Good evening, and welcome to the Evolent Health Earnings Conference Call for the second quarter ended June 30, 2022. Your hosts for the call today from Evolent Health are Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. This call will be archived and available beginning later this evening via the webcast on the company's investor relations website, which can be found at ir.evolent.com.
I would now like to turn the conference over to Seth Frank, Evolent's Vice President of Investor Relations. Please go ahead.
Thank you, and good evening. This conference call will contain forward-looking statements under the U.S. federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. 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 its second quarter press release issued earlier today.
Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the investor relations section of our website, or in the company's press release issued today and posted on the IR section of the company's website, ir.evolent.com, and the Form 8-K filed by the company with the SEC this afternoon. During management's presentation discussion, we will reference certain non-GAAP and GAAP figures and metrics that can be found in our earnings release, as well as a summary presentation available on the events section of the IR website at ir.evolent.com. Now I'll turn the call over to Evolent's CEO, Seth Blackley.
Good evening. Thank you for joining the call. I'll begin by summarizing our second quarter results and as always, provide my perspective on the status and progress of Evolent's three core operating priorities. Jon will discuss the numbers in more detail and share our updated guidance, and as always, we'll then take your questions at the end. First, I'm happy to report that Evolent continues to meet or exceed all of our key financial targets and operating priorities, and we're well set up for the remainder of 2022 and beyond. With respect to the second quarter, I'm pleased with our results relative to the outlook we provided on the May call. For the quarter ended June 30, 2022, Evolent Health's total revenue was $319.9 million, growth of 44% over the second quarter of 2021.
Adjusted EBITDA totaled $21.7 million for the quarter, 63% growth and an 800 basis point increase compared to one year ago. Revenue was particularly strong relative to our outlook, and adjusted EBITDA was toward the high end of our expectations for the quarter. As we communicated at the beginning of the year, we expect our quarterly adjusted EBITDA will vary across the year based on timing of performance-based revenue, with the second and fourth quarters a bit lower than the first and third quarters, and this quarter is in line with that expectation. We ended the second quarter with 21.9 million lives on all platforms compared to 12.2 million a year ago, growth of 80%, driven primarily by New Century Health across both technology and services and our Performance Suite solutions.
By segment, as of June 30, 2022, we had 2.1 million lives managed in Evolent Health Services and 19.8 million lives in our Clinical Solutions segment, the latter being inclusive of New Century Health and Evolent Care Partners. These figures correspond to 1.5 million lives in Evolent Health Services and 10.7 million lives in the Clinical Solutions segment at the end of the quarter one year ago. Looking at segment-specific revenue, Clinical Solutions revenue, composed of New Century Health and Evolent Care Partners grew 55% year-over-year, a significant acceleration as new lives came online during the quarter, particularly on the Performance Suite. The Evolent Health Services segment revenue grew 23% in the quarter. We believe the strong results reflect our successful partnerships with new and existing payer and risk-bearing provider clients.
We also benefited this quarter from strong performance-based revenue in our Evolent Health Services business, which increased both revenue and Adjusted EBITDA in this segment. Let's now discuss Evolent's three core operating priorities, updating you on the drivers underlying our strong organic growth, expanding margins and optimal capital allocation. Jon will take the margin discussion in detail. With regard to the organic revenue growth, we continue to outperform our targets in 2022, and we believe this sets us up well for the future. Our success is a function of the value we generate for our clients, the size of the untapped market opportunity, and our value proposition and differentiation in these markets. Looking historically, we have grown organic revenue, excluding revenue from divested assets, by approximately 40% on a CAGR basis over the last 12 quarters. Looking forward, we also continue to grow and add important new relationships.
In the second quarter, we announced 4 new operating partnerships, 3 for New Century Health and 1 for Evolent Health Services, taking our year-to-date total to 10 new operating partnerships just halfway through 2022, exceeding our full year target of 6-8. Keep in mind the size of these relationships and their path to margin maturity vary, but we believe this metric remains an important leading indicator. Last quarter, we discussed that Evolent grows through the addition of new logos and through the expansion within existing clients. As we've shared in the recent past, we see tremendous near-term opportunity to expand with our existing clients, especially with our value-based specialty platform, New Century Health.
In fact, even before adding IPG into the solution set, we believe that New Century Health reaching 25% penetration with our five largest customers can add approximately $4 billion in annual revenues. There are three ways we can address this client expansion opportunity. One is through expanding geographically to add new MSAs or new states. Two is to add new specialties, for example, oncology, when only another specialty like cardiology is implemented or vice versa. Three is through converting Technology and Services lives to the Performance Suite within the same specialty area. Today, we're excited to announce an important set of agreements that touch on the second type of client expansion. Specifically, Molina Healthcare will launch our New Century Health Oncology Performance Suite for their Medicaid, Medicare, and Marketplace membership, initially in three states by the end of 2022.
