Signify Health - Q2 2022

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to Signify Health's second quarter 2022 earnings conference call. My name is Irene, and I will be coordinating this event. If you would like to ask a question on today's call, please press star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. I would like to turn the conference over to our host, Jason Plagman, Vice President of Investor Relations. Jason, please go ahead.

Jason Plagman (VP of Investor Relations)

This morning's call is being webcast live, and a recording will be available on the Events page of our investor website at signifyhealth.com for one year. Throughout the call this morning, we will be referencing the financial tables that appeared in our press release dated August third, 2022. We will also be referencing the second quarter earnings call slide presentation we have posted on the Events page of the investor relations website. On today's call, we will discuss Signify Health's business outlook, and we will make certain forward-looking statements within the meaning of the federal securities laws. Please note the cautionary language about our forward-looking statements as presented in our earnings press release and in our quarterly report on Form 10-Q, which will be filed later today. That same language applies to this conference call.

We will also discuss certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. Reconciliations to the relevant GAAP numbers for these non-GAAP measures are included in the earnings release filed on Form 8-K yesterday and also in our Form 10-Q, which will be filed later today. Joining me on the call today are Kyle Armbrester, Chief Executive Officer, and Steve Senneff, President, Chief Financial and Administrative Officer. Kyle will provide a business overview followed by a financial review by Steve. We will have an operator-facilitated question and answer session after our prepared remarks. Now I will turn the call over to Kyle.

Kyle Armbrester (CEO)

Thank you, Jason. Good morning, everyone, and thank you for joining us. Last night, Signify Health announced another quarter of strong financial and operational results. Total revenue in the second quarter of $246 million grew 16% on a year-over-year basis, including 18% growth from home and community services or HCS, as well as strong contributions from Caravan Health. Total adjusted EBITDA was $62.6 million, which is the highest level in our company's history. As we announced in July, Signify Health has decided to focus on our fast-growing and profitable businesses, home and community services and Caravan Health. This decision will allow us to invest more in supporting the growth of our in-home services, our total cost of care enablement platform, and the needs of our health plan and provider clients.

With our clients and shareholders in mind, we are winding down our Episodes of Care Services business, including ending our participation in Bundled Payments for Care Improvement Advanced program or BPCI-A. We are confident that our HCS and Caravan businesses are well positioned for continued robust growth due to our leading capabilities in closing hard-to-reach gaps in care, including engaging people in their homes and connecting primary care providers with the actionable insights required to be successful in value-based models. We are already having success in converting BPCI-A clients to total cost of care programs, including several signed contracts in the four weeks since we moved past the BPCI-A program. Additionally, we're moving quickly to deploy our existing in-home capabilities as well as our experience managing specialty and post-acute services into our total cost of care contracts in order to drive incremental shared savings.

Client interest in these capabilities is extremely high given that home, post-acute, and specialty settings are all areas that primary care providers have historically struggled to reach. Overall, we are excited about accelerating our investments and our fast-growing businesses. Going forward, Signify will have a financial profile that is a greater mix of revenue from businesses with strong visibility and growth, higher margins, and improved free cash flows, which positions us to continue to expand and diversify our capabilities in order to help our clients be more successful in their value-based care contracts through improved outcomes for patients. In the HCS business, we continue to see strong demand for in-home evaluations, and during Q2 we completed 624,000 IHEs, which was a record for our company.

Our HCS segment is generating robust growth as our health plan clients prioritize access to the home as part of their focus on closing clinical, behavioral, and social care gaps. Clients are seeing the value in our unique capabilities, such as our ability to see patients in the home and refer them to care for pressing needs, particularly the social and behavioral needs that are crucial for improving health and that are often easier to identify and assess in the home than in traditional care settings. Our growth in the HCS business is supported by our strong execution in expanding our clinical capacity while also driving improvements in network productivity and operational efficiency. Growth in our clinical capacity has been powered by a combination of expansion of our provider network as well as increases in the average number of IHEs completed per provider, which is supported by our technology platform.

This demonstrates that we are having success recruiting providers and that providers are devoting more of their available time to our platform. Feedback from the providers in our network indicates that they value the flexibility we offer to control their own schedule. They also value our ability to keep their schedule filled and productive, which is aided by our industry-leading technology platform, our ability to reach members across the country, and the strong client relationships we have with leading health plans. Our operational execution has allowed us to continue to expand our IHE volume with new and existing clients, including national and regional health plans, and we're having a very successful selling season for incremental business in 2023.

We're also seeing momentum in extending our client relationships into additional books of business, such as Managed Medicaid and commercial plans, as our clients recognize the value of IHEs as an effective method for engaging members, identifying barriers to their health, addressing health disparities, and connecting them to the right care. These positive trends reinforce our confidence in our ability to continue to deliver robust growth in our IHE business over the coming years. In addition to our comprehensive in-home evaluations, many of our health plan partners are working with us on initiatives to connect the members we serve with primary care providers, specialists, mental health resources, and care management programs, which we call our Return to Care offering. This is something that CMS has been vocal about supporting as a key component of the IHE.

