Q3 2025 Evolent Health Inc Earnings Call
Speaker #3: Welcome to the Evolent earnings conference call for the third quarter ended September 30, 2025. As a reminder, this conference call is being recorded.
Speaker #3: Your host for the call today from Evelyn are Seth Blackley chief executive officer . And John Johnson , chief financial officer . This call will be archived and available later this evening .
Speaker #3: 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 US federal laws .
Speaker #3: 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 the 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 .
Speaker #3: 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 .
Speaker #3: 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 on the Investor Relations website .
Speaker #3: I risks . 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 .
Speaker #3: And now I will turn the call over to Evelyn's CEO , Seth Blackley . Please go ahead .
Speaker #4: Good evening , and thanks for joining the call . On this call this evening , I'll take you through our results across the three areas of shareholder value creation .
Speaker #4: John will then provide details on the numbers , and I'll close with some additional thoughts before we take your questions . We're pleased to report financial results for Q3 that exceeded expectations on both the top and bottom line .
Speaker #4: These results , we believe , demonstrate that Avalon's products are resonating and what continues to be a very dynamic time in the industry .
Speaker #4: Let's start with updates on our three areas of shareholder value . Creation of one . Organic growth , two margins , and three capital allocation .
Speaker #4: Starting with organic growth , Q3 revenue of $479.5 million was at the top of our guidance range . We expect our revenue for the full year to be between 1.8 $7,000,000,001.88 billion .
Speaker #4: We're announcing two new revenue arrangements today , one in the performance suite and one in the technology and services suite . First , we have signed a contract with one of the largest Blue Cross plans in the country to launch our performance suite for oncology across more than 650,000 Ma and commercially , fully insured members .
Speaker #4: As the final implementation schedules may shift slightly in either direction, we are currently expecting a May 1, 2026, go-live and therefore would expect the contract to contribute approximately $300 million in 2026 revenue.
Speaker #4: typical capitation rates . We expect this to contribute north of $500 million in revenue annually . This new partnership leverages our enhanced Performance Suite framework and includes retroactive adjustments for prevalence , case mix and the like , as well as bidirectional risk corridors that significantly limit our downside while increasing value sharing to our partner , ensuring that our economics are closely tied to the value we're creating and mitigating exposure to volatility .
Speaker #4: Finally , it's important to note the revenue estimates . I just discussed are just for the fully insured commercial and Medicare Advantage lives .
Speaker #4: The commercial Azo and Medicaid membership at this plan would represent additional growth opportunities over time . And our second revenue arrangement , we've announced is a large provider sponsored health plan in the southwest .
Speaker #4: And they have signed a contract to deploy our oncology condition management technology and services solution across their membership , adding to their existing musculoskeletal solution .
Speaker #4: With these additional announcements , we have signed contracts for 2026 Go Live that will add more than $550 million in new 2020 revenue and annualized contract value of over $750 million .
Speaker #4: These new signings take total revenue under contract for 2026 to approximately $2.5 billion . Of course , finalize our revenue outlook for 2026 and February .
Speaker #4: Once we have final membership and go live dates . But this forecast of 2.5 billion in revenue takes into account our current expectations for revenue decreases in conjunction with membership reductions in the exchanges .
Speaker #4: Medicare Advantage and Medicaid . Additionally , we believe the expected contract launch timing in 2026 will position the company for strong bottom line growth in 2027 and even after today's announcement of more than 500 million in annual contract value , our probability weighted pipeline exceeds 650 million annually and continues to grow on margin expansion .
Speaker #4: Our Q3 adjusted EBITDA of $39 million was in the upper half of our expected range , and represents 23% growth year over year .
Speaker #4: John will talk more about the drivers of our adjusted EBITDA performance and our outlook for this year . With today's announcements , we anticipate over 90% of our performance suite revenue in 2026 will be covered by our enhanced protections , which update our pricing for disease prevalence mix and other factors .