We expect this expansion of our relationship to more than double our overall Molina revenue going forward. We look forward to continuing our partnership in value-based specialty care with Molina. Beyond core New Century Health, we continue to see strong early success with our Vital Decisions platform. As you recall, the main opportunity with Vital is to embed the capability into the New Century Health Performance Suite, which we believe improves quality and lowers the cost of care. I'm excited to share that Vital Decisions is now live at several existing New Century Health clients covering more than 400,000 lives, representing over a quarter of the more mature New Century Health Performance Suite lives, which we define as those that were on the Performance Suite at the end of last year.
We're currently focused on additional client conversations to further expand this figure, including with our newest Performance Suite partnerships. More importantly, early performance measurements from the integrated New Century Health Vital Decisions partnership indicate the rate of patient engagement on the platform has increased by more than 50% versus Vital Decisions' pre-acquisition engagement rate, helping increase the number of patients documenting their advanced directives prior to the end of life. This increase, driven by New Century Health's unique link to the treating physicians, is the core thesis of the Vital Decisions acquisition. With all of that context, we feel like we're off to a great start with the Vital Decisions acquisition. The early success of Vital Decisions also gives us increased confidence in our IPG acquisition, as well as the broader opportunity ahead as an integrated provider of value-based specialty solutions.
Turning to Evolent Care Partners, our primary care risk-based business, we continue to see strong growth potential in the quarters and years ahead, and we look forward to reporting on our final performance year 2021 results in the third quarter. In addition, Medicare deadlines tend to drive new business growth activity for the Pathways to Success ACO program. We anticipate the majority of new provider additions to our network during the third quarter, and we're carrying a strong Evolent Care Partners sales pipeline into the quarter. Regarding the proposed changes to the Pathways to Success program, we believe the rule adjustments will have a neutral to slightly positive impact on Evolent Care Partners. We also view recent program changes as consistent with CMS's long-term goal of accelerating the transition to value-based reimbursement, which creates more opportunity for Evolent Care Partners.
As a reminder, 11 million Medicare beneficiaries participate in ACOs today, and Medicare's goal is to reach 30 million seniors in an ACO by the year 2030. Finally, there are a number of productive Evolent Care Partners conversations underway with payers for relationships similar to the Blue Cross Blue Shield of North Carolina partnership announced in the first quarter. Such arrangements go beyond shared savings to risk-based management of an entire patient premium. Turning to Evolent Health Services, today we announced a new technology and targeted services partnership for 250,000 Medicare Advantage and commercial exchange lives for a major Midwestern Blue Cross Blue Shield plan. This plan will utilize our proprietary technology platform to improve member quality and document care gaps.
Given the nature of the services, our initial pricing is below $1 PMPM, similar to the PMPMs we charge for our technology and services offering. We look forward to expanding opportunities like this with this partner and others over time. To conclude my section, let me provide you with a brief update regarding our efficient capital allocation priority. I'm happy to report that we closed the IPG acquisition yesterday. With the close of the transaction, New Century Health now covers the top three specialty spend areas in healthcare, and we continue to believe in our opportunity to lead the market in value-based specialty care. Strategically, adding musculoskeletal capabilities to New Century Health and Evolent broadens our healthcare vertical coverage as an integrated partner for any given payer client, which is what we believe most payers prefer.
With IPG now closed, we'll be moving quickly to successfully integrate the team, begin to execute on the large growth and margin opportunity ahead, consistent with prior acquisitions. Since we announced the acquisition in late June, I'm also pleased with the inbound response from New Century and Evolent clients about the opportunity to expand our work together. We're ready to hit the ground running with IPG. With that, I'll hand the call to Jon to take you through the numbers, discuss our margin expansion priority, and discuss our updated outlook.
Thanks, Seth. We are pleased with another strong quarter of execution across our enterprise. Growth is ramping across all areas of the business and continues to be particularly strong within our Clinical Solutions segment. During the quarter, we saw accelerated new partner go lives at New Century Health, which combined with membership growth in Evolent Care Partners to drive enterprise revenue above the high end of our guidance range. Adjusted EBITDA in the quarter was likewise strong, near the high end of our guidance range, driven in part by timing of performance-based revenue in EHS. Let me talk a little about our operating priority of margin expansion and how it is manifesting in our Q2 results. There are three key drivers of our margin expansion opportunity. Cost structure improvements, operating leverage, and Performance Suite margin maturation.