An example of one of our Return to Care initiatives is that earlier this year, we launched a program with a national payer to engage with members who may need a mammogram. Breast cancer is most commonly diagnosed among middle-aged and older women, with 70% of new cases diagnosed among women 55 and older. Based on preliminary results of our mammogram program, we had a 90% reach rate and identified that 56% of those members did not have a mammogram scheduled. We've been able to meaningfully reduce that percentage by engaging with members and assisting them with scheduling a mammogram, which will lead to earlier detection, intervention, and improved health outcomes. We also continue to expand the breadth and complexity of the services we provide in the home through our diagnostic and preventative services or DPS.

So far this year, we have made significant progress as we evaluate pilot opportunities to expand the menu of in-home diagnostic and preventative services that are available to our clients and the people we serve. For example, we are significantly expanding the availability of spirometry testing, which is used to assess respiratory health and identify conditions such as COPD that often go undiagnosed and untreated. These diagnostic tests provide significant value for health plans and members we serve through earlier identification and management of chronic conditions and support our client strategies to improve health outcomes. We believe our pipeline of additional add-on diagnostic and preventative services positions us to drive growth in revenue for IHE over the coming years, allowing us to connect to the more than 2 million members we serve with innovative, cost-effective diagnostics from the comfort of their homes.

Shifting to Caravan Health, the team has outperformed our expectations since we closed this acquisition in March. Our shared savings performance so far this year has exceeded our projections, and we believe our in-home capabilities will unlock incremental savings in 2023 and beyond. Additionally, we plan to leverage the resources and expertise we developed in managing post-acute care transitions and specialty care in the Episodes business by bringing those capabilities into our total cost of care model. For example, we plan to deploy our Transition to Home program with our ACO clients. Transition to Home is focused on building and scaling readmission reduction programs by leveraging our clinical and social care coordination capabilities to engage with at-risk patients on an inpatient discharge, including identifying and addressing social and non-medical needs.

Signify launched Transition to Home in early 2021, and during this program's first year, more than 3,000 social determinants of health gaps were identified, and nearly 55% were addressed through coordination with local providers, community-based social service organizations, and family members. Last month, we reported our findings from the first year of the Transition to Home program in a case study published in the New England Journal of Medicine Catalyst. By focusing on care plan review, facilitating access to home and community services, and reconnecting patients with their primary and specialty care providers, the Transition to Home program reduced 30-day readmissions by 14% and 90-day readmissions by 13%. This reduction in avoidable readmissions can generate significant savings for the health system and our clients since the average cost of a prevented Medicare readmission is estimated at $15,000-$17,000.

When we bring these capabilities into total cost of care models with our health system partners, we believe it will help drive material savings and better experiences for their patients. We are wrapping up a very strong selling season for new ACO clients, and we are on pace to significantly exceed our targets for growth and attributed lives as we look ahead to 2023. We are also seeing momentum in transitioning clients that are currently enrolled in the basic track of the MSSP program to the enhanced track for 2023, which allows clients and Signify to share in a greater percentage of the savings generated while also benefiting from our unique collaborative ACO model that reduces downside risk. Following the decision to exit the Episodes business, we met with our BPCI clients to discuss the roadmap for future participation in value-based care programs.

During these discussions, many of our BPCI clients expressed interest in evaluating the opportunity to join the MSSP ACO program for 2023 or 2024. Several clients have already moved into the contracting phase and are expected to add tens of thousands of lives to our attributed population in 2023, which is a testament to the value and partnership that Signify Health has created with these clients. Normally, closing shared savings contracts with health systems takes several months, but we were able to transition many of these BPCI clients to the MSSP program in a matter of weeks due to their conviction in our ability to drive savings as well as their desire to participate in stable, permanent, value-based programs such as the MSSP ACO program.

We're also seeing growing interest from large, multi-state health systems who recognize the power of our unique combination of total cost enablement capabilities, plus Signify's ability to access the home and to manage post-acute and specialty care transitions. In May, we hosted Caravan's annual client symposium. The event brought together more than 600 in-person attendees from health systems, physician practices, and other healthcare providers to discuss the future of patient care, developments in health policy, and the accountable care landscape over the last few years, and our vision for how the combined Signify and Caravan platform will help our clients succeed in total cost of care programs. Based on my discussion with Caravan clients, a few things are clear. One, Caravan's technology, including Caravan Coach, is viewed very favorably and is a true differentiator.

