Signify Health Inc (SGFY) 2021 Q1 法說會逐字稿

Ladies and gentlemen, a warm welcome to the Signify Health First Quarter 2021 Earnings Conference Call. My name is Eliza, and I'll be the operator for today's call. (Operator Instructions)

I will now hand over to your host, Jennifer DiBerardino, Head of Investor Relations. Jennifer, please go ahead.

Good morning, and welcome to Signify Health's First Quarter 2021 Earnings Conference Call. This call is being webcast live, and a recording will be available on the Events page of our investor website at signifyhealth.com through July 12, 2021. Throughout the call this morning, we will be referencing the financial tables that appeared in our press release dated May 11, 2021.

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 cautionary 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.

We intend to participate in industry or sell-side sponsored conferences. In lieu of issuing a press release to announce each conference, we will be posting our conference attendance on the Events page calendar of our Investor Relations site at signifyhealth.com. I encourage you to register for alerts on the investor site so that you can receive an email notification each time we add a conference, other events or any other updates to the Investor Relations calendar.

Joining me on the call today are Kyle Armbrester, Chief Executive Officer; and Steve Senneff, President, Chief Financial and Administrative Officer. The format we will follow for today's call is a business overview from Kyle, 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.

Thank you, Jennifer. Good morning, and thank you for joining us. Team Signify has continued to drive significantly better outcomes for individuals across the continuum of care, while supporting customers with our value-based payment platform. Our first quarter performance reflects the hard work and investments we have made to generate results.

Yesterday evening, we announced our very strong first quarter 2021 financial results, driven by significant positive momentum in our Home and Community Services segment and solid execution against our corporate strategy. We grew our overall top line in the quarter by 37% to $180 million and delivered $34.4 million of adjusted EBITDA, an increase of 58% from a year ago with a corresponding adjusted EBITDA margin of 19.1%. We are off to a great start in 2021 with 2 highly complementary segments, each an industry leader for their respective services.

At the core of what we do is twofold: one, we improve patient outcomes by sending clinicians into patients' homes to better assess their needs and provide decision support as they navigate the health care system to have more happy, healthy days at home; and two, we reduce costs for insurers, employers and health systems by deploying our data, analytics, software and contracted networks of health care providers. Our Home and Community Services segment derives the majority of its revenue from Medicare Advantage and managed Medicaid health plans, who are our customers. These health plans run on our nationwide network of over 9,000 clinicians to reach their enrolled members in their homes. These clinicians are supported by our member engagement teams in our logistical software to conduct comprehensive in-home evaluations, which we also refer to as IHEs.

These evaluations are extremely valuable to our health plan clients. They paint the full picture of the health status and needs of health plan members, identifying patient health care needs, enables us to connect these members to specific health care providers. These in-home evaluations also ensure that our members' underlying health status is complete and accurate, which helps our customers ensure they are appropriately compensated for the risk they assume and are providing appropriate services to the members they manage. A significant outcome is about 90% of individuals who had an in-home health evaluation in 2019 had a follow-up with their primary care physician or specialist.

Key success factors of our Home and Community Services segment include how much of the health plan's customer's membership we can assess in the breadth of diagnostic and preventative services that can be delivered in the member's home. In 2020, we performed 1.4 million IHEs, including about 500,000 virtually during the height of the pandemic. We performed more than 460,000 evaluations in the first quarter of 2021. The majority of our customers are providing us with their full member list, and we are using our extensive data, consumer engagement investments and analytics to drive stronger conversion to evaluations. We also offer multiple diagnostic tests through our connected device hub and we continue to add new tests to the portfolio. Finally, we provide social needs assessments and provide access to social services through a network of about 200 community-based organizations and delegated social workers.

For the entire organization, we invest about $100 million per year across technology and analytics. Our ability to scale quickly to address a changing environment during the COVID-19 pandemic early in 2020 reinforce the value of our model to our customers. As our volume increases, member density also increases, which allows us to deliver our services more efficiently and effectively than our customers could ever do themselves.

