We'll get it started. For those who I don't know, I'm Jeff Garro. I'm the Healthcare IT Analyst here at Stephens. And I'm pleased today to have the team from Evolent joining us: John Johnson, CFO, and Seth Frank, who runs the IR function at Evolent. So thank you for joining us, guys.
Thanks for having us.
We'll just kick right into questions. The first one is higher specialty costs, most specifically in oncology. Were a problem for Evolent last quarter and are top of mind for investors. I'm starting with a broad scope on the topic and a broader scope than Evolent-specific cost trends. What are your medical and underwriting experts seeing as the macro drivers for higher specialty cost trends?
Yeah, totally. We'll start big picture, and maybe before I get started, I'll do the usual safe harbor. We may talk about forward-looking statements here. So you should read our risk factors in our 10-Ks and 10-Qs and all of that. Let's start at a high level. Specialty trend has been a major issue for health plans generally for several years, and one of the things that we've seen, along with our customers and our peers across this year, is a meaningful acceleration of that trend. We think that across our book, both based on our internal analysis and on comments that we've received from our partners, that we are able to create more value in the face of that trend than any of our competitors, particularly in oncology, and at the same time, the trend has been very significant.
In the risk-taking part of our business, that has in Q3 resulted in a number of contracts being underwater. We're viewing that with real urgency. I'm sure we'll get to this in some of the other questions, Jeff. But I just wanted to say that upfront, that while we're not going to be reactive in this moment, we believe that these risk-bearing models can ultimately drive the most value for members, for health plans, and for Evolent. We are viewing this moment with a tremendous amount of urgency to rectify that situation. In terms of drivers, then getting to your underlying question, I see it as three key areas. One is the pace of science, the pharma pipeline, and the evolution of the standard of care, in particular in a complex specialty like oncology, has never been higher.
So you look at a drug like Keytruda now has over 40 indications across, I believe, 13 different tumor types. And the pace of that kind of pharmaceutical costs tens of thousands of dollars a quarter has contributed to the increase in utilization. The second contributor is there has been, we've observed in at least our population, a spike in cancer prevalence in terms of the number of active cancer cases per 1,000 members across both Medicaid and Medicare Advantage. There are some theories on why that has happened. There's also some unknowns as of yet, given how recent this spike has been in terms of what are the underlying drivers of that increase in the number of active cancer cases. The third contributor is an evolution in the style of therapy.
So we have seen, in particular this year, more and more of these therapies being used in conjunction, in combination with each other, instead of being used in a more traditional sequential or step therapy model. And that can increase the cost per encounter in an oncology regimen.
Excellent. That helps. And at times, you've talked about pieces of the business in a month-by-month nature. So I do want to ask more than halfway through November, any updates on disease prevalence, acuity, or downstream costs as you get some line of sight into the October data?
Yeah. So October closed within our expected range. So no change from what we noted on our earnings call a couple of weeks ago. I think we are always careful not to draw a conclusion from one month, particularly in a risk-based business. So continue to anticipate adjusted EBITDA in the quarter between $22 million and $37 million. But October did close consistent with our expectations.
Appreciate that and then taking a little different direction, I wanted to ask what the cost trends and other complexities facing your client base are doing for demand trends and maybe in response, you could also explain where Evolent can deliver value by changing provider and member behavior in the face of these various drivers of cost trend that you discussed earlier.
Yeah, absolutely. It's a really interesting moment where if you sort of pull back from specific economic models and specific risk models and look at the underlying product, we've never seen demand for this product be stronger. And in part, that is because managing an optimal, let's stick with oncology, managing an optimal cancer regimen is not really viable through traditional specialty benefit management means. Traditional specialty benefit management really means utilization management, just saying no, creating more hoops for a provider to jump through to get an authorization or a treatment approved and paid for. And in a complex specialty like cancer, that just doesn't work. Most of the drivers of increased cost are fully approvable by Medicare.
And so if you're a Medicare Advantage plan, for example, there might be 12 different regimens for non-small cell lung cancer, all of which are not created equal, some of which are going to be better than others in certain circumstances. But in traditional specialty benefit management, there is no way for you to influence the physician on that choice. And that's where Evolent comes in. Through a combination of both clinical IP and technology people in process, we believe that we're able to influence the practice patterns of these oncologists over time by really indexing on what is the latest and greatest evidence for this specific disease state. And we'll do that both through technology, so our portal, and through peer-to-peer interaction.
So have a breast cancer specialist who's on our staff reach out to an oncologist for a breast cancer case, make sure that there's subspecialty to subspecialty matching there to have conversations about science that might have come out two or three weeks ago. Because again, the pace here is so rapid. And that level of both clinical credibility and provider orientation, we've found, can meaningfully move the needle in ways that you can't do in a more traditional model.
Excellent. Appreciate that. And maybe a good opportunity to have you level set between the technology and services business and the at-risk Performance Suite business. I think it'd be helpful to go beyond the economic differences between the two models and explain differences in scope or different levers that you can pull in the at-risk model to drive better cost control. And maybe just to put that one other way, what does the Performance Suite offer beyond cost certainty to clients to generate what can be as much as 10x the gross profit dollars versus the technology and services offering?
