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Welcome to the Evolent Earnings Conference Call for the first quarter ended March 31st, 2026. As a reminder, this conference call is being recorded. Your hosts for the call today from 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 the 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 3rd quarter press release issued earlier today. As a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct 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 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. Now I will turn the call over to Evolent's CEO, Seth Blackley. Please go ahead.

Good morning, thank you for joining us. Today, Evolent reported strong first quarter results that were in line with our expectations. Our performance reflects the continued focus and discipline with which we are executing the plan we laid out for you on our call in February. For the quarter, Evolent reported total revenue of $496 million, representing 9% sequential growth versus Q4 2025, excluding the divestiture of Evolent Care Partners or ECP, and adjusted EBITDA of $22 million, consistent with our expectations and the outlook we provided in February. Our medical expense ratio, or MER, for Q1 2026 was 93%, improving 150 basis points versus Q4 2025, excluding ECP.

This performance, we believe, underscores our disciplined execution and our belief in the growing importance and demand for Evolent solutions in the marketplace. Looking ahead to the full year, we feel confident in our ability to continue delivering against our outlook and priorities. Accordingly, we are reiterating our 2026 revenue guidance range of $2.4 billion-$2.6 billion, as well as our adjusted EBITDA guidance range of $110 million-$140 million. Estimated MER will be approximately 93% for the full year. Mario will walk you through our financial results in more detail in a few moments, but I first want to touch on several key business highlights. Starting with our new Performance Suite launches, we had a successful launch with Aetna on January 1, supported by strong collaboration with the Aetna team.

While it remains early, initial indicators are encouraging with our clinical intervention and provider engagement metrics above our internal targets for Q1. We will have greater visibility into performance over the course of the year, but we're happy with the start. We're also pleased to have launched with Highmark on May 1st. We have had great collaboration with the Highmark team on the launch, and I will be excited to give you a broader update on Highmark in the coming quarters. Our pipeline for new business remains strong as we continue to see demand for our products, specifically in oncology. While the market has seen some positive developments this quarter, overall medical trend remains elevated for our plan partners, and oncology in particular continues to be one of the most challenging categories for health plans to manage as they seek to balance quality outcomes with affordability.

We believe Evolent is recognized as a leader in helping health plans manage both quality and cost for cancer care. Our recent wins with marquee plans like Highmark and Aetna, as well as our renewal rates with existing partners, point to our market position today. At the core of our work in oncology are two simple principles. First and foremost, ensuring patients receive the very best care, and second, the cost of that care is thoughtfully managed. I often share with our partners that if I had a family member diagnosed with cancer, I'd absolutely want the Evolent clinical team to review the case.

The clinical reality is that according to certain studies, up to 30% or more of cancer cases involve either an incorrect diagnosis or a suboptimal treatment plan prior to any second review, which is somewhat understandable when you consider, for example, that there are up to 32 different approval regimens for a typical advanced metastatic non-small cell lung cancer case. While some of this gap can be addressed through traditional utilization management, we believe to more fully close the gap, treating oncologists need to have ready access to the very latest evidence and data, as well as the right and financial incentives to select the best care plan for my family member or yours. Further, pairing our traditional oncology solution with consumer-facing solutions like our member navigation platform are critical to fully close the gap.

Of course, we believe we've been able to show that when we help oncologists and patients pick the right care plan the first time, costs on average come down, a win-win for the patient and the system. As a result of all these dynamics, we're increasingly seeing interest in our solution, and we're addressing this market demand with both our technology and services solution and with our Enhanced Performance Suite solution, which has narrow corridors and the protections we've shared with you on the last earnings calls. Enhanced Performance Suite structure allows us to reduce some of our direct risk exposure while still offering guarantees to our clients. We believe this shift creates a more sustainable, attractive operating model for our clients, Evolent, and our shareholders. In terms of new announcements, we have two new contracts to announce today.

First, an existing Performance Suite client has signed a contract for our advanced imaging solution for 4.5 million lives across commercial, Medicaid, and Medicare Advantage. We expect this contract to go live in Q3, subject to state regulatory approvals in certain states, and we view this agreement as further validation of our ability to cross-sell solutions into our existing client base. More broadly, we believe this new contract validates the nation's leading payers are looking for a trusted partner, not just for our leading solution oncology, but that there is value in having our company provide our services and technology for multiple integrated solutions. Imaging, in particular, benefits from product integration, given the importance of diagnostics for oncology, cardiology, and musculoskeletal specialties.

Second, in the Performance Suite, one of our national payer clients is expanding their existing oncology and cardiology solution in several new markets across commercial and Medicare Advantage. This expansion is expected to generate over $200 million of annual revenue and slated to go live in Q3, subject to regulatory approvals in certain states. We believe this new win is strategically important, reflecting growing client confidence in our platform and our ability to scale existing solutions across new populations. Similar to our other new Performance Suite launches, this oncology and cardiology expansion will run at higher MERs initially due to reserve building. We had already incorporated this new expansion into our full-year MER expectation, this announcement does not change our outlook.

With respect to our update on the exchange impact, we've seen declines in exchange membership in the Performance Suite as clients saw reduced membership in select markets, as previously communicated over the last few quarters. On the Specialty T&S side of the business, early indicators are that the exchange membership decline may be slightly lower than the 40% we'd assumed, but the data is still coming in and we expect better clarity around this by the end of Q2. For now, our guidance for the full year continues to take a cautious approach and assumes the 40% decline we referenced previously. Turning to our continued efforts around AI and automation, we recently added a number of strong technology and data science players to our team, including naming Archie Mayani as our Chief Product Officer.

