Evolent Health (NYSE:EVH) FY Conference December 02, 2025 11:00 AM ET Company ParticipantsSeth Blackley - CEOJohn Johnson - CFOConference Call ParticipantsJessica Tassan - Equity Research AnalystJessica TassanOkay, great. Hi everyone, thanks so much for joining. My name's Jess Tassin. I cover Managed Care and Healthcare IT at Piper. I'm so excited to be here with Seth Blackley, CEO of Evolent, and John Johnson, CFO of Evolent. Thanks, guys, so much for joining. We appreciate it.Seth BlackleyThanks for havin ...

Core Insights - Evolent Health Inc. has formed a national partnership with American Oncology Network to enhance cancer care delivery [1][3] - The partnership aims to provide high-quality, affordable, and connected cancer care while removing prior authorization requirements for compliant providers [1][2] Company Overview - Evolent Health specializes in providing specialty care management services in oncology, cardiology, and musculoskeletal markets within the US [4] - The company offers an integrated platform for health plan administration and value-based business infrastructure [4] Partnership Details - The new model introduced by Evolent Health and American Oncology Network is designed to streamline cancer care and accelerate treatment times [3] - Providers who consistently adhere to high-quality treatment pathways will be "gold-carded," exempting them from prior authorization for most tests and treatments [3][2]

Group 1 - The company's stock reacted positively to the third quarter results, which included a significant new business win and an improved outlook [1] - There is a concern regarding visibility into 2026 due to potential membership losses in HICS and Medicaid [1] - The company is facing questions about how to frame the potential loss of numbers in HICS and whether the identity of the customer matters [2] Group 2 - The discussion aims to streamline the financial model in light of the uncertainties surrounding membership losses [2]

Core Insights - Evolent Health reported Q3 CY2025 results with revenue of $479.5 million, a 22.8% decline year on year, but exceeded market expectations by 2.6% [1][6] - The company's non-GAAP profit was $0.05 per share, which was 52.5% below analysts' consensus estimates of $0.11 [1][6] - Revenue guidance for Q4 CY2025 is set at $467 million, which is below analysts' estimates of $472.9 million [1][6] Revenue and Financial Performance - Revenue for Q3 CY2025 was $479.5 million, down 22.8% year on year, but beat analyst estimates of $467.3 million [6] - Adjusted EBITDA was $38.96 million, exceeding analyst estimates of $37.67 million, with an 8.1% margin [6] - Operating margin improved to 0.2%, up from -2.6% in the same quarter last year [6] Management Commentary - Management attributed revenue decline to membership reductions in government exchange and Medicare Advantage markets, along with increased medical utilization in cardiology [3] - CEO Seth Blackley noted the challenging industry environment and emphasized the importance of new contract wins and pipeline growth [3][5] - The company expressed uncertainty regarding future membership changes and highlighted the potential impact of federal policy decisions on revenue and margins [4] Future Outlook - Evolent Health's guidance reflects management's uncertainty about membership trends in the exchange and Medicare Advantage markets [4] - The company anticipates that execution on new contracts and external policy changes will be critical for future growth [4]

Core Insights - Evolent Health reported quarterly earnings of $0.05 per share, missing the Zacks Consensus Estimate of $0.10 per share, but showing an improvement from $0.04 per share a year ago [1] - The company experienced an earnings surprise of -50.00% and has not surpassed consensus EPS estimates in the last four quarters [2] - Evolent Health's revenues for the quarter were $479.53 million, exceeding the Zacks Consensus Estimate by 2.81%, but down from $621.4 million year-over-year [3] Financial Performance - The earnings report indicates a significant decline in stock performance, with shares down approximately 43.6% year-to-date compared to a 15.6% gain in the S&P 500 [4] - The current consensus EPS estimate for the upcoming quarter is $0.11 on revenues of $471.15 million, and for the current fiscal year, it is $0.18 on revenues of $1.87 billion [8] Industry Context - Evolent Health operates within the Zacks Medical Info Systems industry, which is currently ranked in the top 26% of over 250 Zacks industries, suggesting a favorable industry outlook [9] - The company has a Zacks Rank of 4 (Sell), indicating expectations of underperformance in the near future based on unfavorable estimate revisions [7]

