Sean Dodge

Sean Dodge followed up on the Evolent ACO acquisition, asking how Privia Health plans to increase its savings rate to match other Privia ACOs and for quantification of the embedded EBITDA contribution in the 2026 guidance.

Answer

Parth Mehrotra, CEO of Privia Health Group, clarified that increasing the Evolent ACO savings rate will happen "over time," not necessarily this year, emphasizing a careful, non-disruptive approach. He outlined the playbook: improving quality metrics, ensuring proper engagement with practices, optimizing data flow, implementing technology on existing infrastructure, and focusing on patient engagement to prevent ED/inpatient rates. He confirmed the acquisition is accretive and contributes meaningfully to 2026 EBITDA, but Privia Health does not break out EBITDA by acquisition or line of business.

Sean Dodge followed up on the Evolent ACO acquisition, asking about the mechanical levers Privia Health would pull to increase the savings rate and for quantification of the acquisition's embedded EBITDA contribution in the 2026 guidance.

Answer

Parth Mehrotra (CEO, Privia Health Group) clarified that increasing the savings rate would happen over time, not necessarily this year, by running Privia's established MSSP playbook, focusing on quality metrics, engagement with practices, data integration, and managing high-acuity patients. He stated that the acquisition is accretive and contributing meaningfully to 2026 EBITDA, but Privia does not break out EBITDA by acquisition or line of business, with all contributions included in the overall guidance.

Sean Dodge asked about the margin profile differences between BetterHelp U.S. and BetterHelp International, and whether the mix shift towards international or insurance is responsible for the guided BetterHelp margin pressure.

Answer

CEO Chuck Divita clarified that the primary driver of changes in the margin profile is the insurance side of the business, which has a different economic construct. He acknowledged that international markets also have a different profile but are achieving target margins and contributing to growth due to access issues in those regions.

Sean Dodge asked about the margin profile differences between BetterHelp U.S. and BetterHelp International, and whether the international mix shift contributes to the guided BetterHelp margin pressure, or if it's primarily from the insurance side.

Answer

Chuck Divita, CEO, clarified that the primary driver of BetterHelp's margin profile differences is the insurance side. He noted that international markets have a different profile but achieve desired bottom-line margins, driven by access issues and local resonance, and that international growth is strong.

Sean Dodge from RBC Capital Markets questioned the reasons for the sequential decline in BetterHelp's average revenue per user (ARPU), asking if it was driven by the new weekly pricing model, international growth, or churn.

Answer

CFO Mala Murthy clarified that the ARPU decline was not due to the weekly pricing model, which is currently proportional to the monthly price. Instead, she attributed the decrease to the growing mix of international business, which has a lower headline price, and the accounting treatment of international taxes as a contra-revenue item.

Sean Dodge requested more detail on the stabilization of BetterHelp's user count, asking if it was driven by new user additions or improved retention and what provides confidence in future stability.

Answer

CFO Mala Murthy attributed the stabilization primarily to new user additions, fueled by incremental ad spend in international markets. She noted that other metrics like retention and churn have been largely stable in 2024. She also cautioned that the typical Q4 modulation of ad spend will impact user counts into Q1, with stabilization expected to progress through 2025.

Sean Dodge requested more detail on the stabilization of BetterHelp's user count, asking whether the trend was driven by higher new user additions or improved retention. He also asked about management's confidence in maintaining this stability, considering seasonal dynamics at year-end.

Answer

Chief Financial Officer Mala Murthy attributed the user count stability primarily to new user additions, driven by incremental advertising spend in international markets. She noted that other metrics like retention and churn have been largely stable throughout 2024. However, she cautioned that Q4 is seasonally a period where ad spend is judiciously pulled back, which impacts user additions in Q4 and can have a roll-over effect into Q1 of the next year.

Sean Dodge inquired about the proportion of LifeStance's cost base that is addressable or impactable by technology, such as scheduling, credentialing, and revenue cycle management, and the potential for cost reduction over time, asking what stage the company is in with these initiatives.

Answer

CFO Ryan McGroarty referred to the long-term growth algorithm, which projects mid-teens revenue growth and Center Margin expansion to the mid-30s (partially by leveraging occupancy costs). He stated that the G&A line is where efficiencies are being driven through technology to achieve mid-teens EBITDA margins by 2028. He expressed confidence in the company's proven ability to implement technology to drive a lower overall expense base and achieve leverage.