Two, health systems are looking for partners such as Signify to help them access the home in order to assess and manage conditions appropriately. Three, health systems also need help with managing care transitions and post-acute care. Overall, it was a very productive and inspiring event, and our team and our clients left the symposium with renewed energy and conviction in the value of bringing together the capabilities of Signify and Caravan. On the regulatory front, we believe the recently released 2023 Physician Fee Schedule proposed rule is indicative of CMS's intention to incentivize participation in value-based care through the MSSP structure. There are a number of provisions in the proposed rule that will encourage the creation of new ACOs, including advanced incentive payments for inexperienced ACOs serving rural and underserved communities to invest in technology platforms and care redesign.

For existing ACO participants, revisions to the benchmarking methodology are expected to reduce the rationing effect of an ACO's historical savings performance on their future benchmarks, which should encourage high-performing participants to stay in the program. Overall, we view the proposed changes as a positive development for Signify and our clients and as a sign that CMS views ACOs as the primary vehicle to achieve their goal of having all Medicare fee-for-service beneficiaries in an accountable care relationship by 2030. I'm also excited to report that Signify continues to attract leading talent to our organization. In July, Paymon Farazi joined as Chief Product Officer. Paymon has more than two decades of experience leading product strategy for healthcare and technology companies, including serving as the Chief Product Officer at OptumInsight.

Paymon's deep experience in healthcare payments and technology will be valuable as we expand our portfolio of services to help our clients improve quality and outcomes for the people they serve. We've also expanded our footprint by opening new offices in Oklahoma City and Ireland. The Oklahoma City office is our third regional service center and will be home to several hundred employees with a focus on member engagement and Return to Care coordination services. Our office in Galway, Ireland, is a technology center and provides access to a market with significant software development and engineering talent. During the second quarter, Michelle Concannon joined Signify Health as the SVP of Engineering based out of Ireland. Michelle joined us from Microsoft and previously held senior roles at Optum and Cisco.

As you can probably tell, I'm extremely excited about the team we've built at Signify and the momentum we see in our business. Overall, I have never felt better about the strategy and growth trajectory of the organization and our ability to continue to scale our services to help patients have better healthcare experiences. I'll now turn it over to Steve to discuss our financial results.

Steven Senneff (President, CFO, and Administrative Officer)

Thank you, Kyle. Good morning, everyone. Signify had another strong quarter in Q2, reflecting our success in growing the business while delivering significant value to our clients and individuals. During my comments, I will refer to the tables that appear in the earnings press release issued yesterday, as well as the earnings presentation posted on the events page of our investor relations website. As shown in Table 1, we had total revenue of $246 million in the second quarter, which was up 16% compared to the year ago quarter. The increase was primarily driven by HCS revenue growth of 18% year-over-year to $208 million. This was another record high for the company. Total evaluation volume for the second quarter was approximately 624,000.

Virtual evaluations represented 15% of our total evaluations during the second quarter, which was up from 9% in the year ago period. On a monthly basis, we saw a steep increase in the percentage of virtual evaluations in April, which we attribute to the spike in COVID-19 cases associated with the Omicron variant around that time. Our mix of virtual visits in May and June returned to more normalized levels. Given the continued strong demand from clients for IHEs, we are increasing our outlook for overall IHE volume in 2022 to a range of $2.42 million-$2.45 million. We expect the increase in volume will offset the slightly higher percentage of virtual visits that we have been experiencing. HCS revenue in Q2 grew 3% to $39 million.

Caravan contributed $16.6 million of revenue in the second quarter, which was ahead of our expectations due to evidence of a better-than-expected savings rate in our total cost of care programs and an upward revision of our shared savings revenue estimate that provided the benefit of a true-up in the quarter of approximately $3 million, which is not expected to reoccur in Q3 or Q4. For the Episodes business that we are winding down, revenue in the second quarter declined sequentially, primarily due to smaller BPCI program size. As a reminder, our reported Episodes revenue is based on our estimates as we await CMS's response to our objections to the most recent BPCI reconciliation. Additionally, we are in the process of evaluating our segment reporting going forward, given the changes in our business.

Moving to table four, total company adjusted EBITDA for the second quarter was $62.6 million and grew 15% compared to the year-ago period. Adjusted EBITDA for the HCS segment of $65.2 million grew 17% year-over-year. ECS adjusted EBITDA in the second quarter was -$2.6 million, compared to -$1.2 million in prior year's quarter. Caravan contributed significant positive adjusted EBITDA in Q2, although this was more than offset by negative adjusted EBITDA from the Episodes business. Back to table one. Net loss for the second quarter was $490 million, which includes a $520 million loss on impairment of goodwill and intangible assets related to the wind down of the Episodes business.

As shown in Table 2, our balance sheet remains strong, and we ended the quarter with $439 million of cash and equivalents. Total debt outstanding at the end of Q2 was $338 million, and Signify remains in a negative net leverage position since our cash exceeds our debt levels. Operating cash flow for the second quarter was -$3 million, compared to -$21 million in the year ago quarter. Our days sales outstanding, or DSO, for the HCS segment improved by 9 days in Q2 compared to Q1. We expect operating cash flow to continue to improve in Q3, driven by continued sequential improvement in DSOs for the HCS business.