Financial Data and Key Metrics Changes - Q3 revenue reached $479.5 million, exceeding expectations and at the top of the guidance range, with full-year revenue expected between $1.87 billion and $1.88 billion [3][18] - Adjusted EBITDA for Q3 was $39 million, representing a 23% year-over-year growth [8][19] - The company ended the quarter with $116.7 million in cash and equivalents, and net debt of $910 million [20][22] Business Line Data and Key Metrics Changes - The Performance Suite and Technology and Services Suite contributed to revenue growth, with new contracts expected to add over $550 million in 2026 revenue [4][6] - The specialty Performance Suite care margin was approximately 7%, consistent with year-to-date performance [19] Market Data and Key Metrics Changes - The company anticipates a contraction of approximately 3% in Medicare Advantage membership for 2026, with a significant decline expected in the exchange market [14][15] - Revenue from exchanges this year is around $360 million, split evenly between the Performance Suite and Technology and Services [34][35] Company Strategy and Development Direction - The company is focused on organic growth, margin expansion, and disciplined capital allocation, with a long-term goal to auto-approve over 80% of baseline authorization volume [8][9] - A strategic partnership with American Oncology Network aims to enhance provider alignment and improve cancer care without relying on utilization management [12][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capture market share despite a challenging operating environment, particularly in oncology [10][14] - The outlook for 2026 adjusted EBITDA is uncertain due to potential membership declines in key markets, but new contracts are expected to provide significant growth opportunities [15][17] Other Important Information - The company is transitioning its CFO role, with Mario Ramos set to join as the new CFO [24][25] - The divestiture of Evolent Care Partners is expected to close later this year, with proceeds used to reduce debt [9][22] Q&A Session Summary Question: Discussion on new contract wins and peak margins - Management confirmed that all new contracts are under the enhanced performance suite, with a reasonable mature margin target of around 10% [26][27][29] Question: Factors affecting 2026 EBITDA - Key factors include growth, cost structure efficiencies, and membership trends, with membership being the most uncertain variable [30][31][32] Question: MA growth assumptions for enrollment next year - Management noted that if current partners gain market share, it would positively impact revenue, particularly in the Technology and Services Suite [33] Question: Impact of HIX subsidies expiration - Management expressed confidence in pricing for 2026, with protections in contracts to mitigate acuity shifts [34][36] Question: Oncology trends and their progression - Oncology trends have remained stable throughout the year, with a slight increase in utilization noted in exchanges [37] Question: Pipeline pacing and go-live timing - The demand remains significant, and there is potential for new contracts to go live in 2026 [38] Question: Adversity in exchanges and membership impact - The benefits rush is primarily seen in cardiology, with a conservative approach taken for trend acceleration in the exchange line of business [40][41] Question: Product development and oncology navigation solution - The navigation solution is expected to expand into more markets, with a focus on improving care quality and affordability [46][48] Question: Revenue generation from the American Oncology partnership - The partnership aims to improve quality and reduce costs, with potential indirect revenue generation through payer interest [49]

