Welcome to the Evolent Earnings Conference Call for the Fourth Quarter ended December 31, 2025. As a reminder, this conference call is being recorded. Your host for today's call are Evolent -- are Seth Blackley, Chief Executive Officer; and Mario Ramos, Chief Financial Officer. This 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. 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. A description of some of these 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 third quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most directly 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 in the Investors Relations website, ir.evolent.com and the Form 8-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.

Good evening, and thank you for joining us. Earlier today, we released strong Q4 results with revenue and adjusted EBITDA both landing in the upper half of our guidance range. Our performance reflects disciplined execution and continued momentum across our 3 value-creation pillars of strong organic growth, expanding profitability and disciplined capital allocation. Before I get into detailed updates on each pillar, I want to comment on our outlook for 2026 and the overall state of the union at Evolent. First, Evolent is retaining and growing its customers. In addition, we're adding market share through new partners, and we're forecasting the business will grow by approximately 30% in 2026. These factors point to a large market opportunity and validate that we believe Evolent is the leading solution to support payers as they balance quality and affordability in specialty care. Oncology, in particular, remains a challenge for health plans seeking to balance affordability and quality with very high trends expected for many years to come. For 2026, we expect that approximately 65% of our company revenue will come from oncology, up from 36% in 2025, and we expect our oncology product to continue to be the core of our growth in years to come. If you think about why our oncology product is growing so rapidly, we believe it's the combination of very high annual trend that our health plans are experiencing and the incredible opportunity to reduce clinical variability. As an example of clinical variability in oncology, our analysis suggests that for one tumor type, which is second line treatment for non-small cell lung cancer, oncologists today follow more than 200 different prescribing patterns. Variation is we believe it's not supported by the evidence and that can result in substandard outcomes for patients and unwarranted cost for the system. Evolent's…

Thank you, Seth. I'm excited to be here and energized by the opportunity ahead. Let me begin with Q4 2025 financial performance. Q4 revenue totaled $469 million and adjusted EBITDA was $37.8 million, which exceeded the midpoint of guidance. After adjusting for our ACO divestiture, baseline fiscal year 2025 revenue was $1.77 billion and adjusted EBITDA would have been approximately $141 million. Next, let's review our 2025 medical expense ratio, or MER, which represents Performance Suite claims as a percentage of Performance Suite revenue. For the full year, MER was 89%, excluding ECP, with oncology trend tracking in line with expectations. In the fourth quarter, MER was 95%, excluding ECP, driven primarily by out-of-period true-ups as we recognized a full year of savings shared with clients. While these timing items temporarily elevated MER, underlying medical trend remained stable throughout the year, demonstrating the consistency of our results and reinforcing our strong momentum heading into 2026. I know we have not discussed MER in great length in the past. However, given that Performance Suite revenue will represent more than 2/3 of our business in 2026 and beyond, MER will become the most transparent and consistent way to evaluate performance, but we will provide you with greater visibility into changes in MER going forward. Turning to 2025 expenses. Outside of the MER calculation, such as non-claims cost of revenue and SG&A, non-claims expenses totaled approximately $765 million for the year and approximately $190 million for the quarter. Our quarterly non-claims cost was lower as a result of cost initiatives and lower expense accruals and more than offset the elevated MER for the quarter. We expect non-claims costs to be meaningfully lower in 2026 as efficiency initiatives continue to materialize. More detail on that shortly. Turning to cash flow and the balance sheet.…

[Operator Instructions] The first question will come from Charles Rhyee with TD Cowen.

This is Lucas on for Charles. Can you help us understand a little bit more about the rationale and what's driving the conservative approach to reserving? Presumably, this is for the CVS contract. It's our understanding that initially, you guys are reserving for a 0% MER because your fees match the expected acuity of the population you're about to serve. But here, we're looking at an MER of 103%. I guess, can you help us understand what's driving this? You said new membership is expected to drive this MER higher. It's also our understanding that the enhanced contract allows you to retrospectively adjust the fees for this change in acuity. I guess why is that still driving a loss here, if that makes sense?

