Evolent Health, Inc.

Welcome to the Evelyn Earnings Conference Call for the third quarter ended September 30, 2025. 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. 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 third quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the 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.gov. 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 Evalent's CEO, Seth Blackley. Please go ahead.

Good evening, and thanks for joining the call. On the call this evening, I'll take you through our results across the three areas of shareholder value creation. John will then provide details on the numbers, and I'll close with some additional thoughts before we take your questions. We're pleased to report financial results for Q3 that exceeded expectations on both the top and bottom line. These results, we believe, demonstrate that Avalanche products are resonating in what continues to be a very dynamic time in the industry. Let's start with updates on our three areas of shareholder value creation of one, organic growth, two, margins, and three, capital allocation. Starting with organic growth, Q3 revenue of $479.5 million was at the top of our guidance range. We expect our revenue for the full year to be between $1.87 billion and $1.88 billion. We're announcing two new revenue arrangements today, one in the performance suite and one in the technology and services suite. First, we have signed a contract with one of the largest Blue Cross plans in the country to launch our performance suite for oncology across more than 650,000 MA and commercially fully insured members. At typical capitation rates, we expect this to contribute north of $500 million in revenue annually. This new partnership leverages our enhanced performance sweep framework and includes retroactive adjustments for prevalence, case mix, and the like, as well as bidirectional risk corridors that significantly limit our downside while increasing value sharing to our partners, ensuring that our economics are closely tied to the value we're creating and mitigating evidence exposure to volatility that's outside of our control. We're honored to add this plan as a major new first-time partner for Evelyn and look forward to doing an excellent job supporting their members and accessing the very best oncology care while also balancing affordability for members in the plan. While the final implementation schedule may shift slightly in either direction, we are currently expecting a May 1, 2026 go-live and therefore would expect the contract to contribute approximately $300 million in 2026 revenue. Finally, it's important to note the revenue estimates I just discussed are just for the fully insured commercial and Medicare Advantage lives. The commercial ASO and Medicaid membership at this plan would represent additional growth opportunities over time. And our second revenue arrangement we've announced is a large provider-sponsored health plan in the Southwest, and they've signed a contract to deploy our oncology condition management technology and services solution across their membership adding to their existing must-go skeletal solution. With these additional announcements, we have signed contracts for 2026 go-lives that will add more than $550 million in new 2026 revenue and annualized contract value of over $750 million. These new signings take total revenue under contract for 2026 to approximately $2.5 billion. We'll, of course, finalize our revenue outlook for 2026 in February once we have final membership and go-live dates. But this forecast of $2.5 billion in revenue takes into account our current expectations for revenue decreases in conjunction with membership reductions in the exchanges, Medicare Advantage, and Medicaid. Additionally, we believe the expected contract launch timing in 2026 will will position the company for strong bottom line growth in 2027. And even after today's announcement of more than $500 million in annual contract value, our probability weighted pipeline exceeds $650 million annually and continues to grow. On margin expansion, our Q3 adjusted EBITDA of $39 million was in the upper half of our expected range and represents 23% growth year over year. John will talk more about the drivers of our adjusted EBITDA performance and our outlook for this year. With today's announcements, we anticipate over 90% of our performance suite revenue in 2026 will be covered by our enhanced protections, which update our pricing for disease prevalence mix and other factors and include risk corridors that limit our downside, enhancing our ability to drive sustainable margin growth in the future. We continue to work towards our long-term goal to auto-approve over 80% of our baseline authorization volume, delivering on faster authorizations at a lower cost. During the quarter, we began rolling out our artificial intelligence reviewer co-pilot within Auth Intelligence into our musculoskeletal workflows, and we're beginning to realize the AI efficiency improvements we expected. On the capital allocation front, the sale of our primary care business, Edwin Care Partners, is on track to close later this year. We plan to use the proceeds from that sale to pay down approximately $100 million of our senior term loan, lowering our cash interest burden by about $10 million annually. With the retirement of our 2025 convertible notes, we have no significant liabilities until the end of 2029. and we reiterate our commitment to use free cash generation from the business to deliver. We believe our growth and the continued strength of our pipeline is driven by the unique value we deliver to all of our core stakeholders, health plans, providers, and members. I want to provide an update now on our product development efforts as we continue to innovate. Our health plan partners turned to Evelyn to address excessive specialty care costs, particularly in oncology, where we believe we provide a critical service in this environment, which is delivering savings while seeking to improve the patient and physician experience. As evidenced by our