Speaker #4: And include risk corridors that limit our downside , enhancing our ability to drive sustainable margin growth in the future . We continue to work towards our long term goal to auto approve over 80% of our baseline authorization volume , delivering on faster authorizations at a lower cost .
Speaker #4: During the quarter , we began rolling out our artificial Intelligence review or copilot within auth intelligence into our musculoskeletal workflows , and we're beginning to realize the AI efficiency improvements we expected .
Speaker #4: On allocation front , the sale of our primary care business , Evelyn Care Partners , is on track to close later this year .
Speaker #4: We plan to use the proceeds from that sale to pay down approximately $100 million of our senior term loan , lowering our cash interest burden by about $10 million annually .
Speaker #4: With the retirement of our 2025 convertible notes , we have no significant liabilities until the end of 2029 , and we reiterate our commitment to use free cash generation from the business to deliver .
Speaker #4: We believe our growth in the continued strength of our pipeline is driven by the unique value we deliver to all of our core stakeholders .
Speaker #4: Health plans , providers and members want to provide an update now on our product development efforts as we continue to innovate our health plan partners turned to Evelyn to address excessive specialty care costs , particularly in oncology , where we believe we provide a critical service in this environment , which is delivering savings while seeking to improve the patient and physician experience , as evidenced by our accelerating pipeline and new contract signings .
Speaker #4: We believe the environment presents an opportunity to increase the penetration of our specialty care model at a time when demand for our offerings has never been higher .
Speaker #4: For example , in oncology , we believe we touch approximately 9% of all oncology cases in the United States today , about 8% in our technology and services model , and only 1% in our performance suite model , as evidenced by today's announcements , we are seeing the differentiation relative to our competitors .
Speaker #4: We expect our enhanced performance Suite model to grow over the coming years . We believe this market opportunity will provide our customers with significant value and importantly , provide excellent with a strong and sustainable source of growth in the coming years .
Speaker #4: We also believe the enhanced protections in our modified contracts will provide a path to driving strong and disciplined adjusted EBITDA growth in the years to come .
Speaker #4: To give you a sense , for the longer term opportunity with the oncology Performance Suite increasing our oncology risk penetration current 15% of the market represents an addressable growth opportunity of greater than $15 billion annually over time .
Speaker #4: On the provider front , we're excited to announce a strategic partnership with American Oncology Network , which strengthens our provider alignment model under our Oncology care Partners brand .
Speaker #4: The model seeks to enable high quality , more affordable and connected cancer care , all without relying on utilization management . Instead relying on EMR integration to drive decision making at of care .
Speaker #4: The model should significantly lower the burden on oncologists , enabling them to focus on what matters most of caring for their patients on their cancer journey .
Speaker #4: As part of the partnership, physicians and patients will have access to Evolent's comprehensive cancer navigation program. The American Oncology Network is one of the nation's fastest-growing networks of community oncologists and shares our dedication to innovation and cancer care at the point.
Speaker #4: Finally , we're excited by the continued progress of our comprehensive cancer care navigation program . By combining Evelyn's expertise in oncology services and care management with the Cardiology mobile Application is program has delivered exciting results this year that now extend into reducing inpatient inpatient costs .
Speaker #4: Whereas our traditional F1 oncology model focuses on outpatient costs and drug costs . For example , our navigation model is now live in multiple markets and has shown decreases of up to 40% in inpatient and emergency department utilization and match case studies .
Speaker #4: The program also has patient satisfaction scores exceeding 90% . Before I hand it over to John , let me make some quick comments on the policy environment and our outlook for 2026 and beyond .
Speaker #4: Across the last 24 months , we have seen two dynamics at work . One , we have been taking share , particularly in oncology .
Speaker #4: Further penetrating into top health plans when an important new logos while continuing to renew existing customers and updating our performance , we contracts demonstrating the long term durability of our model .
Speaker #4: And two membership in our core government sponsored market has been going through a significant shift , shrinking in number and growing in acuity .
Speaker #4: We expect both of these trends will continue in 2026 . Recall that our previous expectation for 7 to 9% membership growth in Ma for 2026 was offsetting an expected contraction of approximately 20% in the exchange market for 2026 .