Our Episodes of Care Services segment provides a comprehensive platform that serves government programs, health plans, employers and health care providers. We deliver software, analytics and clinical and operational services as well as develop contracted provider networks to help these organizations in their value-based payment programs. Our Episode Services are critically important to the financial and operational success of the customers we serve and more importantly, significantly improve patient outcomes. Our Episode payment platform is offered as a comprehensive source solution for these large organizations.

Key success factors for this segment are how much medical spend or program size is captured in our bundled payment contracts and the savings rate generated. In 2020, we had $5.2 billion of weighted average program size and a 7.3% savings rate. These savings are then shared with both payers and providers. Our pre-COVID 2019 program size was about $6.1 billion, and we anticipate returning to a similar run rate as we exit 2021, which assumes the COVID-19 impact subsides.

Our 2 businesses are highly complementary as we sit between payers and providers to help our customers measure, understand and manage risk. Both segments serve health plans, which enables cross-selling to existing customers. Our Episode segment also serves large health systems and physician groups who increasingly assume risk and value-based payment programs, and therefore, need the capabilities of our Home and Community Services segment. Our consumer engagement and assessment capabilities in our HCS segment are being leveraged to improve the performance of our Episodes of Care program through higher shared savings and better patient outcomes. We also have the ability to apply social and community services originating in our HCS business to our Episodes of Care business.

These resources facilitate the transition home with a network of approximately 200 community-based organizations and delegated social worker teams. We call this service transition to home, and it is gaining strong traction with 20 hospital systems participating as the majority of patients offered the services are opting in for the service.

Increasingly, we're seeing our customers contract for multiple services across both segments, with Cambia regions as a prime example. Cambia regions, a regional health plan in the Pacific Northwest, is a customer who signed on for our in-home evaluations in 2018. In 2019, they expanded with us to perform in-home diagnostic services. In 2020, they became a commercial Episodes of Care client, with episodes in their Medicare advantage and commercial books of business. Now, in conjunction with an in-home assessment, when our clinician identifies a Cambia member who has a condition or an injury, we can potentially avoid an emergency visit to the hospital and provider partners can direct care to a subacute facility to provide quality care and get the patient back to their home to recover with services as soon as practical. We expect to continue to see more customers move up the value chain with us as they take advantage of the synergies in our 2 segments.

Those synergies increase as we continue to grow our commercial episodes of care business. We can now leverage our capabilities to build networks and utilize existing networks to expand value-based payment opportunities for employers and plans. We are able to move beyond procedure-based episodes to address conditions which drive significant costs for self-insured employers, such as maternity, oncology or substance abuse. We are also currently in the process of building out deep provider networks in 3 geographic regions to support our new commercial ECS clients. This is a top focus for the team as we scale our provider recruiting efforts in stackable markets alongside our current customers to facilitate growth. In the first quarter, we hired a Senior Vice President of Network Development, whose sole responsibility will be breaking down barriers and accelerating our provider recruitment efforts across current and future risk-bearing entities.

The total addressable market for our platform is substantial and growing. In-home evaluations could productively be applied to all commercial or government insurance programs. Episode programs are proving to be successful for health plans, governments and employers. Our long-term vision is to drive positive outcomes for our partners as their platform for value-based care. We simplify highly complex payment programs and enable health plans and health systems to successfully transition to value-based payments. We may supplement our strong capabilities with acquisitions or partnerships with other companies to add further functionality and innovation to our platform to drive increased value for our customers.

Before handing the call over to Steve, I'd also like to address a few common questions we received from our investors. First, our Home and Community Services segment is not a home health agency or a home care agency. We've observed some confusion on this point. Our network is made up of highly credentialed physicians, nurse practitioners and physician's assistants who go into the homes of health plan members where they perform a comprehensive clinical evaluation, full medication review, diagnostic tests, pharmaceutical assessments and also support clinical trials in the home. CMS rules require that highly credential providers such as those in our network perform these in-home evaluations. Our assessments may identify the need for a home health agency or a home care agency, but that is not a role we seek to fill. These agencies are key partners of ours that have a completely different role to play in the care continuum.

Second, based on statements from CMS, we believe that bundled payments will become mandatory, which would move more spending into bundled payments and create a significant growth opportunity for Signify Health. CMS is also rolling out other innovative programs such as direct contracting, which we are well positioned to serve.

