NYSE:EVH Evolent Health Q4 2024 Earnings Report $8.98 -0.11 (-1.21%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$8.97 -0.01 (-0.10%) As of 04/25/2025 08:00 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Evolent Health EPS ResultsActual EPS$0.03Consensus EPS $0.38Beat/MissMissed by -$0.35One Year Ago EPSN/AEvolent Health Revenue ResultsActual Revenue$646.54 millionExpected Revenue$650.92 millionBeat/MissMissed by -$4.38 millionYoY Revenue GrowthN/AEvolent Health Announcement DetailsQuarterQ4 2024Date2/20/2025TimeAfter Market ClosesConference Call DateThursday, February 20, 2025Conference Call Time5:00PM ETUpcoming EarningsEvolent Health's Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Evolent Health Q4 2024 Earnings Call TranscriptProvided by QuartrFebruary 20, 2025 ShareLink copied to clipboard.PresentationSkip to Participants Operator00:00:00Welcome to the Evolent Earnings Conference Call for the Fourth Quarter and Year End 12/31/2024. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference call is being recorded. Your host for the call today from Evolent are Seth Blackley, Chief Executive Officer and John Johnson, Chief Financial Officer. Operator00:00:36This 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, Evolent's Vice President of Investor Relations. Seth FrankVice President-Investor Relations at Evolent Health00:00:51Thank 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. Seth FrankVice President-Investor Relations at Evolent Health00:01:08A 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.evolent.com and the Form eight K 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 Evolent's CEO, Seth Blackley. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:02:10Thank 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. Sort of view, we ended 2024 with revenue of $2,550,000,000 with growth of 30% versus 2023. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:02:45Adjusted EBITDA of $160,500,000 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 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% after adjusting for one time contract conversions and revenue recognition impacts, which John will go through in detail. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:03:54Including the announcements today, we have high visibility in achieving this range based on both contracted 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 2,000,000 members across multiple states. This plan, which is a legacy NIA customer, renewed its relationship with Evolent and importantly expanded our agreements include new members, geographies and lines of business, including Medicare Advantage. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:04:33As part of the expansion, we also increased our scope of services and product offerings. For 2025, we'll cover an additional 1,900,000 tech and services product members across cardiology, MSK and imaging at typical PMPMs. 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:05:18In 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 long standing 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 they will be well positioned for what the market is demanding. Finally, we're proud of our client 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 twenty twenty twenty four, which together represent more than 90% of our revenue. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:06:20Importantly, 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 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 and 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 PerformanceSuite contracts to cover the unusual escalation in cancer medical costs we experienced in 2024. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:07:10In January, we disclosed two of three contracts are fully secured for over $100,000,000 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 115,000,000 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 Evolent'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 for 2025 guidance. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:08:27Regarding 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 MachineFi OFF assets acquired in 2024 into our platform, now rebranded OFF 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 $20,000,000 annualized by the end of twenty twenty five relative to our run rate coming into the year. Longer term, we continue to expect the net value of these efforts will be over $50,000,000 annually once fully ramped up. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:09:16Importantly, 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 $10,000,000 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:10:07Longer term, we expect M and 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 Evolent 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:10:47The need for condition management in complex conditions like cancer and cardiovascular disease has never been greater. To give an example on oncology, the United States is expected to see over two million new cancer cases this year, a record high surpassing the two 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:11:26For 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 and providing that information is core to our mission. We do believe Evolent 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, Evolent physicians conducted over 240,000 peer to peer conversations to understand Nuance patient needs and to provide evidence based guidance to treating physicians. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:12:26That's close to 1,000 physician to physician touch points each day. Our team of over three fifty 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:13:04For example, in cancer care, we often see average adherence to our best evidence of approximately 65% before Evolent enters the market and above 80% after Evolent 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, everyone 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 F1. 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:13:53In 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 a recent study by the Blue Cross Blue Shield Association showed that removing wart similar to what Evolent does for patients and physicians would cause immediate healthcare cost inflation of up to 10%. Because of the delicate tension, the need to manage healthcare affordability, but do it through collaboration with physicians and with patients' best interests first, we believe Evolent will be a durable growing and important part of the healthcare 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. John JohnsonChief Financial Officer at Evolent Health00:14:42Thanks Seth. Revenue in Q4 was $646,500,000 across an average of 83,500,000 product members. Our product membership was up by 4% year over year despite a 6% estimated headwind from Medicaid redeterminations. Q4 adjusted gross margin of 11.9% represented steady state margins in our tech and services business offset by a lower performance suite margin of 3% dominated by losses of negative 7% in our oncology book. Adjusted SG and A of $54,400,000 was seasonally higher than Q3 and approximately $3,000,000 lower than typical due to lower incentive accruals. John JohnsonChief Financial Officer at Evolent Health00:15:28On the balance sheet, we ended the quarter with cash and equivalents of $104,000,000 Cash used in operations was $26,200,000 driven by working capital needs as we initiated reconciliations for certain loss making performance fee contracts that have since been restructured. Net leverage on twelvethirty one was 3.6 times. Note that our 2025 convertible notes due this October are now reflected as current in the accrued liabilities line. As planned, we borrowed our available credit facility at the January and adjusting for that transaction cash on twelvethirty one would have been $300,000,000 leaving significant available cash for liability management across 2025. Our claims reserve ended the quarter at $318,000,000 modestly up from the Q3 balance despite lower Performance Suite revenue, reflecting our conservative reserving approach. John JohnsonChief Financial Officer at Evolent Health00:16:26Prior year development in the quarter was minimal. Let's go to our 2025 outlook. We are projecting organic growth of 15% to 18% off the 2024 reported revenue results adjusted for one time contractual updates, which we refer to as adjusted revenue in the accompanying presentation. These adjustments result from changes to three Performance Suite contracts. First, the conversion of one large oncology Performance Suite contract to technology and services as discussed in January. John JohnsonChief Financial Officer at Evolent Health00:17:00Second, we are making changes to the contractual terms of two additional specialty Performance Suite contracts, one in complex care and one in advanced imaging. We expect these changes will result in net revenue recognition for these two contracts as opposed to current gross revenue recognition. This will also have the effect of simplifying our performance suite revenue reporting to focus on our core of oncology and cardiology. Importantly, neither our 2025 expected profitability nor our long term margin expectations for these two contracts are impacted by these changes. And this revenue recognition change does not affect any oncology or cardiology contracts. John JohnsonChief Financial Officer at Evolent Health00:17:44We will continue to report these contracts in our performance suite as the bottom line opportunity is unchanged. As Page five of the presentation shows, these two contracts are separate from the three Performance suite renegotiations. And again, the only material impact from these changes will be on the revenue recognition front. In total, across the one performance suite flip to CNS plus these two revenue recognition changes, these conversions represent a one time reduction of approximately $765,000,000 in revenue across three clients for an adjusted baseline of 1,790,000,000 Our 2025 revenue guidance is therefore $2,060,000,000 to $2,110,000,000 As you can see on Page eight of the presentation, this forecast assumes one time headwinds from membership changes in 2025 of 7% offset by expected growth of 22% to 25%. We are projecting similar top line revenue in MFSP as experienced in 2024. John JohnsonChief Financial Officer at Evolent Health00:18:51On the bottom line, we are projecting adjusted EBITDA between $135,000,000 and $165,000,000 The presentation shows a bridge from Q4 actuals to the midpoint of this range. Normalizing Q4 for seasonality and incentive accruals and adding in the benefit of the $115,000,000 in improvements from our Performance Suite negotiations results in an exit run rate of about $178,000,000 As previewed at the investor conference in January, we are forecasting approximately $45,000,000 in headwinds this year, including $20,000,000 from partners exiting certain of their health plans, mostly in MA and $25,000,000 from our assumption of elevated trend in oncology. In addition, as Seth noted, we are accelerating our work in automation this year to capture significant benefits in 2026 and beyond, which will impact our 2025 EBITDA by approximately $10,000,000 from one time investments. Finally, our guidance midpoint contemplates adjusted EBITDA expansion from organic growth of $25,000,000 which is inclusive of items that have been announced but not yet implemented. At the midpoint of our guidance, we project 20% of profits to come from our performance suite and 80% to come from our fee based business. John JohnsonChief Financial Officer at Evolent Health00:20:14Page six in the deck shows additional detail regarding the oncology trend for 2025. In Q4 of twenty twenty four, we estimate that the experienced year over year growth of 11% in oncology expenses after adjusting for the impact of Medicaid redeterminations. As we've previously noted, our historical annual oncology cost increase has been approximately 8% under normal conditions. Based on the acceleration we experienced across the fall and the desire to ground our outlook in an appropriate level of conservatism, we are assuming oncology cost growth in 2025 of 12%. Besides this for you, our 2024 performance suite margins declined by approximately 800 basis points relative to our six year historical average. John JohnsonChief Financial Officer at Evolent Health00:21:05We project that the rate increases and contractual