Speaker #4: CMS . Most recent forecast from the end of September . Now expects overall Ma membership to contract by about 3% in the exchanges .
Speaker #4: That remains a wide range of potential outcomes , depending on how and when the federal government is reopened with health plans over the last couple of weeks , forecast .
Speaker #4: Exchange membership declines of as little as 15% and as much as 65% . While we expect to grow our customer footprint and revenue meaningfully next year , and while we're on track to achieve our expected efficiency targets for 2025 , our 2026 adjusted EBITDA outlook is more uncertain than usual for this point in the year .
Speaker #4: Given the wide range of outcomes on our customers membership in Medicaid exchange and Medicare based in particular on the changes from the one big beautiful bill .
Speaker #4: For example . If exchange membership declines or towards the higher end of that forecasted range , and our customers Medicare Advantage membership shrinks , it's unlikely we'll be able to deliver meaningful adjusted EBITDA growth in 2026 , above our pro forma 25 baseline .
Speaker #4: If robust subsidies are reinstated as part of reopening the government , this headwind may be reduced . Likewise , the details of membership declines will matter .
Speaker #4: For example , while the Ma market in aggregate may shrink by 3% , it's possible that our Ma customers may gain market share regardless of membership dynamics .
Speaker #4: It's important to note that, based on new contracts signed to date, we will exit 2026 with more than $750 million in newly launched annualized performance suite revenue.
Speaker #4: Consistent with our past commentary , we are expecting minimal adjusted EBITDA contribution from these new launches in 2026 , but would expect them to generate adjusted EBITDA contribution of $75 million or more at target mature margins .
Speaker #4: These new contracts , as well as others we expect to sign in the future quarters , should provide a significant earnings tailwind in the years to come .
Speaker #4: We intend to use this moment of health plan pressure to cement Evelyn's position as a leading specialty solution . The pain felt by our customers , both on membership and utilization , is creating a very significant growth opportunity for Evelyn .
Speaker #4: We signed 13 new contracts in 2025 , and we have contracts in place that should drive more than 30% top line growth in 2026 .
Speaker #4: And we also anticipate continued strong growth into 2027 and 2028 . It is our belief that capitalizing on this period of industry disruption with disciplined growth will create significant long term value for all of our stakeholders .
Speaker #4: With that, let me turn it over to John to go through the numbers. Thanks, Seth.
Speaker #5: Q3 revenue of 480 million represented 8% sequential growth versus the second quarter , driven by new launches
Speaker #5: across both the performance suite and the technology and services suite . Sequential growth in our per member per month fees in both the performance Suite and tech and now have services was driven principally by product mix with the Q3 launches at a higher than average fee .
Speaker #5: As we continue to demonstrate pricing resilience in a dynamic end market with these launches , we are currently tracking towards the upper end of our full year revenue guidance , and we have narrowed that range accordingly .
Speaker #5: Adjusted EBITDA of $39 million was modestly ahead of our expectations and represented growth from our technology and services business and the early success of our AI operational efficiency projects , offset by initial reserve building for our new performance suite launches , our specialty performance suite , care Margin , which is the difference between our Capitated revenue and claims expense , was approximately 7% , consistent with our performance year to date .
Speaker #5: Normalized oncology trend continues to be just under 11% year over year . Note that during September and into October , we saw an increase in medical utilization in our exchange book , primarily in cardiology .
Speaker #5: Consistent with industry wide expectations of a benefit rush ahead of significant premium increases in 2026 . Given this we have opted to maintain our conservative reserving posture consistent with our behavior during the first half of the year , and we have narrowed our adjusted EBITDA outlook accordingly .
Speaker #5: expectation , Turning to the balance sheet , we ended the quarter with $116.7 million of cash and equivalents and 47.5 million of revolver availability , cash change versus our Q2 ending balance was driven by $15 million in cash flow from operations , offset by software development costs of $9,000,040 million in net cash used in the August transaction .