I'd also note that our cash flow in the second half of the year will be impacted by one-time cash costs related to our exit from the Episodes business, such as severance and contract termination costs. Our updated outlook for full year 2022 is as follows: HCS revenue in the range of $800 million-$810 million. Caravan revenue in the range of $45 million-$48 million for the ten-month period following the acquisition on March 1. Adjusted EBITDA margin for HCS and Caravan combined of approximately 29%-30%, which is before shared costs that are currently allocated to ECS.

Of the approximately $60 million of annualized shared costs that are currently allocated to the ECS segment, we continue to expect to be able to eliminate approximately $30-$35 million in annualized expenses by the end of 2022. We aren't providing guidance for the Episodes business, given the significant number of moving parts related to the wind down of our Episodes business and our pending objection with CMS. Regarding the Episodes business, we were recently notified that CMS declined our request to waive the 90-day termination notice period for our exit from the BPCI program. As a result, our participation in the program will continue through the fourth quarter, and the majority of our expected expense reductions will occur in Q4 as we wind down the business.

As far as sequential trends, we expect HCS volume and revenue in the third quarter to be flat to down slightly compared to the second quarter, which is consistent with last year. We also anticipate the percentage mix of virtual visits to in-home visits to increase in Q4, similar to what we saw in the fourth quarter last year. Overall, our HCS and Caravan businesses have significant momentum heading into the second half of the year in 2023, and we're excited about our go-forward financial profile, including improved revenue, visibility and growth, stronger margins, and improved free cash flows. Now I'd like to turn the call back to Kyle for closing remarks.

Kyle Armbrester (CEO)

Thanks, Steve. Signify's aim is to give providers, payers, and the people they serve the data, tools, and support needed to achieve the best possible health outcomes and to do so in a cost-effective manner. As an organization, we are pleased with our results for the first six months of the year and excited about our strong growth outlook for the second half of 2022 and beyond. We remain focused on the opportunity in front of us to positively impact a fragmented healthcare system in partnership with risk-bearing providers and payers to give patients better options for maintaining and improving their health. Regarding recent media reports focused on potential M&A, we do not comment on market speculation, and we will not answer questions on this topic during the Q&A session. I will now turn it over to the operator to take your questions. Operator?

Operator (participant)

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star then one on your telephone keypad. If you wish to withdraw your question, please press star followed by the number two. When preparing to ask a question, please ensure your phone is unmuted locally. Our first question comes from Jessica Tassan from Piper Sandler. Jessica, over to you.

Jessica Tassan (Senior Equity Research Analyst)

Hi. Thanks so much for taking the questions. Good morning. I think kind of more recently we've come to appreciate that IHEs and annual wellness exams both have a place in the course of care for an MA member. Can you just discuss exactly why that's the case, why there's room for both, and then just the extent to which that view is actually resonating with your health plan customers? Thanks.

Kyle Armbrester (CEO)

Jess, we are thrilled to see your note about your experience with your grandmother. It literally made the rounds all over the office here, so it was actually really cool. A bunch of employees are trying to do secret shopper now too. I've got a woman, Annie, on my team wants to go in and see her grandma get an IHE done now too, so we're going to. Everybody's going to be doing this.

Jessica Tassan (Senior Equity Research Analyst)

Funny.

Kyle Armbrester (CEO)

You've kicked off a trend. Yeah.

Jessica Tassan (Senior Equity Research Analyst)

Very cool.

Kyle Armbrester (CEO)

AWV is a separate reimbursed billable thing. But it's very much focused on, you know, a quick check-in annual wellness visit. They predominantly happen in provider offices, obviously, and they're pretty quick in duration, but they're designed and their purpose was to try to draw folks back into care. Now we know that doesn't happen all the time, you know, what we do is totally different than that. We're annual wellness visit compliant, but when we go in, as you saw, it's an hour-long, very comprehensive exam. We're explaining the senior's medication, walking them through, you know, a chronic condition they might have, helping them to understand, you know, why they need to go see a specialist, and then booking a lot of that care, follow-up care for them.

It's a totally different and more comprehensive activation point, being in the comfort of the home with them, and it's why we've continued to see this, you know, free service that the Medicare Advantage plans provide for their members, you know, the demand for it continue to rise. I would also say, we've been excited to see, as the Medicare Advantage plans realize the benefit of this and see the satisfaction that this drives during very intense, you know, recruiting periods for Medicare Advantage. Many of them are carving in our visits, our IHEs into member benefits and actually advertising them, you know, very directly as they're talking to group accounts or even their individual brokers.

I think the biggest testament to it all, Jess, is you know, that 80% year-over-year, you know, re-engagement rate where we're going to see the same person time and time again because they, like your grandma saw, get to see a lot of the benefit and understand that we're there to help them, you know, understand their conditions, explain those to them, and connect them back to care more than anything.