updates that Seth mentioned, offset by this higher cost trend, will recover about half or approximately 400 basis points of that decline. While the adjusted Performance Suite features will cap our medical expense ratio in high cost environments and put a floor on it in lower cost environments, we do believe that a stabilization of trend will enable at least 300 basis points of additional margin over time in the performance suite as compared to our 2025 Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:21:37guide. I'd like to John JohnsonChief Financial Officer at Evolent Health00:21:39give a concrete example of how we deliver on bending the cost trend each year. As Seth mentioned earlier, checkpoint inhibitors are one of the fastest growing categories in cancer therapy, delivering incredible outcomes for certain categories of tumor types with specific profiles. They are also one of the biggest cost drivers with over $25,000,000,000 of spending growth from 2019 to 2023 alone. However, a recent study estimated that while 56 of cancer patients are now eligible for a CPI treatment, only twenty percent are likely to respond. Working closely with the treating oncologist to identify early those patients who are non responsive to a CPI requires deep clinical expertise and credibility, enabling rapid action to shift to a different therapy that is more likely to be effective for that patient. John JohnsonChief Financial Officer at Evolent Health00:22:32As an example of this approach in action, for a large Medicaid plan that went live in 2023, Evolent interventions during 2024 led to a 10% decrease in total checkpoint inhibitor expense relative to initial treatment plans, actions that bend the cost curve in a way we believe no other entity can do at scale. We believe this results in more effective care for the member and more sustainable expense outcomes for the system. Finishing with cash, we anticipate working capital will be a modest drag on cash this year as we finalize client reconciliations from 2024 for underperforming risk contracts that have since been restructured. We expect to deploy approximately $35,000,000 in capitalized software development and we plan to deploy free cash generated by operations towards liability management and debt pay down, including our 2025 convertible notes and then our senior term loan. For the first quarter of twenty twenty five, we anticipate revenue of between $440,000,000 to $470,000,000 We anticipate the first quarter of twenty twenty five adjusted EBITDA will be between $31,000,000 and $37,000,000 And in terms of earnings cadence, we anticipate that about 48% of our adjusted EBITDA will be generated during the first half of twenty twenty five. John JohnsonChief Financial Officer at Evolent Health00:23:56With that, I'll hand it back to Seth. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:23:59Thank you, John. And in closing, I want to summarize our long term value creation plan. Please take a look at Slide four in the presentation for a summary. First, we plan to continue to grow our business organically at 15% per year or better off of the adjusted 2024 revenue baseline. Second, we plan to expand our margins through automation and efficiency, enabling us to grow our adjusted EBITDA earnings stream at at least 20% per year off of our 2025 results. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:24:34And third, we will continue to allocate capital with discipline to support our growth strategy and drive strong cash flow over time. Based on the industry wide challenges of the previous year, we have made strong progress on a fourth pillar of value creation, which is to enhance the visibility and consistency of our earnings by evolving our Performance Suite as discussed earlier in the call. We reset our profitability baseline and have quickly migrated certain Performance Suite partnerships to a narrower, more predictable economic model, one where we are providing more upside for our clients and placing a cap on Evolent's downside risk. To be clear, this is a trade off as our long term performance REIT margins in this evolved risk structure are lower than our traditional performance REIT. Needless to say, 2024 was a difficult year. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:25:29As such, we understand the importance of reestablishing trust and credibility with our stakeholders. This begins with establishing an outlook that we can meet or exceed even in the face of historic cost trend headwinds. We believe we have done that and we believe that the benefits of this approach to both our customers and our investors will become evident as we report results over the ensuing quarters. The team and I are proud of the rapid progress we've made entering this year and we remain committed to delivering strong results across 2025 and beyond. With that, we'll open it up for your questions. Operator00:26:12We will now begin the question and answer session. A question, you may press star then one on the telephone keypad. If you are using a speakerphone, please pick up your handset by pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, The first question comes from Matthew Gillmor with KeyBanc. Please go ahead. Operator00:26:44Please go ahead. Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:46Hey guys, thanks for the question and all the details. Seth, it seems like you're trying to signal degree of confidence in the assumptions of the 2025 guide. Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:57Is it fair to Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:57say that coming Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:59from the oncology trends in the higher weighting of EBITDA, higher weighting of EBITDA and then the changes you've made on the performance fee? Is that kind of how to think about it or are there other areas of concern areas to call out for us? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:27:14Hey, Matt. Yes, I think that's the right way to think about it. Yes. And that is our intent. You're right to come into the year with a lot of confidence for the reasons I said at the end of the call of being very committed to being able to hit and hopefully exceed our expectations throughout the year. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:27:33And I'll let John talk a little bit about, I think it's an important data point, Matt, around what would happen if trend was higher or lower. And I'll let John talk a little bit about that, which I think is part and parcel to your point. John JohnsonChief Financial Officer at Evolent Health00:27:45Yes. I mean, Matt, just maybe to put some sizing around that 12% oncology trend. If you look at the size of that book this year, it was smaller than it was last year and the corridors that we've put into place, we see some asymmetry here to the upside where, for example, a 14% trend applied across the book, 2% higher than our forecast, would be a $9,000,000 estimated hit to adjusted EBITDA and a 10% trend, 2% better than our 12% forecast, it would be $12,000,000 to the good. So that hopefully bounds the level of volatility there a little bit for Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:28you. Yes, that's great. And then one clarification, you had mentioned $350,000,000 for the margin for maturation on Performance Suite and separately you had mentioned $50,000,000 of efficiency for longer term for the Are those discrete items for the 300 basis points, Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:50300 Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:50basis points? Yes. John JohnsonChief Financial Officer at Evolent Health00:28:53Good question, Matt. Those are discrete items. Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:57Great. Thank you. Operator00:29:02The next question comes from Charles Rhyee with TD Cowen. Please go ahead. Charles RhyeeManaging Director at TD Cowen00:29:08Yes. Thanks for taking the questions. Maybe just a little digging into sort of the housing trend again. And John, I appreciate you kind of bouncing the sort of the ranges of the volatility here. But if we think about that now you have about 75% of your Performance Suite revenue covered by sort of these enhanced features, including sort of rate adjustments for prevalence. Charles RhyeeManaging Director at TD Cowen00:29:33Is it still right to think that the comparison between the 11% in 4Q of twenty twenty four and a 12% or 25% trend. Are these still really apples to apples comparison when we think about sort of the potential impact for you guys? And then I have one quick follow-up. John JohnsonChief Financial Officer at Evolent Health00:29:51Yes. It's a good question, Charles, because I think that they are different, right? If you look at the incremental protections that we've negotiated for this business beginning this year, and that as you know, cover the majority of our performance with revenue. And so while there's certainly still motion within that book in terms of where does Medex land unmanaged and how do we manage it down, the corridors on both the cap and the other side bound that range a little more than we experienced last year. Charles RhyeeManaging Director at TD Cowen00:30:38Got it. And then as a follow-up, just wanted to hear a little bit more of an update on cardiology, just sort of the trends that you're seeing here given that I think it was Cigna that called out cardiac trend pressure on their call just the other week. So just trying to get a little bit of better sense of what you're seeing here in this area. And then just as an aside, Seth, I just want to wish you a happy birthday as well. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:31:07That's how I've always wanted to spend my birthday, Charles. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:31:10Thank you. John JohnsonChief Financial Officer at Evolent Health00:31:13Yes, cardiology, I'll take that one to start. It's a smaller trend clearly than in oncology. And what we saw a bit of elevation across 2024, that was explainable by our sort of prevalence metrics and so on. I will say that consistent with the oncology approach and our overall sort of outlook here, we are taking, we think, a conservative approach for cardiology trend as well in our forecast for 2025, sort of modestly above what we experienced in 2024. But certainly not nearly as large of a move peer trials that we're seeing in oncology. Charles RhyeeManaging Director at TD Cowen00:32:00But it's right to think that the way the contracts are restructured, it includes both oncology and cardiology in terms of sort of the narrower kind of risk corridor that you're facing? John JohnsonChief Financial Officer at Evolent Health00:32:10That is correct. Charles RhyeeManaging Director at TD Cowen00:32:11Got it. All right. Perfect. Thanks a lot. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:32:15Thanks, Charles. Operator00:32:18The next question comes from Andrea Alfonso with UBS. Please go ahead. Andrea AlfonsoExecutive Director at UBS Group00:32:25Hi. Thanks everybody and thank you Charles for flagging Seth's birthday. So happy birthday to you. I guess I just wanted to follow-up and sort of just thinking about the puts and takes to EBITDA guidance for 2025. Just curious which inputs could screen most conservative to you such that would represent the greatest swing factor to the downside? Andrea AlfonsoExecutive Director at UBS Group00:32:47Because I'm sort of just looking at the bridge inputs and and stress testing. I'm curious what really gets you to that lowest end of the $130,000,000 ballpark, particularly after signing the new contracts. Is it just sort of a lack of organic growth? Is it oncology spend be just far worse than expectations? Thank you so much. John JohnsonChief Financial Officer at Evolent Health00:33:10Yes. It really is around feeling a desire to have a buffer or surprise medical cost inflation that is meaning beyond our current expectation. We feel and so if you comment on this really good about what's in the bag and what's the pipeline in terms of organic growth this year. And a lot of the other items that you see on the page are knowable. So that's really the source of potential variability in the year. Operator00:33:56Next question comes from Jalendra Singh with Churis Securities. Please go ahead. Jailendra SinghManaging Director at Truist Securities00:34:01Yes. Thank you and thanks for taking my question. So I want to go back to the 12% growth in oncology trends expected in 2025. So on Slide nine, when you talk about twenty five million dollars impact from that, that's just reflecting the annual impact of the trends you saw in late Q4, right? I'm assuming the late Q4 was higher than 11% you're talking about in Q4. Jailendra SinghManaging Director at Truist Securities00:34:23Essentially your guidance does not assume trends get any worse than where you exited 2024. And to that point, can you talk about oncology trends you have seen in 2025 thus far? John JohnsonChief Financial Officer at Evolent Health00:34:37Yes. So let me be really explicit here that the Q4 is our jumping off point, right? So if you look at the actual projected year on year trend for Q1, it is significantly higher than 12% in large part because of Medicaid redeterminations. Just to be really precise there, the Q4 Q4 number is the jump off point here. The I guess that's the main answer. Jailendra SinghManaging Director at Truist Securities00:35:17And so the trend and anything so far to share for 2025 this time? John JohnsonChief Financial Officer at Evolent Health00:35:212025, please. Look, so as you can imagine, we don't have a lot of claims completion at this point for the first six weeks of the year. But what we have seen so far in our leading indicator data, the authorization information is consistent with what we would expect given this forecast. Jailendra SinghManaging Director at Truist Securities00:35:44Okay. And then I missed the first few questions because there was some feedback, but on the one third of your Performance Suite book, which have not been part of your recent negotiations, it seems because they're running at matured margins. Can you provide any update on that book? And why do you not see a risk of higher cost rents impacting that book? Just trying to understand why not get proactive in terms of having some downside protections for those contracts as well? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:36:14Yes, Jalinder. So the way we approached the renegotiations is really focused on where we felt like we had the most urgent need to make changes. And in other cases, either because the original contract structure or protections or the way those given markets were running, we didn't feel like the risk reward on opening up the contract made sense. We always had that option in the future and we would certainly look for opportunities to add those protections and when we feel like the risk reward trade off is the right one. Jailendra SinghManaging Director at Truist Securities00:36:54Got it. Thanks guys. Operator00:36:59The next question comes from Ryan Daniels with William Blair. Please go ahead. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:37:05Yes. Seth, I'll add to the happy birthday chorus and thanks for taking the questions. Maybe a big picture one, I'm curious why you decided to narrow the scope for some of the solutions outside of the core onco and cardiology and simplifying reporting there. Was that getting ahead of any potential issues from lessons learned with what occurred last year with oncology? Or was it a client request to simplify reporting? Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:37:31Just curious what drove that given that there's kind of not a bottom line impact? John JohnsonChief Financial Officer at Evolent Health00:37:36Yes. It's a good John JohnsonChief Financial Officer at Evolent Health00:37:37question, Ryan. Look, I'll say two things. One is driven by us, and it is principally around focus, right? As we are deploying our operating resources and the way that you're doing that ends up impacting on your accounting treatment some of these capitation contracts. That is the rationale. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:38:01And I think Ryan, I just added that, right. It's part of the whole theme. I hope everybody is feeling from this call and everything we put out, which is around consistency of results and narrowing any volatility in those results. I'd say those changes were consistent with that same thing, Ryan. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:38:22And maybe I could ask a follow-up to that exact point Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:38:25to put a Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:38:25finer point on that. You mentioned earlier in the call that a 200 basis point uptick under the new contract terms would hit EBITDA by about $9,000,000 If we go back to the start of last year and I told you, you were going to see a 200 basis point uptick off oncology trends, how would it have then impacted EBITDA? So it's $9,000,000 now. How big of an impact would that have been before you did all this to kind of show us how much more visibility you have? John JohnsonChief Financial Officer at Evolent Health00:38:57Yes, it would have been $20,000,000 to $25,000,000 Brian. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:39:00So it does tie to that? Okay. Then maybe last question, just the $10,000,000 in kind of operational investments in platform. Is all of that isolated to twenty twenty five million dollars so that we should think of a $10,000,000 hit this year, but then a $20,000,000 yield in Automation and AI next year leading to a $30,000,000 increase on a net net basis for 2026. Is that fair or too aggressive? John JohnsonChief Financial Officer at Evolent Health00:39:29That is approximately correct, Ryan. Without guiding for '26, that is how we're thinking about it. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:39:36Okay, perfect. Thanks for the color. Again, happy birthday, Seth. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:39:40Thanks, Brian. Operator00:39:43The next question comes from Jeff Garro with Stephens. Please go ahead. Jeff GarroManaging Director at Stephens Inc00:39:49Yes. Good afternoon. Thanks for taking the question. I want to ask about the $25,000,000 in core organic growth in the FY '25 bridge detail. I want to ask more detail on both timing and mix. Jeff GarroManaging Director at Stephens Inc00:40:01So first on timing, we would assume that'd be front half loaded, but want to check-in there. And then on mix, we would normally assume zero profitability contribution from year one Performance Suite, but want to see if that assumption should change given some of the enhanced contractual features you guys have been implementing? Thanks. John JohnsonChief Financial Officer at Evolent Health00:40:20Yes. Good question. So on timing first, you're right that the bulk of this right will be driven by both annualizing some of last year and the dual lives that are principally already happened or are in process of happening during the first half of the year. So the bulk of the EBITDA will be driven by deals that are going live earlier in the year. On the top line, the bulk of the growth there is on the prior page is of course driven by Performance Suites, which should go live a little later in the year. John JohnsonChief Financial Officer at Evolent Health00:41:06And there, while we haven't changed our expectations for initial profitability of performance suite contracts, that is to say we don't expect much EBITDA from those go live this year. We do anticipate a faster ramp to the new mature margins, where prior we had talked about a three year ramp to mature margins. We now see that in, call it, eighteen months. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:41:40I'll just answer a question that hasn't exactly been asked that's related, which is the new performance suite relationships that we plan to go live with this year. And going forward, we'll have, to under your point all the protections that we've been talking about. Jeff GarroManaging Director at Stephens Inc00:42:00Great. And then one specific follow-up there, I guess, would be the top five national plan Performance Suite win that was announced last quarter. Just any incremental update on the timing of that, I think, would be helpful given the size of it. Thanks. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:42:16Yes. I mean, we would expect midyear towards the middle of the year when that starts to go live and we're everything feels like we're moving in the right direction. Jeff GarroManaging Director at Stephens Inc00:42:27Got it. Thanks again. Operator00:42:32The next question comes from Ann Samuel with JPMorgan. Please go ahead. Anne SamuelExecutive Director at J.P. Morgan00:42:38Hi. Thanks so much for taking the question. I was hoping maybe you Anne SamuelExecutive Director at J.P. Morgan00:42:41could just speak to your kind of pipeline for twenty twenty five new partnerships and perhaps just given some of the pressure that you experienced this year, what is your aptitude for adding more performance fee contracts? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:42:55Yes. Hi Anne. So pipeline feels very good, as I mentioned in the script. I think anytime you have the sort of dislocation that's existed in the market over the last year or two on costs and each plan tries to manage this tension around affordability and their pricing and membership and all of these dynamics, it's made for a really, really good sales environment. And that continues to be the case. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:43:23I'd say our new Performance Suite model, right, is narrower, shares more of the ups with the clients and has more protection for us, feels like it is working. And it feels like that is sellable in the markets and meets the issues and demands of the marketplace. In terms of the specifics of this year and into next year, we continue to have a good mix in of like Performance Suite with the protection and tech and services. And I think that will continue. In terms of this year specifically in the guidance for this year, we have, I think, really good line of sight, as I mentioned in the script, doing the things we need to do to achieve the growth rates that we guided to. Anne SamuelExecutive Director at J.P. Morgan00:44:09Great. Thank you. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:44:12Welcome. Operator00:44:14The next question comes from Richard Close with Canaccord Genuity. Please go ahead. Richard CloseManaging Director at Canaccord Genuity Group00:44:20Yes. Thanks for the questions. I understand the 25 guidance contemplates the MA market exits, but I'm curious how you're thinking about potential policy changes on the Medicaid side, maybe a cut in FMAP, what that maybe does to your business from enrollment declines there. So that's 33% of revenue in 24%. So just thoughts there. Richard CloseManaging Director at Canaccord Genuity Group00:44:53It's probably more a 26% impact if anything happens, but how are you thinking about it? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:45:00Yes. So look, I think you hit on one of the points, which is to diversify business at Eveline. We've got a lot of Medicare and a lot of commercial as well. I mean, I think with respect to Medicaid and really any line of business where you have pressure and compressed funding in some different way compresses the P and L or profitability of any given plan that does have a negative on us to close to the membership in the short term. The flip side of it will be, I think, sales momentum around initiatives to help drive profitability back into the business. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:45:39So I think it will be one of those yin and yang type issues. And obviously, we can't forecast where that is going to go specifically when and how and the like, but that's how to answer it. And then the last thing I'd say is, again, whether it's Medicaid or any other line of business, this part of societal thing that's going on right now around healthcare, the debate of affordability and quality. I do think solutions like ours where we can help drive affordability and improve quality at the same time, Setting aside given changes in one year and the next, I think they're going to have a tailwind to them over time because of the ability to achieve both those objectives. Richard CloseManaging Director at Canaccord Genuity Group00:46:24Okay. And maybe a follow-up, Seth. You mentioned the Centene contract extension and some adjustments there. Can you go over those adjustments? And what is the benefit to you guys? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:46:41Yes. Look, I mean, with all of our major key partnerships, Centene included, we're always seeking to balance what's the right thing for the partner, what's the right thing for us. And I think we identified always with our partners are there opportunities to do something together that creates more value for both of us. I think the changes that we made collectively to this partnership are an example of that. We're going to be investing more in '25 as a for instance. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:47:11But the things that we're doing with that, I think, create fundamental value for both of us and we can share that value over time and having an extra year on the relationship as part of making that equation work for them and us and making it the best possible partnership it can be in terms of efficiency and good for patients, good for physicians. So think of it as us investing more this year, particularly around some of these automation things and things that are better for patients and for physicians. And that then yields positive results for RP and L over time and then there's additional year added to the end of the contract. That's really the summary of it. Richard CloseManaging Director at Canaccord Genuity Group00:47:53Okay. Thank you. John JohnsonChief Financial Officer at Evolent Health00:47:55Thank you. Operator00:47:58The next question comes from Jessica Tassan with Piper Sandler. Please go ahead. Jessica TassanSenior Equity Research Analyst at Piper Sandler Companies00:48:03Hi guys. Thanks very much for taking the question and happy birthday Seth. So I guess I'm curious to know what percent of the Performance Suite book ultimately ended up being profitable in 2024? And just the question is really given the fourth quarter acceleration, was there an increase from that 50% of Performance Suite that was profitable as a 3Q to something less than that for the year? And then I have one quick follow-up. John JohnsonChief Financial Officer at Evolent Health00:48:29That's a good question, Jeff. The mix is about the same. So the overall profitability curve shifted down, but those contracts that were underwater remained underwater and those that were profitable remained profitable just slightly less so. Jessica TassanSenior Equity Research Analyst at Piper Sandler Companies00:48:45Okay. That's really helpful. And then just for the portion of the business that was profitable in 2024 and essentially wasn't subject to rate revisions or enhanced corridors, does that EBITDA level contract in 'twenty five because you're seeing trends accelerate and you're not protected by rate revisions or enhanced corridors or is there some other protection that we should be aware of there? Thank you guys again. John JohnsonChief Financial Officer at Evolent Health00:49:11Yes. There is modest contraction there, Jess, and that's a part of what I mentioned in my prepared remarks around seeing an 800 basis point decline, but then recapturing 400 basis points of that decline in 2025. Jessica TassanSenior Equity Research Analyst at Piper Sandler Companies00:49:32Got it. All right. Thank you. Operator00:49:37The next question comes from David Larson with BTIG. Please go ahead. David LarsenAnalyst, Managing Director at BTIG00:49:43Hi. Happy birthday, Seth. Can you maybe talk a bit about what your expected pricing increases are going to be in 2025 and going forward? Because it seems to me like a 12% trend in oncology, is that your new normal? And it also seems like a lot of the plans are raising premiums by anywhere from 10% to 15%. David LarsenAnalyst, Managing Director at BTIG00:50:07So I would think your starting point for any year going forward would be at least 10% growth in the PMPM rates you're collecting from plans. And then also in the three Q transcript on Page 17, it says that you were going to get $50,000,000 of price increases in addition to the $100,000,000 dollars of renegotiations, I would have thought that that $50,000,000 would have offset the estimated impact of $25,000,000 from 12% oncology trend. So just any color on expectations for your price increases that you're going to see going forward, especially if 12% is your new normal? Thank you. John JohnsonChief Financial Officer at Evolent Health00:50:51Let me say a couple of things and Seth may fill in as well. The first thing, whether it's in our business, narrow to oncology and cardiology or in the broader managed care market, there's no world in which 10% to 12% annual healthcare inflation is sustainable. And so that's part of what we're seeking to do as part of the mission of the company. I do not believe sitting here today that a 12% annual oncology trend is the new norm. I don't think there's another forecast out there that would suggest that. John JohnsonChief Financial Officer at Evolent Health00:51:28It's certainly though is what we are projecting for 2025 based on a variety of factors. How do we handle that from a pricing perspective? As we've talked before, you can think of this in two buckets. We have a standard annual inflator that is based on a typical discount to a typical trend. So that might be 6% or seven percent or 8% annually. John JohnsonChief Financial Officer at Evolent Health00:51:55And then we have a mechanical and formulaic update each year based on changes to the population that happened in the prior year. And so that might translate in a year like we're having this year to 12%, fourteen %, fifteen % increase if there was a significant change in that population in the prior year. But I wouldn't expect that that is a new normal going forward. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:52:27Yes, David, look, the only thing I'd add to it, right, is the way our business works, whether it's in a season like it if we have now with higher inflation or lower inflation, we have to be able to be better than the next best alternative for our partners. And I think that's where we got a lot of confidence. We can then price to whatever that delta is. And again, the key to that is our ability to have the best clinical teams with the best evidence technology, the right interventions and the like. And they remain really confident that we're going to fix the pricing in this case, but the fundamental value creation is going to always be a delta between what we can create and what a normal plan can create for our other competitors. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:53:17And that's the key to our value proposition. David LarsenAnalyst, Managing Director at BTIG00:53:20Great. And just one more quick one, if I can. Let's say there's an adjustment during budget reconciliation where Republicans ease up the pressure on the V-twenty eight and there's a benefit to the plans. Is there anything in your contracts that will enable you to capture some of that benefit? Thank you. John JohnsonChief Financial Officer at Evolent Health00:53:40There is no direct linkage between plans premium and our fees. So no, although it's always easier in life to have happy partners. David LarsenAnalyst, Managing Director at BTIG00:53:52Thanks very much. Operator00:53:56The next question comes from Daniel Grossleit with Citi. Please go ahead. Daniel GrosslightAnalyst at Citigroup00:54:01Hi. Hi, thanks for taking the question. Just had one about how to think about profitability in 2026. You've given us a few kind of factors here, the $30,000,000 swing from investment in client efficiencies from 25% to 26%, potentially 300 basis points of performance suite improvement if trend remains stable. I'm just trying to square that with the longer term growth target of 20%. Daniel GrosslightAnalyst at Citigroup00:54:31For '26, should we think about growth being a bit higher because '25 is so depressed? Or are you saying for '26, we should really view $150,000,000 or so as the right base line and grow that 20%? Thank you. John JohnsonChief Financial Officer at Evolent Health00:54:48Yes. Let me start and Seth can fill in. What you're hearing us say today, Dan, is a a core mission we believe right now is rebuilding trust with our stakeholder community. And part of doing that, we believe, is putting out an outlook that is highly achievable. And so we're not going to comment on 26% right now, other than to say we feel really good about what we're pulling out today and our ability to grow at 20% plus per year on top of that. Daniel GrosslightAnalyst at Citigroup00:55:27Got it. Okay. Okay. And then as we think about the MA headwind to revenue and profitability as well, can you help us think through the impact on or the split between Performance Suite and TechEd Services? John JohnsonChief Financial Officer at Evolent Health00:55:49Yes. It's certainly across both, right? And you can sort of see that by the implied math of losing $20,000,000 in EBITDA and $125,000,000 of revenue. So it's both some long standing performance suite clients that were operating at mature margins and a slew of tech and services clients as well. Daniel GrosslightAnalyst at Citigroup00:56:16Got it. Thank you. Operator00:56:20The next question comes from Matthew Hsieh with Needham. Please go ahead. Matt SheaAnalyst at Needham & Company00:56:25Yes. Happy birthday, Seth, and thank you for taking the questions. You guys are moving more aggressively to scale implementation of MachineFi or Op Intelligence. Curious, does this change or accelerate your expectations around gross margin benefits from AI? I know you're still orienting us towards 2026 to begin seeing improvement, but given this was sort of the prior expectation and now you're stepping on the gas, wondering if we can maybe see some benefits come through earlier than expected? John JohnsonChief Financial Officer at Evolent Health00:56:55Yes. So for live in a few markets, as we mentioned in the prepared remarks, and the early returns are pretty positive, both in terms of overall efficiency, but more importantly here for usability, partner satisfaction, etcetera. So we're excited about this and that's one of the reasons why we are putting our foot on the gas on implementing this across the book this year and pulling forward some of that overall gross margin improvements that we've been projecting. Matt SheaAnalyst at Needham & Company00:57:31Okay. And then maybe just quickly on the selling environment, it sounds like demand remains high headed into 2025. I guess aside from demand generally being up, is the demand is this demand creating faster deal cycles or deal velocity? Wondering if given the rising needs for a solution to control costs, if you're seeing deals get approved quicker, just anything to call out in terms of time to close the deal? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:57:57Yes. I don't think it's changed dramatically on the sales cycle duration, maybe slightly better, slightly faster. But the overall scope of the pipeline, I think is what has really expanded and feels quite good right now. Matt SheaAnalyst at Needham & Company00:58:13Understood. Thanks guys. Operator00:58:19Seeing that there are no further questions, this concludes our question and answer session and the conference call. Thank you for attending today's presentation. You may now disconnect.Read moreParticipantsExecutivesSeth FrankVice President-Investor RelationsSeth BlackleyCo-Founder, CEO & DirectorJohn JohnsonChief Financial OfficerAnalystsMatthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital MarketsCharles RhyeeManaging Director at TD CowenAndrea AlfonsoExecutive Director at UBS GroupJailendra SinghManaging Director at Truist SecuritiesRyan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.CJeff GarroManaging Director at Stephens IncAnne SamuelExecutive Director at J.P. MorganRichard CloseManaging Director at Canaccord Genuity GroupJessica TassanSenior Equity Research Analyst at Piper Sandler CompaniesDavid LarsenAnalyst, Managing Director at BTIGDaniel GrosslightAnalyst at CitigroupMatt SheaAnalyst at Needham & CompanyPowered by Conference Call Audio Live Call not available Earnings Conference CallEvolent Health Q4 202400:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipants Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Evolent Health Earnings HeadlinesEvolent names Shawn Guertin as new independent nominee for election to its Board of DirectorsApril 22, 2025 | prnewswire.comEvolent Health Insiders Placed Bullish Bets Worth US$1.35mApril 17, 2025 | finance.yahoo.comHere’s How to Claim Your Stake in Elon’s Private Company, xAIElon Musk has done it again. He’s developed a powerful new AI model that’s already turning heads — and turning the industry upside down. Some say it could threaten Google’s search engine dominance. Others believe it could mark the beginning of the end for ChatGPT.April 26, 2025 | Brownstone Research (Ad)Healthcare Technology Stocks Q4 In Review: Hims & Hers Health (NYSE:HIMS) Vs PeersApril 17, 2025 | msn.comEvolent program achieves 20% reduction in use of low-value oncology regimensApril 15, 2025 | prnewswire.comEvolent Health price target lowered to $14 from $15 at TruistApril 11, 2025 | markets.businessinsider.comSee More Evolent Health Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Evolent Health? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Evolent Health and other key companies, straight to your email. Email Address About Evolent HealthEvolent Health (NYSE:EVH), through its subsidiary, Evolent Health LLC, offers specialty care management services in oncology, cardiology, and musculoskeletal markets in the United States. The company provides platform for health plan administration and value-based business infrastructure. It offers administrative services, such as health plan services, pharmacy benefits management, risk management, analytics and reporting, and leadership and management; and Identifi, a proprietary technology system that aggregates and analyzes data, manages care workflows, and engages patients. In addition, the company provides holistic total cost of care management. 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PresentationSkip to Participants Operator00:00:00Welcome to the Evolent Earnings Conference Call for the Fourth Quarter and Year End 12/31/2024. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this conference call is being recorded. Your host for the call today from Evolent are Seth Blackley, Chief Executive Officer and John Johnson, Chief Financial Officer. Operator00:00:36This 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, Evolent's Vice President of Investor Relations. Seth FrankVice President-Investor Relations at Evolent Health00:00:51Thank 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. Seth FrankVice President-Investor Relations at Evolent Health00:01:08A 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.evolent.com and the Form eight K 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 Evolent's CEO, Seth Blackley. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:02:10Thank 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. Sort of view, we ended 2024 with revenue of $2,550,000,000 with growth of 30% versus 2023. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:02:45Adjusted EBITDA of $160,500,000 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 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% after adjusting for one time contract conversions and revenue recognition impacts, which John will go through in detail. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:03:54Including the announcements today, we have high visibility in achieving this range based on both contracted 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 2,000,000 members across multiple states. This plan, which is a legacy NIA customer, renewed its relationship with Evolent and importantly expanded our agreements include new members, geographies and lines of business, including Medicare Advantage. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:04:33As part of the expansion, we also increased our scope of services and product offerings. For 2025, we'll cover an additional 1,900,000 tech and services product members across cardiology, MSK and imaging at typical PMPMs. 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:05:18In 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 long standing 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 they will be well positioned for what the market is demanding. Finally, we're proud of our client 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 twenty twenty twenty four, which together represent more than 90% of our revenue. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:06:20Importantly, 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 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 and 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 PerformanceSuite contracts to cover the unusual escalation in cancer medical costs we experienced in 2024. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:07:10In January, we disclosed two of three contracts are fully secured for over $100,000,000 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 115,000,000 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 Evolent'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 for 2025 guidance. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:08:27Regarding 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 MachineFi OFF assets acquired in 2024 into our platform, now rebranded OFF 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 $20,000,000 annualized by the end of twenty twenty five relative to our run rate coming into the year. Longer term, we continue to expect the net value of these efforts will be over $50,000,000 annually once fully ramped up. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:09:16Importantly, 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 $10,000,000 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:10:07Longer term, we expect M and 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 Evolent 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:10:47The need for condition management in complex conditions like cancer and cardiovascular disease has never been greater. To give an example on oncology, the United States is expected to see over two million new cancer cases this year, a record high surpassing the two 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:11:26For 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 and providing that information is core to our mission. We do believe Evolent 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, Evolent physicians conducted over 240,000 peer to peer conversations to understand Nuance patient needs and to provide evidence based guidance to treating physicians. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:12:26That's close to 1,000 physician to physician touch points each day. Our team of over three fifty 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:13:04For example, in cancer care, we often see average adherence to our best evidence of approximately 65% before Evolent enters the market and above 80% after Evolent 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, everyone 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 F1. 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. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:13:53In 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 a recent study by the Blue Cross Blue Shield Association showed that removing wart similar to what Evolent does for patients and physicians would cause immediate healthcare cost inflation of up to 10%. Because of the delicate tension, the need to manage healthcare affordability, but do it through collaboration with physicians and with patients' best interests first, we believe Evolent will be a durable growing and important part of the healthcare 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. John JohnsonChief Financial Officer at Evolent Health00:14:42Thanks Seth. Revenue in Q4 was $646,500,000 across an average of 83,500,000 product members. Our product membership was up by 4% year over year despite a 6% estimated headwind from Medicaid redeterminations. Q4 adjusted gross margin of 11.9% represented steady state margins in our tech and services business offset by a lower performance suite margin of 3% dominated by losses of negative 7% in our oncology book. Adjusted SG and A of $54,400,000 was seasonally higher than Q3 and approximately $3,000,000 lower than typical due to lower incentive accruals. John JohnsonChief Financial Officer at Evolent Health00:15:28On the balance sheet, we ended the quarter with cash and equivalents of $104,000,000 Cash used in operations was $26,200,000 driven by working capital needs as we initiated reconciliations for certain loss making performance fee contracts that have since been restructured. Net leverage on twelvethirty one was 3.6 times. Note that our 2025 convertible notes due this October are now reflected as current in the accrued liabilities line. As planned, we borrowed our available credit facility at the January and adjusting for that transaction cash on twelvethirty one would have been $300,000,000 leaving significant available cash for liability management across 2025. Our claims reserve ended the quarter at $318,000,000 modestly up from the Q3 balance despite lower Performance Suite revenue, reflecting our conservative reserving approach. John JohnsonChief Financial Officer at Evolent Health00:16:26Prior year development in the quarter was minimal. Let's go to our 2025 outlook. We are projecting organic growth of 15% to 18% off the 2024 reported revenue results adjusted for one time contractual updates, which we refer to as adjusted revenue in the accompanying presentation. These adjustments result from changes to three Performance Suite contracts. First, the conversion of one large oncology Performance Suite contract to technology and services as discussed in January. John JohnsonChief Financial Officer at Evolent Health00:17:00Second, we are making changes to the contractual terms of two additional specialty Performance Suite contracts, one in complex care and one in advanced imaging. We expect these changes will result in net revenue recognition for these two contracts as opposed to current gross revenue recognition. This will also have the effect of simplifying our performance suite revenue reporting to focus on our core of oncology and cardiology. Importantly, neither our 2025 expected profitability nor our long term margin expectations for these two contracts are impacted by these changes. And this revenue recognition change does not affect any oncology or cardiology contracts. John JohnsonChief Financial Officer at Evolent Health00:17:44We will continue to report these contracts in our performance suite as the bottom line opportunity is unchanged. As Page five of the presentation shows, these two contracts are separate from the three Performance suite renegotiations. And again, the only material impact from these changes will be on the revenue recognition front. In total, across the one performance suite flip to CNS plus these two revenue recognition changes, these conversions represent a one time reduction of approximately $765,000,000 in revenue across three clients for an adjusted baseline of 1,790,000,000 Our 2025 revenue guidance is therefore $2,060,000,000 to $2,110,000,000 As you can see on Page eight of the presentation, this forecast assumes one time headwinds from membership changes in 2025 of 7% offset by expected growth of 22% to 25%. We are projecting similar top line revenue in MFSP as experienced in 2024. John JohnsonChief Financial Officer at Evolent Health00:18:51On the bottom line, we are projecting adjusted EBITDA between $135,000,000 and $165,000,000 The presentation shows a bridge from Q4 actuals to the midpoint of this range. Normalizing Q4 for seasonality and incentive accruals and adding in the benefit of the $115,000,000 in improvements from our Performance Suite negotiations results in an exit run rate of about $178,000,000 As previewed at the investor conference in January, we are forecasting approximately $45,000,000 in headwinds this year, including $20,000,000 from partners exiting certain of their health plans, mostly in MA and $25,000,000 from our assumption of elevated trend in oncology. In addition, as Seth noted, we are accelerating our work in automation this year to capture significant benefits in 2026 and beyond, which will impact our 2025 EBITDA by approximately $10,000,000 from one time investments. Finally, our guidance midpoint contemplates adjusted EBITDA expansion from organic growth of $25,000,000 which is inclusive of items that have been announced but not yet implemented. At the midpoint of our guidance, we project 20% of profits to come from our performance suite and 80% to come from our fee based business. John JohnsonChief Financial Officer at Evolent Health00:20:14Page six in the deck shows additional detail regarding the oncology trend for 2025. In Q4 of twenty twenty four, we estimate that the experienced year over year growth of 11% in oncology expenses after