Archie brings deep expertise scaling technology-enabled healthcare platforms, and her leadership further strengthens our ability to execute against our product and automation roadmap. We continue to test automation initiatives while preserving, and in many cases, enhancing the value we deliver to our customers and patients. Our ability to automatically approve authorizations through the use of technology and AI continues to expand and remains central to our goal of auto-approving approximately 80% of authorization volume, with the goal of making the process easier for providers and patients while driving down our internal operating costs. Deployment of new AI models has accelerated, particularly within our imaging solution. Our initial rollouts have shown auto-approval increases in the high teens on cases evaluated by these models, and in some cases up to 30%, all with minimal clinical value loss for our customers.

Finally, touching on our capital structure, we ended the quarter with unrestricted cash of $142 million and net debt of $792 million. With no debt maturities until 2029, we continue to believe that we have the balance sheet strength to support near-term execution while maintaining a clear and credible path to deleveraging over the long term. To conclude, Evolent's off to a solid start in 2026. Our disciplined execution in Q1, expanding Performance Suite footprint, and strong early momentum gives us confidence in our full-year outlook. Stepping back from the quarter in 2026, we believe there is a large long-term opportunity for Evolent that is supported by 2 major super cycles.

First, despite the strength of our product and the opportunity to reduce variability in care and oncology care, Evolent today only manages approximately 10% of the oncology market. We believe this is due to two factors. One, we've only been accelerating our work in this area across the last five years. Two, we believe that approximately 50% of the market is still insourced by health plans. As costs and complexities to treat cancer diagnoses have continued to accelerate over the last five years, more plans are making the decision to outsource oncology management and upgrade to a more sophisticated partner like Evolent. We believe this will further accelerate over the coming decade as the oncology drug pipeline continues to grow and complexity increases. We expect to be able to meaningfully increase our market share, which in turn should provide a long-term growth opportunity for Evolent.

The second super cycle is the massive opportunity that AI can provide in automating specialty reviews. I covered this topic earlier, I'll just add that our specialties outside of oncology care are especially well suited to automation, and we're investing to be a market leader in the innovations necessary to reach the 80% automation threshold goal I referenced earlier. Taken together, we believe these two super cycles should help Evolent continue to meet our near-term commitments and expect them to fuel our long-term success. With that, let me turn it over to Mario to dive into the quarter.

Thank you, Seth. Good morning, everyone. We delivered solid first quarter financial results that were in line with our expectations and consistent with the outlook we discussed on the Q4 call in February. Total revenue was $496 million, representing 9% growth versus Q4 2025, excluding ECP. In addition, adjusted EBITDA for the quarter was $22 million. Performance Suite revenue was $323 million, up 26% sequentially versus Q4 2025, excluding ECP, driven primarily by membership from our new Performance Suite launches, partially offset by exchange membership declines in select markets and market exits from clients rationalizing underperforming markets. Specialty T&S revenue totaled $81 million, a decrease of 16% sequentially.

The lower revenue reflects not only actual exchange membership declines but also includes our estimate of the revenue impact from additional disenrollment following the grace period expiration. We have contractual provisions with our Specialty T&S clients that require us to return funds after members disenroll. Taken together, this total impact is in line with the 40% membership decline we have previously discussed. We expect to have better visibility into exchange membership by the end of Q2. The impact of exchange membership declines was partially offset by growth in Medicare Advantage membership and the launch of a new specialty for an existing client. Administrative services and cases revenue was $92 million, down 11% quarter-over-quarter, reflecting the expected termination of an administrative services client at the end of last year.

This decline was partially offset by better than expected membership growth from existing clients in the first quarter. Our medical expense ratio, or MER, for Q1 was 93%, improving approximately 150 basis points versus Q4 2025, excluding ECP. As a reminder, Q4 2025 MER was temporarily elevated due to out of period true-ups as we recognized a full year of savings shared with clients. Excluding this impact, we saw sequential improvement even though Q1 trend ran above expectations due to higher than anticipated prevalence in oncology in a few markets. These markets are almost exclusively exchange markets that experience membership declines and acuity shifts. We expect the negative impact on our MER from higher prevalence will be retroactively addressed later in the year based on our contractual protections.

This cost pressure was partially offset by net favorable prior year development in Q1. Adjusted cost of revenue excluding medical claims, but including medical device costs and adjusted SG&A totaled $173 million for the quarter. The variance versus our expectation was driven primarily by elevated exchange member servicing costs within Specialty T&S. This is because we are required to continue servicing members during the grace period, even if they ultimately disenroll. This impact was partially offset by efficiency gains in our shared services organization and lower than budgeted vendor spend. We believe this exchange related cost pressure to be temporary and to normalize as we see expected disenrollment in late Q2. We ended Q1 with $142 million in unrestricted cash and $792 million of net debt.

Cash decreased modestly from our Q4 balance, reflecting roughly $1 million of cash used in operating activities and $6 million of capital expenditures during the quarter. Operating cash flow includes the settlement of a one-time $15 million client overpayment that we highlighted in February's earnings call. It also includes approximately $20 million of passthrough PBM proceeds that were received in Q1, with the corresponding payment occurring at the beginning of Q2. Excluding both the one-time client overpayment and the passthrough timing benefit, normalized operating cash flow for the quarter would have been approximately negative $6 million, which was in line with expectations. Turning to full year 2026 guidance, as Seth noted, we remain confident in our ability to deliver on our 2026 plan.

However, given we're only days into the Highmark launch and do not yet have certainty around the ultimate exchange disenrollment impact, we are reiterating our 2026 guidance. Revenue range of $2.4 billion-$2.6 billion, an adjusted EBITDA range of $110 million-$140 million. We continue to expect MER for the full year to be approximately 93%. In the Performance Suite, our revenue guidance assumes the continued ramp of our new launches, offset by the membership declines we experienced in Q1 from exchange membership and market exits. In Specialty T&S, our revenue guidance assumes the approximately 40% decline in exchange membership we referenced earlier. As noted, the impact of both the actual and the expected incremental disenrollment required to reach the 40% decline is reflected in Q1 revenue.