Jessica Tassan (Senior Equity Research Analyst)

That's really helpful. Maybe just a quick follow-up would be, can you help us understand where completion rates are today, how they've trended pre versus post COVID, and where you think they have the potential to go? Thanks again.

Kyle Armbrester (CEO)

Yeah, absolutely. Completion rates today are, as you saw, we issued an all-time high quarter, the number of homes we've gotten into, and so we're doing great on the completion rates front. I would say two things are continuing to happen. We're seeing conversion, which is just, you know, the number of attempts that we do to outreach somebody via email, SMS, phone, mail, et cetera, and then the actual completed visit going up. Our doctors are bringing us more capacity and nurses are bringing us more capacity than ever.

I mean, they're showing up and realizing that, you know, Signify gives them an opportunity to get paid more with less administrative burden and offers them a flexible schedule, daily and even, you know, week to week if they decide they wanna work in a different state or travel around, you know, six months of the year. We offer that flexibility, which I think many of them have come to enjoy even more so in this, you know, whatever phase of the pandemic, you know, we're in now. It's both conversion and capacity, and that's the driver behind, I should say, our continued success.

Jessica Tassan (Senior Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from George Hill from Deutsche Bank. George, your line is open.

George Hill (Managing Director and Equity Research Analyst)

Yeah. Good morning, guys. Thanks for taking the question. And Kyle, it's going to be hard to top the energy from that last answer. I guess, so I'll start with Steve. When we talk about the declining revenue per visit, you talked about the impact of virtual. Can you also talk about whether or not there was an impact from client mix as we think about the first half of the year? And I know that we've discussed in the past kinda like who the company is focused on servicing in the first half of the year from an MCO perspective. I'm just wondering if client mix also had an impact on the revenue per visit.

Steven Senneff (President, CFO, and Administrative Officer)

Well, yeah, George, absolutely. It's something that I've said a few times that this year don't expect a lot from the revenue per IHE. It's going to be slightly down. Don't read too much into it because if you look at it by, you know, when we look at it like for like across our client base, it's moving up. It's just a matter of the mix piece is driving it down. We'll see 2023 that start to go back up as we normalize. This year it's really just mix, a little bit of the virtual in the first half, and then, you know, when we do that virtual, obviously there's less connected devices as well. Put those three together, but by far the biggest one is mix.

George Hill (Managing Director and Equity Research Analyst)

Well, that's helpful. Then I guess as a follow-up, I guess, can you talk about the slope of getting to the stranded costs? You know, there's $60 million now. I guess the target is to turn $60 million to $25 million. I guess, so how should we think about the slope, and is there any chance as we think about 2023 and beyond just to try to take the $25 million number lower?

Steven Senneff (President, CFO, and Administrative Officer)

Yeah. Look, we think, you know, we started with the $60 million. We've spent a lot of time over the last few weeks, you know, identifying exactly where all that's going to come from. The slope's really going to be, you know, given the notice warning and everything that we've given to employees, will be Q4 focused. We'll start to see a little bit of wind down in Q3, but the majority of it will happen in Q4 with our exit run rate being in that, you know, $25 million-$30 million heading into 2023. As far as going farther, you know, look, there's always opportunities for us to find efficiencies, but right now we're comfortable with that $25 million-$30 million.

George Hill (Managing Director and Equity Research Analyst)

Okay. I guess, Kyle, I'll hit you with one thematic question, which is just as we see more and more MA patients heading into value-based care programs that are led by provider organizations, I guess, how do you expect that to impact the home versus office IHE mix? Is there an opportunity to market to these provider organizations given that we know that there's room in the model for both the IHE plus the wellness exam?

Kyle Armbrester (CEO)

Yeah, absolutely. I mean, we call them payviders and we have several of them as clients. Without a doubt, I mean, the plans and the providers, everyone understands that there's just a really unique set of data and access you get from the home. That's why our clients are always pushing for more in-home presence versus virtual. It's just a way better experience. I think the providers too see us because of our nationwide reach and scale and the ability to hit every county in the U.S. We're bringing them something that they could not scale easily on their own in a cost-effective way, and we're driving all that volume back into them, right? It's super important to remember, we never compete with these provider organizations. We don't bill. We don't do procedures.

We're all just doing, you know, gaps in care closures and quality work, condition identification, and then driving folks back in a really directed way with a ton of information. You know, we send all of that medical information, clinical and social information, behavioral information back to those providers. We're giving them a leg up to better manage risk in this contract. In fact, just to really put an emphasis on it, this is exactly what we're planning on doing with the Caravan Health, right? They're in these ACO arrangements. We're going to take our in-home services to those folks in those ACOs, and they'll make sure that they're going to see their specialists, that they're going to get rehabilitations under their meds are on track. If they have a bunch of social issues, they're helping to close those gaps for them.