We continue to make progress on our cost structure priority, which is most focused in our Evolent Health Services segment. For example, we now have over 1,200 employed Evolenteers in our office in Pune, India, and later this year, are launching a new office in the Philippines to support our global operations. This initiative will further improve service delivery for our partners as they grow with us and ensure EHS continues to scale in a cost-effective manner. Regarding operating leverage, I'm pleased that our six-month corporate expenses are 5% lower than the same period last year, despite revenue growth of over 40%. Finally, margin in our clinical segment is impacted by the rapid pace of newly added Performance Suite contracts.
As we have previously discussed, profits from these contracts grow over time, with limited EBITDA flow-through in the first year, ramping to target profitability over 36 months on average. This curve is a direct outgrowth of our provider-oriented model. Instead of mandating specific clinical pathways or regimens, which might drive faster upfront savings at the cost of significant provider friction, we engage with providers through technology and peer outreach to influence individual practice patterns towards high-quality outcomes. This approach leads to strong provider satisfaction, customer retention, and based on New Century's 20 years experience in these arrangements, durable profit streams over time. For the second quarter, specifically, we had approximately $60 million in new Performance Suite revenue versus Q2 of 2021, which contributes meaningfully to our long-term earnings opportunity while weighing on margin expansion in the near term. Now let me turn to the numbers.
Revenue in the quarter was $319.9 million, a 44.1% increase compared to the same period in the prior year. This was due to growth from new partner additions as well as same-store sales growth across our enterprise. Adjusted EBITDA for the quarter was $21.7 million, compared to $13.3 million in the same quarter of the prior year, representing year-over-year Adjusted EBITDA growth of 62.9%. Turning to our segment results, within our Clinical Solutions segment, revenue in the second quarter increased 54.6% to $227.6 million, up from $147.2 million in the same period of the prior year. This strong revenue growth is due to continued same-store sales and new client growth.
This includes the previously announced partnership with Blue Cross and Blue Shield of North Carolina, as well as our expanded relationship with Molina Healthcare, where we are now providing our Performance Suite platform for cardiology across four states and have plans to further expand into oncology by the end of the year. Second quarter 2022 Adjusted EBITDA from Clinical Solutions was $13.5 million, compared to $13.6 million in the prior year and in line with our expectations. The variance in segment profitability relative to last year in the first quarter of 2022 was driven principally by revenue mix and timing. Very strong growth in new Performance Suite revenue on the one hand, with lower performance-based revenue recognized in the quarter on the other. More broadly, medical utilization in oncology and cardiology continues to track according to our forecasts.
Lives on platform in Performance Suite for Clinical Solutions was 2.5 million, compared to 1.4 million in Q2 of the prior year, with a PMPM fee of $34.58 versus $32.39. Membership in our Technology and Services Suite for Clinical Solutions was 17.3 million, compared to 9.2 million last year, with a PMPM fee of $0.36 versus $0.37 in Q2 2021. Within our Evolent Health Services segment, second quarter revenue net of intercompany eliminations of $500,000 increased 23.3% to $92.3 million, up from $74.9 million in the second quarter of 2021. Growth in this segment was driven primarily by the previously mentioned addition of the more than 300,000 Bright Health lives. We also benefited from strong performance-based revenue in the quarter.
As a reminder, we recognize performance-based revenue, for example, shared savings, as the data become available to measure, and the timing of that data availability varies by program. During the second quarter, we finalized the data from several programs in Evolent Health Services, which translated directly into strong Adjusted EBITDA performance of $15.1 million compared to $6.5 million in the prior year. Membership in our Performance Suite for Evolent Health Services was 2.1 million compared to 1.5 million in Q2 of 2021, with a PMPM fee of $14.58 versus $13.81. Finally, corporate costs were approximately flat at $6.9 million versus $6.8 million in the same period of the prior year as we continue to take a disciplined approach to cost management while scaling our business.
Turning to the balance sheet, we finished the quarter with $193.1 million in cash equivalents, and investments, including $34.5 million in cash held in regulated accounts related to the wind down of Passport. Excluding cash held for Passport, we ended the quarter with $158.6 million of available cash, a sequential increase of $2.3 million versus March 31, 2022. Cash deployed for capitalized software development in the quarter was $7.1 million, resulting from continued investments in our platforms. We also made a $9 million deposit for the IPG acquisition during Q2. Excluding that payment, the increase in available cash would have been $11.3 million for the quarter.