Financial Performance - Total revenue for Q3 2025 was $479.5 million, a decrease of 22.8% compared to $621.4 million in Q3 2024[20] - Operating income for Q3 2025 was $886 thousand, compared to an operating loss of $16.3 million in Q3 2024[20] - Net loss attributable to common shareholders for Q3 2025 was $26.9 million, compared to a net loss of $31.2 million in Q3 2024[20] - The company reported a comprehensive loss of $27.6 million for Q3 2025, compared to a comprehensive loss of $31.2 million in Q3 2024[20] - For the three months ended September 30, 2025, Evolent Health, Inc. reported a net income attributable to common shareholders of $(26,930) thousand, compared to a net income of $(31,231) thousand for the same period in 2024, reflecting an improvement of approximately 13.5%[23] - For the nine months ended September 30, 2025, the company experienced a net loss attributable to common shareholders of $(150,270) thousand, compared to a net loss of $(62,839) thousand for the same period in 2024, representing a significant increase in losses[26] - The company reported a net cash decrease of $35.492 million for the nine months ended September 30, 2025, compared to a decrease of $95.606 million for the same period in 2024, showing a significant improvement[42] Assets and Liabilities - Total assets decreased to $2.45 billion as of September 30, 2025, down from $2.54 billion at the end of 2024[18] - Current liabilities decreased significantly to $429.9 million from $715.5 million at the end of 2024, a reduction of 40%[17] - Long-term debt increased to $1.05 billion as of September 30, 2025, compared to $490.5 million at the end of 2024[17] - Total shareholders' equity decreased to $842.2 million as of September 30, 2025, down from $1.00 billion at the end of 2024[18] - The total shareholders' equity as of September 30, 2025, was $842,233 thousand, an increase from $1,038,685 thousand as of September 30, 2024, indicating a decrease of about 18.9% year-over-year[26] Cash Flow and Investments - Cash flows used in operating activities for the nine months ended September 30, 2025, were $(9,957) thousand, a decrease from cash provided of $44,996 thousand in the same period of 2024[28] - The total amount of cash flows used in investing activities for the nine months ended September 30, 2025, was $(82,386) thousand, compared to $(43,002) thousand in the same period of 2024, reflecting an increase in investment outflows[28] - The company reported stock-based compensation expenses of $37,343 thousand for the nine months ended September 30, 2025, compared to $45,861 thousand for the same period in 2024, showing a reduction of approximately 18.6%[28] Revenue Sources - Medicaid revenue increased to $227.5 million for the three months ended September 30, 2025, compared to $214.6 million in 2024, while Medicare revenue decreased significantly from $238.5 million in 2024 to $128.7 million in 2025[82] - The company derived 25.7% of its revenue for the three months ended September 30, 2025, from Molina Healthcare, Inc., compared to 14.9% for the same period in 2024[145] - Revenue from services agreements with joint ventures was $3.9 million for the three months ended September 30, 2025, compared to $3.0 million for the same period in 2024, marking a 30.3% increase[171] Debt and Financing - The company issued $166.8 million of 4.50% Convertible Senior Notes due 2031, with net proceeds of approximately $161.0 million after fees[113] - The company repurchased approximately $167.4 million of its 2025 Notes for $166.8 million in cash, resulting in a $0.4 million gain on extinguishment of short-term debt[113] - The Company entered into a Commitment Letter on June 19, 2025, providing up to $150.0 million in non-dilutive debt capital to retire its 2025 Notes[120] Operational Highlights - The company operates through one reportable segment, with financial performance evaluated on a consolidated basis[34] - The company focuses on research and development activities that support technology infrastructure, clinical program development, and data analytics, with all related costs expensed as incurred[54] - Approximately 78% of gross accounts receivable as of September 30, 2025, was netted against claims payable, up from 67% as of December 31, 2024, indicating improved cash flow management[57] Regulatory and Legal Matters - The Company is cooperating with a Department of Justice investigation concerning allegations related to unsupported diagnosis codes submitted by a former customer[141] Tax and Compliance - The company recorded an income tax provision of $0.9 million for the three months ended September 30, 2025, resulting in an effective tax rate of (4.5)%, compared to an effective tax rate of 2.6% for the same period in 2024[165] - The company had unrecognized tax benefits of $2.5 million as of September 30, 2025, which could affect the overall effective tax rate if recognized[166]

Financial Performance - Revenue reached $479.5 million, reflecting an 8% sequential increase, driven by new launches in Performance Suite and Specialty Tech & Services[6] - Adjusted EBITDA was $39.0 million, a 23% year-over-year growth[6] - The company narrowed its revenue outlook for 2026 to between $1.87 billion and $1.88 billion[6] - Adjusted EBITDA outlook narrowed to between $144 million and $154 million[6] Capital Allocation - Evolent Health had $116.7 million in cash and cash equivalents as of September 30, 2025, with $47.5 million in revolver availability[6] - The company issued $166.8 million of 4.50% 2031 Notes and repaid $167.4 million of 2025 Notes[6] - Evolent repurchased 4.4 million shares of common stock for $40.0 million[6] - Exchanged $175.0 million of Series A Preferred Stock for second lien term loan on similar terms, with interest now tax deductible[6] - Period-end net leverage was 6.7x on LTM Adjusted EBITDA of $136.0 million[6] Business Growth - Announced two new revenue arrangements, one in the Performance Suite and one in the Technology and Services Suite, bringing YTD total to 13, forecasting approximately $2.5 billion for 2026[6]