I will now turn the call over to Steve to walk you through the first quarter financial results.

Thank you, Kyle, and good morning, everyone. I'm very excited to walk you through our strong first quarter results. I will be referring to the tables that appeared in the earnings press release issued yesterday.

As you can see in Table 1, we had strong total revenue growth in the quarter of 37% to $180 million when compared to the same period last year. A reminder that revenue is net of a reduction relating to equity appreciation rights, or EARs, in our Home and Community Services segment. In the first quarter, the impact of EARs was $4.9 million, and for the full year will be $19.7 million.

Revenue strength in the quarter was primarily driven by HCS growth of 48%, which reflects the strong momentum of IHE volume coming into 2021. Evaluations are trending strongly back to being performed in the home. We anticipate continuing to perform some level of virtual evaluations as part of our ongoing service offerings, but the strong customer preference is to do them in the home.

Total evaluation volume for the first quarter was approximately 462,000, including virtual evaluations, compared to 303,000 in the first quarter of 2020. In response to investor request to provide a more detailed number of IHEs for the full year 2020, total IHE volume was 1.435 million in 2020 and our 2021 guidance is for 1.7 million to 1.75 million evaluations.

Diagnostic and preventative testing continues to contribute to HCS revenue growth. As we grow our pipeline of new testing devices, we believe these services will be a larger contributor to HCS revenue in the future.

As I mentioned on our year-end earnings call in March, our expectations are that HCS revenue growth will continue to be strong in 2021 and overall revenue will also follow a more typical seasonality pattern after a COVID-distorted 2020 where our cost utilization is better spread out across the year. We expect the seasonality trend to be a higher first half for IHE volume compared to the second half of the year, with the fourth quarter projected to be our lowest quarter of the year.

Still on Table 1, ECS revenue was 3% lower in the quarter to $27.6 million, which was within our expectations as ECS revenue will continue to reflect the lagged effect of COVID-19. As a reminder, in the BPCI-A program, we recognize the revenue attributable to episode savings based on our estimates of savings realized. Each quarter, we evaluate if any adjustments to our revenue estimates are required based on the monthly information we receive from CMS. The most significant adjustments tend to be in the second and fourth calendar quarters when we receive full reconciliation statements from CMS. These statements include detailed information about our performance that we typically use to revise estimates in light of actual results. In the first quarter, we did not receive a reconciliation report or any additional information that would inform revenue estimates and as such, did not make any adjustments. We will report on program size and savings rate on an annual basis, but to address request to provide more decimal places for modeling purposes, the previously reported 2020 weighted average program size was $5.207 billion.

Moving to Table 4, total company adjusted EBITDA for the first quarter increased 58% to $34.4 million compared to $21.9 million for the first quarter of 2020, driven primarily by strong revenue growth in Home and Community Services. In turn, we had an adjusted EBITDA margin of 19.1% in the quarter, a 250 basis point improvement from a year ago.

Back to Table 1. The net loss from operations for the first quarter of 2021 was $51.7 million compared to a loss of $8.9 million in the first quarter of 2020. The primary driver of the first quarter 2021 loss was required quarterly fair value re-evaluation of the customer equity appreciation rights, or EARs, which resulted in $56.8 million of expense in the quarter compared to $0 in the first quarter of 2020. The incremental expense reflects the increase in value of the EARs largely related to the change in fair value of the company on IPO as these instruments are directly linked to the value of our equity.

I will touch briefly on a few other items you may notice in our financials and when you review the 10-Q that relate to changes as a result of our IPO. Just after our February IPO, the company was reorganized to implement a traditional Up-C structure which is used to go public, but maintain an operating company that is an LLC. The registered entity is Signify Health, Inc., but you will also note that we now have a noncontrolling interest. This represents investors who still have a direct holding in the operating company below Signify.

As you will note on the income statement, a portion of our income now shows as attributable to this noncontrolling interest, with corresponding amount in the equity section of the balance sheet. Over time, we anticipate that the noncontrolling interest percentage will decline as holders convert their operating company interest into Class A common stock of Signify Health, Inc.