accelerating pipeline and new contract signings, we believe the current environment presents an opportunity to increase the penetration of our specialty care model at a time when demand for our offerings has never been higher. For example, in oncology, we believe we touch approximately 9% of all oncology cases in the United States today, about 8% in our technology and services model, and only 1% in our performance suite model. As evidenced by today's announcements, we are seeing the differentiation relative to our competitors. We expect our enhanced performance suite model to grow over the coming years. We believe this market opportunity will provide our customers with significant value, and importantly provide Evelyn with a strong and sustainable source of growth in the coming years. We also believe the enhanced protections in our modified contracts will provide a path to driving strong and disciplined adjusted EBITDA growth in the years to come. To give you a sense for the longer-term opportunity with the Oncology Performance Suite, Increasing oncology risk penetration to 15% of the market represents an addressable growth opportunity of greater than $15 billion annually over time. On the provider front, we're excited to announce a strategic partnership with American Oncology Network, which strengthens our provider alignment model under our Oncology Care Partners brand. The model seeks to enable high-quality, more affordable, and connected cancer care, all without relying on utilization management, instead relying on EMR integration to drive decision-making at the point of care. The model should significantly lower the burden on oncologists, enabling them to focus on what matters most of caring for their patients on their cancer journey. As part of the partnership, physicians and patients will have access to Evelyn's comprehensive cancer navigation program. American Oncology Network is one of the nation's fastest growing network of community oncologists and shares our dedication to innovation in cancer care. Finally, we're excited by the continued progress of our comprehensive cancer care navigation program. By combining Evalyn's expertise in oncology services and care management with the Careology mobile application, This program has delivered exciting results this year that now extend into reducing inpatient costs, whereas our traditional EV1 oncology model focuses on outpatient costs and drug costs. For example, our navigation model is now live in multiple markets and has shown decreases of up to 40% in inpatient and emergency department utilization and match case studies. The program also has patient satisfaction scores exceeding 90%. Before I hand it over to John, let me make some quick comments on the policy environment and our outlook for 2026 and beyond. Across the last 24 months, we have seen two dynamics at work. One, we have been taking share, particularly in oncology, further penetrating into top health plans, winning important new logos, while continuing to renew existing customers and updating our performance suite contracts, demonstrating the long-term durability of our model. And two, membership in our core government sponsor market has been going through a significant shift, shrinking in number and growing in acuity. We expect both of these trends will continue in 2026. Recall that our previous expectation for 7% to 9% membership growth in MA for 2026 was offsetting an expected contraction of approximately 20% in the exchange market for 2026. CMS's most recent forecast from the end of September now expects overall MA membership to contract by about 3%. In the exchanges, there remains a wide range of potential outcomes depending on how and when the federal government is reopened, with health plans over the last couple of weeks forecasting exchange membership declines of as little as 15% and to as much as 65%. While we expect to grow our customer footprint and revenue meaningfully next year, and while we're on track to achieve our expected efficiency targets for 2025, our 2026 adjusted EBITDA outlook is more uncertain than usual for this point in the year, given the wide range of outcomes on our customers' membership in Medicaid, Exchange, and Medicare, based in particular on the changes from the one big beautiful bill. For example, if exchange membership declines are towards the higher end of that forecasted range and our customer's Medicare Advantage membership shrinks, it's unlikely we'll be able to deliver meaningful adjusted EBITDA growth in 2026 above our pro forma 25 baseline. If robust subsidies are reinstated as part of reopening the government, this headwind may be reduced. Likewise, the details of membership declines will matter. For example, while the MA market in aggregate may shrink by 3%, it's possible that our MA customers may gain market share. Regardless of membership dynamics, it's important to note that based on new contracts signed to date, we will exit 2026 with more than $750 million in newly launched annualized performance suite revenue. Consistent with our past commentary, We are expecting minimal adjusted EBITDA contribution from these new launches in 2026, but would expect them to generate adjusted EBITDA contribution of $75 million or more at target mature margins. These new contracts as well as others we expect to sign in the future quarters should provide a significant earnings tailwind in the years to come. We intend to use this moment of health plan P&L pressure to cement Evelyn's position as a leading specialty solution. The pain felt by our customers, both on membership and utilization, is creating a very significant growth opportunity for Evelyn. We now have signed 13 new contracts in 2025, and we have contracts in place that should drive more than 30% top-line growth in 2026, and we also anticipate continued strong growth into 2027 and 2028. It is our belief that capitalizing on this period of industry disruption with disciplined growth will create significant long-term value for all of our stakeholders. With that, let me turn it over to John to go through the numbers. Thanks, Seth.

