact on our Q4 guidance. We expect roughly flat revenue for that customer year-over-year.

For Bright, flat next year, got it. And just one more quick one and then I'll hop back in the queue. Are you reaffirming the mid-teen EBITDA guide margin for some time in 2024? I think I heard you say that yes, you are. Are you still planning at least 15% organic revenue growth going forward even after accounting for the change in the Bright Health Group deal?

Yes, the growth first and then EBITDA. We still believe that the mid-teens or better is a good target for this business for a couple of years to come. On the EBITDA side, we've been saying for a while that given our growth pace and the amount of that growth coming from the Performance Suite, with lower margins than the tech and services suite, we expect to reach our EBITDA dollar opportunity in 2024, but probably with more growth and less EBITDA percentage margin expansion.

The next question comes from Richard Close of Canaccord Genuity.

Yes. Thanks for the question. Just to be clear, on the Tech & Services, the change from third quarter to fourth quarter of the lives, that's all just really pulling out the Vital Decisions and putting it in this case's metric now?

That's correct. Net of that change, it would have ticked up modestly.

Great. And then, Seth, you talked about the pipeline being larger than ever. Can you talk a little about the diversification of the pipeline and what exactly you're seeing? Could you also comment on the Blue Cross Blue Shield opportunities going forward?

Sure, Richard. The main comment I have is that we’ve had significant additions with existing customers and large new ones over time. The current pipeline is across a lot of different logos and new names that haven’t been discussed in a while, which is good for continued growth and lower customer concentration over time. So that’s one way to characterize it. The Blue Cross opportunities are part of that. Blue Cross plans tend to prefer more one-stop shopping on the specialty side, so our ability to bundle offerings is a positive in that segment. We’re seeing some acceleration with our Blue Cross opportunities recently.

The next question comes from Jessica Tassan of Piper Sandler.

I was hoping you could help us understand just how the sales process at Molina works. So are you guys a national partner at this point? Are you selling state by state or from one plan to another via referral? And then just of Molina's 19 states, how many have you either engaged and successfully contracted or engaged and not contracted? What is the untapped opportunity remaining there?

Generally, I'll answer this question generically, whether it's any of the national plans we are partnering with or are in conversations with. It's often a combination of a national relationship and dialogue along with a state-based sales process. You must at least be approved at the corporate level, and then we must have conversations with state leadership and the national leadership to get agreement moving forward. It depends on the plan's objectives, who has capacity, and who may be going into an RFP cycle. There are different nuances regarding which states get prioritized. Regarding Molina specifically, we're less than halfway across the states they operate in. I don't want to provide specifics on which states we're engaged with, but I believe the 25% revenue penetration relative to the opportunity is a good number.

That's very helpful. I wanted to switch to - I think you noted in the press release that Vital has been integrated into an MCH oncology contract. Can you go through what the revenue model is for a multiproduct sale like that, and also the EBITDA model as well?

Yes, I'll start with that, and John may add on that one, Jessica. We have two ways to roll out Vital. One way is that when a customer, as an example, is a Tech & Services customer and wants to deploy the Vital platform, we'll have a fee-based model on the case level, which has high margins typical of that type of product. We receive fees that are helpful and significant on the EBITDA line. In other instances, where there is a Performance Suite opportunity, we can switch on Vital Decisions. We don't get paid for it, but it contributes to the overall value proposition for patients and that plan. The number of cases in Vital has increased by more than 35% since we acquired it, which is a good indicator of progress, whether we get paid or not.

The next question comes from Jailendra Singh of Truist Securities.

First, a quick clarification for John on your comment about $150 million to $200 million EBITDA for '24 still being a good number. Just want to make sure that includes the contribution from IPG, right? It's not just based on organic growth.

That was a target that we had out there for our base business. We would add IPG on top of that.

Got it. Okay. Then my main question here, I mean, clearly, a greater number of partnerships number, now 13, spending well ahead of expectations of 6% to 8% initially. Would you say that with the recent M&A transactions providing opportunity and given other industry and macro drivers, this momentum could continue going forward? Or would you say that 2022 has been an exceptional year and the annual target of 6 to 8 partnerships is still the right figure to keep in mind going forward?

Yes, Joan, it's Seth. It's a great question. It's similar to the question we get a lot about our growth. We like to provide conservative targets and hope to exceed them, and we are well set for exceeding that number. So whether we rebase it or think about it differently remains to be seen, but I'd be surprised if we're not above that number again next year.

Okay. And one last quick follow-up here. Clearly, with the part of the Bright contract update for the EHS business and some strong pipeline and growth in the New Century business, how should we think about your strategic investment dollar allocation between the two businesses? Has there been any changes in your view around the long-term opportunities in the EHS business?

Yes, great question. We’ve focused our capital toward specialty opportunities. We have market leadership and significant growth potential in specialty. The Evolent business is solid but is not set up for M&A. The goal is to support our existing customers and consider it a steady contributor. We also have, with the operations in the Philippines and Pune, our technology team is critical for the specialty opportunity. These aren't entirely separate, and there’s cross-support between business units as well.

Okay. Great. I know we're getting close to time here. Any other questions in the queue?

There are no further questions at this time.

Okay. Great. Thanks, everybody. John and I look forward to connecting with you over the next couple of days. Have a good night.

Conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.