Evolent Health (EVH) Citi's 2024 Global Healthcare Conference summary

Key drivers of recent financial performance

• Unexpected spike in medical costs last quarter due to simultaneous in-quarter utilization increases (mainly oncology) and delayed claims from prior periods caused by payer IT issues.

• These issues compressed costs into one quarter, but would have been spread over the year with timely data.

• Current focus is on renegotiating contracts to mitigate future volatility and downside risk.

• New contracts now include protections such as rate corridors and case mix adjusters.

• Strong demand for solutions, especially in oncology, is driving a robust pipeline.

Contract restructuring and margin outlook

• Two main paths: renegotiate Performance Suite contracts with rate corridors or convert to Tech Services model.

• Corridors cap downside risk but may lower peak margins (e.g., 10% vs. 15% at maturity); Tech Services offers ~50% margin but on a lower dollar base.

• Confident that all three major contracts will be resolved by February, with similar terms to be added to other contracts upon renewal.

• Diversified contract base across Medicare, Medicaid, commercial, oncology, and cardiology.

• $100 million in targeted rate increases for next year, with $45 million secured and $55 million under negotiation.

Operational improvements and technology integration

• Ongoing efforts to streamline SG&A and cost of goods sold, with limited further SG&A cuts planned.

• AI and Machinify acquisition expected to double nurse productivity and reduce variable costs, with major impact anticipated in 2026.

• Peer-to-peer physician conversations remain central, with AI mainly boosting nursing efficiency.