As Seth mentioned, yesterday, we closed on the acquisition of IPG, drawing on our new senior credit facility as planned to partially fund the transaction. Pro forma for those two events, our June 30 available cash balance would have been approximately $133 million, with pro forma net debt excluding the 2025 convertible bonds of 2.5x our pro forma trailing Adjusted EBITDA, slightly improved from our target at the time we announced the transaction. Based on continued earnings growth and strong cash flow performance, we now expect that leverage ratio to be below 2x within the next several quarters. Turning now to guidance, beginning with the top line. Given the strong core business growth and the addition of IPG, we are raising our revenue expectations for the full year to between $1.32 billion-$1.36 billion.
For Q3 specifically, we expect revenues to be between $343 million and $363 million. Regarding adjusted EBITDA, to simplify the addition of IPG to our financial model this quarter, we are providing forward-looking detail for the earnings power of the base business along with our updated enterprise guidance. Prior to IPG, we are reiterating our full year expectation of adjusted EBITDA between $85 million and $95 million. For Q3, we would expect base business adjusted EBITDA of between $20 million and $25 million. We expect IPG to contribute adjusted EBITDA of approximately $4 million in Q3 and between $9 million and $11 million for the year. Our updated adjusted EBITDA guidance then is $95-$105 million for the full year and $24-$29 million for the third quarter.
With regard to the core business, the quarterly EBITDA rollout across the second half of the year will be driven by the timing of performance-based revenue, as previously discussed, along with modest early investments ahead of revenue in Q4 for our significant expansion with Bright Health going live in January 2023. Finally, with the addition of IPG and expected platform integration investments, we now expect cash deployed for software development to be between $30 million and $35 million for the year. With that, we will take your questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Ryan Daniels of William Blair. Please go ahead.
Yeah, thank you for taking the questions, and congrats on the continued momentum. Jon, let me start with one for you. I think I know the answer to this, but core sales look to be up about $100 million, but EBITDA relatively flat. Is that just what you mentioned due to the timing of startups and ramp to margins in the Performance Suite, as much as anything?
You got it right, Ryan. That's exactly it. The real bulk of that growth coming from the Performance Suite, you know, comes with that margin curve that we've talked about or that margin maturing over time. The timing of the performance-based revenue, as I mentioned in the prepared remarks, also impacted in the quarter. Everyone recalls that we expected a Q1 and Q3 high points in our clinical segment for performance-based revenue. That's playing out as we expected it to.
Okay, perfect. I know the deal just closed, but it was announced at the end of June. I'm curious if you've received any feedback from your customers on IPG. I think one of the, you know, thoughts on a go-forward basis is MSK is a big category on the commercial front, and also there's a desire to have a turnkey solution versus working with multiple vendors. Have you actually started the integration and started to hear anything from your sales teams on interest within the current client base?
Hey, Ryan, it's Seth. I can take that one. You know, obviously, we just closed yesterday, so we're just getting started. We did, you know, already get several inbound outreaches from the client base, and I do feel like there's gonna be a, you know, significant opportunity in terms of the cross-sell path for IPG. I think the bigger picture here is this, you know, this $4 billion client expansion opportunity that we've been pointing to just to get to 25% penetration of New Century. That number will now be bigger, you know, as we add IPG. I think what's, you know, even more interesting to us is this notion that a lot of our clients have told us they'd prefer to have, you know, fewer partners in the specialty space.
The ability to aggregate several different value-based specialty platforms into an integrated platform is core to our strategy going forward. I think a lot of traction from the, you know, payer and risk-bearing provider community to have that kind of platform pulled together for them. It's been, you know, really positive just on the inbound basis. Obviously, now that we're closed, we can begin to work that actively. You know, it always takes a little bit of time, like it has with New Century and Vital. You know, as we head into 2023, I think we're gonna be in a really good spot to add this in. Again, it's, I think, there's a bigger strategy here which we've been talking about, which is, you know, leadership around value-based specialty care.
This asset, I think, takes us an important step, Ryan, in that direction. We're quite excited about it.
Okay, perfect. I'll end with a follow-up there. In regards to that $4 billion by penetrating a quarter of your 5 largest clients, I know you laid out you can move into new markets or states, you can add on new disease states, if you will, like what you did with Molina and then convert lives. Is there any one of those three that you're seeing more momentum on or dedicating more resources or hearing more in the marketplace? And if so, how are you tapping into that? Obviously, great growth already, but how do you ensure that continues from an investment standpoint with the sales teams? Thanks.
Yep. Yeah, great questions. I mean, all three are very large in terms of opportunities, Ryan, and they present in different ways with different partners. I think just mathematically, the geographic expansion is probably the biggest opportunity right now. What we like about that, Ryan, is that, you know, it is, as is the case with these Molina agreements that we announced today, it really does act like a normal sales cycle where you have to build trust and relationships and prove value to the next constituent, which happens to be, in a lot of cases, a regional or state-based leader within one of these larger plans. You know, it allows us to scale up as we build confidence with that partner.