Yes. So the first thing I'll point out is when we have new contracts, we do reserve, and we have a different level of reserves and ongoing business. So that's a big part of what you're seeing with the ramp-up, and we have $900 million of new business revenue this year. So it's a very meaningful part of our profitability. These initial reserves are more conservative. In the beginning, there are lots of new data flow implementation that could impact the profitability and the claims coming through. So this framework is not new. It's something we've developed over the last couple of years. So -- and follows GAAP. The other piece, as you can see on the EBITDA bridge is when we do that and we ramp up IBNR, there is an explicit margin that's added. It's about $13 million. And that's just again, good reserve accounting that we have, and that's why the new contracts typically have that impact.

The next question will come from John Stansel with JPMorgan.

I wanted to quickly hone in, I know it's early, but given kind of some of your early indicators, what you're seeing with the new membership early on this year behavior, or anything kind of different than you saw last year? I know last year kind of progressing in line with your trends.

Yes. John, it's Seth. I'll take that one. So let's start with exchanges. I think I mentioned on the call, we're assuming about a 40% reduction. And the early indicators we're getting from our client base are consistent with that. And we're obviously in touch -- close touch with our clients. That number is obviously very different than if we had a different footprint of clients. I think more of that decline is from our clients proactively choosing to step away from risk pools as opposed to numbers not renewing because the subsidy changes or something like that. And I think, again, that one feels like a reasonably conservative assumption. We won't know for sure until in Q2 how the members fully enroll or not. But I think that's it on exchanges. We're trying to be quite conservative. On MA, I'd say it's mixed. We have a couple of clients who exited a bunch of markets and lost membership materially. We have a couple of clients who gained a lot of membership net. It was sort of a push for us across the year and then Medicaid has been kind of status quo and not much change there.

The next question will come from Daniel Grosslight with Citi.

Just a housekeeping question to begin with. It looks like stock-based comp has been pretty variable over the past few quarters. I'm just curious how we should be modeling that? And then my real question is on capital deployment for '26, just given the limited free cash flow that you do have available, and it does seem like you are focused on deleveraging. If you just look at the debt markets right now, especially for you guys, you seem to be particularly dislocated, let's call it. And you're trading -- your debt is trading at a significant discount. So I'm curious what your propensity is to go into the open market and buy down debt. Obviously, you have to be careful about messaging all that, but curious on how you're thinking about liability management, given how steep of a discount your debt is trading at?

Yes. So on the stock comp, I wouldn't change your assumptions. I think we're going to be in line with what you guys have seen in the past for the year. It's a good question. We see the same thing. We're obviously very aware of how our convert is trading. It's not -- right now, we're focusing on deleveraging by making sure we can execute. We also have, as I said, a very good, strong, flexible balance sheet, even though leverage is higher than we would like. And we also have some cash and undrawn capacity. So we feel like we're in a good position, but it is difficult just given the dynamic of the ramp up this year to go out and do much other than what we're doing, which is focused on the business. Obviously, if there are any opportunities to do good liability management and add shareholder value that way, we will look at it and weigh that against other things like cash on the balance sheet. But we are very aware of that dynamic, Daniel.

The next question will come from Jailendra Singh with Truist Securities.

First, a quick clarification. Just trying to reconcile your comment about second half. At one point, you said that you expect fourth quarter run rate to be around $150 million, but you're also expecting 70% of '26 EBITDA to come in second half, which would imply a much higher run rate. Is there something a dynamic between Q3 and Q4, we should be aware of? Or are there some nonrecurring items in second half which should not be part of annual run rate? So that's a quick clarification, if you can. But my main question is around, can you talk about your oncology cost trend expectations for '26? And if you can update like how did you end up on 25% compared to your 12% expectation you had for the year.