We should have better visibility into the final outcome of this dynamic by the end of Q2. On MER, we continue to expect MER to increase throughout the year and peak in Q3 as we see the full impact of the Highmark launch. As discussed, this reflects elevated reserves consistent with a new contract combined with normal seasonality. From there, we expect MER to improve steadily through year-end as the impact of our clinical programs and favorable contractual true-ups flow through in the second half of the year. Finally, on the quarterly adjusted EBITDA cadence, we believe Q2 will be in line with Q1 due to typical seasonality with a $10 million-$15 million sequential improvement per quarter in both Q3 and Q4. A few additional items related to our full-year outlook.

We continue to expect adjusted cost of revenue, excluding medical claims, but including medical device costs, plus adjusted SG&A of approximately $675 million for the year. The elevated Q1 cost pressure related to exchange volumes is expected to moderate, and our efficiency initiatives are tracking on plan. We continue to expect cash flow from operations of $10 million-$20 million for the year after approximately $60 million of annual cash interest expense. We continue to also expect $25 million-$30 million in software development and capital expenditures for 2026. To wrap up, we are pleased with our first quarter execution and the underlying trends we're seeing across the business.

While we're still in the early stages of the Highmark ramp and continue to monitor exchange dynamics, our Q1 performance reinforces our confidence in the plan we laid out and our ability to deliver on our full-year priorities. We are reiterating our 2026 guidance and remain focused on disciplined execution, operating efficiency, and delivering value for our clients and shareholders. With that, operator, please open the line for questions.

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. Please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. Our first question will come from John Stansel with J.P. Morgan. Please go ahead.

Great. Thanks for taking the question. Maybe a bigger picture one here. I think we've heard commentary in the space around not just relaxation of prior authorizations, but standardization across payers and prior authorizations. I guess as we think about the longer term outlook and how payers are approaching complex care and prior authorizations in general, how are you thinking about that kind of compare and contrast the near term demand that you see with a robust pipeline and some of those changes that may come down the pipe?

Yeah. Great, John. Thank you for that question. I'd make, I guess, three comments on that. Number 1, we're big fans of the standardization that's happening. I think it's the right answer for patients and for physicians, and it's very consistent with what, you know, you heard us doing with the application of AI to approve as much as possible. That's kind of point 1. I think point 2, you know, I think it's important for you guys to have the framing around sort of Evolent is a bit of a tale of two cities, meaning vast majority of Evolent's growth is coming in oncology, but about 95% of Evolent's approval volume, like the factory that we have to go through to do the work, is not oncology.

It's all of our other specialties because there's so much volume in things like imaging or cardiology, right? And I think oncology in particular, right, is so much more complex. It's gonna be harder to standardize. You know, that example of 32 approvable regimens. The pace of scientific innovation, there's 300 journal articles a month getting published in oncology. I think the 95/5 rule of, you know, the 95 or whatever the example is for the entire industry being as automated as possible, fantastic. Good for everybody, good for us, good for our costs, good for patients, everybody.

I think the 5 in our example, that is the oncologies, where our growth is coming from, where you're gonna need a little bit more of a human touch to help manage this because it's not Most cases, these things are not, you know, something that is subject to UM. A lot of these interventions we're making are about nudges or incentives or a conversation, you know, with the, you know, with the treating oncologist. Then the third thing is just to reiterate it 'cause I think the industry needs this narrative. AI is amazing for doing the automation. Nobody is ever gonna be using AI to, you know, provide an adverse determination or a suggestion for a different plan. That's where a human has to come in.

Our next question comes from Charles Rhyee with TD Cowen. Please go ahead.

Hi, this is Lucas on for Charles. Thanks for taking the questions, and congrats on a good quarter. Your guys' 1Q MER ratio was better than our estimate. Can you talk about what you saw in the quarter from an oncology and cardiology perspective? Also, did you guys see any benefit in the quarter related to heavy weather storms in January and February?

Great question. On oncology and cardiology, I think we're pretty much where we thought we would be, very close. The exception is a couple of markets where we had higher prevalence because membership dropped a bit, as I had in my comments. Membership dropped a little bit, and as a result, acuity was a bit higher than expected. Again, as we've been talking about for the last few quarters, that's exactly the type of contractual protection that we have. The good news is, even though we absorbed a little bit of higher MER in those couple of markets, we expect to make up for that via these contractual protections later in the year.

On the weather thing, I, you know, I do not think that's material for us. I mean, people for elective things, I think it's more, you know, material for things like oncology treatment. People tend to figure out a way to get there and get it done.

Our next question comes from Jared Haase with William Blair. Please go ahead.

Good morning. Thanks for taking the questions. Seth, I think you talked a little bit about the early indicators being good with the launch with Aetna, I think you mentioned some of the metrics around clinical intervention and provider engagement are maybe tracking above expectations. I just wanted to double-click on that. I'm curious if there's anything unique to that partner specifically or just perhaps it's an indicator that just as you've signed more and more of these deals over the years, you're just getting more efficient with launches. I wonder if you could then extrapolate that into maybe a faster margin ramp with some of these new Performance Suite engagements.

Thank you for the question. Look, I think the metric we really look at is this clinical intervention rate, which think of that as how often are we engaging successfully around our pathways, right? That should be the leading indicator to the value that we create. I do think it's largely attributable to the teams doing a great job, and that's the Aetna team and the Evolent team together. A lot of credit to, you know, Dan and our team for the work we're doing to execute, and our clinical team. I do think it's about execution. As to whether that then translates into a faster margin ramp, I don't think we're ready to go there yet, but I do feel like the operations humming team's doing a great job.