Sean Dodge inquired about the proportion of the cost base addressable by technology (e.g., scheduling, credentialing, RCM) to drive savings, the potential for cost reduction over time, and the current stage of these technological advancements.

Answer

CFO Ryan McGroarty grounded the answer in the long-term growth algorithm, highlighting that Center Margin expansion (leveraging occupancy costs) and G&A leverage are key to reaching mid-teens EBITDA margins by 2028. He emphasized that the G&A line is where technology drives efficiencies and a lower expense base, expressing confidence in the company's proven ability to implement technology for cost reduction.

Sean Dodge asked about the timeline for the $50 million in 2026 cost reduction efforts and the expected run-rate benefit of these initiatives going into 2027.

Answer

CFO Mario Ramos explained that $20 million of the savings were realized by Q4 2025, a significant portion of the remaining $30 million was implemented early in 2026, with the rest throughout the year. He noted that most benefits are already incorporated into the 2026 guidance, with not much additional run-rate benefit expected for 2027.

Sean Dodge asked about the timeline for realizing the $50 million in cost efficiencies planned for 2026 and the expected run-rate benefit of these initiatives extending into 2027.

Answer

CFO Mario Ramos explained that $20 million of the $50 million savings were already realized by Q4 2025 through AI and automation. A significant portion of the remaining $30 million was implemented early in 2026, with the rest throughout the year. He noted that most benefits are already incorporated into the 2026 guidance, implying no substantial additional run-rate benefit for 2027.

Sean Dodge of RBC Capital Markets requested a reconciliation for the Q4 adjusted EBITDA guidance reduction, noting a gap between the implied cost trend and the new forecast.

Answer

John Johnson explained the Q4 guidance reduction by citing two main factors. First, the guidance range accounts for a potential worsening of medical cost trends. Second, the underlying cost pressure is higher than implied by the $100 million special rate increase alone; the company also expects at least $50 million from normal-course annual escalators, which are also needed to offset the trend.

Sean Dodge asked about the drivers behind the projected EBITDA margin expansion for 2026, specifically if it's solely operating leverage or if other dynamics like cost changes or mix impacts are at play. He also inquired about a Sterigenics client's decision to outsource sterilization, seeking details on the factors (e.g., NESHAP), magnitude, and timing of the shift, and if this indicates a broader trend.

Answer

Chairman and CEO Michael Petras confirmed that the EBITDA margin expansion is primarily due to normal operating leverage. Regarding Sterigenics, Mr. Petras stated that no significant shifts in insourcing to outsourcing are currently observed, with the compliance period extended for two more years. The referenced customer will transition volumes in late 2026, continuing through 2027 and 2028, with new regulations being a factor in their decision.

Sean Dodge inquired about the drivers behind the projected EBITDA margin expansion for 2026, specifically whether it's solely due to operating leverage or if other factors like cost management or mix impacts are at play. He also asked for more details on a Sterigenics client transitioning from insourcing to outsourcing sterilization, including the role of NESHAP regulations and the expected magnitude and timing of this shift.

Answer

Chairman and CEO Michael Petras confirmed that the margin expansion is primarily due to normal operating leverage, with no abnormal dynamics. Regarding the Sterigenics client, Mr. Petras noted that significant shifts due to NESHAP are not yet observed, as the compliance period extends for two more years. The referenced customer's volume is expected to transition in late 2026 and roll through 2027 and 2028, with NESHAP requirements being a factor in their decision.

Sean Dodge from RBC Capital Markets asked for details on the operational changes at Nelson Labs driving margin improvement and the revenue mix and margin profiles of its different service lines (Expert Advisory, routine, validation).

Answer

CEO Michael Petras attributed the margin improvement at Nelson Labs primarily to enhanced labor productivity, better aligning staffing with order patterns. He also mentioned the consolidation of a smaller lab to improve operating leverage. He clarified that Expert Advisory Services is the lowest margin category and represents a low-double-digit percentage of Nelson's revenue, while routine and validation testing are roughly split 50/50.