Sure. Yes, that's a very good question. Yes, there are some reversals in the reserve in the fourth quarter and contractual impacts. Not a huge amount, but that's why there's a little bit of a difference between the implied Q4 number that you may be calculating and what Seth said is the implied run rate at that point. So that's part of the reserve requirement process this year with the new business. So there is a little bit of that happening. On your second question, yes. So we are seeing sort of very stable trend on the oncology side on both really across the board. And we have looked at 2026 in a very similar trend level as 2025. I will say given one of the things that we -- that Seth talked about and we have in the earnings deck, our contracts now work in such a way that not every point of trend is the same. We have a number of different mechanisms to adjust trend for things out of our control. So a 15% trend as long as it's being caused by the change event metrics that we have in our contracts, may not be a big headwind for us. So we will continue to provide flavor with trend because that will impact MER, but we just want you guys to keep that in mind. The way our contracts work now. There are some very specific things that accrue to us on the trend side, and it really depends where the change is coming from.

Yes. And Jailendra, the last thing I'd add on the oncology trend side, I think the baseline that we saw across '25 and what we're expecting for '26, again, is consistent, not up or down in '26 relative to '25. And we -- again, '25 came in roughly where we thought.

The next question will come from Jared Haase with William Blair.

Appreciate all the details as it relates to the EBITDA outlook. Maybe I'll ask one on the pipeline. And I think there was a bullet point in the earnings deck you mentioned the late-stage contract opportunities that could provide additional upside here in 2026. And so I just wanted to sort of flesh that pipeline opportunity out a bit more, kind of understand how that's weighted to Performance suite versus T&S. And then I guess a specific part of the question here would be, if that is weighted to larger Performance Suite deals, could that potentially lead to an additional drag in the back half of the year if those do come to fruition?

Yes. Thanks for the question, Jared. So a couple of things on the pipeline. I'd say, I think I've been saying this for maybe 1 year, 1.5 years about the challenges that managed care companies have do translate into pipeline activity for us. And it's definitely bearing out, growth rate this year, the size of the pipeline. It continues to be really balanced, Jared, to be honest, between Performance Suite and Tech and Services. We have some very significant Tech and Services opportunities. We haven't announced and talk about 2 big Performance Suite opportunities today, but there are a number of both that could affect the growth rates over time. I think we feel really good about the growth rates over time. I would not worry about announcing a new Performance Suite deal that creates a new drag on '26. That is not something that we're going to be doing this year with the new Performance Suite contract. I think there are some go-lives on the Tech and Services side that could provide some modest upside. But I think the thing you should take away is that the '26 framework is pretty well locked down at this point. We don't have go-gets that really that we need to go figure out on the revenue side. And so really, all of this I'm talking about is for '27, and it's a nice blend of Tech Services and Performance Suite.

The next question will come from Jessica Tassan with Piper Sandler.

Mario, congrats on the first official earnings call. So we appreciate all the new disclosure, but obviously, we've been kind of burned by the Performance Suite business before. So just why should we be confident that the 103% MLR on new contracts in '26 reflects conservatism versus inadequate pricing on new business? And then just I think your 2025 results kind of imply about a 9% OpEx burden on Performance Suite revenue to get to approximately a 2% Performance Suite EBITDA margin. Just what is the MLR and OpEx combo to get us to those 7% to 10% long-term target margins in the Performance Suite?