The Up-C structure also changed our tax environment. Signify Health, Inc. is now subject to corporate tax on its approximately 75% share of income from the operating company below it. As an LLC, we were taxed as a flow-through entity, so when you compare to prior year, you see very little tax in 2020. As a result, for the first quarter of 2021, we reported an income tax benefit of $9.9 million, reflecting the quarterly loss.

The reorganization and the impact of the Up-C structure makes some aspects of earnings comparability with the prior year a little more challenging as a result of different share counts, mid-quarter reorganization and adding the noncontrolling interest. We do provide GAAP earnings per share, but for the reasons I just mentioned, I would encourage you to focus on revenue and adjusted EBITDA to evaluate the financial progress of the business as those are the indicators that management is measured against internally. Over time, our year-over-year EPS will become more comparable when all periods are on the same basis.

Moving on, as you can see in Table 2, we ended the quarter with $756.5 million in unrestricted cash, including $610 million from the IPO proceeds. We ended the quarter with debt outstanding of $411.4 million, $77 million in capacity under our revolving credit facility and a negative net leverage position, given our cash exceeds current debt levels. We plan to continue to invest directly back into the business and evaluate potential bolt-on acquisitions.

We are maintaining our 2021 guidance, although based on our first quarter results, we are trending towards the higher end of the revenue and adjusted EBITDA ranges. The following estimates are for the full year and assume that the COVID-19 pandemic subsides throughout 2021. Total GAAP revenue in the range of $725 million to $760 million, net of a $19.7 million reduction in revenue due to equity appreciation rights discussed earlier and total adjusted EBITDA in the range of $150 million to $160 million. We're also maintaining 2021 estimates for the key performance indicators or KPIs. For our HCS segment, we estimate in-home evaluations in the range of 1.7 million to 1.75 million. For our ECS segment, we estimate our weighted average program size will be in the range of $5.1 billion to $5.3 billion, and we project that we will achieve a 25 to 50 basis point improvement in our weighted average savings rate from 2020 levels.

I look forward to being able to update you on our financial results next quarter. Now I'd like to turn the call back to Kyle for closing remarks.

Thanks, Steve. 2021 is off to a great start. Team Signify is relentlessly focused on the incredible market opportunity we have in front of us to drive value-based care payment models forward while expanding services to better serve our customers and individuals. We believe we will drive significant future value for all constituents.

Now I will turn the call over to the operator to take your questions. Operator?

(Operator Instructions) Our first question comes from Robert Jones from Goldman Sachs.

Great. I guess you touched on some of this, but maybe just wanted to go back to thinking about the full year in the context of the very strong results that you posted for 1Q. Any more thoughts around maybe why not raise the guidance range for the year? I mean, clearly, the performance here was above expectations. And just curious if there's things that you're thinking about over the balance of the year that could have results degradate in a way that would actually get to the maintained guidance range for the full 2021?

Robert, it's Steve. Yes, good question. Look, we gave guidance at the end of March to begin with. So we kind of knew that quarter 1 was coming in strong. That said, we are really excited with where we came in at. I mean Home and Community Services segment hit another all-time record in revenue this quarter after coming off a Q4 all-time record. So it really sets us up well going forward. I'm going to -- we're going to take a look at where Q2 comes in. We feel bullish about the trends. That's why we said feel like it's towards the high end and after Q2, we'll see where we're at. And we have the recon in Q2, which is a big event for us on the episode side. So once we've taken that data, see how the trends continue, then we'll reevaluate guidance.

No. That makes sense. And I guess maybe, Kyle, just looking at the IHE growth in the quarter, clearly, extremely strong COVID dynamics I would imagine are at play in some part, given the lack of IHEs that were able to get done last year. Could you talk a little bit just about how you're thinking about the growth in the quarter, kind of just underlying demand versus kind of pull forward or catch-up related to what wasn't able to get done last year?

Yes. And keep in mind, the shot clock completely resets on January 1, right? So anything that happened in last year, in general, there's no ability to catch back up to it for the previous calendar year. So it's a completely new year when January rolls around. That being said, I mean, our conversion rate on the same size of list is higher than historical averages. And we expected this to happen, right? We've been investing deeply in analytics and we've hired a bunch of folks and invested deeply in our consumer engagement team in technology. So we're seeing deeper conversion into the same size list if you kind of kept it as a control group.