Speaker #5: Note that we are not seeing this trend variability in Medicaid or Medicare , where cost trends remain stable versus our first half results .
Speaker #5: Refinancing our 2025 Convertible Notes and buying back common stock cash from operations of 15 million was lower than expected , driven by timing of cash receipts , particularly from the Medicare Shared Savings program , which was paid in October instead of September .
Speaker #5: Our net debt of 910 million reflects the exchange of our $175 million in series A preferred stock into second lien debt . Recall that this exchange included no changes in economic terms to Evelyn , other than the interest now being taxed deductible between cash generation and the divestiture of Evelyn Care Partners .
Speaker #5: We expect to end the year with net debt of approximately 805 to 840 million , which would represent a net leverage ratio of approximately 5.5 times at the midpoint of our 2025 adjusted EBITDA guidance .
Speaker #5: With the retirement of our 2025 Convertible Notes , we have no maturities until the end of 2029 , but Delevering remains our primary capital allocation priority as we near the end of the year , we are narrowing our guidance ranges for 2025 revenue and adjusted EBITDA to be between 1.87 billion and 1.88 billion and 144 to 154 million , respectively .
Speaker #5: These ranges presume a 1231 close for our ECP divestiture and would be slightly lower if the transaction closes earlier . The corresponding quarterly ranges are 462 to 472 million .
Speaker #5: In revenue and 30 to 40 million in adjusted EBITDA . We are not assuming any new launches in our revenue outlook . The primary variable is changes in our customers enrolled membership and as I mentioned earlier , this adjusted EBITDA range presumes a further decline in exchange margins from what we experienced in Q3 .
Speaker #5: While this outlook is conservative , we believe that as the appropriate posture given the industry wide commentary on this segment . With that , I'll turn the call back over to Seth .
Speaker #4: Thank you . John , I want to close by commenting on our CFO transition , announced this afternoon . First , I want to thank John for his incredible contributions to Evelyn as our CFO over the last six years .
Speaker #4: I look forward to continue working with him as he takes on the chief Strategy Officer role for the company . The role will include supporting our rapid oncology growth and the time ahead , and our work to drive our target oncology trend down .
Speaker #4: In addition to more traditional strategy functions , I also want to welcome Mario Ramos to Evelyn . Mario was previously CFO of CVS Caremark , a division of CVS health , in addition to holding other CFO roles at CVS , most recently , Mario was CFO of Wellbe Senior Medical , a risk bearing value based care provider based on his track record and reputation in the industry .
Speaker #4: I'm highly confident Mario will be an incredible addition to the team . Mario will join Evelyn on November 17th and assume the CFO role on January 1st .
Speaker #4: In addition , as our growth accelerates in AI becomes a more important factor in the operations of our business , we're making a number of other important organizational investments and adjustments that we noted in our press release .
Speaker #4: In closing , I remain incredibly confident in Evelyn's future . We believe we have developed the leading specialty platform in the industry . I believe the exceptional renewal rates of our current customers , along with the validation of new customer contract signings under our Enhanced Performance Suite model , demonstrate the value and durability of our solution .
Speaker #4: While the industry is undergoing significant changes , Evelyn is taking market share with a new , disciplined contract structure and I believe we are becoming a more critical part of a system that desperately needs higher value , higher satisfaction and lower cost solutions , particularly in high cost areas like oncology .
Speaker #4: We have the right team in place to take advantage of the opportunity to head and drive value for our customers , employees and our shareholders .
Speaker #4: With that , we will take your questions .
Speaker #3: Thank you . We will now begin the question and answer session . To ask a question , you may press star , then one on your touch tone phone to withdraw your question , please press star , then two .
Speaker #3: We please ask you limit yourself to one question . You may reenter the queue if you have additional questions . At this time , we'll pause momentarily to assemble our roster .
Speaker #3: And the first question will be from Kevin Caliendo from UBS . Please go ahead .
Speaker #6: Hi . Thanks for taking my question . I want to talk a little bit about the new contract wins . Obviously , a huge number .