Q3 revenue of $480 million represented 8% sequential growth versus the second quarter, driven by new launches across both the performance suite and the technology and services suite. Sequential growth in our per-member per-month fees in both the performance suite and tech and services was driven principally by product mix, with the Q3 launches at a higher than average fee as we continue to demonstrate pricing resilience in a dynamic end market. With these launches, we are currently tracking towards the upper end of our full-year revenue guidance, and we have narrowed that range accordingly. Adjusted EBITDA of $39 million was modestly ahead of our expectations and represented growth from our technology and services business and the early success of our AI operational efficiency projects offset by initial reserve building for our new performance suite launches. Our specialty performance suite care margin, which is the difference between our capitated revenue and claims expense, was approximately 7%, consistent with our performance year-to-date. Normalized oncology trend continues to be just under 11% year-over-year. Note that during September and into October, we saw an increase in medical utilization in our exchange book, primarily in cardiology, consistent with industry-wide expectations of a benefit rush ahead of significant premium increases in 2026. Given this expectation, we have opted to maintain our conservative reserving posture consistent with our behavior during the first half of the year, and we have narrowed our adjusted EBITDA outlook accordingly. Note that we are not seeing this trend variability in Medicaid or Medicare, where cost trends remain stable versus our first half results. Turning to the balance sheet, we ended the quarter with $116.7 million of cash and equivalents and $47.5 million of revolver availability. Cash change versus our Q2 ending balance was driven by $15 million in cash flow from operations, offset by software development cost of $9 million, and $40 million in net cash used in the August transaction refinancing our 2025 convertible notes and buying back common stocks. Cash from operations of $15 million was lower than expected driven by timing of cash receipts, particularly from the Medicare Shared Savings Program, which was paid in October instead of September. Our net debt of $910 million reflects the exchange of our $175 million in Series A preferred stock into second lien debt. Recall that this exchange included no changes in economic turns to Evelyn's other than the interest now being tax deductible. Between cash generation and the divestiture of Evelyn's care partners, we expect to end the year with net debt of approximately $805 to $840 million, which would represent a net leverage ratio of approximately 5.5 times at the midpoint of our 2025 adjusted EBITDA guidance. With the retirement of our 2025 convertible notes, we have no maturities until the end of 2029, but delevering remains our primary capital allocation priority. As we near the end of the year, we are narrowing our guidance ranges for 2025 revenue and adjusted EBITDA to be between $1.87 billion and $1.88 billion and $144 to $154 million, respectively. These ranges presume a 1231 close for our ECP divestiture and would be slightly lower if the transaction closes earlier. The corresponding quarterly ranges are 462 to 472 million in revenue and 30 to 40 million in adjusted EBITDA. We are not assuming any new launches in our revenue outlook. The primary variable is changes in our customers enrolled membership. And as I mentioned earlier, this adjusted EBITDA range presumes a further decline in exchange margins from what we experienced in Q3. While this outlook is conservative, We believe that is the appropriate posture given the industry-wide commentary on this segment. With that, I'll turn the call back over to Seth.