Evolent Health Faces Increased Costs in Q3 Earnings Update

A recent report reveals that Evolent Health's Q3 2024 earnings fell short of expectations due to rising medical costs, particularly in oncology. The company announced a revised outlook for adjusted EBITDA and aggressive steps to manage these challenges going forward.

Date: 08-11-2024

AI Rating: 5

The report highlights Evolent Health's Q3 2024 earnings results, which significantly fell below expectations due to sharply increased medical costs, particularly in the oncology space. The reported adjusted EBITDA for Q3 is $31.8 million, impacted by approximately $42 million in higher-than-expected medical costs in their Specialty Performance Suite business.

This surge in costs originated from two key factors: new claims data highlighting higher expense claims from prior periods and an acceleration in medical expenses experienced in August and September after a relatively flat period between March and July. The company is now conducting an audit of claims to ensure they accurately reflect its contractual obligations with partners.

The company is also looking to increase its reimbursement rates due to these elevated medical costs, with a targeted annualized rate increase of $100 million needed by January 2025. Evolent anticipates that these challenges in Q3 will result in a lowered adjusted EBITDA guidance of $160 million to $175 million for the full year 2024.

Additionally, despite the current difficulties, Evolent remains confident in its ability to grow its adjusted EBITDA by 20% annually in the long run and maintain revenue growth of over 15%. The company has seen promising new signings, providing a positive outlook for future revenue streams. However, achieving long-term goals will depend on successfully managing the ongoing challenges related to medical cost inflation.

Key metrics from the report:

Adjusted EBITDA: $31.8 million
Target Annualized Rate Increase: $100 million
Revised Adjusted EBITDA Guidance: $160 million to $175 million
Long-term Adjusted EBITDA Growth Target: 20% growth per year
Long-term Revenue Growth Target: 15% growth per year

Stocks: EVH