Sean Dodge of RBC Capital Markets inquired about the wide Q4 revenue guidance, historical seasonal strength, and sequential expectations for Nordion, Sterigenics, and Nelson Labs. He also asked about market dynamics and potential share shifts resulting from the final NESHAP regulations.

Answer

CEO Michael Petras confirmed that Nordion's revenue is expected to be up sequentially in Q4 but down year-over-year, with about 60% of its annual revenue in the second half. He noted Nelson Labs would be down mid-single digits due to expert advisory services normalization, while Sterigenics would see continued slight volume and mix growth. Regarding NESHAP, Petras stated that while challenging for the industry, Sotera Health is confident in its position and views the regulations as a net positive for Sterigenics.

Sean Dodge from BMO Capital Markets asked about the revenue split within the campus services division (CSG vs. Meriwether Godsey), the strategy for accelerating and scaling this division, and the timeline for it to become a more significant growth factor. He also questioned the 2026 cash flow from operations trajectory, specifically if it would approximate net income, and how the $75 million share repurchase plan balances against M&A opportunities.

Answer

President and CEO Ted Wahl stated that campus services revenue is split evenly between the CSG and Meriwether Godsey brands, with future growth fueled by organic expansion and strategic M&A, particularly in the Northeast, Southeast, Mid-Atlantic, and Midwest. CFO Vikas Singh confirmed that net income remains the best proxy for cash flow from operations (excluding payroll accrual changes) for 2026, given revenue and margin targets. Singh also assured that the strong liquidity position ($200M+ cash, undrawn $300M credit facility) allows the company to pursue all three capital allocation priorities—organic growth, M&A, and share repurchases—without conflict.

Sean Dodge asked about the revenue split within campus services between environmental services and Meriwether Godsey, the timeline for accelerating and scaling this division, and the strategy for M&A. He also questioned the 2026 cash from operations trajectory and the balance between the $75 million share buyback plan and M&A opportunities.

Answer

President and CEO Ted Wahl confirmed an even revenue split between the CSG and Meriwether Godsey brands within campus services, anticipating accelerated organic growth and strategic M&A for expansion. CFO Vikas Singh stated that net income remains the best proxy for cash flow from operations in 2026, excluding payroll accrual changes, based on mid-single-digit revenue growth and margin targets. Singh also assured that HCSG's strong liquidity position, with over $200 million in cash and an undrawn $300 million credit facility, allows for pursuing all capital allocation priorities—organic growth, M&A, and share repurchases—without conflict.

Sean Dodge inquired about the impact of new business start-up costs on gross margins, the timeline to achieve the 86% cost of sales target, and the drivers behind the Q4 adjusted cash from operations performance relative to guidance.

Answer

Executive Theodore Wahl explained that the timing of new business adds will cause quarterly margin fluctuations but affirmed confidence in the 86% cost of services target, driven by operational execution. He noted Q4 cash flow was impacted by pulling forward new business opportunities. Executive Matthew McKee added that new housekeeping and dining accounts typically take 90 and 120 days, respectively, to get on budget. CFO Vikas Singh highlighted that Q4 cash collections exceeded 100%, bolstering cash flow. McKee also provided specific payroll accrual day counts and their cash flow impact for each quarter of 2025.

Sean Dodge asked for an update on the company's visibility into its full-year cash flow target, the number of payroll accrual days for Q3 and Q4, and the revenue run rate exiting the quarter to better understand the growth outlook for 2025.

Answer

Executive Theodore Wahl confirmed strong momentum for the full-year cash flow target, citing over 98.5% collections in Q3, positive Q4 seasonality, and ongoing collections from Change Healthcare-related delays. He reiterated the strategy of increasing payment frequency and using promissory notes. Executive Matthew McKee stated there were 9 payroll accrual days in Q3 and there will be 3 in Q4. Wahl added that he is optimistic about 2025 growth, supported by a strong pipeline and consistent new business additions, though client retention remains a key variable.

Sean Dodge asked about the margin puts and takes for Medpace's 2026 guidance, specifically how accelerating hiring and a potentially higher percentage of pass-throughs might create pressure. He also inquired about the primary drivers of productivity gains, such as technology or offshoring, and asked for Medpace's perspective on AI's technological impact on the space, its long-term implications for the company, and how Medpace is positioning itself.