It also, you know, is sticky in that it builds a whole new set of relationships. I'd say that's probably the first place we're started. Again, these Molina relationships today that we're announcing in three new states are, you know, have some consistency with that. There's also an element in those Molina relationships of, you know, adding a specialty where we were doing one specialty and wanted to add the other. That's how I think about it, Ryan.
Great. Thank you so much.
Sure.
The next question comes from Sean Dodge of RBC Capital Markets. Please go ahead.
Yep. Thanks, good afternoon and congratulations on the great quarter. On the Molina expansion, the Oncology Performance Suite launch, Seth, I think you said that this would double the size of the relationship with Molina. I think before you guys had scoped them as contributing $75 million for this year. Is that the number we should think about doubling or am I misinterpreting that? You also said initially oncology would roll it out to 3 states this year. I think you said by the end of this year. Is that just for this year? Is there the expectation or plan that you'd roll out to additional states in 2023?
Yeah. Hey. Yeah, good question, Sean Dodge. So it's just to kinda hit on a couple different aspects of that question. I think 75, doubling 75 is the right, you know, general metric that we'd be thinking about. It's about, you know, 700,000 lives that we're adding with these three agreements. We didn't disclose the specific states, just for kind of competitive reasons on behalf of our partner, Molina. It's, you know, significant. Then I think that the right way to think about it is that we're getting started here. You know, as with all these large partners that we have, that there should be additional opportunity over time.
Okay, great. Maybe just more of a general update around the pipeline. You've now 10 new operating partnerships so far this year. That's, you know, well beyond your target of 6-8 for the full year. You know, I guess, as we think about the next couple of quarters, did everything just kind of fall into place in the first half of the year? Is that a pace you think you can sustain?
Yeah. You know, I think as I mentioned in the script, you know, we're at 10, that's great. We're halfway through the year, and that is a good leading indicator that we're off to a great start. You know, each of these things are different in kind, and increasingly, you know, you gotta look at what product is it, how many lives is it, et cetera. You know, importantly, we're adding a lot of business around the Performance Suite. You know, we're very well set up for 2023 is what you should take away from all this. You know, as we've talked about a lot, revenue growth rate percentage or margin percentage is less what we're focused on as a company than actual EBITDA dollars, the gross EBITDA dollars.
That's sort of per Jon's comments, as we add more and more Performance Suite that has a margin maturation curve, and that's core to how we think about it, and we're very, very laser focused on, you know, to grow EBITDA dollars is our, the way we're managing the company and expanding that EBITDA dollar mix. That really is, I think, the most important management indicator. But you're right on the number of clients or even the revenue growth percentages, those things are obviously in a very strong spot right now.
Okay. That's very helpful. Thanks again.
You're welcome.
The next question comes from Anne Samuel of JP Morgan. Please go ahead.
Hi. Thanks. You explained earlier that the new performance-based revenue started at a lower margin and, you know, maybe that's why you didn't see as much EBITDA upside as revenue. Was wondering how should we think about how that revenue is gonna impact margins over time, as those partnerships mature?
Hey, Annie. The margin profile that we've laid out for that style of arrangement at maturity is in the mid-teens. The real question is how much, what is the mix of new business that is at a much lower initial margin that's in our numbers now? As I mentioned in the prepared remarks, we had a lot of that this quarter, we have $60 million of new Performance Suite business in the numbers, which has that lower margin. Over time, as we continue to scale, you know, that should be a smaller and smaller percentage of our overall mix, and you'll see our overall margin expand. It will be impacted by the pace of that growth. As Seth mentioned, we're principally focused on driving sustainable EBITDA growth.
Very helpful. Thanks. Just a housekeeping one. As we model IPG, is there any seasonality to that business or can we assume similar cadence for all four quarters of the year?
I would assume similar cadence for now, Annie. As we get more experience with it under our belt and have a good sense of its growth trajectory over the next few quarters, we'll give some additional guidance on that.
Great. Thank you.
Yeah.
The next question comes from Sandy Draper of Guggenheim. Please go ahead.
Thanks very much, and good afternoon. I'll add my congrats on the very strong results. Actually, Annie just took one of my questions about the margins and how to think about the new business coming in. Thanks for that to both of you guys. I guess maybe one question on the Evolent Health Services. The lives were basically flat, the revenue is down. I'm assuming I wanna make sure I'm correct. Was that all just performance revenue in the first quarter? Just trying to think about this decline in PMPM and revenue there, but with the lives staying the same.