The other big thing, Bob, our customers have had a big mindset shift over the last few years. And while they used to -- many of them prioritize and kind of tier out list, the nature of these visits really are holistic and preventative in nature. And they're pushing us to do more and more in the home. And as a result of that, they're giving us their full member list, right? And so the overall pie of what we're able to deliver our great services in partnership with our customers and driving this value of the members is just increasing dramatically as well. And so we're feeling great across all fronts. And it's super exciting for me and the team, I think, personally, to see all of the vast kind of technology and analytic investments that we've done over the years really start to pay off.

Yes. Just adding to that, what's your -- just one last thing there, Bob, on the pull forward piece of that. The beauty of that is the conversion is coming out higher and stronger. So yes, it is pulling forward. But that gives us more opportunity in the back half of the year to go deeper into the list and also work with our clients to get additional list. So that's the piece that we'll continue to watch in Q2. And if that conversion stays up, then we'll be very optimistic on maybe overachieving guidance.

Our next question comes from Kevin Caliendo from UBS.

Congrats on the quarter. Really, the question is the balance sheet and the cash. You talked about acquisitions and the like. What's your appetite for leverage? What's your appetite to buy? Sort of what are the parameters under which you would look to do M&A, either from a financial return, but also thinking about the current leverage on the balance sheet, where you might be willing to go with that? And where is -- what's the environment like right now for you, for the targets in terms of valuations and just the pipeline?

Yes. It's a great question, and thanks for it. So I'd say we're in a great position. We like having the cash on the balance sheet. It gives us a lot of flexibility to invest in our current product portfolio, which there's a never-ending kind of demand from customers to do more and more for them, which is a great place to be in. And so we've made the choice to up some investments and to move some of that cash and to pushing forward some of that product portfolio. We just had a fully vaccinated in-person off-site in Dallas a few weeks here with the management team and it was fantastic. The whole team kind of said it was the highlight of the year thus far just being able to be together and how much we were able to collaborate and cycle time is just reduced on making some of these investment decisions.

On the M&A front, the market's hot, right? There's a lot of opportunities out there. I mean, I think, our primary goal is looking for good tuck-in acquisitions that tie right into our product and strategy work. If you guys watched our roadshow, we talked about that flywheel where we aggregate data, generate insights, deliver actions and then make positive outcomes. We're looking for folks that plug into those 4 kind of quadrants of that flywheel. And we've been pretty active in-market. We've looked at several companies, and we've got a really strong corp dev integration and finance team that gives us a lot of ability to move in and out quickly on diligence of companies.

So I would say that we're quite active and we just see a lot of potential, given the platform we built out, the deep multiyear client relationships we have, both on the health system and health plan side and now increasingly, as we start to move into the employer space with our Episode business. It really puts us in a great position to take some of these smaller and/or scale companies and turbocharge their ability to make a positive impact across our clients.

I'll let Steve answer the leverage question, but I would tell you that our primary focus in general is the long term. Like we're not looking in doing cute accretion dilution math and just trying to go out and buy revenue for the sake of it. We want to underwrite real synergies that are strategic to our business and our mission and vision and are going to really make a tangible impact inside the clients that we touch. And that is the first and most important bar that we're applying to any M&A activity.

Yes. I don't know if I have a lot to add. I would just say we continue to look at our capital structure and with the M&A pipeline that's out there, trying to make the best decision for the future. But as Kyle said, we have a lot of cash on the balance sheet, net negative leverage. So we do have opportunity to lean in and not really impact our leverage in a big way.

That's really helpful. If I can ask a quick follow-up. Just could you talk a little bit about the reimbursement background -- backdrop and how that's progressing on the virtual visits. Has anything changed there? Anything unexpected? Has it been better than you had expected or held up better? Any commentary around that would be helpful.

