EVH

Growth and Renewals

• The company reported a very positive sales environment, with two new partnership announcements in Q2:
  • A new oncology performance suite partnership with an existing advanced imaging client covering ~1.5 million lives across 11 states (Medicaid and Medicare populations), expected to launch by December 2026 (pending regulatory approval) and generate ~$300 million in annualized revenue, with full enhanced contractual protections in place.
  • A regional Blue Cross plan (former NIA customer) extended its contract to add new products and expand existing products to additional populations, with implementations planned for Q3 and Q4 2026. Total annualized revenue is under $5 million, but expected to generate strong adjusted EBITDA, demonstrating cross-sell opportunity across the existing customer base.
• 2026 has been an outstanding year for renewals, with three of the company's largest customers successfully renewed. Combined with the launched Aetna and Highmark contracts, these renewals provide strong visibility into the 2027 outlook.

New Performance Suite Oncology Launches

• Highmark had a successful launch on May 1, 2026, with early indicators exceeding expectations: clinical engagement rates are trending above target, and provider engagement exceeded initial go-live projections. Further claims performance data will become available over the next few months.
• Aetna, which launched earlier in 2026, continues to report strong clinical engagement above targets, with initial claims-based performance in line with expectations.

AI Platform and Cost Improvements

• Q2 2026 marked a tipping point for the company's Auth Intelligence AI platform, moving beyond pilot phases to meaningful scale, with results meeting the high end of expectations. The long-term goal is to automatically approve 80% of authorization volume.
• Deployed AI models have delivered up to a 20 percentage point improvement in auto-approval rates (e.g. from 55% to 75%) with no degradation to clinical quality. AI-approved cases are completed in minutes instead of days, reducing administrative burden for providers and patients, and allowing clinicians to focus on work at the top of their license.
• Currently, over one-third of authorization volume that previously required manual clinical review is processed via the Auth Intelligence platform. Aggressive deployment of the platform is scheduled for Q1 2027 as part of a major customer renewal.

Financial and Operational Efficiency

• Q2 2026 adjusted cost of revenue (excluding medical claims) plus adjusted SG&A totaled $163 million, a 5% sequential improvement driven by ongoing expense management. The company ended the quarter with $115.7 million in unrestricted cash and $808.3 million in net debt, and paid down $10 million on its ABL revolver.
• The company launched a comprehensive enterprise-wide review of its cost structure to align spending with strategic priorities and drive greater efficiency, which may include modest incremental Q3/Q4 2026 investments to enable larger cost savings in 2027 and beyond.

• 2026 Full Year Guidance Update: Management upwardly revised full year 2026 revenue guidance from the prior range of $2.4 to $2.6 billion to a new range of $2.6 to $2.7 billion. Adjusted EBITDA guidance was narrowed from $110 to $140 million to $120 to $135 million, with the midpoint increased. Full year medical expense ratio (MER) guidance is maintained at approximately 93%.
• 2026 Quarterly Cadence: Q3 and Q4 2026 revenue is expected to be meaningfully higher than Q2, driven primarily by performance suite growth. Q3 MER will be higher due to the full quarterly impact of the Highmark launch, with MER expected to improve meaningfully in Q4 as clinical programs take effect and favorable contractual true-ups flow through. Due to timing of favorable prior period development shifting from Q3 to Q2, the Q2 to Q3 adjusted EBITDA increase is now expected to be a more modest $4 to $7 million, followed by a $7 to $15 million increase from Q3 to Q4.
• 2026 full year adjusted cost of revenue (excluding medical claims) plus adjusted SG&A is still expected to be approximately $675 million. Operating cash flow for 2026 is expected to be $10 to $20 million after $60 million in annual cash interest expense, and software development and capital expenditures are projected to be $25 to $30 million for the full year.
• 2027 Preliminary Guidance: Based on current contracted revenue and completed renewals, management expects over 25% year-over-year revenue growth in 2027, with additional new contract signings expected to increase this growth rate further. The midpoint of 2027 adjusted EBITDA is expected to be at or above $150 million, representing meaningful adjusted EBITDA growth despite ongoing industry headwinds, with growth driven by expanding performance suite margins, cost reductions, and productivity improvements.
• Management expects meaningful improvement in operating cash flow conversion in 2027 as one-time 2026 cash flow impacts fall away. The company also plans to continue accelerating AI and technology investments in 2027, which are expected to deliver significant ROI.
• Capital Structure Guidance: Management has identified multiple paths to improve the company's capital structure and address 2029 debt maturities via adjusted EBITDA growth, improved cash flow conversion, disciplined capital allocation, and capital markets/strategic options. There is a clear path to meaningfully improve leverage ratios and the maturity profile within 12 to 24 months, which will enhance financial flexibility for long-term growth.