adjusting for the impact of Medicaid redeterminations. As we've previously noted, our historical annual oncology cost increase has been approximately 8% under normal conditions. Based on the acceleration we experienced across the fall and the desire to ground our outlook in an appropriate level of conservatism, we are assuming oncology cost growth in 2025 of 12%. Besides this for you, our 2024 performance suite margins declined by approximately 800 basis points relative to our six year historical average. John JohnsonChief Financial Officer at Evolent Health00:21:05We project that the rate increases and contractual updates that Seth mentioned, offset by this higher cost trend, will recover about half or approximately 400 basis points of that decline. While the adjusted Performance Suite features will cap our medical expense ratio in high cost environments and put a floor on it in lower cost environments, we do believe that a stabilization of trend will enable at least 300 basis points of additional margin over time in the performance suite as compared to our 2025 Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:21:37guide. I'd like to John JohnsonChief Financial Officer at Evolent Health00:21:39give a concrete example of how we deliver on bending the cost trend each year. As Seth mentioned earlier, checkpoint inhibitors are one of the fastest growing categories in cancer therapy, delivering incredible outcomes for certain categories of tumor types with specific profiles. They are also one of the biggest cost drivers with over $25,000,000,000 of spending growth from 2019 to 2023 alone. However, a recent study estimated that while 56 of cancer patients are now eligible for a CPI treatment, only twenty percent are likely to respond. Working closely with the treating oncologist to identify early those patients who are non responsive to a CPI requires deep clinical expertise and credibility, enabling rapid action to shift to a different therapy that is more likely to be effective for that patient. John JohnsonChief Financial Officer at Evolent Health00:22:32As an example of this approach in action, for a large Medicaid plan that went live in 2023, Evolent interventions during 2024 led to a 10% decrease in total checkpoint inhibitor expense relative to initial treatment plans, actions that bend the cost curve in a way we believe no other entity can do at scale. We believe this results in more effective care for the member and more sustainable expense outcomes for the system. Finishing with cash, we anticipate working capital will be a modest drag on cash this year as we finalize client reconciliations from 2024 for underperforming risk contracts that have since been restructured. We expect to deploy approximately $35,000,000 in capitalized software development and we plan to deploy free cash generated by operations towards liability management and debt pay down, including our 2025 convertible notes and then our senior term loan. For the first quarter of twenty twenty five, we anticipate revenue of between $440,000,000 to $470,000,000 We anticipate the first quarter of twenty twenty five adjusted EBITDA will be between $31,000,000 and $37,000,000 And in terms of earnings cadence, we anticipate that about 48% of our adjusted EBITDA will be generated during the first half of twenty twenty five. John JohnsonChief Financial Officer at Evolent Health00:23:56With that, I'll hand it back to Seth. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:23:59Thank you, John. And in closing, I want to summarize our long term value creation plan. Please take a look at Slide four in the presentation for a summary. First, we plan to continue to grow our business organically at 15% per year or better off of the adjusted 2024 revenue baseline. Second, we plan to expand our margins through automation and efficiency, enabling us to grow our adjusted EBITDA earnings stream at at least 20% per year off of our 2025 results. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:24:34And third, we will continue to allocate capital with discipline to support our growth strategy and drive strong cash flow over time. Based on the industry wide challenges of the previous year, we have made strong progress on a fourth pillar of value creation, which is to enhance the visibility and consistency of our earnings by evolving our Performance Suite as discussed earlier in the call. We reset our profitability baseline and have quickly migrated certain Performance Suite partnerships to a narrower, more predictable economic model, one where we are providing more upside for our clients and placing a cap on Evolent's downside risk. To be clear, this is a trade off as our long term performance REIT margins in this evolved risk structure are lower than our traditional performance REIT. Needless to say, 2024 was a difficult year. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:25:29As such, we understand the importance of reestablishing trust and credibility with our stakeholders. This begins with establishing an outlook that we can meet or exceed even in the face of historic cost trend headwinds. We believe we have done that and we believe that the benefits of this approach to both our customers and our investors will become evident as we report results over the ensuing quarters. The team and I are proud of the rapid progress we've made entering this year and we remain committed to delivering strong results across 2025 and beyond. With that, we'll open it up for your questions. Operator00:26:12We will now begin the question and answer session. A question, you may press star then one on the telephone keypad. If you are using a speakerphone, please pick up your handset by pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, The first question comes from Matthew Gillmor with KeyBanc. Please go ahead. Operator00:26:44Please go ahead. Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:46Hey guys, thanks for the question and all the details. Seth, it seems like you're trying to signal degree of confidence in the assumptions of the 2025 guide. Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:57Is it fair to Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:57say that coming Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:26:59from the oncology trends in the higher weighting of EBITDA, higher weighting of EBITDA and then the changes you've made on the performance fee? Is that kind of how to think about it or are there other areas of concern areas to call out for us? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:27:14Hey, Matt. Yes, I think that's the right way to think about it. Yes. And that is our intent. You're right to come into the year with a lot of confidence for the reasons I said at the end of the call of being very committed to being able to hit and hopefully exceed our expectations throughout the year. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:27:33And I'll let John talk a little bit about, I think it's an important data point, Matt, around what would happen if trend was higher or lower. And I'll let John talk a little bit about that, which I think is part and parcel to your point. John JohnsonChief Financial Officer at Evolent Health00:27:45Yes. I mean, Matt, just maybe to put some sizing around that 12% oncology trend. If you look at the size of that book this year, it was smaller than it was last year and the corridors that we've put into place, we see some asymmetry here to the upside where, for example, a 14% trend applied across the book, 2% higher than our forecast, would be a $9,000,000 estimated hit to adjusted EBITDA and a 10% trend, 2% better than our 12% forecast, it would be $12,000,000 to the good. So that hopefully bounds the level of volatility there a little bit for Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:28you. Yes, that's great. And then one clarification, you had mentioned $350,000,000 for the margin for maturation on Performance Suite and separately you had mentioned $50,000,000 of efficiency for longer term for the Are those discrete items for the 300 basis points, Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:50300 Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:50basis points? Yes. John JohnsonChief Financial Officer at Evolent Health00:28:53Good question, Matt. Those are discrete items. Matthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital Markets00:28:57Great. Thank you. Operator00:29:02The next question comes from Charles Rhyee with TD Cowen. Please go ahead. Charles RhyeeManaging Director at TD Cowen00:29:08Yes. Thanks for taking the questions. Maybe just a little digging into sort of the housing trend again. And John, I appreciate you kind of bouncing the sort of the ranges of the volatility here. But if we think about that now you have about 75% of your Performance Suite revenue covered by sort of these enhanced features, including sort of rate adjustments for prevalence. Charles RhyeeManaging Director at TD Cowen00:29:33Is it still right to think that the comparison between the 11% in 4Q of twenty twenty four and a 12% or 25% trend. Are these still really apples to apples comparison when we think about sort of the potential impact for you guys? And then I have one quick follow-up. John JohnsonChief Financial Officer at Evolent Health00:29:51Yes. It's a good question, Charles, because I think that they are different, right? If you look at the incremental protections that we've negotiated for this business beginning this year, and that as you know, cover the majority of our performance with revenue. And so while there's certainly still motion within that book in terms of where does Medex land unmanaged and how do we manage it down, the corridors on both the cap and the other side bound that range a little more than we experienced last year. Charles RhyeeManaging Director at TD Cowen00:30:38Got it. And then as a follow-up, just wanted to hear a little bit more of an update on cardiology, just sort of the trends that you're seeing here given that I think it was Cigna that called out cardiac trend pressure on their call just the other week. So just trying to get a little bit of better sense of what you're seeing here in this area. And then just as an aside, Seth, I just want to wish you a happy birthday as well. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:31:07That's how I've always wanted to spend my birthday, Charles. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:31:10Thank you. John JohnsonChief Financial Officer at Evolent Health00:31:13Yes, cardiology, I'll take that one to start. It's a smaller trend clearly than in oncology. And what we saw a bit of elevation across 2024, that was explainable by our sort of prevalence metrics and so on. I will say that consistent with the oncology approach and our overall sort of outlook here, we are taking, we think, a conservative approach for cardiology trend as well in our forecast for 2025, sort of modestly above what we experienced in 2024. But certainly not nearly as large of a move peer trials that we're seeing in oncology. Charles RhyeeManaging Director at TD Cowen00:32:00But it's right to think that the way the contracts are restructured, it includes both oncology and cardiology in terms of sort of the narrower kind of risk corridor that you're facing? John JohnsonChief Financial Officer at Evolent Health00:32:10That is correct. Charles RhyeeManaging Director at TD Cowen00:32:11Got it. All right. Perfect. Thanks a lot. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:32:15Thanks, Charles. Operator00:32:18The next question comes from Andrea Alfonso with UBS. Please go ahead. Andrea AlfonsoExecutive Director at UBS Group00:32:25Hi. Thanks everybody and thank you Charles for flagging Seth's birthday. So happy birthday to you. I guess I just wanted to follow-up and sort of just thinking about the puts and takes to EBITDA guidance for 2025. Just curious which inputs could screen most conservative to you such that would represent the greatest swing factor to the downside? Andrea AlfonsoExecutive Director at UBS Group00:32:47Because I'm sort of just looking at the bridge inputs and and stress testing. I'm curious what really gets you to that lowest end of the $130,000,000 ballpark, particularly after signing the new contracts. Is it just sort of a lack of organic growth? Is it oncology spend be just far worse than expectations? Thank you so much. John JohnsonChief Financial Officer at Evolent Health00:33:10Yes. It really is around feeling a desire to have a buffer or surprise medical cost inflation that is meaning beyond our current expectation. We feel and so if you comment on this really good about what's in the bag and what's the pipeline in terms of organic growth this year. And a lot of the other items that you see on the page are knowable. So that's really the source of potential variability in the year. Operator00:33:56Next question comes from Jalendra Singh with Churis Securities. Please go ahead. Jailendra SinghManaging Director at Truist Securities00:34:01Yes. Thank you and thanks for taking my question. So I want to go back to the 12% growth in oncology trends expected in 2025. So on Slide nine, when you talk about twenty five million dollars impact from that, that's just reflecting the annual impact of the trends you saw in late Q4, right? I'm assuming the late Q4 was higher than 11% you're talking about in Q4. Jailendra SinghManaging Director at Truist Securities00:34:23Essentially your guidance does not assume trends get any worse than where you exited 2024. And to that point, can you talk about oncology trends you have seen in 2025 thus far? John JohnsonChief Financial Officer at Evolent Health00:34:37Yes. So let me be really explicit here that the Q4 is our jumping off point, right? So if you look at the actual projected year on year trend for Q1, it is significantly higher than 12% in large part because of Medicaid redeterminations. Just to be really precise there, the Q4 Q4 number is the jump off point here. The I guess that's the main answer. Jailendra SinghManaging Director at Truist Securities00:35:17And so the trend and anything so far to share for 2025 this time? John JohnsonChief Financial Officer at Evolent Health00:35:212025, please. Look, so as you can imagine, we don't have a lot of claims completion at this point for the first six weeks of the year. But what we have seen so far in our leading indicator data, the authorization information is consistent with what we would expect given this forecast. Jailendra SinghManaging Director at Truist Securities00:35:44Okay. And then I missed the first few questions because there was some feedback, but on the one third of your Performance Suite book, which have not been part of your recent negotiations, it seems because they're running at matured margins. Can you provide any update on that book? And why do you not see a risk of higher cost rents impacting that book? Just trying to understand why not get proactive in terms of having some downside protections for those contracts as well? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:36:14Yes, Jalinder. So the way we approached the renegotiations is really focused on where we felt like we had the most urgent need to make changes. And in other cases, either because the original contract structure or protections or the way those given markets were running, we didn't feel like the risk reward on opening up the contract made sense. We always had that option in the future and we would certainly look for opportunities to add those protections and when we feel like the risk reward trade off is the right one. Jailendra SinghManaging Director at Truist Securities00:36:54Got it. Thanks guys. Operator00:36:59The next question comes from Ryan Daniels with William Blair. Please go ahead. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:37:05Yes. Seth, I'll add to the happy birthday chorus and thanks for taking the questions. Maybe a big picture one, I'm curious why you decided to narrow the scope for some of the solutions outside of the core onco and cardiology and simplifying reporting there. Was that getting ahead of any potential issues from lessons learned with what occurred last year with oncology? Or was it a client request to simplify reporting? Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:37:31Just curious what drove that given that there's kind of not a bottom line impact? John JohnsonChief Financial Officer at Evolent Health00:37:36Yes. It's a good John JohnsonChief Financial Officer at Evolent Health00:37:37question, Ryan. Look, I'll say two things. One is driven by us, and it is principally around focus, right? As we are deploying our operating resources and the way that you're doing that ends up impacting on your accounting treatment some of these capitation contracts. That is the rationale. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:38:01And I think Ryan, I just added that, right. It's part of the whole theme. I hope everybody is feeling from this call and everything we put out, which is around consistency of results and narrowing any volatility in those results. I'd say those changes were consistent with that same thing, Ryan. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:38:22And maybe I could ask a follow-up to that exact point Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:38:25to put a Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:38:25finer point on that. You mentioned earlier in the call that a 200 basis point uptick under the new contract terms would hit EBITDA by about $9,000,000 If we go back to the start of last year and I told you, you were going to see a 200 basis point uptick off oncology trends, how would it have then impacted EBITDA? So it's $9,000,000 now. How big of an impact would that have been before you did all this to kind of show us how much more visibility you have? John JohnsonChief Financial Officer at Evolent Health00:38:57Yes, it would have been $20,000,000 to $25,000,000 Brian. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:39:00So it does tie to that? Okay. Then maybe last question, just the $10,000,000 in kind of operational investments in platform. Is all of that isolated to twenty twenty five million dollars so that we should think of a $10,000,000 hit this year, but then a $20,000,000 yield in Automation and AI next year leading to a $30,000,000 increase on a net net basis for 2026. Is that fair or too aggressive? John JohnsonChief Financial Officer at Evolent Health00:39:29That is approximately correct, Ryan. Without guiding for '26, that is how we're thinking about it. Ryan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.C00:39:36Okay, perfect. Thanks for the color. Again, happy birthday, Seth. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:39:40Thanks, Brian. Operator00:39:43The next question comes from Jeff Garro with Stephens. Please go ahead. Jeff GarroManaging Director at Stephens Inc00:39:49Yes. Good afternoon. Thanks for taking the question. I want to ask about the $25,000,000 in core organic growth in the FY '25 bridge detail. I want to ask more detail on both timing and mix. Jeff GarroManaging Director at Stephens Inc00:40:01So first on timing, we would assume that'd be front half loaded, but want to check-in there. And then on mix, we would normally assume zero profitability contribution from year one Performance Suite, but want to see if that assumption should change given some of the enhanced contractual features you guys have been implementing? Thanks. John JohnsonChief Financial Officer at Evolent Health00:40:20Yes. Good question. So on timing first, you're right that the bulk of this right will be driven by both annualizing some of last year and the dual lives that are principally already happened or are in process of happening during the first half of the year. So the bulk of the EBITDA will be driven by deals that are going live earlier in the year. On the top line, the bulk of the growth there is on the prior page is of course driven by Performance Suites, which should go live a little later in the year. John JohnsonChief Financial Officer at Evolent Health00:41:06And there, while we haven't changed our expectations for initial profitability of performance suite contracts, that is to say we don't expect much EBITDA from those go live this year. We do anticipate a faster ramp to the new mature margins, where prior we had talked about a three year ramp to mature margins. We now see that in, call it, eighteen months. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:41:40I'll just answer a question that hasn't exactly been asked that's related, which is the new performance suite relationships that we plan to go live with this year. And going forward, we'll have, to under your point all the protections that we've been talking about. Jeff GarroManaging Director at Stephens Inc00:42:00Great. And then one specific follow-up there, I guess, would be the top five national plan Performance Suite win that was announced last quarter. Just any incremental update on the timing of that, I think, would be helpful given the size of it. Thanks. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:42:16Yes. I mean, we would expect midyear towards the middle of the year when that starts to go live and we're everything feels like we're moving in the right direction. Jeff GarroManaging Director at Stephens Inc00:42:27Got it. Thanks again. Operator00:42:32The next question comes from Ann Samuel with JPMorgan. Please go ahead. Anne SamuelExecutive Director at J.P. Morgan00:42:38Hi. Thanks so much for taking the question. I was hoping maybe you Anne SamuelExecutive Director at J.P. Morgan00:42:41could just speak to your kind of pipeline for twenty twenty five new partnerships and perhaps just given some of the pressure that you experienced this year, what is your aptitude for adding more performance fee contracts? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:42:55Yes. Hi Anne. So pipeline feels very good, as I mentioned in the script. I think anytime you have the sort of dislocation that's existed in the market over the last year or two on costs and each plan tries to manage this tension around affordability and their pricing and membership and all of these dynamics, it's made for a really, really good sales environment. And that continues to be the case. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:43:23I'd say our new Performance Suite model, right, is narrower, shares more of the ups with the clients and has more protection for us, feels like it is working. And it feels like that is sellable in the markets and meets the issues and demands of the marketplace. In terms of the specifics of this year and into next year, we continue to have a good mix in of like Performance Suite with the protection and tech and services. And I think that will continue. In terms of this year specifically in the guidance for this year, we have, I think, really good line of sight, as I mentioned in the script, doing the things we need to do to achieve the growth rates that we guided to. Anne SamuelExecutive Director at J.P. Morgan00:44:09Great. Thank you. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:44:12Welcome. Operator00:44:14The next question comes from Richard Close with Canaccord Genuity. Please go ahead. Richard CloseManaging Director at Canaccord Genuity Group00:44:20Yes. Thanks for the questions. I understand the 25 guidance contemplates the MA market exits, but I'm curious how you're thinking about potential policy changes on the Medicaid side, maybe a cut in FMAP, what that maybe does to your business from enrollment declines there. So that's 33% of revenue in 24%. So just thoughts there. Richard CloseManaging Director at Canaccord Genuity Group00:44:53It's probably more a 26% impact if anything happens, but how are you thinking about it? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:45:00Yes. So look, I think you hit on one of the points, which is to diversify business at Eveline. We've got a lot of Medicare and a lot of commercial as well. I mean, I think with respect to Medicaid and really any line of business where you have pressure and compressed funding in some different way compresses the P and L or profitability of any given plan that does have a negative on us to close to the membership in the short term. The flip side of it will be, I think, sales momentum around initiatives to help drive profitability back into the business. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:45:39So I think it will be one of those yin and yang type issues. And obviously, we can't forecast where that is going to go specifically when and how and the like, but that's how to answer it. And then the last thing I'd say is, again, whether it's Medicaid or any other line of business, this part of societal thing that's going on right now around healthcare, the debate of affordability and quality. I do think solutions like ours where we can help drive affordability and improve quality at the same time, Setting aside given changes in one year and the next, I think they're going to have a tailwind to them over time because of the ability to achieve both those objectives. Richard CloseManaging Director at Canaccord Genuity Group00:46:24Okay. And maybe a follow-up, Seth. You mentioned the Centene contract extension and some adjustments there. Can you go over those adjustments? And what is the benefit to you guys? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:46:41Yes. Look, I mean, with all of our major key partnerships, Centene included, we're always seeking to balance what's the right thing for the partner, what's the right thing for us. And I think we identified always with our partners are there opportunities to do something together that creates more value for both of us. I think the changes that we made collectively to this partnership are an example of that. We're going to be investing more in '25 as a for instance. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:47:11But the things that we're doing with that, I think, create fundamental value for both of us and we can share that value over time and having an extra year on the relationship as part of making that equation work for them and us and making it the best possible partnership it can be in terms of efficiency and good for patients, good for physicians. So think of it as us investing more this year, particularly around some of these automation things and things that are better for patients and for physicians. And that then yields positive results for RP and L over time and then there's additional year added to the end of the contract. That's really the summary of it. Richard CloseManaging Director at Canaccord Genuity Group00:47:53Okay. Thank you. John JohnsonChief Financial Officer at Evolent Health00:47:55Thank you. Operator00:47:58The next question comes from Jessica Tassan with Piper Sandler. Please go ahead. Jessica TassanSenior Equity Research Analyst at Piper Sandler Companies00:48:03Hi guys. Thanks very much for taking the question and happy birthday Seth. So I guess I'm curious to know what percent of the Performance Suite book ultimately ended up being profitable in 2024? And just the question is really given the fourth quarter acceleration, was there an increase from that 50% of Performance Suite that was profitable as a 3Q to something less than that for the year? And then I have one quick follow-up. John JohnsonChief Financial Officer at Evolent Health00:48:29That's a good question, Jeff. The mix is about the same. So the overall profitability curve shifted down, but those contracts that were underwater remained underwater and those that were profitable remained profitable just slightly less so. Jessica TassanSenior Equity Research Analyst at Piper Sandler Companies00:48:45Okay. That's really helpful. And then just for the portion of the business that was profitable in 2024 and essentially wasn't subject to rate revisions or enhanced corridors, does that EBITDA level contract in 'twenty five because you're seeing trends accelerate and you're not protected by rate revisions or enhanced corridors or is there some other protection that we should be aware of there? Thank you guys again. John JohnsonChief Financial Officer at Evolent Health00:49:11Yes. There is modest contraction there, Jess, and that's a part of what I mentioned in my prepared remarks around seeing an 800 basis point decline, but then recapturing 400 basis points of that decline in 2025. Jessica TassanSenior Equity Research Analyst at Piper Sandler Companies00:49:32Got it. All right. Thank you. Operator00:49:37The next question comes from David Larson with BTIG. Please go ahead. David LarsenAnalyst, Managing Director at BTIG00:49:43Hi. Happy birthday, Seth. Can you maybe talk a bit about what your expected pricing increases are going to be in 2025 and going forward? Because it seems to me like a 12% trend in oncology, is that your new normal? And it also seems like a lot of the plans are raising premiums by anywhere from 10% to 15%. David LarsenAnalyst, Managing Director at BTIG00:50:07So I would think your starting point for any year going forward would be at least 10% growth in the PMPM rates you're collecting from plans. And then also in the three Q transcript on Page 17, it says that you were going to get $50,000,000 of price increases in addition to the $100,000,000 dollars of renegotiations, I would have thought that that $50,000,000 would have offset the estimated impact of $25,000,000 from 12% oncology trend. So just any color on expectations for your price increases that you're going to see going forward, especially if 12% is your new normal? Thank you. John JohnsonChief Financial Officer at Evolent Health00:50:51Let me say a couple of things and Seth may fill in as well. The first thing, whether it's in our business, narrow to oncology and cardiology or in the broader managed care market, there's no world in which 10% to 12% annual healthcare inflation is sustainable. And so that's part of what we're seeking to do as part of the mission of the company. I do not believe sitting here today that a 12% annual oncology trend is the new norm. I don't think there's another forecast out there that would suggest that. John JohnsonChief Financial Officer at Evolent Health00:51:28It's certainly though is what we are projecting for 2025 based on a variety of factors. How do we handle that from a pricing perspective? As we've talked before, you can think of this in two buckets. We have a standard annual inflator that is based on a typical discount to a typical trend. So that might be 6% or seven percent or 8% annually. John JohnsonChief Financial Officer at Evolent Health00:51:55And then we have a mechanical and formulaic update each year based on changes to the population that happened in the prior year. And so that might translate in a year like we're having this year to 12%, fourteen %, fifteen % increase if there was a significant change in that population in the prior year. But I wouldn't expect that that is a new normal going forward. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:52:27Yes, David, look, the only thing I'd add to it, right, is the way our business works, whether it's in a season like it if we have now with higher inflation or lower inflation, we have to be able to be better than the next best alternative for our partners. And I think that's where we got a lot of confidence. We can then price to whatever that delta is. And again, the key to that is our ability to have the best clinical teams with the best evidence technology, the right interventions and the like. And they remain really confident that we're going to fix the pricing in this case, but the fundamental value creation is going to always be a delta between what we can create and what a normal plan can create for our other competitors. Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:53:17And that's the key to our value proposition. David LarsenAnalyst, Managing Director at BTIG00:53:20Great. And just one more quick one, if I can. Let's say there's an adjustment during budget reconciliation where Republicans ease up the pressure on the V-twenty eight and there's a benefit to the plans. Is there anything in your contracts that will enable you to capture some of that benefit? Thank you. John JohnsonChief Financial Officer at Evolent Health00:53:40There is no direct linkage between plans premium and our fees. So no, although it's always easier in life to have happy partners. David LarsenAnalyst, Managing Director at BTIG00:53:52Thanks very much. Operator00:53:56The next question comes from Daniel Grossleit with Citi. Please go ahead. Daniel GrosslightAnalyst at Citigroup00:54:01Hi. Hi, thanks for taking the question. Just had one about how to think about profitability in 2026. You've given us a few kind of factors here, the $30,000,000 swing from investment in client efficiencies from 25% to 26%, potentially 300 basis points of performance suite improvement if trend remains stable. I'm just trying to square that with the longer term growth target of 20%. Daniel GrosslightAnalyst at Citigroup00:54:31For '26, should we think about growth being a bit higher because '25 is so depressed? Or are you saying for '26, we should really view $150,000,000 or so as the right base line and grow that 20%? Thank you. John JohnsonChief Financial Officer at Evolent Health00:54:48Yes. Let me start and Seth can fill in. What you're hearing us say today, Dan, is a a core mission we believe right now is rebuilding trust with our stakeholder community. And part of doing that, we believe, is putting out an outlook that is highly achievable. And so we're not going to comment on 26% right now, other than to say we feel really good about what we're pulling out today and our ability to grow at 20% plus per year on top of that. Daniel GrosslightAnalyst at Citigroup00:55:27Got it. Okay. Okay. And then as we think about the MA headwind to revenue and profitability as well, can you help us think through the impact on or the split between Performance Suite and TechEd Services? John JohnsonChief Financial Officer at Evolent Health00:55:49Yes. It's certainly across both, right? And you can sort of see that by the implied math of losing $20,000,000 in EBITDA and $125,000,000 of revenue. So it's both some long standing performance suite clients that were operating at mature margins and a slew of tech and services clients as well. Daniel GrosslightAnalyst at Citigroup00:56:16Got it. Thank you. Operator00:56:20The next question comes from Matthew Hsieh with Needham. Please go ahead. Matt SheaAnalyst at Needham & Company00:56:25Yes. Happy birthday, Seth, and thank you for taking the questions. You guys are moving more aggressively to scale implementation of MachineFi or Op Intelligence. Curious, does this change or accelerate your expectations around gross margin benefits from AI? I know you're still orienting us towards 2026 to begin seeing improvement, but given this was sort of the prior expectation and now you're stepping on the gas, wondering if we can maybe see some benefits come through earlier than expected? John JohnsonChief Financial Officer at Evolent Health00:56:55Yes. So for live in a few markets, as we mentioned in the prepared remarks, and the early returns are pretty positive, both in terms of overall efficiency, but more importantly here for usability, partner satisfaction, etcetera. So we're excited about this and that's one of the reasons why we are putting our foot on the gas on implementing this across the book this year and pulling forward some of that overall gross margin improvements that we've been projecting. Matt SheaAnalyst at Needham & Company00:57:31Okay. And then maybe just quickly on the selling environment, it sounds like demand remains high headed into 2025. I guess aside from demand generally being up, is the demand is this demand creating faster deal cycles or deal velocity? Wondering if given the rising needs for a solution to control costs, if you're seeing deals get approved quicker, just anything to call out in terms of time to close the deal? Seth BlackleyCo-Founder, CEO & Director at Evolent Health00:57:57Yes. I don't think it's changed dramatically on the sales cycle duration, maybe slightly better, slightly faster. But the overall scope of the pipeline, I think is what has really expanded and feels quite good right now. Matt SheaAnalyst at Needham & Company00:58:13Understood. Thanks guys. Operator00:58:19Seeing that there are no further questions, this concludes our question and answer session and the conference call. Thank you for attending today's presentation. You may now disconnect.Read moreParticipantsExecutivesSeth FrankVice President-Investor RelationsSeth BlackleyCo-Founder, CEO & DirectorJohn JohnsonChief Financial OfficerAnalystsMatthew GillmorDirector & Senior Research Aanalyst at KeyBanc Capital MarketsCharles RhyeeManaging Director at TD CowenAndrea AlfonsoExecutive Director at UBS GroupJailendra SinghManaging Director at Truist SecuritiesRyan DanielsGroup Head–Healthcare Technology and Services at William Blair & Company, L.L.CJeff GarroManaging Director at Stephens IncAnne SamuelExecutive Director at J.P. MorganRichard CloseManaging Director at Canaccord Genuity GroupJessica TassanSenior Equity Research Analyst at Piper Sandler CompaniesDavid LarsenAnalyst, Managing Director at BTIGDaniel GrosslightAnalyst at CitigroupMatt SheaAnalyst at Needham & CompanyPowered by