Speaker #6: I appreciate you giving us that . It's not going to really contribute much next year . And I believe you said potentially $75 million when they hit peak margins .
Speaker #6: How should can you maybe break this down a little bit ? Is 10% sort of the new the way we should be thinking about new business in terms of peak margins going forward .
Speaker #6: Is there something about the mix of these contracts that affects that ? Just trying to understand , sort of , because the new contracts and the restructuring of your contracts going forward is a big question mark .
Speaker #6: And this is obviously a huge amount of new business . That's one . And I'm just trying to think as we think longer and longer term , is this how we should be thinking about new business , or is there something unique about the mix of these contracts that get you to sort of 10% ish peak margin ?
Speaker #4: Yeah , great . Great question , Kevin . So this is Seth . Let me make a couple points . Number one . Yes , this all of these contracts that are in that $750 million that we talked about are under enhanced Performance suite .
Speaker #4: That's the only way we're setting up new contracts going forward that has , you know , prevalence and case mix adjustments , but also has a narrower corridor model attached to it so that the contract structure , you know , I think the second thing that I want to highlight and then I'll get to your question is , you know , between the Aetna and this contract and what we're seeing in the pipeline , I think we feel really good about our ability to use this contract structure as the standard going forward .
Speaker #4: It's also the standard that we , you know , have implemented backwards into all of our existing contracts or almost all of them at this point .
Speaker #4: So that's how you should think about it going forward . I think 10% is a reasonable , mature margin to think about . Yes , that is lower than historically .
Speaker #4: We used to talk about , and that's intentional . The bell curve is narrower . So , you know , we have taken out downside from our exposure .
Speaker #4: And we've also given a little bit back to our partners . And so I think you should think of the business . I think there's a reasonable , you know , mature margin target .
Speaker #4: To your point . You know , I think you should also think about lower volatility , more predictability . And that's , you know , the model that that we believe in going forward .
Speaker #4: Does it leave some net present value , if you will , on the table . Perhaps it does . But I think more predictability discipline with these contracts is the right trade off to be making .
Speaker #3: Thank you. And the next question will be from Daniel Grosslight from City. Please go ahead.
Speaker #7: Hi guys . Thanks for taking the question . And congrats on a strong quarter . I'd like to focus on the puts and takes around 2026 EBITDA .
Speaker #7: It sounds like the big variable here is just what happens . On the exchanges . But I was hoping maybe you could help quantify that impact a bit .
Speaker #7: Maybe on the high end and low end and then maybe on top of that , if you can layer on any additional investments , you're making in 2026 , other than what you've announced this , this year , and if you're still expecting to see that , I think it was a $20 million improvement in EBITDA from AI .
Speaker #7: I just want to make sure that you're you're still expecting to realize that next year . Thanks .
Speaker #4: Sure . So I'll start then . I think I'll pass it to John to add a little bit of color . So , you know , the big factors that set up 26 are number one growth .
Speaker #4: We feel very good . Their number two is you asked about it , but our cost structure and the efficiencies baked into that we feel good about that .
Speaker #4: And we're achieving the results that we want . The third big one will be trend right in particularly in oncology . And we commented on that today too .
Speaker #4: We feel good about where we are . It feels like our forecasts have been right , and we feel like we're still set up in a good way .
Speaker #4: In the fourth one is membership . To your point , yes . That is the big one . That's open . I think it's too early to tell with the width of the ranges that we're talking about , and it's also a little bit hard to give you an algorithm for .
Speaker #4: Okay , plug in this percent membership decrease , I give you that , you know , EBITDA change . I think that a lot of it depends on our cost structure .
Speaker #4: So the more membership comes down , the more we have to look at our cost structure . There's variable costs and there's fixed overhead .
Speaker #4: And we're going to have to look at fixed overhead of membership comes down by a certain percentage . Right . So it's hard to give you an algorithm is the short answer I think the way we framed it in the script is probably the best we can do with the width of the ranges that are out there , which is , you know , could be tough to get meaningful growth .