Our next question comes from Kevin Caliendo with UBS. Please go ahead.

Thanks, thanks for taking my question. I've got two. In terms of the two new contracts, I appreciate that, and congrats on each. How should we think about the potential earnings contribution ramp from those? Just given, you know, there's a sort of new diligence around reserving for these and the like. There used to be a fact pattern around how to think about the profitability ramp as a new contract came on board over one, two, three years. I'm just wondering if those ramps. I understand the two contracts aren't the same, but how to think about the contribution expectations from each. Then the second one, just to follow up on the prior ops questions. Did anything change in 1Q?

Are there any different behaviors happening in the beginning of 2026 versus what was happening in 2025? Is there a movement to more biosimilars? You know, are you seeing anything in the marketplace? Are you guys doing anything different that could be affecting trends and particularly in oncology?

Right. Well, Mario, start with the build, and then I'll come back to around to your group.

Kevin, no change to what we've discussed in the past. You know, there is a ramp to profitability, which, you know, one of the contracts is a risk contract, so it does impact the short term. Nothing that we haven't accounted for in our guidance and our commentary. Again, I think it just creates more potential for next year as we ramp up profitability. The other contract, there is a gain share component, so there's a little bit of an impact also in the beginning. Again, nothing different than what we've accounted for and discussed with you guys for the year. Basically, no news in that regard. We still are working through different types of structures actually going forward.

We may be able to make some changes and tweaks where we can improve the ramp up. For now, it's what we have discussed with you guys in the past. You wanna address?

On the, your question on, you know, is anything new this quarter versus a year ago. I'll reiterate what I said earlier. It is a bit of a tale of 2 cities where in the categories of specialties that are standardizable, simpler, more rote, we're all moving aggressively to doing as much as we can using technology to quickly authorize and automate that work. Again, I think if I'm a patient, my family member, it's exactly what I want. I want it simple, I want it fast, I want it done. It's good for the patient, it's good for the doctor, it's good for the health plan, it's good for Evolent's cost structure, if we're able to do that, right?

That's new and different across the last year's ramping, and we're really supportive of it and trying to lead in that area. In oncology, which I think was maybe even more of your question, I think there it really is exactly what it's been now for 5 years, and I think is gonna be for the next 5 or 10, which is, you know, incredible pace of innovation. Even as some things may go biosimilar, KEYTRUDA's gonna go biosimilar in a couple years. There's a subcutaneous version. There are new applications. There's gene therapy. There's cell therapy. I think, if you go do your market checks, call 10 payers and ask them what their number 1 cost issue is, it's gonna be Part B drugs, particularly in oncology. I think that is gonna continue to be the case for a long time.

These are things that are gonna be harder to standardize. They're approvable, right? Which, you know, this is not a UM thing. This is about using evidence and incentives and scorecarding to get to the right answer, that's really what we do.

Our next question comes from Jessica Tassan with Piper Sandler. Please go ahead.

Hi, guys. Thank you so much for for taking the question, and apologies if you've been through this already. I guess just any perspective on kind of the competitive landscape given Cigna's decision to pursue strategic alternatives on eviCore. Just any thoughts on, you know, why a large competitor might wanna get out of the market and how that might impact the competitive landscape. I guess, again, I apologize if you've been through this, just can you elaborate a little bit on the elevated oncology trend you're seeing? Like, is that exclusively in exchange? Can you comment just a little bit on trends within Medicare relative to your expectations? Thank you.

Jess, on your first question, obviously we wouldn't comment on any specific situation, but I do think I'll say two things. One, I think there is a major long-term trend that is happening, and I talked about it earlier, where I think generally the plans are gonna wanna look to third-party specialists to do a lot of this work. I think the third party part of that is important, like some separation, right? But the specialist part is probably even more important, which is the level of sophistication required to do this kind of work, whether it's the clinical sophistication or the AI sophistication, I think is where the industry is headed generically. I think that's number 1. Number 2, you know, I'll just say generally, Evolent, this is what we do.

I think we're here to be a long-term part of the answer for the industry to help solve this problem, to balance how do you manage good things for patients and providers and the best quality first and foremost, but also help moderate the cost pressure, which will translate into rates for consumers and everything else. I think it we view these types of things as positive and generally the direction of travel over the next, you know, kind of 5 to 10 years.

Yeah, on the trend, Jess, as I said, the only elevated sort of trend that we've seen has been isolated to a couple of markets where we saw membership drops and acuity went up significantly. It did not appear to be from utilization or any other factor other than prevalence. Other than that, I think the trend has been as expected, fairly stable. Just to reiterate, that prevalence in those couple of markets is exactly the type of protection that we have in our contracts going forward.

Our next question comes from Jeff Garro with Stephens. Please go ahead.

Thanks for taking the question. It's Sahil on for Jeff Garro. Wanted to follow up on the new business wins, specifically the new advanced imaging contract with the existing Performance Suite client. I think historically you've described imaging as the entry point that drives cross-sell in Performance Suite. I think it's, like, novel to see sort of the reverse direction this quarter with the PS client adding imaging. Anything to call out on what this client did or saw in consolidating onto more of your unified platform? Is there any sort of recent innovation in the imaging suite that could potentially reinvigorate it as standalone growth going forward? Thanks.