Jess, I'll take the first one. So look, I think the main thing that I would focus on with respect to the new business is the structure of the contract. And we have a slide in the pack that shows you the asymmetry of how that works, number one. Number two, at 103% we're definitely underwriting out of the gates, we think at a very conservative place. And being able to apply the combo of conservative underwriting and a good contract does create that asymmetry that we talked about and the third -- last factor that Mario will comment on his run is I think we've taken all that and also applied it to how we guided for the year, meaning you got accounting policies and reserving and 103% does a certain set of things and then just generally how we land on the guide across all the factors of the business. We tried to orient towards conservatism and new CFO, part of that, I think, is a good and healthy dynamic in terms of being conservative. So that's how I'd start. And then on the OpEx thing. I think the thing you got to think about is flow-through economics, that 2%. I didn't totally track all the math. But each incremental dollar of care margin in the Performance Suite disproportionately going to fall to EBITDA, Jess, because there is some variable OpEx, but it's not -- it's more of a fixed cost investment on a lot of that. And so I think the 7% to 10%, we feel really good about. I think we're achieving that today on the legacy cohort as, for instance, and feel really good about being able to get there with the whole book over time.

The next question will come from Jeff Garro with Stephens.

I'll stick on the MER front and trying to think about that 89% actual performance for 2025? And then the 93% expectation for the full book of business for 2026 that has the drag of $900 million at that 103%. And my implied math is there's -- on the remaining Performance Suite business from '25 to '26, there's some improvement, pretty modest, but would love to hear you explain more about the specific drivers of improvement and opportunity even beyond what's kind of underwritten in that 93% full year '26 expectation for the remaining Performance Suite business, much of which is already on those new contract structures.

Sure. I think it's just along the same things we've talked about. It's -- because we have so much new business upwards of $900 million we expect this year in new Performance Suite business, and as typical, we're not unusual. We are reserving. We have to build up reserves. We have to build up IBNR over the first few months. And because, as I said, the new relationships, new data flow, just the teams working together, we do have a framework that tends to be more conservative on the reserving side. That doesn't last all that long, before -- especially contracts that start in the middle of the year. Once you get over that initial reserving, you actually start looking at some benefits. And so part of what you're seeing in the fourth quarter, is reversal of some of that. And the base business has continued to perform well. That's why the blend is at 93%, which is worse than last year. It's primarily the new business driving up MER, offset by continued good performance on our existing cohort.

Yes. And Jeff, I think part of the question too is, okay, how does the existing cohort get a little bit better? And there's some ongoing clinical initiative, but there's also some contractual things. I'd say the majority of the improvement is what I would call contractual in nature, which gives us a lot of confidence in it as opposed to go get on the clinical side.

The next question will come from Matthew Gillmor with KeyBanc.

Just following up on some earlier questions. I'd be curious if you could just orient us around some of the swing factors in terms of the high end of the EBITDA guide versus the low end. Is trend on oncology costs are the main one to think about? Or are there other sort of factors that you'd orient us around?

I think it's MER to start with, which is why we've started talking more about it, why we're disclosing it in a different way in our financials really is about MER, especially as we sit here, we have -- we think we have a good view of membership aside from any other exchange issues. We feel very good about where we are. And then it's the evolution of can we accelerate the savings that we're projecting. Again, as I said, trend can be a factor. We feel like we're being appropriately conservative on those metrics, especially given the new contract provisions where not every 1 percentage of trend is the same. We have a lot of levers to protect us in case trend is heading the wrong way for things that we don't control. So that is the biggest swing factor by far.

The next question will come from Richard Close with Canaccord Genuity.

A couple of questions. Seth, earlier on, when you talked about exchanges, you said something about return to growth over time. And I'm just curious what goes into that comment? And then a follow-up with Mario. Just your thoughts, you've been here 90 days, I guess, on the ground. It sounds like your fingerprints are on the guidance and some of the new disclosures. Just curious maybe your thoughts in terms of any changes you're thinking about going forward, that would be helpful.

Yes. I'll start on the exchange and then pass it to Mario. So Richard, what I'd say there's 2 things on exchange. One is, if you go just look at how consumers have bought that product, in the marketplace. It has had growth to it that go outside of subsidy swings, and there is interest in the product generally. So we have this dislocation from subsidies being pulled back and risk pools are getting shifted. I think over time, the idea of consumers using it to buy product probably will come back over some time period. And whatever the growth rate that will be, that will be. Second factor is more of a wildcard, but should there be a change in the midterms or legislation or anything like that to adjust how subsidies work that could be more of a step-up in membership, which we're obviously not counting on either of those 2 things in the '26 number, but it could be something in the out years.