Speaker #4: Or we have good paths to EBITDA growth , depending on what happens with membership .
Speaker #3: Thank you . The next question will be from John Stancil from JP Morgan . Please go ahead .
Speaker #8: Great . Thanks for taking my question . I wanted to dig in a little bit more on the Ma growth assumptions for enrollment next year .
Speaker #8: Appreciate the commentary about CMS forecasts and the idea that enrollment could decline by a low single digits , but I think some of your large customers have taken different strategies .
Speaker #8: In particular , one of your largest customers is potentially positioned themselves for share gains . So I guess , can you talk about your different outcomes ?
Speaker #8: You think within Ma enrollment and what that means for 26 and how you're thinking about your large payer customers performing into next year ?
Speaker #4: Yeah , it's .
Speaker #5: A good observation , John and I think that , well , we don't have a crystal ball on this . Of course , we do think that if one or more of our current partners ends up as meaningful share gainers for Ma membership next year , that would be a nice tailwind for us .
Speaker #5: In particular in the technology and services suite .
Speaker #3: Thank you . In the next question will be from Charles Ray from TD Cowen . Please go ahead .
Speaker #9: Hey , this is Lucas on for Charles . Thanks for taking the question . In terms of thinking about the Hicks subsidies and whether they expire , can you help us understand ?
Speaker #9: You know , obviously you're talking about a membership impact right now , but can you help us understand maybe the acuity shift that could come along with that , or maybe compare it to the Medicaid redeterminations acuity shift that you saw over the past 18 months ?
Speaker #9: And help us out with that piece ?
Speaker #5: Yeah , for sure . So just to put some numbers around it right . Revenue from the exchanges this year is around $360 million .
Speaker #5: About half in the performance suite , half in tech and services . And so that's the the top line in terms of the total capitation that we're talking about here .
Speaker #5: And you know , the second thing that I'd say there , Lucas , is recall that our contracts have these protections and automatic adjusters for changes in the population prevalence , disease mix , etc.
Speaker #5: , that go a long way towards protecting us against wild acuity shifts . And the last thing that I'd note is because this is such a , you know , it's such a topic , right ?
Speaker #5: And a known item going into next year , we have very active discussions with our payer partners in the exchanges for next year around ensuring rate adequacy based on the population that they end up with next year .
Speaker #5: So we have a high degree of confidence in our pricing for 26 as it relates to our expected acuity shift .
Speaker #3: Thank you . The next question is from Jailendra Singh with Truist Securities . Please go ahead .
Speaker #10: Hi , guys . This is Eduardo Rondon for Jailendra . Thanks for taking the question . Just on the oncology trends , which appear to be still better than the 11% that you guys guided for the year .
Speaker #10: Can you perhaps give some color on how that's played out from Q1 and now through Q3 ? You know , has that trend improved as the year progressed , or has it gotten worse in any way ?
Speaker #10: Just if you could flesh that out , that'd be great .
Speaker #5: For sure . As we're seeing it about flat across the year with the one tweak that over the last couple of months , we have seen a bit of that benefits rush in the exchanges .
Speaker #5: Most of that has been in cardiology , but we've seen a little bit of it in both . In Medicaid and in Medicare Advantage .
Speaker #5: Oncology trend across the year has been relatively stable .
Speaker #3: Thank you . The next question is from Jeff Garro from Stephens . Please go ahead .
Speaker #11: Yeah . Good afternoon . Thanks for taking the questions . Maybe go back to the the pipeline . And great to hear the positive commentary .
Speaker #11: There . Was hoping you could add to it in terms of the pacing of decisions . And relatedly , potential timing of go lives that , you know , what's determining the pacing of of remaining decisions .
Speaker #11: And as those prospects are existing clients make decisions , are we now looking at 2027 go lives , or are when still possible , that could translate to midyear 2026 go lives .
Speaker #11: Thanks .
Speaker #4: Yeah , sure . Jeff . Helpful . So look , I think that what I would say on the on the pipeline is it's generally about the same as it's always been .