I mean, it's a great program and a platform to be able to run across all of Medicare now, and that's why we couldn't be more excited. The CMS moved risk adjustment and HCC into the ACO book, and then we've got this nationwide platform to really make it work for all Medicare beneficiaries.

George Hill (Managing Director and Equity Research Analyst)

That's helpful. Thank you.

Kyle Armbrester (CEO)

Yes. Thanks, George.

Operator (participant)

Thank you. Our next question comes from Michael Cherny from Bank of America. Michael, your line is open.

Michael Cherny (Managing Director and Healthcare Technology and Distribution Analyst)

Good morning. Congratulations on a really nice quarter. Maybe to take George's question but in a little different vein, obviously you had a pretty meaningful extension expansion earlier this year with one of your largest clients. Can you give us a sense on whether you're seeing any changes or any behavioral dynamics on the broader and deeper partnership and how that's factoring into your IHE volume?

Kyle Armbrester (CEO)

Yeah, I would say, we've seen pretty good expansion across all of our national plans this year, and deeper engagement with each of them. I mean, they've really been focused with us on conversion in particular and how can we get and see and activate more and more of their members, and they're moving us into new populations. Steve has long talked about Managed Medicaid has just turned into a, you know, double-digit million business for us, you know, over the last two years when it was effectively, you know, zero when I showed up in at Signify five years ago. It's new populations, and it's getting deeper into the existing populations. I would also say that, we've gotten increasingly better at co-marketing and co-branding with group accounts and other folks inside the plans.

We're seeing, you know, with like a big group retiree account, us getting involved more during the bidding and governance process, you know, with their plan clients. It's been a really nice synergy of deeper engagement and deeper member touch points that's really resonated. I would also say we're seeing a lot of gains from our multimodal member engagement platform. We're seeing a real uptick in self-scheduling, email, SMS engagement from seniors. You know, helping to meet them where they are and allowing them real flexibility to book and reschedule and cancel and rebook an appointment, all of that is just getting tighter, you know, each and every quarter as our technology teams continue to deliver a lot of this automation and more innovative engagement points.

I do think, you know, the plans are viewing us as a, you know, we are physically in their members' homes, you know, almost 2.5 million of them this year all across the country. They see that as a real activation point where we've gained the trust and the license to be there, and we're sending in a, you know, a medical professional with a master's degree, so someone who's really working at the top of their license, and they're asking us to do more.

While we've been very focused for the last five years on just going from, you know, almost 250,000 to 2.5 million homes almost this year, you know, we're really focused now on expanding and doing more inside of those homes and making sure that we're helping to manage conditions, returning folks back to care. It's really exciting. The stories that come out of it, and the impact that we're having in these individuals' lives, it's really exciting, really invigorating for our providers and for the employees here at Signify.

Michael Cherny (Managing Director and Healthcare Technology and Distribution Analyst)

Got it, Kyle. If I could ask just one more. You referenced the idea to evaluate M&A. Obviously a lot going on on the one hand with the wind down of ECS, yet at the same time, Caravan out of the box appears to be outpacing your expectations on a pretty nice clip. How do you feel the organization as a whole is positioned in the event that M&A comes down the pipeline? Or is this just more to think about this as opportunistic in the event that you do find something that fits? Is it more of an active or a passive approach towards the potential for further deals?

Kyle Armbrester (CEO)

For us to do M&A, you mean?

Michael Cherny (Managing Director and Healthcare Technology and Distribution Analyst)

Correct. Yes. Sorry.

Kyle Armbrester (CEO)

Yeah, no problem. We've got a good pipeline of organizations and companies that we're engaged with. I mean, I think our focus always is on tuck-in acquisitions or ones that have out of the gate synergies. Caravan was that case. I think what we're really excited about Caravan is we landed integration materially in 3 months, and I think that's a testament to the team that we've, you know, built out here and the amount of rigor that we pulled in to really having a good capability set to manage an M&A integration tightly. Keep in mind, Michael, we ran that integration as we were, you know, forced frankly to wind down the BPCI program. We were doing a lot of activity.

I couldn't be more proud of the team here and all the hard work that they did. I mean, it was a lot of, you know, long, focused, you know, evenings getting all of that pulled together, but you know, the results speak for themselves. Caravan's just been a smashing success, and I think that more than anything it's given us energy and conviction that more tuck-in acquisitions like that in the future is something that we, you know, without a doubt are in the right to do and we'll continue to succeed and execute on as we pull them through.

Michael Cherny (Managing Director and Healthcare Technology and Distribution Analyst)

Awesome. Thank you.

Kyle Armbrester (CEO)

Yeah. Great questions. I'm always impressed you get your research note out in 30 minutes too. It's unbelievable.

Operator (participant)

Thank you. Our next question comes from Sandy Draper from Guggenheim. Sandy, your line is open.