Yes. And it's been a great 90 days or a long 90 days. I'm just -- if anything, I'm more excited to be here than I thought I'd be. The team is amazing. I think what we do is at the heart of what we need more of to fix what's wrong in health care. So all that feels really great. I've tried to partner with Seth and figure out a way in how we communicate with all of you and our other investors with more clarity, transparency and how it directly correlates to what you're seeing in the financial statement. So I think if anything, I will try to continue to do that. The MER, in my mind, gets us quite a bit of the way to a place where we're doing that. But we will continue to look at new and improved ways to try to communicate with you guys so you can understand how our business is performing and holding us accountable.

The next question will come from David Larsen with BTIG.

Can you talk about what your mature Performance Suite EBITDA margins look like? What is that percentage? How long does it take to get there? And then just over time, like in 2027, 2028, 30% revenue growth, that's high, that's great. But it seems like it's coming at the cost of margin degradation and free cash flow. So why not grow revenue, let's call it, like 10% or 15% year-over-year and focus on more EBITDA growth, EBITDA margin growth and free cash flow and debt pay down?

I think on the -- we're not going to talk -- we don't talk about EBITDA margin, but we can talk generally about our sort of existing book of business. And when you look at the MERs that we're disclosing today around the new cohort and what we had at the end of 2025, you're getting to a pretty good care margin. We've talked around 7% to 10%. The existing book is doing a little bit better than that, partly because of what Seth said, we're getting some contractual adjustments that improve our base rate, which aren't temporary, but they won't happen every year. They'll stay there. They just won't happen every year. So for the whole book of business, I think we're feeling very good about how it's performing. And I think I'll let Seth comment on the focus profitability versus growth. I just -- to me, coming in, understanding the Highmark relationship, some things are just -- they're great for the business, and it may create short-term pressure. But long term, we want to create value. We know that we can lay this out for you guys, so you see the huge opportunity we have in front of us with that partnership with the current revenue this year, even though from a profitability standpoint, we will have to execute to get it to the point that we know we can like the rest of the business that we have.

Yes. And David, I'd add just one other thing, which is the Performance Suite we think, is the best way to create value for our partners, which we got to start with them. And we think it's more economically attractive on a per life basis for us as well. And so I think, particularly when you have the enhanced model, more predictability and the like, you're willing to go through a period of investment to get there. It's kind of what Mario just said. But I do think it's important that the pie of value is bigger under the Performance Suite than Tech and Services. And so when you choose between those 2 products, we've -- the enhanced Tech and Services, we think is the better of the 2 products. If the client wants Tech and Services, we'll obviously do that. We'll do whatever they are interested in doing. And then in terms of the investment ramps and the like, again, I think to Mario's point, you find a partner who's a great partner and they're interested in creating a partnership together. You do that because it's going to create value over time. And so I think we're making the right decisions to maximize the value of the company.

Next question will come from Matthew Shea with Needham.

I appreciate the update that 90% of the Performance Suite contracts now have the enhanced protections and MER corridors. But of the 10% that have not migrated, you noted the scope is limited and protections are not economically warranted. Could you just update us on what is in that 10%? And it sounds like that will stay without protection. So how are you thinking about those contracts longer term? Would you eventually look to migrate or sunset those? Or do you have confidence in them even without the protections?

Matthew, I would expect almost all of those to move to the enhanced as well. And maybe there's a couple of percent of the 100 that never migrate, but I think it's going to be high 90s at some point would be my guess. I can't guarantee that. I think that's where it's headed. And I think it's the right call for our partners and the right call for us. It kind of gets everything into a standard structure. So that's how I think about it.

The next question will come from Sean Dodge with BMO Capital Markets.