Answer

CFO Kevin Brady explained that margin improvement is driven by slower hiring due to improved retention, leading to increased productivity from experienced staff. CEO August Troendle added that utilization in lab operations is also contributing. Regarding AI, August Troendle believes changes will be slow, with no net productivity advantage in 2026 due to investment, and the long-term impact is unclear but could be a net negative for service companies. President Jesse Geiger noted Medpace is rolling out AI for efficiency improvements and data analytics for feasibility and site selection.

Sean Dodge asked about the margin puts and takes for 2026 guidance, specifically how accelerating hiring and a higher percentage of pass-throughs would impact margins, and if productivity gains were the primary offset. He also inquired about Medpace's perspective on AI, its potential as a technological step change, its long-term impact on the company, and how Medpace is positioning and investing in this area.

Answer

CFO Kevin Brady explained that the guidance assumes normal cancellation rates and mid to high single-digit hiring growth, which is lower than revenue growth. This is driven by continued good retention, leading to improved productivity and less training. CEO August Troendle added that overall utilization, including in lab operations, is up. Regarding AI, Mr. Troendle stated it's too early to know the full impact, expecting changes to occur slowly with no net productivity advantage in 2026 due to investment equaling benefits. He acknowledged it could be a long-term net negative for a service company but noted the timing and opportunities are difficult to predict.

Sean Dodge asked about the growth potential for AccessOne, strategies to accelerate its growth, opportunities for expansion within its existing client base, and the timeline for cross-selling it into Phreesia's legacy client base.

Answer

Chaim Indig (CEO, Phreesia) indicated that the product needs further development before it can be widely cross-sold to legacy clients, but Phreesia plans to invest in AccessOne's go-to-market motion for both new and existing clients. Balaji Gandhi (CFO, Phreesia) added that this investment is factored into the 2027 outlook and expressed high expectations for AccessOne's multi-year contribution.

Sean Dodge asked about the growth potential for AccessOne over the next couple of years, including opportunities for acceleration, expansion within its existing client base, and the timeline for cross-selling it into the legacy Phreesia client base.

Answer

CEO Chaim Indig stated that the AccessOne product is not yet suited for the vast majority of Phreesia's base clients and will require investment. He expects investment in go-to-market motion for both new and existing clients over the next couple of quarters. CFO Balaji Gandhi added that this investment is baked into the 2027 outlook and that Phreesia has high expectations for AccessOne as its largest acquisition.

Sean Dodge inquired about the allocation of sales and marketing expenses, asking if the mix is shifting more towards cross-selling and network solutions versus new client acquisition.

Answer

Executive Balaji Gandhi described the allocation as a continuous process focused on returns and paybacks. He noted that the total dollar amount spent on sales and marketing has remained stable for several quarters, suggesting the focus is on efficiency and maximizing returns from the existing budget.

Sean Dodge inquired about the seasonal cadence of the Network Solutions business and the company's visibility into that revenue stream for the second half of the fiscal year.

Answer

Executive Balaji Gandhi confirmed that the third and fourth quarters are seasonally the heaviest for the Network Solutions business, which is why the company intentionally set a wider revenue guidance range for the year. He noted that many sales activities are in progress during the fall.

Sean Dodge asked about sizing the longer-run opportunity for Vault Basics, given its recent client growth, and its potential to become a significant revenue driver for Veeva.

Answer

Peter Gassner (CEO) described Vault Basics as important for helping smaller life sciences companies grow and facilitating acquisitions for larger customers. He stated that while it's not expected to be a significant revenue driver, it's a great business and a crucial part of the overall ecosystem, with potential to reach 1,000 customers over time, allowing small biotechs to graduate to enterprise Veeva without changing systems.

Sean Dodge asked for quantification of the sales pipeline growth compared to the previous year, the level of visibility into the significant Q4 revenue step-up implied by the 2024 guidance, and whether there have been any changes in sales cycle lengths.