Sandy Draper (Senior Managing Director and Research Analyst)

Thanks so much. I'm not sure my questions are going to be quite as pointed as Michael's. My question is probably for Steve. On the cash flow side, I apologize I had to jump on the call late. I don't think you covered it, but it was better in the second quarter but still tracking below last year. Any commentary there? Then I know you don't break it out, but when we think about the cash flow impact of the BPCI business versus the other, how much of a drag is that the issue? Can you mitigate that in the back half of the year as you're winding down the business?

Can you do things to sort of impact or slow down any negative cash flow so you're not burning cash if you are in a business you're trying to exit?

Steven Senneff (President, CFO, and Administrative Officer)

Yeah, good question, Sandy. Let me go through. So as you mentioned, you know, cash flow improved over Q1, it improved over last year. HCS incredible growth is driving higher AR. Our DSOs improved by nine days, but we'll continue to see that improve in the second half. I'd mentioned earlier that one of the challenges we had is we had a couple health plans with system changes. The majority of that's resolved. We had big cash collections in July, and so we'll continue to see our cash collections improve in the back half of this year. So that sets us up. Then to the second part of your question on ECS, absolutely. You know, we've probably got a burn rate around $10 million on the ECS business that we'll primarily hit in Q3.

Look, we've got a lot of obligations we still have to fulfill for the program, but starting October, we'll see that dramatically come down. You know, your part about managing the two pieces that we'll be managing, and you'll see the big drop off and the burn rate come down dramatically will be on the stranded costs and the ECS direct costs, and that will be winding down. We should be in a place by, you know, end of year where we're down to our projected stranded costs going into 2023. You'll see with the business that we have remaining, you know, the HCS business, we'll get those DSOs in the right place. 2023 will be, you know, a return to very strong cash collections.

Sandy Draper (Senior Managing Director and Research Analyst)

Okay, that's helpful. Then just one, and you may have touched on it at the end of that, but I wanted to make sure I'm clear. You're planning to wind down the majority of it in the fourth quarter, but just from an accounting perspective, is there any residual spillover? So there may be either some liabilities or assets on the balance sheet at the beginning of 2023 and maybe some revenue that trickles in? Or basically, is this something that on December thirty-first you shut everything down and the new year comes and you're not under any obligations, and so it's just completely clean? Or is there sort of a de minimis but still somewhat of a trickle effect of maybe some revenues or expenses that spill into the first quarter?

Steven Senneff (President, CFO, and Administrative Officer)

There's likely to be some that spills into 2023. It'll be de minimis. We believe that we'll be able to qualify for discontinued ops in Q4 because we'll have the majority of it shut down. That way it will just be a one-line item where you can really highlight what's going through there. It should be minimal amount in 2023.

Sandy Draper (Senior Managing Director and Research Analyst)

Okay, perfect. By the fourth quarter you can go discontinued ops, and then heading into 2023, anything that's there will just show up down there, and we'll have a clean income statement.

Steven Senneff (President, CFO, and Administrative Officer)

Exactly.

Sandy Draper (Senior Managing Director and Research Analyst)

Great. Thanks so much. Those were my questions.

Steven Senneff (President, CFO, and Administrative Officer)

Thanks, Sandy.

Operator (participant)

Thank you. Our next question comes from Cindy Motz from Goldman Sachs. Cindy, your line is open.

Cindy Motz (VP of Equity Research)

Great. Thanks for taking my questions. Yeah, and I've just Sandy cleared up the housekeeping question I had. We start 2023 kind of fresh. Can you give any guidance in terms of revenue growth or EBITDA growth? Because you know, anything that you see, because it really looks like when we look at the macro picture here, you're not being impacted. In fact, your momentum's picking up. I mean, just from, you know, Kyle's comments and everything. You know, we get a lot of questions on the macro front, but for you guys it actually seems, you know, like, you know, if we do go into a downturn, if we are in a downturn, you're actually pretty recession resistant. Would you agree with that?

Just any color you can give either on the growth rates or, you know, the macro comments. Thanks.

Steven Senneff (President, CFO, and Administrative Officer)

Yeah. Sure, Cindy. Yeah, you're exactly right. Like, if you look at our back half of the year, we're expecting that our growth rates are going to accelerate. We're projecting HCS is going to be in the mid-20s to high 20s growth rate compared to, you know, 20% in the first half. You add on Caravan and then, you know, on the upside case, the total of those two combined could be approaching 30%, total growth. That's really encouraging. We're seeing a ton of demand. I mentioned Q2, Q3, you know, it's usually a toss-up every year which one's going to be a little bit stronger. We think this year Q2 will be.

What's interesting is we have so much demand. We think we're going to buck some of the seasonality that we've historically said about a big drop off in Q4, which is an indication that we're able to be recession-proof through all of this and continue to see that demand. Q4 should be another big quarter for us, and we'll round out the year with some really nice growth rates. Caravan is, as Kyle mentioned, beating all expectations, and so they're going to have another great second half. We're not ready to provide guidance for 2023, but with the growth momentum we have in the back half with HCS and Caravan, we have a lot of momentum heading into 2023.