Yes. And so important contracts, they are approved right now during the public health emergency, right, and CMS has not commented one way or the other, what's going to happen after that. That being said, almost every single one, I would say, the overwhelming majority -- extreme, overwhelming majority of our clients have taken a home-first strategy. And so we're pushing harder and harder, and the number of verticals are going down because everyone wants us back into the home. You can't see in the connected devices virtually, you can't lay eyes on the member and see their living condition. All of the benefits of having a human touch, we think and our clients think, is super important. And in fact, I and Steve mentioned on the recording, our transition to home service, we're hoping to physically move folks back into the home after a procedure, is starting to surge inside the client base as well. And so we think that continues to be the strategic asset.

The cool thing to me is we've got the flexibility to go virtual when and where we need it, right? And so if someone's super rural or if we're just checking in on somebody, we built all the capabilities out in the pandemic. And so I don't -- we're always going to have a virtual component to our business. But we believe our bread and butter and what drives the best value to the lives that we touch and allows us to have a positive impact, is physically spending time with these individuals, many of them that have fallen off the kind of traditional chassis of health care.

Our next question comes from George Hill from Deutsche Bank Securities.

I guess, Kyle, you made the interesting comment that you think that Medicare is going to mandate the bundle. I'd love you to provide any more color around that and whatever you think about timing. And then maybe my follow-up would be is, could you talk about kind of the outlook for commercial bundles and penetrating the employer space and how you guys are seeing the competitive environment there?

Yes, absolutely. So on the Medicare front, I mean, they issued a letter in Q3, Q4 of last year. The Director did basically stating that bundles are going to be expanded and mandatory after the 2023 period. I think that the BPCI -- BPCI-A programs have been fantastic successes for the federal government. We've guaranteed them and delivered on a lot of savings to the trust, which you and I and everybody in this country needs to continue to happen if we want Medicare to stay around for all of us and our kids in the future, providing that critical safety net for seniors.

We've had great conversations with them since then this year, talking about continuing expansion into ambulatory, thinking about prospective payments, which we're pioneering and spending a lot of money and time and capital on. And then also just thinking about what chronic conditions and other moves towards mandatory could and should look like. And so we continue to have great, positive engaged conversations. A lot of the CMMI staff that has been there, really doing a superlative job, have been there for quite some time. And they're focused on seeing this program become mandatory, too. It's the capstone of their career, and we're in there, pioneering and working with them to make that happen. And so I have all the belief in the world that that's going to continue to track down that path.

I think, too, that what I'm excited about is we're seeing our services, regardless of the "value-based care program" out of CMMI or in general from CMS inside a lot of our clients. Our services, transitioning into the home, reducing unnecessary readmissions, taking holistic care of individuals, it's translating to their ACO books. We're in talks with a lot of the current participants in direct contracting to help them out inside the homes and doing a lot of our services as well. And so we're bullish in general, I would just say, on value-based care as this administration and CMMI have been pretty public about stating. And we're super excited to be one of their largest partners nationwide, helping to deliver innovation and insights to keep driving this momentum forward. So that's question one.

On the commercial front, we're seeing great momentum. We're seeing deeper conversations with health plans, more employers stepping into the arena, wanting to understand how they can provide better quality services at a lower cost to their employees because they've just been getting killed on the medical spend for years. We've also seen -- you guys saw our press release with the Aspen Physician Network in Dallas, super innovative cardiology group there. I had dinner with those guys a few weeks ago. We're seeing providers come out ahead of the risk-bearing entity and saying, this is actually the best way to provide care for patients. And so risk-bearing entities like Aspen physicians did, we're open to do business like this, and we believe this is the way forward to get off of this fee-for-service chassis that's been saddling the U.S. health care system for far too long. So we're seeing continued great momentum there.

I mentioned in the script, we just hired a fantastic SVP of Network Development. She's formerly at Optum and several large health systems. She's an expert at recruiting providers in value-based care-centric contracts. And so we're going to be amplifying our density in a lot of our core markets, adding more volume and working hand-in-hand with the risk-bearing entities, the employers, the ASOs and the health plans to continue to increase that program size inside that business.

And so we feel very bullish about it. We've delivered a bunch of great stuff on our product road map, good integration with patient blocks at acquisition we did late last year, where we hit a bunch of our integration milestones. So we're feeling very good about it and feel like we're in a real competitive advantage given all the investment we've done for 4, 5 years to get us to the place we're at today.