Yeah, I think a thoughtful question. I think you're right. It's a first for us. Look, I think that it highlights a couple things that you're pointing out. I think one is that if I'm a health plan, and I'm trying to manage my cost and quality and patient experience, I've got today dozens and dozens and dozens of partners. I'd rather have fewer partners to do this kind of work rather than more niche partners. Integration's generally good. I think imaging in particular, usually when you're doing a scan, it's of a tumor or of a bone or of a heart, and therefore our ability to integrate across those things is valuable. That is a little bit new. We're gonna be doing more and more and more in that area over time.

I think that component is also benefits from the work we're doing. We're really excited about this partnership. I, you know, hope to see more of these and it's a good step for us.

Our next question comes from Matthew Gillmor with KeyBanc. Please go ahead.

Hey, this is Zach on for Matt. Looking at the reserve for claims table in the slide deck, looks like there was a favorable revenue true-up of $12 million. Can you remind us what causes the revenue true-ups and give us some context for the $12 million that was booked in the quarter? Thanks.

Yeah. The revenue true-up is actually, it brings revenue down, so it's unfavorable. It kind of nets out with the claims favorability. There are a number of factors, but typically when we reserve at the end of the year, we're obviously making estimates on both the revenue side and the claims side because we don't actually have claims information. Everybody typically focuses on IBNR on the claims, but from time to time, if claims come in lower than we expected in some markets, we actually have a downward revision to the revenue side, and that's what's causing it in the quarter.

Our next question comes from David Larsen with BTIG. Please go ahead.

Hi. Can you just talk about the actual revenue in the quarter and your expectations for the remainder of the year? I mean, revenue came in well below our expectations. I'll take the EBITDA beat any time, so I like the higher quality revenue. Revenue was low relative to our expectations, and you reaffirmed the full year guide. I think that calls for about 30% year-over-year revenue growth. Just color there, like maybe by division or by plan would be very helpful. Thank you.

Sure. I think it's a spread issue. Obviously, we spent a lot of time trying to explain what our EBITDA ramp was. It's a little harder with revenue because of all the launches, in particular, the very big Highmark launch, which is why we're not moving off of our revenue guidance for the year. I think last time we had talked about the fact that Aetna, as they were exiting some markets, our expectation was the membership was gonna be a little bit lower than what we had talked about before. That has actually been the case. That pushed down the first quarter revenue. We also talked about the fact that Highmark had been coming in higher from a membership expectation than what we expected, so that's exactly how it's playing out.

That plus these couple of very frankly attractive and big deals that we now are able to announce, which we really couldn't get into prior is, you know, caused a little bit of a challenge in walking everybody through what the revenue progression was for the year. I think the takeaway is even though the headline number might be a little lower than what consensus were, it really nothing has changed. If anything, we feel even more confident about the rest of the year. As I said, we're not ready to make any changes to the guidance just because of the very meaningful impacts that we're gonna see over the next 2 months, Highmark and the exchange disenrollment.

You know, I would just say that there's a little bit of timing in the first quarter that was really a lot harder to model. Hopefully it's clearer now where we're going for the rest of the year.

Our next question comes from Jailendra Singh with Truist. Please go ahead.

Hi, guys. This is Eduardo on for Jailendra. Thanks for taking the question. You touched on the prior period revenue portion. Can you speak to the $23 million favorable PYD in the quarter? Was that focused on oncology or cardiology parts of the business? I guess how much of that is relative to the revenue adjustment flow through to EBITDA in the quarter?

Yeah. You gotta net out the revenue and the claims PYD. On a net basis, it was a little bit higher than a $10 million favorable impact for the quarter. That's a little higher than the same quarter last year. For the year, we're not expecting that number to change significantly, and it's very consistent with prior, the prior year, 2025 in particular. On the claims side, the PYD was roughly split a little bit higher on oncology than on cardiology. Again, some very specific markets where as we saw claims run out coming in, they were a little bit better than what we had anticipated and had reserved for.

Very consistent with the commentary that we've given you guys over the last few quarters where, you know, either trend has been coming down and being stable or, you know, in select spots where trend has popped up, we've had contractual protections. Sometimes it's a little harder to determine exactly what the adjustment should be during the quarter, and that's a little bit of what you're seeing there. As claims came in, we saw favorability and we're ready to adjust that in the first quarter.

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

Thank you for the time this morning. We look forward to connecting over the next week or two with everybody. Thanks a lot.

Thank you.