Cindy Motz (VP of Equity Research)

Right. Just on Caravan, because originally I thought, yeah, the margins there were going to be about EBITDA margins about 25%. Now you're saying, you know, it actually, I guess, the combined with HCS, I mean, in next year, we can expect 29%-30% for the entire thing? Because that would imply a definitely a pickup from what you had said with Caravan before.

Steven Senneff (President, CFO, and Administrative Officer)

Yeah. We're going forward, we'll just do those two combined. There's obviously a blended rate that's in the HCS and Caravan. But like I have said previously, we do expect that Caravan margin will grow over time. We're starting to see that just in what they've been able to do in the first half.

Cindy Motz (VP of Equity Research)

That's great. Congratulations. Thanks. Appreciate the color.

Operator (participant)

Thank you. Our next question comes from Sean Dodge from RBC Capital Markets. Sean, your line is open.

Sean Dodge (Healthcare Equity Research Analyst)

Yeah, thanks. Morning. Maybe on Caravan, Kyle, you mentioned clients transitioning from the basic track to the advanced ones. Can you give us a sense of what proportion of lives there right now are in basic and how big that shift to advanced could or should be next year? And then you mentioned the economic benefits of that to Signify when that happens. Maybe if you could just help quantify that for us. What's the potential multiplier effect that has on revenue when you can get clients to make the shift into two-sided risk?

Kyle Armbrester (CEO)

Yeah. I'll talk about the strategy kind of component and the market dynamics, and you can go over the specifics over the you know, shift amounts. You know, basic and enhanced, same clients, same you know, Medicare beneficiaries, same workflows, same everything. What they're getting, conviction, and the big change, as you mentioned, is it moves from downside protection in basic, there's no downside risk, to two-sided risk, where there is downside. They have you know, consistently seen the outperformance and overperformance of the Caravan team. Now with the expanded Signify services, the in-home work we do, the post-acute work we do, and all the additional investment we're putting in to those clients into that Caravan Coach, they feel more conviction than ever that it's the right time to move over into the enhanced program.

The punchline on enhanced: the government gives you a bigger chunk of the savings because you're taking that downside exposure. It is just straight, you know, profit to ourselves and to our clients, all that shared savings by moving into it. It's been a big, you know, win for us. Our clients are excited about it. It's frankly given us the ability to go out and, you know, we've mentioned in the call to go out and overperform a lot of our sales forecasts that we had this year. We're in a really good spot, and many of them are signing up out of the gate into the enhanced track because they see our story, see our historic results. It's been something we've really enjoyed.

We've also been excited to see larger health systems, you know, coming around and signing contracts with us as well. We're moving upmarket too with the solution set. I'll just let Steve cover the, you know, financial transition specifics.

Steven Senneff (President, CFO, and Administrative Officer)

Yeah, Sean, there's a nice multiplier just moving, even if you keep the same savings rate. In the basic program, you know, roughly 40% goes into the ACO pool, and we would share with our partners in that. CMS would keep the other 60%. When you move to enhanced, it accelerates to 75% goes to the ACO pool. Even if you have the same savings rate, you're going from a 40% savings of the pool to 75%. It's a really nice multiplier. As Kyle said, because of the confidence, you know, this year, a little over half of our clients has moved into the enhanced, and we think next year, based on our selling process that's wrapping up this week, that number's going to go even higher.

We're really excited about how that's going to be a multiplier on our revenue growth as we go forward.

Sean Dodge (Healthcare Equity Research Analyst)

Okay. The instances you mentioned where you've been able to convert BPCI program partners into total cost of care, when those clients are doing that, are they typically entering the basic track or because they're a little bit more versed in taking risk, are they going straight into the advanced ones?

Kyle Armbrester (CEO)

Yeah, it's enhanced to be clear. Yeah, they're going more into the enhanced track. I mean, it is a testament to the trust and relationship that we have with them, and we help, you know, them in several weeks manage the, you know, starting to wind down a BPCI program. We'll contract and then move, you know, into a full ACO MSSP program with their Medicare lives. I mean, those sales cycles never take weeks, right? I mean, since my time at athenahealth has been selling into hospitals and health systems, they're multi-month, you know, long sales processes. We're excited to see that, and it's going to be a big source of additional pipeline growth for us next year.

We're adding tens of thousands of lives from that BPCI program this year that'll be live in calendar year 2023. We're very excited by that. They're to your point, going in with more conviction into the enhanced track and realize that we're going to be able to shield them from that downside risk. They're comfortable with downside risk because they obviously had that in BPCI-A in the past.

Sean Dodge (Healthcare Equity Research Analyst)

Okay. Great. Thanks again.

Kyle Armbrester (CEO)

Yep. Appreciate you picking up coverage.

Operator (participant)

Thank you. Currently, we have no further questions. Therefore, ladies and gentlemen, this concludes today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your-