Speaker #4: It's not sped up or slowed down . I think the overall demand is . Really significant , as I mentioned . And I think that's going to continue .
Speaker #4: Could we still have some things that go live in 2026 that are new ? Yes . We could for sure . And so and we've got a lot in the pipeline that , you know , could convert over the coming months .
Speaker #4: Even so , I think the 26 outlook is still , you know , open partly based on opportunities for additional revenue as well .
Speaker #4: And again , I just say the biggest factor I think we're feeling right now , Jeff , is just really significant demand because of the pain that folks feel in the market trying to manage and balance great care , whether it's oncology or anything else , with affordability and getting a lot of phone calls to get support on that issue .
Speaker #3: And our next question will be from Jessica Tassin from Piper Sandler . Please go ahead .
Speaker #12: Hi , guys . Thanks so much for taking the questions . I guess just maybe first , can you all elaborate a little bit on the adversity that you're seeing in the exchanges ?
Speaker #12: I guess just because I don't necessarily think about oncology as being subject to induced utilization , but but what are you seeing there ?
Speaker #12: Is it just acuity mix into the end of the year because marketplace integrity efforts ? And then just secondarily , appreciate you guys addressing the 26 EBITDA guide .
Speaker #12: But can you maybe just give us a sense of what are the items we should be thinking about in terms of bridging from 2025 to 26 ?
Speaker #12: Maybe starting with ECP and then going through the the AI efficiencies , etc. ? Thanks .
Speaker #4: Yep .
Speaker #5: So on the first one , Jess , the
Speaker #5: cardiology , of which is you point out is a little bit more discretionary in terms of timing than is oncology . So that's really where we're seeing that uptick that we noted into the end of Q3 and into Q4 .
Speaker #5: Here . I just note on that one , before I talk about 26 , as I said in the script , we have assumed in our guide a provision for that trend accelerating .
Speaker #5: We haven't seen , but that seems like the right posture for us right now in the exchange line of business . So then talking about 26 , let's just hit a couple of numbers on the ECP divestiture .
Speaker #5: We expect that to be about $10 million of EBITDA associated with that divestiture . And so the think of the proforma EBITDA this year as $10 million less than where we land .
Speaker #5: That's your launching point for next year , assuming we have it for the whole year . The second piece you asked about the AI initiatives , I think $20 million is still our expectation for year on year improvement .
Speaker #5: There . Of course , that's a unit cost number . So to the extent that there are significant shifts in membership , that number could move around a little bit .
Speaker #5: But we're quite pleased with the progress that we've made on the again , towards that $20 million number . The third thing that I would note is just on the Performance Suite margin maturation , I again excited about what we've been able to drive this year .
Speaker #5: We feel confident about our pricing going into next year and ability to continue to drive value . There . Then the last question really , membership , as we noted earlier .
Speaker #3: Thank you . The next question is from David Larsen with Btig . Please go ahead .
Speaker #13: Hi . With regards to the potential extension for the subsidies , I mean , what odds would you put that at ? You know , with happening , since you're in Washington , I , I imagine you're pretty close to the hill .
Speaker #13: I mean, do you think there's a greater than 50% chance of subsidies being extended? Just any thoughts there would be helpful.
Speaker #13: Yeah .
Speaker #4: David . So I think there's a pretty reasonable chance I want to put a number on it that subsidies are extended , whether it's for a year or two years .
Speaker #4: I kind of think , you know , I think the bigger question at play , though , is really given how late in the year it is and given the specific mix of plans , how much does that really change some of the numbers on on given population .
Speaker #4: So I think it's a very complex thing to put numbers on right now . Both because you got the federal government question that you asked , and then you have the downstream question of , okay , it's pretty late in the year .
Speaker #4: How does that then affect open enrollment ? And had plans already filed , you know , what they are pricing around . And the like .
Speaker #4: And so I think the odds of the extension are good . David , that translating that even if I had a very specific number into okay , I know this is going to do that to membership , that that second piece is quite difficult .