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

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 value to our customers is our proven ability to engage with treating oncologists and guarantee the quality and cost benefits from reducing this variability. This market dynamic as well as our large new business pipeline makes Evolent well positioned to see outsized growth in the years ahead. Further, we've been able to successfully renegotiate contracts and convert them into the new enhanced Performance Suite model, which includes revenue rate adjustments for certain medical expense factors outside of our control as well as MER corridors to protect the downside. When we embarked on the effort to move our contracts to the enhanced Performance Suite model, there were a lot of questions from investors about our ability to successfully achieve this change while retaining customers and continuing to grow. The fact that we now have approximately 90% of the Performance Suite revenue under this new model, have retained all of our key customers and have signed 2 major new customers this past year under the enhanced model, answers that question in an emphatic way. As we mentioned at the outset of this renegotiation process, our expectation for margins for the enhanced Performance Suite model will be approximately 10% and as opposed to 15% under the old model. As we've rolled out this model, we're seeing opportunities to target margins higher than 10% in some cases, if we feel comfortable with the additional downside exposure. And in other contracts, there are opportunities to eliminate almost all the downside exposure if we will accept a lower maximum margin. While we will make these trade-off determinations as part of a disciplined underwriting process around each contract, our existing mature contracts will tend to run above 10%. But as we expand, we'll target future Performance Suite opportunity for the entire book around a range of 7% to 10% as we continue to prioritize adjusted EBITDA and cash flow predictability over maximum margin. Still, as Mario will discuss, getting to a target margin of 7% to 10% would create a very significant tailwind for the business in the years to come. Turning to the outlook for 2026 specifically, we're forecasting $2.5 billion of revenue at the midpoint, representing revenue growth of approximately 30%, and our adjusted EBITDA guide is $125 million at the midpoint. The adjusted EBITDA outlook has 2 significant impacts embedded for '26 ahead of the potential tailwind I described earlier. Both of these impacts hit primarily in the first half of 2026, and we believe that our run rate adjusted EBITDA in the fourth quarter of 2026 will be over $150 million. Those 2 factors impacting 2026 adjusted EBITDA are as follows: first, our 2026 Performance Suite launches are expected to generate approximately $900 million of 2026 revenue with go-live dates in Q1 and Q2, representing 37% of total 2026 revenue. The 2026 Performance Suite cohort revenue estimate has increased from our previous estimate a few months ago, $550 million, driven by large shifts in our customer membership and by scope expansion of one of the new contracts. At the same time, we saw several of our legacy cohort Performance Suite partners lose significant membership and open enrollment, so our total revenue forecast continues to center around $2.5 billion despite outsized growth from the 2026 cohort. In addition to the increase of new revenue, we decided to take a more conservative guidance approach given the size of these new contracts in 2026. Mario will provide further color on the impact and the timing of those contracts in his comments. The second major factor impacting adjusted EBITDA for 2026 is that the One Big Beautiful Bill has eliminated approximately $40 million of contribution from expected exchange membership disenrollment and customer plan closures. That impact is at the very highest end of the range we estimated at the end of last year. And with one of our largest customers seeing reduced exchange membership up to 60% and our next largest exchange membership book down approximately 40%. Some of this reduction is as a result of the lost subsidies, but we're seeing more of it from decisions the specific plans in our customer base made to shrink exposure to the exchange risk pool. You can see the combined effect of these 2 items on Page 8 of the pack. Finally, we've been aggressive on efficiency by getting the benefits of AI and other automation across 2025. As we previously communicated, we did slightly exceed the $20 million Q4 2025 annualized savings number we had talked about on previous earnings calls. And we're continuing our cost efforts in 2026, now targeting SG&A, AI and other automation savings. These efforts included a large RIF already announced just a few weeks ago. Our 2026 cost structure efforts modestly improved H1 2026 EBITDA, but ramped fully by the second half of the year. Mario will share more details on the 2026 cost point in his section. Despite these aggressive cost actions, we decided to budget the year and guide around a multiyear opportunity. Accordingly, we have protected a number of product, technology and sales investments in the P&L that weigh on 2026, but we believe will have a positive impact over time. While we're pleased with our revenue growth, we understand our first half 2026 EBITDA is disappointing on the surface due to the One Big Beautiful Bill impact as well as the addition of our new contracts. But as I mentioned, we're confident in the ramp across 2026, and we believe we'll have a very large multiyear tailwind for the business as our 2026 contracts mature and the exchanges likely return to growth over time. Now let me turn back to give you a few more detailed updates on each pillar, starting with our first pillar of organic growth. Today, we're sharing the expansion of a previously announced partnership, and we're disclosing another new contract signing. First, we're excited to share that the large oncology partnership we announced in November is with Highmark. We're obviously thrilled to have been selected by such a marquee plan. Since November, we have also expanded the partnership to additional geographies and capabilities. This contract is expected to go live on May 1, and we expect it will contribute over $550 million of revenue in 2026 and over $800 million in 2027. As we will discuss in more detail later in the call, the structure for this contract is like Aetna, under our enhanced Performance Suite model. Finally, we feel there are several exciting expansion opportunities with Highmark across these lines of business for oncology and across all lines of business for new specialties, and we look forward to earning that opportunity through strong performance with this initial launch. And second, we're announcing today that we have launched our Performance Suite in oncology in an additional state with an existing national partner. Beyond these signings and the robust pipeline I mentioned earlier, we're seeing very high renewal rates as well. Across 2025, we've retained specialty T&S logos covering over 98% of 2025 revenue, and through a turbulent industry cycle, we have successfully moved our key Performance Suite relationships to the enhanced Performance Suite model. Said simply, our current customers are opting to stay and expand with us even as we require more protective terms, and we're adding market share through new logo signings. We feel all of this data points to the value we can create and to the durability of our company. Turning to our second pillar of profitability. We continue to focus on both medical and operating expenses as described earlier. I did want to add several additional pieces of data here. In 2025, our medical expense ratio, or MER, came in slightly better than expectations at 89%, excluding our Evolent Care Partners business, representing an improvement of just under 700 basis points versus 2024, even amid another year of high trend. We believe this performance reflects strong execution and pathway management, physician engagement and alignment with our partners. Mario will walk you through how we're thinking about our 2026 MERs for both new business and the legacy cohort. But I think you'll see that we're making 2 basic assumptions for the year. First, we estimate the 2026 cohort will run at 103%, inclusive of new reserves and the total cohort will run at approximately 93%. We're assuming that 2026 oncology trend will remain high, in line with the 2025 trend. In total, we believe these assumptions are conservative and set us up to meet or beat our numbers across the year. In our final pillar of capital structure, I'm pleased that we ended the year with strong cash generation. That, combined with the strategic divestiture of our Evolent Care Partners asset enabled us to end the year with net debt of $782 million, below our expected range of $805 million to $840 million. With no maturities until late 2029, we believe our balance sheet strength supports near-term leverage and a clear path to long-term delevering. Before I hand it to Mario, let me say a few words about the macro environment. We've been saying for several quarters now that demand for Evolent services has never been greater. We believe this is borne out in our new business wins as we take share and grow our customer footprint. And this reality continues to be true. The managed care industry, our core customer base is in the middle of a multiyear margin recovery cycle. To manage their own profitability targets, we see health plans are turning to companies like Evolent that have proven solutions to lower cost while improving quality for their members. At the same time, as we're expanding our business with new partners, the industry is navigating through a period of contracting membership, which presents near-term headwinds for our business as well. We believe we have a clear strategy for navigating through this dynamic moment. First, we will use this moment to seek to capture share, expanding our customer footprint under strong terms. Demand for our product is such that we can be selective in our partnerships and highly disciplined in our underwriting. Second, we will use our scale and customer volume to drive operating efficiency within our products, enabling us, we believe, to deliver margin expansion over time. We've committed to using technology and AI from our Machinify asset acquisition to get to our long-term goal to automatically approve 80% of baseline authorization volume across our products, an outcome that we believe will improve patient and provider experience while driving down our cost structure. We made great progress on this front in 2025, seeing our imaging auto authorization rates in key test areas go up dramatically in areas where we deploy this technology. For example, through this optimization, our real-time auto authorization rate for chest CT scans rose by over 11 points and cervical spine MRI rose by 16 points. In 2026, we'll be deploying additional AI capabilities that will provide additional auto authorization increases. Third, we'll continue to innovate our product and its value for our customers to ensure that we are the leading specialty platform in the market. As an example of our product investments, one of our Blue Cross partners recently published data showing an approximately 40% reduction in hospitalizations and ER visits for patients who use our new cancer navigation solution. And fourth and finally, we will achieve these goals within the context of our current balance sheet, continue to prioritize debt paydown as our primary capital allocation focus. I do believe we have the right plan and incredible Board and team and the right product to meet this moment, and I remain highly confident in Evolent's future. As I hand it to Mario to go over the numbers, I would just note that Mario has been at, at Evolent across the last 90 days. He's already had a huge positive impact on the company, and I'm highly confident in his leadership and approach going forward. Mario?