Hey, Sandy. You have it right. You know, just to speak for a minute on this performance-based revenue topic. We sort of have two flavors, so you can think of it, two flavors. There are some arrangements where we share some of that revenue with other parties. For example, you know, what you saw in EHS in the first quarter, where we booked the revenue, we also booked an offsetting expense. We would do the same thing in the clinical segment as an example, with the Evolent Care Partners shared savings in the Pathways to Success program, some of which we share with our physician partners. The second flavor of performance-based revenue is effectively a 100% margin. We get to keep all of it.
that's what we had a little bit of this quarter in Evolent Health Services, which drove the strong EBITDA performance sequentially there.
Got it. That's really helpful. The second question is on the balance sheet side. Can you remind me, I guess, a couple things on the debt? What the interest rate we should be thinking about in terms of the debt, and then are there any restrictions on paying that down? What's the philosophy on using free cash? You're not particularly levered, but is it, hey, get the debt down to zero as quickly as possible? We're fine with this, we'll pay it down a little bit. Just any commentary on the interest rate expense, but then also just on how you're thinking about your debt level, going forward.
Yeah, good question. So the new senior credit facility is at a blended rate of SOFR plus 500, approximately. We'll file the credit agreement together with our Q, so you can pore over it. It'll help you fall asleep, if that's helpful. In terms of, you know, prepayments, as I think we mentioned, in the call announcing the IPG transaction, we have the ability to pay down a third of that facility, with no penalties whatsoever. We would plan to do that as cash is generated. The remainder of the facility has sort of typical 103, 102, 101, call protection on it.
Overall, on the philosophy point to your question there, I think what we will seek to do is focus on our strategic priorities of really growing this business and keeping a very disciplined balance sheet approach. We like this net leverage where we are now, well, after the converts are in the money here. You know, keeping in this zone of you know, what I think I said on the prepared remarks is getting under two feels about right to us. That's how we'll think about it going forward.
Great. Very helpful, John. Appreciate it.
The next question comes from David Larsen of BTIG. Please go ahead.
Hi. Congratulations on the very good quarter. Can you talk a bit about Evolent Care Partners and the primary care business? Like, if you can, like, maybe how much revenue is coming from there, or just sort of size it in some way. It seems to me with CMS's proposed rule, this could be a very high growth area. Just anything around, like, the lives, the potential growth portion of the overall business that's coming from Evolent Care Partners. Thanks.
Yeah. Hey, David, Seth. We haven't broken out ECP, you know, from New Century Health. It's part of the clinical segment. We have talked about, you know, our various relationships, the number of lives that we have, and things like that over time. I think that's a helpful metric when you think about the life count and, you know, in and around 100,000 lives compared to, you know, some of these other publicly traded platforms that have a couple hundred thousand lives or 100,000 are in that same zone. We think it's a pretty significant material platform given the number of lives that we're covering, David. You know, I think the next order question is, okay, what are those lives?
Interestingly, they're all really truly full risk lives, some through the ACO program, through Pathways, some through the capitation arrangement we have with the Blue Cross plan. I think you're gonna see growth in both of those categories going forward, David. More ACO lives, of course, you know, as you think about 30 million of those lives out there as a target opportunity in the years ahead, big opportunity for us to continue to grow that side of it. Then, of course, often in those same states where we have physicians that are participating in the ACO, let's go to the Blue plan. Let's go to the other, you know, other large national plans to establish, you know, really more like capitation style arrangements that are consistent with what you see some of the other risk-based primary care groups doing.
We think, you know, we've talked about this a lot. We think it's a really nice hidden gem within the broader Evolent platform. It leverages the same technology, the same competencies, et cetera, that you know, help drive the success of New Century Health, and it's really just approaching it, you know, towards a slightly different population, which is a primary care population. It's very similar to what we do across the rest of the business. Excellent platform. I think you're right, a lot of growth potential ahead.
Okay. That's very helpful. Thanks very much. Any sense for what the PMPM rate is for Evolent Care Partners? Is it in line with the rest of the book? Just one quick one. For IPG, it's my understanding that you don't really get involved in, like, the clinical decisions as to whether or not to actually get, like, hip or knee surgeries. But could that change over time, where you bear risk for IPG and you implement, you know, preferred networks kind of similar to the oncology business? Thanks.
Well, why don't Jon take the first question on PMPM and rates, and I'll take IPG.
Right. Hey, David. The two numbers that we've put out there, just to give a sense of the ECP population on rates, for shared savings with the Pathways to Success program last year, the total revenue booked for the first performance year translated to about $22 PMPM. In the capitation-like agreement in Blue Cross, I believe we put a number out there of around $600 PMPM. Seth can take the IPG question.