Okay. I don't know if I can get a -- sneak in a quick follow-up on that. But kind of selling any of that self-insured employer sponsor market is pretty different than selling into the MA plan market, I guess. Can you talk about any sales capacity or infrastructure capacity you need to build?

Yes. So it's actually super related on one hand, right? So we are going in and doing these episodes for Medicare Advantage and managed Medicaid individuals. So the same people that were in their homes, right? And we can trigger those episodes directly out of the home. So it's actually selling frequently into the same book. I mean sometimes we get down into the regional level or the market president level. And so it's given us the ability to tie together a lot of our services and frankly, it's one of the big synergies of why we brought all this organization together because of those relationships and visibility and data and analytics we have into these members lives.

On the other hand, with the employers, we've gone through a lot of -- there's a lot of trade groups and brokers that have deep relationships there. So it has been building out a different channel. But going into them with the value prop of guaranteed savings on their medical spend is pretty compelling. And it's also something that not a lot of folks are in saying to them, right? A lot of folks are looking for a PMPM or some model that's disconnected from the specific outcome. And so it's given us a lot of traction with folks like the state of Connecticut, which we're doing fantastic work with to go in and make a real impact.

And then keep in mind, our goal, once we get an anchor risk-bearing entity, a self-insured employer, health plan, et cetera, and then we recruit provider volume, our goal is to stack more risk-bearing entities on top and more provider volume in those markets to change the dialogue in that market to be predominantly one of using Episodes as a means to drive better quality, lower cost care for the individuals' lives we touch. And we're starting to see that pick up in earnest in some of our core markets.

Our next question comes from Matt Larew from William Blair.

I just wanted to ask as programs are starting to build back up, if there are particular clinical areas that you're seeing scale up more quickly? And then when you talk about subside with respect to COVID, just curious if that includes a potential bump in the fourth quarter when a normal flu season might occur? Just how you're, I guess, thinking about subside within the context of COVID?

Yes. I'll let Steve answer the second one. But on the first one, it's really across the -- as your first question was kind of what's coming back, it's really across the board. It's obviously some elective procedures that goes [above chain]. But I would say that the U.S. health care system they tend to issue a great report, like the volumes just coming back, right? It's not like these procedures or other things disappeared. Steve and I mentioned that during the road show.

And so we're excited about early signs here, and it's something we're going to continue to watch. But without a doubt, we're feeling more engagement, less stress with our health system clients, just the pandemic is not hitting them as hard, obviously, as it was. You guys are well aware of the vaccination rates and the positive momentum we've had in the country. And so folks are showing back up, they're back out. And it's -- without a doubt, a tailwind into procedural volume in general across the U.S., and I think that's why we're seeing the slight uptick, and we're cautiously optimistic about program size as a result.

Yes, just to follow-up on that. Q1 came in exactly where we thought it would for the ECS segment. Not a lot of news to report there, waiting for the reconciliation that will hopefully drop any day now. But the one thing, to your question, on the program size, we are seeing positive trends there that as we projected early on to Q4 that we would see that program size grow throughout the year and at a run rate end of the year close to where we were at 2019 or above. And so there's nothing in the metrics or data that has taken us off of that projection. So yes, we would expect, throughout the year, that will continue to grow with Q4 being our largest program sized quarter.

Okay. And then Kyle, to your point, in terms of doctors' offices opening up, vaccination rollout, you all pointed out on the last call, some of the benefits of the assessment taking place, obviously, in the home relative to a physician office. We've seen a number of sort of site of care assist in the home showing signs of sticking around in sort of this postvaccination world. Just curious, what you're seeing in terms of any potential share gains you might have had for stock offices or any activity in the market as the doc offices now are back open for business?

Yes. We don't compete with them very often, right? And keep in mind 90% of the time pre-COVID, the folks -- we were inside folks' homes. We were getting them an employment book back in their doctor's office. So we're a big tailwind to that, I would say. It's just a completely different service that we're offering. And I think that our higher conversion rates are the bigger list that we're getting from our partners and the multiyear contracts that many of them extended with us during the pandemic are an indication that the type of work we're doing is going to continue to grow for many years to come, which is only amplified by the diversity of more devices, more social coordination, deeper clinical insights that we're driving inside these homes to better coordinate care for these lives that we're touching.