Speaker #4: And I think that's part of the reason for the broader ranges that you're hearing from the different payers in the market .
Speaker #3: And our next question will be from Matthew Shea with Needham . Please go ahead .
Speaker #9: Hey , thanks .
Speaker #14: For taking the question . Wanted to touch touch on the product development . It seems like there's a lot of excitement there . Maybe with the oncology navigation solution .
Speaker #14: Sounds like continuing to roll this out . I guess . First , have you scaled this beyond that initial 300,000 members , or is that still the right way to think about this at that ?
Speaker #14: At this point ? And then last two quarters , you've alluded to the navigation solutions potential to allow you to create risk based offerings for part A oncology spend would love to get an update on where you are in terms of a formal development of an offering there , and whether we should view the partnership with American Oncology Network as sort of a stepping stone on that journey .
Speaker #14: Thanks .
Speaker #4: Yeah , yeah . So in terms of rollout , we were still in the two major markets . I think we are pretty close to adding a number of additional markets right now .
Speaker #4: And I think you'll you'll have that happen , you know , in live in 2026 . If you think about the benefits of doing the work , to your most of it's on part A , we mentioned some of the matched case studies around the significant reductions in Ed and hospital utilization .
Speaker #4: So will we be beginning to take some management accountability on for part A as we head into next year ? Yes , we likely will .
Speaker #4: And that is a positive . Obviously , for our partners , because I think they are looking for answers everywhere they can find them .
Speaker #4: And more integrated is better than not. So, it is accelerating. I think that is the right way to think about our navigation work.
Speaker #4: It's going to be included in more and more of our our our efforts . I think the , you know , the American Oncology Network partnership is related , but but a little bit different .
Speaker #4: So those oncologists across 20 states will have access to the navigation product that we just talked about . But there's a lot more to that partnership that goes beyond navigation .
Speaker #4: The bigger things, right, are completely gold card and turning off utilization management, and inserting the intellectual property of our oncology programs into the EMR.
Speaker #4: At the point of care . And those fit really well with the navigation product . There . You know , two parts to a coin , if you will , two sides to a coin .
Speaker #4: And they're both valuable and they're both part of the same dynamic , which is the everything we're doing is trying to make care better for patients , which navigation does , and point of care decision making does .
Speaker #4: And making them more affordable . And both of those things that we just talked about make care more affordable . So all of our product development efforts should have those two things in true North , better care for patients and easier to access for providers , and more affordable .
Speaker #3: Thank you . And the next question is from Matthew Gillmor with KeyBanc . Please go ahead .
Speaker #15: Hey , thanks for the question . I wanted to follow up on the American Oncology Partnership . Seth , just curious sort of as you roll out , that doesn't sound like it's revenue generating today , but how do you envision that sort of generating revenue for over time ?
Speaker #15: Is that through the payers or through this relationship with the providers ? And then is there any been any early feedback on that gold card program from some of the big payers ?
Speaker #4: Yeah , great . Great question . So , you know , on your first point , it really to your point is not about revenue primarily the work with that partner and other oncology groups like it over time is really about improving the quality .
Speaker #4: The experience and reducing the cost . And so if we're in a risk bearing situation , you know , having that in place in those markets where we have the enhanced performance suite in place , we think we can drive better outcomes and you can make patients happier and provide better care for them .
Speaker #4: So that's going to be the primary way it's used . Might it also be something that payers love to see and therefore pull us into a new market .
Speaker #4: And it becomes sort of revenue generating as a knock on effect ? I think the answer is probably yes to that , but to your point , that's not the primary approach to it .
Speaker #4: And what we're really focused on is , you know , the ability to drive the quality and cost in the right direction .
Speaker #3: And ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back over to Seth Blackley for any closing remarks.
Speaker #4: Great. You know, as I close the call, I just want to thank John again as he moves on to his new role.
Speaker #4: But really also thank the 4500 people at Avalon who wake up every day and run at our mission to support our patients , but also our shareholders .
Speaker #4: So thanks for the time . Tonight . We'll look forward to catching up offline .