Yeah. On IPG, David, the answer is yes. We do a little bit of that today in terms of, you know, selection of devices and therefore kind of physician decision-making. Clearly, there's an opportunity to expand what we do, which would head a little further towards what we already do in New Century with oncology and cardiology around, you know, the broader, what I would call, pathway design, and therefore what's the full physician decision-making path. That's clearly one of the things that is an opportunity in terms of future product for IPG.
Great. Thanks very much. Congrats again.
Yeah. You're welcome. Thanks, David.
The next question comes from Jessica Tassan of Piper Sandler. Please go ahead.
Hi. Thanks so much for taking the questions. I was maybe just hoping to follow up on the Evolent Health Services questions. I think by our estimate, there was about $8 million of EBITDA upside in the quarter. Just curious to know, is that related to 2021 performance in MSSP, or is that MSSP reconciliation still kind of yet to come in the third quarter? Maybe just if you could talk about how to think about Evolent Health Services margins in the back half of the year, that'd be helpful.
Hey, Jess. The sequential change in EBITDA in EHS was related to the performance-based revenue that we talked about. I would say that's both 2021 and a little bit of early 2022 data coming through from our partners in those arrangements. That was the principal driver there. On overall margins, you know, I think if you look at the trailing twelve months and to average out some of the quarter-to-quarter noise in EHS, that's a pretty good proxy for the run rate of that business right now. Of course, growing as we bring Bright on in full at the beginning of next year.
Got it. That's really helpful. Thanks. Just you mentioned that medical utilization in the NCH Performance Suite book is kind of tracking in line with your expectations. Can you just maybe go into what your current thoughts are in terms of deferred care coming back online potentially in 2022 or 2023? I think that's it for me. Thanks.
Yeah, great question. Similar to a number of other commentators on this subject, we've seen screenings for cancer, things like that, authorization levels sort of normalize as we've gotten through the pandemic here into whatever this new normal is. We do anticipate and anticipate in our guidance a bit of that deferred care coming back in the back half of this year. It's incorporated into our guidance, not a giant number. We have an expectation for that. I do think we think that's this year thing.
Once again, if you would like to ask a question, please press star then one. Our next question comes from Richard Close of Canaccord Genuity. Please go ahead.
Great. Thanks. Seth, I was wondering if you could elaborate on the timing and the number of lives of the Blue partnership for Evolent Health Services. I maybe didn't catch that.
Yeah, Richard, it's about 250,000 lives. It's a lot like our tech services suite, so low PMPM, technology-oriented relationship. You know, won't have a huge revenue impact as it goes live. It's kind of going live this quarter, Q3, that is. It's not gonna have a huge revenue impact given the PMPM. That said, obviously, just like on the New Century side, establishing a relationship with a major Blue plan is important, and as we've shown, there's good opportunities to build that relationship and turn into something even bigger. That's, I think, probably one of the more exciting parts. Obviously, job one is to do a great job with the piece that we have. As we do that, we've been able to expand these kinds of relationships.
Okay. With respect to the oncology partnerships with Molina.
Mm-hmm.
I just wanted to clarify, none of those are transitions from the Tech Suite, are they?
No. No.
Okay.
They're not. That's a brand new relationship, and we've only had cardiology historically with Molina, and this is our first oncology implementation. Obviously, that's big for lots of reasons. I think, Richard, the biggest thing is that we did a good job with the cardiology side and did what we said we're gonna do, delivered and have that trust with them, and that gives us the opportunity to then talk about oncology. Obviously, that's gone well. We're going live there now. You know, the next opportunity with Molina or really any of these opportunities, we're in a handful of states right now and obviously there's a lot more opportunities beyond the couple of states we're in. You know, we keep our head down, we do a good job, we deliver.
We have some confidence that we'll be able to continue growing and continue delivering for these sorts of organizations.
Okay. That's helpful. With respect to the Performance Suite, obviously great on the Molina side of things. How are you thinking about the pipeline of potential other managed care organizations looking at the Performance Suite?
Yeah, it's a good question. You know, I think the first thing that's obvious is that we've got these very significant relationships with organizations like the ones we've been talking about, some of our larger existing customers that are national plans, Richard, and our penetration rate today with those large plans is actually quite low. You know, and that's where we get that $4 billion opportunity just getting to 25% penetration. That's kind of an obvious opportunity that we're gonna continue to run at. I think that'll play out over the years to come, and it'll be hopefully consistent and lots of things like we saw this quarter continuing with different partners in different ways and maybe different solutions, but a lot of it, I think, will be Performance Suite oriented. You know, the second piece, obviously, is new logos.