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. Our cash flow from operations was $39 million and total net change in cash and cash equivalents increased by $48 million, bringing year-end cash to $152 million. We finished the year with net debt of $782 million, below the range we discussed during the last call. Please note that this did include a $15 million overpayment from a client, which when repaid, will negatively impact 2026 cash flow. Finally, we recorded a large noncash goodwill impairment due to market valuation declines, which has no impact on EBITDA or cash flow. Let me now turn to our outlook where there are 4 main topics shaping 2026. First, we expect strong Performance Suite growth, with revenue reaching an all-time high. While this increase in revenue creates a powerful foundation for EBITDA acceleration, it also creates a temporary headwind in 2026 due to our reserving methodologies and the timing of implementation of the new contracts. Second, Specialty T&S 2026 performance is experiencing a significant headwind from exchange membership declines consistent with the entire industry. Excluding this impact, we expect the Specialty T&S business to deliver modest underlying growth in 2026. Finally, I will also discuss administrative services as well as the impact of our cost reduction efforts. With these items in mind, let me dive into our revenue and adjusted EBITDA guidance for the year. Overall, our revenue outlook is $2.4 billion to $2.6 billion, driven primarily by new Performance Suite launches, reflecting both higher membership and a more favorable PMPM mix towards Medicare. We have a bridge on Page 7 of the earnings deck showing the key drivers of 2026 revenue compared to 2025. The significant Performance Suite revenue increase from new contracts to be launched during the year is partially offset by approximately $100 million of lost revenue from existing Performance Suite clients due to exchange-related membership contraction and some plans exiting unprofitable markets. We also continue to see solid T&S revenue growth across both existing and new accounts. However, this growth was more than offset by the decline in exchange membership associated with the implementation of the One Big Beautiful Bill. As Seth noted, while we did experience sufficient organic growth to offset the decline from a membership standpoint, there was unfavorable mix shift within these members, which contributed to a reduction in blended PMPM and total revenue. Finally, we did experience some churn in our administrative services business, notably related to one customer who was acquired by a large national plan that subsequently in-sourced our services. As we've noted before, the administrative services business represents a legacy portion of our portfolio, and we continue to manage it efficiently while focusing our strategic efforts on the higher growth Performance Suite and Specialty T&S businesses. We do not believe our remaining administrative services contracts have that same acquisition-related risk that impacted us in 2025. Let's now turn to our 2026 adjusted EBITDA guidance. Our adjusted EBITDA outlook for the year is $110 million to $140 million. Page 8 of the earnings deck provides a bridge summarizing the key drivers of the year-over-year changes in adjusted EBITDA at the midpoint of guidance, and I will walk through each of the components now. Starting with the Performance Suite and assuming the midpoint of guidance, we expect the existing Performance Suite business to contribute $35 million of additional profitability despite the decline in revenue discussed earlier. This improved performance is driven by the continued realization of savings from our clinical programs, our clients' rationalization of underperforming markets and the impact of the contract amendments Seth described earlier. On the other hand, while our new launches will drive meaningful adjusted EBITDA acceleration over time as they scale, they are creating a $25 million headwind to 2026 adjusted EBITDA at the midpoint of guidance, reflecting the timing of implementation and our conservative reserving approach. This represents a shift from our prior expectation of roughly breakeven performance in 2026 and is driven by 2 key factors. First, we have an appropriately conservative approach to reserving for new contracts despite our significantly improved processes and new contract protections. Over time, we expect this headwind to dissipate as reserves are released, but this does create some pressure in the first few months of the new contracts. Second, the losses of the midyear launches are higher than expected because of higher-than-expected membership volumes. This is offsetting some of the positive lift from other new contracts that are launching very early in the year. As you can see on Page 9 of the earnings deck, the new contracts will temporarily raise our 2026 medical expense ratio. As a result, we expect MER to be approximately 93% at the midpoint of 2026 guidance compared to 89%, excluding ECP in 2025. We do expect MER to rise at the start of the year due to higher reserve requirements associated with new contracts being implemented on January 1. We then see MER continuing to climb and peaking in the third quarter as we onboard Highmark and further strengthen claims reserves as well as experience normal seasonality. From there, we expect MER to steadily improve through year-end as we realize modest in-year savings from our clinical programs and realize other favorable accruals in Q4. Overall, this progression provides a clear and positive path towards sustained margin expansion as our new contracts mature. It is important to note that our underlying medical claims are expected to remain roughly consistent throughout the year. We're not assuming a rapid clinical improvement in 2026 even as our teams work to drive performance gains. Due to our new contract reserving methodology and the expected progression of MER throughout the year, we anticipate that EBITDA will be 70% weighted towards the back half of 2026. In addition, at the midpoint of our guidance, we expect $20 million in adjusted