We don't want to compete with primary care doctors, surgeons. We want to be an amplifying force to help increase their value-based care panels and help them better manage these individuals' lives, right? They're our partners, not our competitors.

Yes, that makes sense. Then just quickly, last one. You hosted an interesting event in April on the Episodes business for commercial partners. I'm just curious if you could share any feedback or any metrics in terms of judging that as a success?

Yes. We had a few webinars. They were very well attended by current and prospective clients. So we're very satisfied with the results. And I think in general, just folks are kind of waking up after the pandemic and figuring out their strategy, getting back to what can we do to promote growth, better patient outcomes, cut unnecessary waste out. And our message of Episodes as a vehicle is really resonating in the market. So we have a really diverse set of attendees. We had employers, health plans, health systems, a whole battery and some of -- I said, our existing clients and some prospects on those webinars, and we're going to be doing more and more there. We've really upgraded a lot of our marketing and go-to-market efforts over the last 3 years. And I'm excited to see all the hard work that's been put in there and all the reception that we're getting out in-market as a result of that great content and thought leadership that we're promoting.

Our next question comes from Sean Weiland from Piper Sandler.

This is Jess Tassan on for Sean. I think we are interested, if you guys could give us maybe a sense of pricing trends in IHEs and your expectations for the full year. I think, by our estimate, price per IHE was down a little bit year-over-year. So just interested to know what are the factors that caused that fluctuation?

Yes. Look, we have not seen any pricing pressure to drive trends down. In fact, I think it's actually the opposite because of we're seeing the rebound in the ancillary and the devices being added on to the visit. So we feel bullish about that trend continuing. You'll also get -- we'll also start to see the lift from the price differential between virtuals and in-the-home. And so those 2 items alone will be positive pricing trends when you take the total revenue divided by the volume.

Got it. And so can you -- what are some of the most, I guess, popular diagnostic add-ons that you're seeing? And have trends in the type of diagnostic add-on change in the wake of COVID and is the fact that you can offer those diagnostic add-on kind of the key reason why health plans would be outsourcing IHEs to Signify as opposed to insourcing an increasing amount of volume?

Yes. So I would say it's a reason, not -- I would say it's one of the key reasons. So the main reason they outsource to us is our -- we're in every county in the United States with 9,000-plus credentialed providers. So we have vast utilization capacity and can just do it at a lower cost and at a higher fidelity of services given the density that we have out in the market. And so that's been the key driver of a lot of our success. You couple that with our $100 million plus a year R&D and analytics budget, we're just getting better and better at engaging these folks. And so it's created real economies of scale.

Now we have a device connected into the native iOS iPad application, and it's without a doubt, a technological advantage that we have, too. The big ones that we're doing, the bone density scans, eye exams, we're actually doing infusion right in the home, it's a new thing that we started to do, and a lot of these devices are directly related to the clinical trials that we've really scaled up nicely into the home as well directly with big life sciences companies. And so I'd say it's a -- without a doubt a differentiator.

You asked about the mix changing during the pandemic, it's actually stayed pretty consistent. These have been a very high demand innovative part of our business for some time. We're seeing more demand for them, but I would say the mix is not materially shifting. If it's high, really across the board. We've got a really great pipeline of additional devices that we are mid-flight and integrating into as well, which will help us identify more conditions, help us more proactively manage those conditions and get the whole care team activated to provide better care to these lives that we're touching. So it's a fully staffed team that's -- we've got R&D, operations, sales and customer support all attached to. And it's really becoming a well running chunk of the business that scaled tremendously over the last few years with all that R&D investment.

(Operator Instructions) It appears we have no further questions, so I'll hand back over to Kyle Armbrester for any closing remarks.

Great. Well, thank you all so much. It's a great quarter, and we really appreciate all the support of our shareholders, employees, network, everybody who's done so much to help continue to make a positive impact in all the lives we're touching.

If you have any additional questions, please reach out to Jennifer, and have a nice week, everybody. Thank you so much.