There's a bunch of different blue plans out there that cover roughly 100 million lives. We only have a couple of those today. There are other regional plans, and there's a few national plans. Actually, IPG has relationships with that, you know, traditional New Century Health doesn't. That's gonna be our, you know, our second big priority is also adding some new logos at the same time we do this big expansion opportunity that's right in front of us. We'll, you know, we'll want some balance in there over the course of every couple years. You want a nice mix of expansion to both prove that we're doing a good job. It's, you know, it's just the right way to serve a client, but also continue to add new names.
Okay, thanks. Congratulations.
You're welcome. Thanks, Richard.
The next question comes from Charles Rhyee of Cowen. Please go ahead.
Yeah, thanks for taking the questions here. Maybe just wanted to follow up and just think bigger picture, Seth. You know, I think to an earlier question, you know, looking at the sales pipeline, you know, I think now it's been the last few years where you've either come in at the top end or exceeded the number of new partnerships signed. You know, how are you thinking about what the right number is that, you know, investors should be thinking about as we look forward? Obviously, you're a much bigger company now.
Maybe a little bit more diving into it is, with the resources it takes internally to work on expanding relationships with some of your big existing customers, you know, how does that differ from the resources that you have invested in sales and biz dev for finding new logos? Thanks.
Yep. Happy to take it, Charles. You know, obviously we've gotten that question a lot about, you know, mid-teens growth target, where we've been at 40%, CAGR for the last 12 quarters. I think, you know, we get that question a lot. We like having a target that we can, you know, meet or exceed consistently, and we're gonna keep it that way, that we can, you know, continue to feel good about our ability to deliver, as we have done. You know, I think that's just a philosophy we have of being a little bit conservative. I think we're obviously well set up for, you know, 2023 as well with the new logos. You know, that's just a philosophy, but I think we'll continue to see good growth.
Obviously, as I mentioned earlier, I think a lot of it really is about focusing on the EBITDA dollar, and that's how we run the company. Sometimes you may grow a lot on a percentage basis, and the mix is more Performance Suites. It takes a little time to ramp. You know, you might also have a different margin percentage, but at the end of the day, we're sort of orienting, Charles, back to kind of that EBITDA dollars piece. That's how we think about it. You know, we're really happy with the results we've had on the growth side. It's, I think, validating with respect to the value proposition of the product and the big opportunity that's out there.
Not a great answer, other than, you know, we wanna keep beating the numbers, and we feel good about the future. You know, on the expansion point, resources required, et cetera, you know, it, in a good way, I think a good way, it takes a fair bit of work to expand with any given payer, even if you already have a relationship in 3 or 4 or 5 states. You gotta go do the work to convince the next states. Now you have a little bit of a halo, and you've got that kinda sister company feeling within the company that to lend support and credibility. It's probably a little easier than a net new, but it does take work, and it, you know, I think it takes work going in.
It also, I think, insulates us, if, you know, there's ever a change in leadership at a corporate level. The states, really often the regions are actually really where the power resides. It really does act and feel and look like, you know, separate incremental clients for us, which we think is a feature, a positive feature of how these national plans work. Hopefully, that answers your question.
Yeah, that's helpful, and I understand where you're coming from. Obviously, a lot of success so far. Maybe just to follow up on, similar to, you know, Anne's question about the Evolent Health Services EBITDA margins. On the Clinical Solutions side, you know, I think the previous question, right, it's kinda relatively flat as you're kinda ramping up. How should we think about the progression for the rest of the year? Is there any kind of step-up that we should see in the third quarter, or should we kinda ramp it up more linearly as we exit the year?
Hey, Charles. The quarterly dynamics for the next two quarters, I would expect, as we've been saying, Q3 to have some meaningful performance-based revenue that's recognized in the quarter. We'll likely see a step up there. Then Q4, likely a little less performance-based revenue. I think the dynamics within a time span of a couple quarters are gonna be driven by timing of that data and subsequent revenue recognition. The maturation of the new business typically is measured over a slightly longer time period. You're gonna start to see that materialize a year from now and into 2024 and so on.
Got it. If I just have one follow-up, and I apologize if someone asked this before. The lives on the platform on New Century Tech and Services, right, I think we were all modeling a shift of lives from Tech and Services to Performance Suite for the Molina lives, but obviously, we've seen a step up in both. Can you remind us what the difference here is, that was additive to both? Was it any specific ramp up, separate from what you might have called out previously?
Under the sort of headline number in the details, we did have that shift of the Molina lives from the Tech and Services bucket into the Performance Suite bucket. We also saw some nice growth in the quarter from some existing clients expanding our business with them in the Tech and Services suite.
Okay, great. Thanks a lot, guys. Congrats.
Thank you.
Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Seth Blackley for any closing remarks.
All right. Thanks for joining us this evening, and I look forward to seeing you all soon on video or out on the road.
The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.