Evolent Health, Inc.

Welcome to the Evelyn Earnings Conference Call for the fourth quarter and year-end December 31st, 2024. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. As a reminder, this conference call is being recorded. Your hosts for the call today from Evelyn are Seth Blackley, Chief Executive Officer, and John Johnson, Chief Financial Officer. This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section titled Investor Relations. I will now hand the call to Seth Frank, Evelyn's Vice President of Investor Relations.

Thank you and good evening. This conference call will contain forward-looking statements under the U.S. federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings. For additional information on the company's results and outlook, please refer to our fourth quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the investor relations section of our website or in the company's press release issued today and posted on the investor relations website, ir.evalent.com, and the Form 8K filed by the company with the SEC earlier today. In addition to reconciliations, we provide details on the numbers and operating metrics for the quarter in both our press release and supplemental investor presentation. And now I will turn the call over to Evelyn's CEO, Seth Blackley.

Thank you for joining us this evening. Earlier today, we released our earnings for the fourth quarter and full year 2024. We've also provided our financial outlook for 2025. Both our 2024 results and our 2025 outlook are consistent with our expectations, and we're happy with the progress we've made over the last three months. To review, we ended 2024 with revenue of $2.55 billion, with growth of 30% versus 2023. Adjusted EBITDA of $160.5 million was within, but the low end of our guidance range provided in November. impacted by continued elevation in oncology expenses in our performance suite. Tonight, I will comment on our progress within our three pillars of stakeholder value creation of one, growing the business organically, two, expanding our profitability, and three, allocating capital to increase shareholder value. Then I'll update you on operational initiatives, which we believe will enhance our visibility into earnings, including in evolving our performance suite products. John will then go through the numbers for 2024 and our 2025 outlook, and we'll open it up for questions after that. Beginning with the first pillar of strong organic growth, the 2025 outlook we established today guides to a growth rate of approximately 15 to 18 percent after adjusting for one-time contract conversions and revenue recognition impacts. which John will go through in detail. According to the announcements today, we have high visibility in achieving this range based on both contract and business and strength of our pipeline. Now let's turn to the details of the revenue agreements and significant expansions we're announcing today. This quarter, we have two new revenue announcements to share. The first is a technology and services contract with a large health plan in New England, serving approximately 2 million members across multiple states. This plan, which is a legacy NIA customer, renewed its relationship with Evelyn, and importantly expanded our agreements to include new members, geographies, and lines of business, including Medicare Advantage. As part of the expansion, we also increased our scope of services and product offerings. For 2025, we'll cover an additional 1.9 million tech and services product members across cardiology, MSK, and imaging at typical PNPS. Second, I want to highlight a large primary care practice in the mid-Atlantic region that joined our complex care ACO for the MSSP performance year 2025. This group came from another ACO, and so the competitive win continues to demonstrate the strength of our work in this area. The practice will be using our complex care services for over 15,000 MSSP patients across 40 provider offices in their catchment area. In terms of other highlights, Our surgical management MSK offering had a strong growth quarter due to significant expansion with a large existing payer client in the Midwest and strong seasonal performance in the final quarter of the year. The sales pipeline continues to be strong and there are a number of deals we anticipate closing in the first half of the year with a strong outlook for further geographic and specialty expansion with a number of longstanding clients as well as newer organizations for both tech and services and the performance suite. Early sales results from our adjusted performance suite model suggest it will be well positioned for what the market is demanding. Finally, we're proud of our clients' satisfaction and renewal results for 2024. Despite a challenging environment and a number of performance suite renegotiations, we had a 100% logo renewal rate for our top customers in 2024, which together represent more than 90% of our Importantly, we recently extended our contract with Centene for an additional year. We believe this relationship extension represents the confidence and value that Centene sees in our partnership. The extension also includes several contract adjustments that will allow us to bring to bear important patient and physician-friendly automation initiatives to benefit our P&L in 2026 and beyond. Turning to our second pillar of margin expansion, I want to update you on both the performance suite and the technology and service businesses. As noted on slide five of the presentation issued today, we set a goal in November to quickly renegotiate three performance suite contracts to cover the unusual escalation in cancer medical costs we experienced in 2024. In January, we disclosed two of three contracts were fully secured for over $100 million in earnings improvement through improved rates and moving one contract for the time being to the technology and services suite. Today, we're reporting that we have now also signed the third agreement. Across all three agreements, we secured $115 million in projected adjusted EBITDA improvement compared to our Q4 exit run rate, higher than the total we previewed at an investor conference