Evolent Health, Inc. Q4 FY2024 earnings call

Pillars of Stakeholder Value Creation

• Organic Growth: 2025 outlook guides to 15%-18% growth after adjusting for onetime contract conversions and revenue recognition impacts, with high visibility based on contracted business and pipeline.
• Profitability Expansion: Secured $115 million in projected adjusted EBITDA improvement from Performance Suite renegotiations, restoring Oncology Performance Suite portfolio to profitability in 2025. Technology and Services business investing in automation with expected $20M annualized direct cost improvement by end of 2025.
• Capital Allocation: Priorities include internal product development, reducing leverage, and M&A as part of strategic growth plans.

Operational Initiatives

• Announced new revenue agreements: a technology and services contract with a large health plan in New England serving ~2 million members and a primary care practice joining the Complex Care ACO for MSSP performance year 2025.
• Surgical management MSK offering had strong growth due to expansion with a payer client and seasonal performance.
• Clinically focused approach with over 240,000 physician peer-to-peer conversations in 2024 to provide evidence-based guidance.

In 2024, Evolent's revenue was $2.55 billion, a 30% increase from 2023. Adjusted EBITDA was $160.5 million, within but at the low end of the guidance range due to elevated oncology expenses in the Performance Suite. The Technology and Services segment has been investing in automation and efficiencies. The Performance Suite had oncology-related cost impacts, while the Technology and Services business is focused on margin expansion through automation.

2025 Outlook

• Projected organic growth of 15%-18% off 2024 revenue, adjusted for onetime contractual updates.
• Adjusted EBITDA guidance $135M-$165M.
• First quarter 2025 revenue expected $440M-$470M, adjusted EBITDA $31M-$37M.
• Anticipate ~48% of adjusted EBITDA generated in first half of 2025.

Long-Term Plan

• Continue organic growth at 15%+ per year off adjusted 2024 revenue baseline.
• Expand margins through automation and efficiency, growing adjusted EBITDA at least 20% per year off 2025 results.
• Allocate capital with discipline to support growth and drive cash flow.

• Oncology Trend Volatility: Variability in oncology cost trends could impact EBITDA, with a 12% midpoint projection for 2025, and potential $9M impact from a 200 basis point uptick.
• Medicaid Policy Changes: Potential enrollment declines or funding cuts could negatively impact revenue.
• Unrenegotiated Performance Suite Contracts: Some Performance Suite contracts not yet renegotiated, with no immediate downside protections, though open to future renegotiations if risk-reward tradeoff is favorable.

Q: Is it fair to say the 2025 guidance confidence comes from oncology trends, higher weighting of EBITDA, and Performance Suite changes?

A: Yes, that's the right way to think about it, with John elaborating on the sizing around the 12% oncology trend and asymmetry in upside/downside.

Q: Which inputs could be the greatest swing factor to downside EBITDA guidance for 2025?

A: Surprise medical cost inflation beyond current expectations, as it's a key source of potential variability.

Q: Why did you narrow the scope for some solutions outside core oncology and cardiology?

A: Driven by focus and aligning with operating resource deployment, impacting accounting treatment in capitation contracts.

Q: How do you think about pricing increases going forward, especially with 12% oncology trend?

A: 12% is not the new norm; business balances on being better than the next best alternative for partners, with pricing tied to the delta between value created and competitors, leveraging clinical teams and evidence.