Financial Performance - Evolent reported Q3 2025 revenue of $479.5 million, a decrease of 22.8% from $621.4 million in Q3 2024[3]. - Adjusted EBITDA for Q3 2025 was $39.0 million, representing an increase of 22.5% from $31.8 million in Q3 2024, with an adjusted EBITDA margin of 8.1%[3][11]. - Evolent's net loss attributable to common shareholders improved to $26.9 million in Q3 2025 from $31.2 million in Q3 2024, with a net loss margin of 5.6%[3][9]. - Revenue for the three months ended September 30, 2025, was $479.5 million, a decrease of 22.8% compared to $621.4 million for the same period in 2024[27]. - Operating income for the three months ended September 30, 2025, was $886 thousand, compared to a loss of $16.3 million in the same period of 2024[27]. - Net loss attributable to common shareholders for the nine months ended September 30, 2025, was $150.3 million, compared to a loss of $62.8 million for the same period in 2024[27]. - The company reported a net loss of $(150,270,000) for the nine months ended September 30, 2025, compared to $(62,839,000) for the same period in 2024[53]. - Adjusted EBITDA for the nine months ended September 30, 2025, was $113,362,000, compared to $137,848,000 for the same period in 2024[51]. Revenue Guidance and Expectations - The company expects Q4 2025 revenue to be in the range of $462 million to $472 million and adjusted EBITDA between $30 million and $40 million[13]. - Full year 2025 revenue guidance is now approximately $1.87 billion to $1.88 billion, with adjusted EBITDA expected to be between $144 million and $154 million[14]. - The company added two new customer agreements in Q3 2025, bringing the total for the year to thirteen, and expects to generate over $750 million in new annualized revenue in 2026[4][5]. Cash and Assets - Evolent's total cash and cash equivalents as of September 30, 2025, were $116.7 million[9]. - Cash and cash equivalents as of September 30, 2025, were $116.7 million, an increase from $104.2 million as of December 31, 2024[29]. - Total assets as of September 30, 2025, were $2.45 billion, a decrease from $2.54 billion as of December 31, 2024[29]. - Total liabilities as of September 30, 2025, were $1.61 billion, compared to $1.35 billion as of December 31, 2024[29]. - The company plans to deploy approximately $35 million in cash for capitalized software development during 2025[15]. Expenses and Costs - The company reported a significant increase in selling, general and administrative expenses to $231.2 million for the nine months ended September 30, 2025, compared to $215.3 million in 2024[27]. - Total cost of revenue for the nine months ended September 30, 2025, was $1,104,880,000, with adjusted cost of revenue at $1,101,932,000 after excluding stock-based compensation[48]. - Selling, general and administrative expenses for the nine months ended September 30, 2025, were $231,210,000, with adjusted expenses of $157,123,000 after adjustments[49]. - Transaction-related costs for the three months ended September 30, 2025, amounted to $551,000, which are adjusted out to reflect normal operating costs[39]. - Repositioning costs incurred for the nine months ended September 30, 2024, totaled $10,599,000, which are not part of normal business operations[38]. Strategic Developments - Evolent appointed Mario Ramos as CFO effective January 1, 2026, to support its growth strategy[6][7]. - The company’s repositioning plan concluded in the second quarter of 2024, indicating a strategic shift in operations[38]. Risks and Challenges - The company derives a significant portion of its revenue from its largest partners, with potential risks related to the loss or renegotiation of contracts[56]. - The company is entering an increasing number of risk-sharing arrangements with partners, which may impact revenue predictability[56]. - Future performance is subject to uncertainties, including governmental funding reductions and policy changes affecting partner success[56]. - There are risks associated with completed and future acquisitions that could divert management resources and incur unanticipated costs[56]. - The company faces competition that may limit its ability to maintain or expand market share within the industry[56]. - The company is dependent on key personnel and must effectively attract and retain talent to support growth[56]. - The company acknowledges the potential impact of inflationary pressures and rising consumer costs on its business operations[59]. - The company is exposed to risks related to data security and privacy, which could affect its reputation and operational integrity[59]. Dividend Policy - The company does not intend to pay cash dividends on its Class A common stock, focusing instead on reinvestment[59].

Core Insights - Evolent Health and American Oncology Network (AON) have formed a partnership to enhance cancer care quality and affordability without the need for prior authorization [1][2][5] Partnership Objectives - The partnership aims to improve clinical decision-making through quality-focused interventions and an innovative data analytics platform [2][6] - Providers demonstrating adherence to quality will receive "gold-carding," eliminating the need for prior authorization for most tests and treatments [2][6] Key Components of the Program - **Quality Initiatives**: Focus on high-impact opportunities to enhance quality and affordability across the care continuum, utilizing provider education and automated reminders [6] - **AI-Driven Clinical Insights**: The MiBA platform will provide evidence-based insights and personalized treatment plans by analyzing real-time data [6] - **Payment Innovation**: Development of a payment model that rewards high-quality care, moving away from traditional fee-for-service models [6] - **Eliminating Prior Authorization**: High-quality treatment pathways will allow providers to bypass prior authorization, expediting treatment and reducing administrative burdens [6] - **Care Navigation**: AON patients will benefit from Evolent's cancer care navigation program, enhancing support throughout their treatment journey [6] Company Backgrounds - **Evolent Health**: Specializes in improving health outcomes for complex conditions, recognized for its innovative healthcare solutions [5][7] - **American Oncology Network (AON)**: An alliance of physicians focused on community oncology, promoting value-based care and health equity [7]