Answer

CEO William Febbo and executive Stephen Silvestro noted that while they no longer provide a specific pipeline metric, the pipeline is building very nicely and is cleaner and smarter, particularly as the DTC business is now aligned with the annual RFP cycle. Mr. Febbo confirmed there is "high visibility" into the Q4 revenue guidance, with very little left to secure. Mr. Silvestro added that the sales cycle for the core HCP business has accelerated by approximately 20%, while the DTC business cycle remains tied to the annual RFP process.

Sean Dodge of RBC Capital Markets asked about the rollout of the Integrated Savings Program (ISP), specifically if the pace of adoption is consistent across all PBM partners and what factors drive differences in speed.

Answer

Interim CEO Scott Wagner responded that the pace is a mix across the PBM environment. He framed ISP as a solution meeting employer demand for a complement to funded plans and highlighted the excitement around expanding the program to include brands, which serves a large market need for employers managing costs while providing benefits.

For Sean Dodge of RBC Capital Markets, Thomas Kelliher asked about the potential size of the incremental EBITDA contribution from existing TEMS clients as newer contracts ramp up to their mature target margins.

Answer

CEO Dan Burton reiterated the margin progression for TEMS contracts, which start near 0% gross margin and ramp toward a 25% target over several years. He noted that AI-driven efficiencies in areas like chart abstraction could provide an additional 20-25% efficiency gain on top of that. CFO Jason Alger acknowledged the near-term margin pressure from investments in newer ambulatory TEMS relationships.

Sean Dodge asked for clarification on the implied sequential decline in volume-based revenue for Q4 within the full-year guidance. He also requested color on the potential efficiency gains from the generative AI solutions planned for 2025.

Answer

CFO Steven Oreskovich stated that the Q4 guidance reflects a prudent assumption that full-year volumes will normalize toward original expectations after three quarters of outperformance. CEO Matthew Hawkins noted that while specific ROI for new GenAI tools is not yet public, they are being designed with client input to deliver tangible returns and address key industry pain points.

Sean Dodge from RBC Capital Markets questioned the magnitude of the full-year guidance increase, noting it was less than the significant Q2 beat on revenue, EBITDA, and EPS, and asked about potential one-time items.

Answer

President and CEO Jon Kessler explained that while Q2 performance was strong, the full-year outlook reflects a net effect. He quantified the outperformance versus internal expectations at about $10 million, which was partially offset by a roughly $5 million negative impact from a downward shift in forward interest rate curves affecting floating-rate cash and back-half placements.

Inquired about recent booking trends for Q4, details on the composition of the $41 million in Q3 bookings (including any shifts or cancellations), and the expected pace of backlog conversion given the mix of early and late-stage projects.

Answer

Executives declined to comment on Q4 bookings but expressed optimism for continued growth, while noting potential lumpiness. They confirmed the $41M in Q3 bookings was a solid number with no major cancellations and highlighted a positive trend of increasing early-phase opportunities. They expect backlog conversion to potentially shorten as more early-phase business is added to the mix.

Inquired about the free cash flow trajectory for 2024 and beyond, including key drivers. Also asked about the assumption for credit allowances in the 2024 guidance and what a 'normal' level looks like.

Answer

Executives guided to a 2024 free cash flow conversion in the 20%+ range, impacted by Providence investments and Acclara transaction costs, but expect it to improve significantly in 2025 towards a long-term target of 50%+. The 2024 guidance assumes about $10 million for credit allowances, which they consider the 'new normal'.

Asked how dependent the guidance is on the upcoming EMBARK trial data for its large gene therapy customer (Sarepta). Also inquired about personnel and oversight changes made at the Bloomington facility to restore confidence.

Answer

The guidance does not include any potential upside from a label expansion related to the EMBARK data. The relationship with that customer also spans multiple programs. At Bloomington, several leadership changes have been made, including a new general manager and new leaders in the quality function, to adapt to the site's new phase of launching multiple new products post-pandemic.

Asked how the guidance for the large gene therapy customer depends on upcoming clinical trial data and what specific personnel or oversight changes have been made at the Bloomington facility to address recent challenges.

Answer

The company clarified that the guidance does not assume a positive outcome or label expansion from the upcoming clinical trial data, and noted the customer relationship is diversified across multiple programs. At the Bloomington facility, a new general manager and other key leadership positions have been filled to manage the site's new focus on launching multiple products.