EBITDA in the first quarter with a $10 million to $15 million sequential improvement per quarter in both Q3 and Q4. This pattern is fully aligned with the timing of our contract implementations, the reserve dynamics in the early part of the year and the growing benefit of our operating initiatives as the year progresses. As our newly launched contracts mature and our clinical and operational programs take hold, we believe we are well positioned to deliver this earnings trajectory with increasing momentum across 2026 and beyond. It is also worth noting, as we discuss 2026 guidance, that our new contracts include significant downside protections. And because we are reserving these contracts at elevated MER levels, we believe our downside exposure in 2026 is very limited. Our Performance Suite MER is the most direct indicator of how the business is progressing throughout the year and how we are tracking relative to expectations despite some occasional in-year volatility. While MER can already be derived from our 10-K, we will be introducing enhanced disclosures to provide even greater transparency for investors. Moving on to Specialty T&S. One of the major factors affecting 2026 EBITDA is the contraction in exchange membership resulting from the One Big Beautiful Bill. This creates a onetime $40 million headwind to Specialty T&S revenue in 2026, consistent with the high-end possibility of a 40% decline in exchange membership we discussed on our last call, net of acuity shifts. While future changes in subsidies or exchange enrollment, either before or after the midterms could provide upside, our current outlook reflects the full impact of this contraction. Excluding the impact of exchange membership, T&S at the midpoint of guidance is expected to contribute $5 million of incremental revenue and margin in 2026, driven by growth in membership. Unfortunately, this new membership growth is unfavorable from a revenue mix standpoint, so it is not sufficient to offset exchange-related membership losses. However, this does show how demand continues to grow for our Specialty T&S solutions. Finally, Administrative Services churn, as mentioned earlier, is meaningful, but is being more than offset by a $50 million year-over-year workforce reduction and efficiencies gained across the enterprise. This includes the $20 million saving we realized by Q4 2025 that Seth mentioned earlier. Speaking of expense reductions, let me provide additional clarity on those ongoing efforts, which is a big area of focus for our team going forward and discuss how they will flow through our 2026 financials. With the previously mentioned expectation of 93% MER for Performance Suite, we project approximately $1.7 billion of medical claims expense for the year. The remaining expense base, which includes cost of revenue, excluding medical claims, but including medical device costs and SG&A is expected to be approximately $675 million at the midpoint of guidance. This $675 million reflects a $90 million reduction from 2025 levels. Approximately $40 million of the decrease is driven by the divestiture of Evolent Care Partners, while the remaining $50 million reflects the impact of our efficiency initiatives already in motion, including targeted cost actions taken across the organization. So if I put it all together, I expect our Q4 run rate EBITDA to be at least $150 million. Should we achieve the Performance Suite 7% to 10% target margin on the forecasted $2.2 billion annualized Performance Suite revenue exiting 2026, we expect to generate roughly $160 million to $220 million in total margin. This is roughly $30 million to $100 million higher than the approximately $125 million of Performance Suite contribution that is in the midpoint of the 2026 guide. We believe this potential tailwind is the most important factor that will drive shareholder returns over the coming years. Finally, as you can see on Page 6 of the pack, the enhanced Performance Suite contract structure can create asymmetric upside for shareholders over time. Specifically, if you look at the new launches for 2026, we are forecasting these new contracts to run at 103% MER for the year at the midpoint of the guidance. In the event of a 7% MER degradation to 110% MER, that would drive a negative $13 million EBITDA impact. However, a 7% improvement to just 96% MER or getting less than half of our target margin would drive a $57 million EBITDA improvement. Please note that because we expect adjusted EBITDA to build throughout the year, our leverage ratios will be higher earlier on and should begin to decline meaningfully in the second half. It is important to note that we are confident our current balance sheet and debt terms provide ample flexibility to manage this temporary dynamic as we ramp these large new contracts. Turning to cash flow, an item we're watching very closely. We anticipate generating at least $10 million to $20 million in cash flow from operations after paying approximately $60 million in cash interest expense. Part of the decrease from 2025 is the client overpayment from Q4 that we mentioned earlier as well as $11 million of previously classified dividends, which are now reclassified as interest expense and moved into cash flow from operations. We also expect to invest between $25 million to $30 million in software development and CapEx in 2026. With these financial considerations in mind, let me close with a brief comment on the organization. I want to acknowledge the exceptional work of the Evolent team and where we stand as a company. While there is a significant amount of work ahead, I believe we're well positioned to execute at a high level and accelerate growth as our new partnerships come online throughout 2026. We have a strong foundation, a disciplined financial plan and a team fully aligned around delivering for our partners and driving sustainable value for our shareholders. I'm confident in our ability to navigate the near-term challenges and to capitalize on the substantial opportunity in front of us. With that, operator, we can open the line for questions.

[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.