Maybe just on the cost efforts you mentioned, Mario, for 2026. You said you expect $50 million of that to be captured within the year. Just the time line on those? Are those going to unfold pretty ratably across the year? Are they more kind of early year or later year kind of more heavily weighted? And then I guess, just how should we think about the run rate benefit of those going into 2027?

Yes. And those are baked, obviously, in the adjusted EBITDA guidance into the cost base that is implied by the guidance. I would say, Seth talked a lot about getting $20 million last year in AI and automation initiatives. Those already happened at the end of 2025. So of the $50 million, $20 million were done then. We did another big portion of the remaining $30 million in early this year. And there will be a piece that we will continue to get throughout the year. So it's largely running through. And as I said, when you look at what we've guided to and the cost base implied by that, the $50 million is in there. There isn't a ton of wrap or additional run rate because they were mostly -- they will almost be done early in the year.

The next question will come from Kevin Caliendo with UBS.

I appreciate the downside protection of your new contracts, but I really want to understand when you are signing new business, what kind of IRR or ROIC are you modeling out or shooting for? And I guess maybe it's not as high as it used to be because you have lower downside. Obviously, there's risk-reward here. But when you're modeling this out, what are you aiming to achieve? Like what's the target return? And how do you think about when that return is going to come about? Year 1, year 2, year 3, et cetera? Just trying to understand from a modeling perspective, how to think about it, how do you guys think about it, and how we should think about it in terms of total returns.

And -- let me add a little bit more color to how we think about these contracts, which I think will partly answer your question. There's a spectrum from Tech and Services, right, where it's -- there's no investment and no downside all the way to the Performance Suite enhanced model where you might have 10% margin, but you have some downside. There are things in between. And we are underwriting around our cost of capital at Evolent. You don't want to be over 20% cost of capital return, which gives you space in between our cost of capital and a good return. And again, you have to look at how much downside exposure is there in the opportunity versus how much upside is. But that's how we would think about it as clear at a 20% hurdle rate at least.

The next question will come from Ryan Halsted with RBC.

Just my question is, again, focusing on the MER, Obviously, a key KPI and oncology cost trends is also clearly a big contributor to that. I mean is there -- for the portion of the risk that you are controlling or at risk for, is there a good way of looking ahead at kind of what would be the swing factors into that portion, whether it be -- is it prescribing patterns of higher costs therapeutics? Is that sort of the piece of the oncology cost trends that you're still most exposed to, I guess, or in control of?

Yes. Great question. So yes, we think about it as follows: probably 80% of what we're exposed to are in charge of managing would be the therapeutic. And 20% would be other costs, which might be radiation therapy or things like that. Within the therapeutic exposure that we have, we carve out new drugs and indications or things that are not in our control. So things that would be in our control would be for a given cohort of patients that are receiving similar types of treatment, what is the average cost of the therapeutic in that case, plus the 20% of other. And that's really how we think about it. I think that's our unique value proposition is being able to manage the therapeutic dosing selection, timing et cetera. You guys know -- I'll use checkpoint inhibitors as an example that everybody understands, have been very high cost drugs like KEYTRUDA or OPDIVO or others. The duration of that is the patient on it for 90 days, 120 days, 150 days? If it's not working, are you able to get on to a new therapy quicker? What's the number of vials or dosage that are open, et cetera. It's all of those decisions, which again are very tied to the patient profile and the genome and deeply clinical decision-making, which is really the core of the clinical work we do.

This concludes our question-and-answer session. I would like to turn the conference back over to Seth Blackley for any closing remarks.

Thank you for joining tonight. It's great to have Mario and the team, and I just want to say a big thank you to the entire Evolent team. It's been a lot going on over the last 1.5 years. Our team is highly committed to the mission of this company, I'm really proud of them, and I'm very confident that the team and I and the Board are going to deliver for our shareholders, and I'm excited about that.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.