For Q2 2026 ended June 30, Evalent reported total revenue of $653 million, a 31% increase quarter-over-quarter (QoQ) versus Q1 2026. Adjusted EBITDA was $28 million, up 27% QoQ. By product segment:

• Performance Suite: Revenue was $485 million, up 50% QoQ, representing 74.3% of total Q2 revenue. The increase was driven primarily by higher membership from the May 1, 2026 launch of Highmark.
• Specialty Tech and Services: Revenue totaled $78 million, a 3% QoQ decrease, representing 11.9% of total Q2 revenue. The decline was caused by code review scope changes tied to AHIP commitments, not client attrition or pricing pressure.
• Administrative Services: Revenue declined 3% QoQ to $48 million, representing 7.4% of total Q2 revenue. The decrease was largely due to a prior year reserve true-up that was recorded in Q1 2026.

• Ongoing industry-wide headwinds include expected membership declines in Medicaid (driven by redetermination processes and new work requirements) and membership attrition on health insurance exchanges, driven by client market exits and changing client market strategies. Management estimates a 20% decline in Medicaid expansion members, translating to a 4% to 5% membership decline for Evalent's Medicaid segment, with additional client-specific membership headwinds.
• New performance suite contracts create year-one investment headwinds that pressure near-term margins, even as contracts mature and margins expand over time.
• Acuity shifts in member populations (most pronounced in the exchange segment, and to a lesser degree in Medicaid) can create volatility in medical costs, though contractual mechanisms are in place to adjust for these changes.
• Reserving for new large contracts like Highmark requires conservative initial assumptions that temporarily elevate MER in early quarters, though this is expected to resolve as contracts mature.
• Member turnover and fragmented eligibility data in Medicaid could theoretically create disruptions to clinical intervention work, though management has stated this risk is manageable under the company's existing contractual and operational framework.
• The company faces debt maturity in 2029 that requires proactive capital structure adjustments over the next 12 to 24 months.

Q: With several months of experience reserving for new large performance suite contracts, does management believe current reserves are appropriate? What utilization trends are being seen, particularly for oncology Part B drugs following recent ASP rule changes? / A: Management states current reserving practices align with broader industry trends, and the company is appropriately positioned as of Q2 2026, though results can shift quarter to quarter. After isolating for mix, prevalence changes, and client-specific market adjustments, utilization trend is consistent with broader industry trends and continuing to improve, with no unexpected changes stemming from recent ASP rule changes. Headline trend numbers are skewed by ongoing client market exits and membership shifts, which create noise in aggregate data.

Q: Given greater than 25% 2027 revenue growth driven largely by lower-margin performance suite business, what are the key puts and takes for 2027 margins? / A: Average company-wide margins will appear to modestly compress when performance suite growth accelerates, because performance suite contracts have lower single-digit average margins than the company's other segments. However, margins for the performance suite segment itself are expanding as newly launched contracts mature, which offsets the aggregate average margin impact and supports overall adjusted EBITDA growth in 2027.

Q: What top-line headwinds are expected from Medicaid work requirements and exchange market exits in 2027, how do these compare to growth drivers like Medicare Advantage and new contracts? / A: Industry-wide, management expects a 20% decline in Medicaid expansion members, which equals a 4% to 5% decline in the company's total Medicaid membership. Additional client-specific headwinds prevent further public quantification, but overall total membership is expected to be flat to slightly down in 2027 due to these headwinds. Almost all 2027 revenue growth will come from new performance suite contracts, which has a strong pipeline supported by the company's small current market share (less than 2% of the U.S. performance suite market) and strong product demand.

Q: What is the current status of the company's sales pipeline after announcing several large deals over the past year? Has the pipeline replenished? / A: The pipeline has fully replenished and remains strong, supported by the company's small market share in a large addressable market. The pipeline now includes several of the top 10 U.S. health plans that were not previously targeted, with particularly strong traction for the company's leading oncology management product. Management expects additional large contract announcements similar to the Q2 2026 oncology partnership in coming quarters.

Q: Does higher Medicaid membership turnover and fragmented eligibility data degrade the company's ability to deliver targeted clinical interventions and hit savings targets in Medicaid? / A: Management states this does not meaningfully impact operations, because the company's oncology interventions are tied to short-term active treatment windows (90 to 180 days), and patients typically remain on their plans during active treatment. Contractual adjustment mechanisms automatically account for changing risk pools and acuity shifts, so these dynamics do not require meaningful changes to reserve or savings assumptions.