in January. We believe the rate increases along with enhanced go-forward contractual protections, restores Evelyn's oncology performance suite portfolio to profitability for 2025, and sets the table for additional margin expansion over time with approximately 300 basis points of additional margin maturation available on our current book of business. Consistent with our prior disclosures, we continue to forecast oncology cost increases in 2025 to be 12% at the midpoint of the range. As John will discuss later, we feel confident that this assumption creates a conservative starting point for 2025 guidance. Regarding our technology and services business, we continue to invest in automation and efficiencies to drive increased margins and better patient experience. We have integrated the Machinify auth assets acquired in 2024 into our platform, now rebranded Auth Intelligence. The platform is on track and is live in our first new test markets. Based on early returns of this and our other efficiency work, we are currently expecting to achieve an improvement in our direct costs exceeding $20 million annualized by the end of 2025 relative to our run rate coming into the year. Longer term, we continue to expect the net value of these efforts will be over $50 million annually once fully ramped up. Importantly, we believe this is more than cost efficiency. This innovation fundamentally reflects faster and more effective service to physicians, health plans, and patients that reinforces our strong position in the market. While meaningfully accretive to 2026 and beyond, we do expect net implementation costs for this AI-based automation work to be a drag on 2025 adjusted EBITDA of approximately $10 million, and that one-time investment is reflected in our outlook today. Finally, regarding our third pillar of efficient capital allocation, our priorities are unchanged, primarily investing in internal product development and reducing leverage. The executive team is highly focused in the near term on executing our growth objectives and accelerating operational excellence. Longer term, we expect M&A to be a component of our strategic growth plans as well. Before I hand it to John to go through the numbers in detail, let me step back and highlight the bigger picture as we see it today. After a tumultuous year in the healthcare industry in 2024, we believe Evelyn enters 2025 in a position of strength. We have a solution to an important and growing problem facing Americans. We have contractually improved our ability to forecast earnings with narrowed ranges for our performance suite business. And we're pursuing a clear shareholder value creation plan. The need for condition management in complex conditions like cancer and cardiovascular disease has never been greater. To give an example, in oncology, the United States is expected to see over 2 million new cancer cases this year, a record high, surpassing the 2 million mark for the first time. The growth in cases is due to increased diagnoses from many common cancers, as well as the aging and growing population. Incredible advances in targeted therapies have contributed to significantly extended lifespan for many cancer patients. At the same time, the cost of these therapies can be staggering. For example, a year's worth of checkpoint inhibitor infusion can cost Medicare nearly $200,000. For certain indications, the therapy provides a clear benefit. For others, the science is less clear, instead resulting in patients wasting precious time pursuing treatments that are unlikely to work. We believe that patients and physicians deserve access to the best clinical information that is available today. Providing that information is core to our mission. We do believe Evelyn provides a clinically driven model that supports treating physicians and their patients with these conditions, seeking to offer guidance through both our technology and physician peer-to-peer interactions. In 2024, Evelyn physicians conducted over 240,000 peer-to-peer conversations to understand nuanced patient needs, and to provide evidence-based guidance to treating physicians. That's close to 1,000 physician-to-physician touch points each day. Our team of over 350 physicians are able to review and analyze significant volumes of the latest, most relevant clinical evidence, providing real-time clinical recommendations on an individualized basis. Our clinically focused approach, we believe, positions us well in a world of rapid scientific and technological advancements. This model also has outstanding results today. We've demonstrated that our work often increases adherence to best evidence by over 20% in key conditions. For example, in cancer care, we often see average adherence to our best evidence of approximately 65% before everyone enters the market. at above 80% after Evelyn has engaged in that market for at least a year. This improvement increases the quality of care for the patient and, on average, reduces the cost to patients and payers. At the same time, Evelyn's satisfaction scores from physicians and staff have historically been in the 80% range, demonstrating our ability to drive change through collaboration and clinical credibility. We pursue this aim guided by our values at Evelyn. At the core of our values and our mission is to ensure that patients are receiving the same care we would want for our own family members. In an era of national debt crisis and high annual healthcare premium increases hitting all Americans, we also believe that we have to be able to balance affordability on these complex treatments. For example, a recent study by the Blue Cross Blue Shield Association showed that removing work similar to what Evelyn does for patients and physicians would cause immediate health care cost inflation of up to 10%. Because of this delicate tension, the need to manage health care affordability, but do it through collaboration with physicians and with patients' best interests first, we believe Evelyn will be a durable, growing, and important part of the health care system for many years to come. With that, let me turn it over to John, who will review the financial highlights and our 2025 outlook.