Yeah, absolutely. It's a really important question because the underlying IP and process between the tech and services suite and the Performance Suite is the same. Same set of pathways, same core intervention modalities, but there's a key difference, which is that we will spend often between three and five times as much in our own OpEx within a Performance Suite relationship in driving those sorts of outcomes and interventions. Why do we do that? Because we know that there's an ROI on those investments, and in the Performance Suites, where ultimately our margin is driven by our ability to create value through those interventions, we know that there is an ROI on that incremental investment.
If you think about how a tech and services style arrangement is typically bought, the buyer of that service is often placing a heavy weight on the operating cost that they're incurring and less of a weight on the reduction in medical costs that they're anticipating. Said another way, if I'm thinking, if I'm a health plan, I've got an ALR budget, an MLR budget. If I'm talking about an ALR fee, my orientation is I'm going to squish that fee down as much as possible because my mission in life is to keep my ALR, my administrative costs, and my health plan as low as possible. If I'm thinking about MLR, there's more of a view of what's the ultimate return here. Tech and services is an ALR product, and so it tends to have lower operating costs.
And we, therefore, have lower revenue with which to drive those savings. So we spend a lot less money driving those innovations within the tech and services model than we do in the Performance Suite.
Excellent. The ALR versus MLR distinction, I think, should be helpful for people. Maybe we'll take it from there with a more detailed discussion of the at-risk business. Was hoping you could help translate some of the comments on changing behaviors to the financial implications and starting with kind of a high-level explanation of how Evolent can mitigate cost trend risk for clients and yourself and the limits of the risk around scope of work, change in underlying assumptions or otherwise.
Yeah. So we typically, within our Performance Suite, we will price to actual costs. So we will take in two to three years' worth of claims from a particular customer related to a very specific financial scope. So it's down to these J-codes or these diagnosis codes that have to be in this position on the claim, including these facility codes, not those, et cetera. It's a very detailed scope. And we'll build our initial price based on that information. We then will put that up against our own algorithms and our own known ability to inflect that existing cost pattern over time to say, all right, if we're managing this population with a baseline of, call it $50 per member per month in MA for oncology, we think we could do that for 15% less. Maybe it's 20% less over time.
Takes a little time to get that through the network. And so we'll give an initial upfront guarantee to the partner based on that outlook. And we'll start the relationship that way. The second piece, now getting to this trend question, cancer trend has always been high. It's averaged between 8% and 10%, I think, over the last several years. And we can't make that go away because that is driven not just by variability in practice patterns, but by the pace of change in the science underlying the therapeutics. What we know we can do is whatever trend is, we have high confidence based on a decade of doing this that we can be a couple of points under that trend. And so what we'll say is, all right, historical trend here has been 8%. We will give you a 2% discount off of that trend.
Our annual inflator will be 6%. Maybe it'll be 8%, depending on the particular population. That annual inflator is designed to cover this ongoing increase year- over- year in the cost of care that is not influenceable by really anybody. It's ultimately driven by the increase in cost of care coming out of the pharma pipeline and in the standard of care. That works very well in environments where the trend is relatively consistent, which over the last several years it has been. That leads to nice predictable outcomes for both us and for our payers. Ultimately, you look at something that's been operating for a few years where we've been bending that cost curve, we've been driving adherence to our pathways and value-based initiatives through the network, we might be operating at a margin in the mid-teens.
And we've driven about a 15% reduction relative to a trended benchmark for our partners. And so relatively equal sharing of the upside. Let's talk about what happened in Q3. In Q3, what we have observed is a meaningful acceleration in that trend. And so instead of 8%-10%, it might be quite a bit higher than that. This is based on authorization data first that hasn't yet translated into claims. And so we'll see what ultimately the trend becomes. But we tend to be pretty conservative in our initial reserves and are assuming that those authorizations are fully translated into claims in the way that we booked them. So that, of course, takes us beyond what average trend has been. And so what would be a normal 6%-8% annual inflator is now no longer sufficient.
And so this has required us to go and seek what we outlined on our earnings call, an additional $100 million in revenue to make up for the underlying changes in the population, more people having cancer per 1,000 members, a sort of higher unit cost in that population in terms of individual cost of drugs, things that are very clearly outside of our control that we have contractual protections against. That's where we're highly focused right now on a real urgent fashion to establish those increases in revenue by January 1st so that that is covered as we move into next year. About $45 million of that $100 million we've noted are purely mathematical, meaning in the contracts, the contracts are written such that each year our fee is updated based on changes in the underlying population that happened in that year.
So to be explicit, if cancer prevalence in a market that's covered by one of these contracts goes up by 10% in 2024 versus 2023, our rate for that market will go up by 10% in 2025. And that's on top of the normal inflator that is intended to cover trend. That covers about $45 million of the $100 million that we're seeking. The other $55 million is for contracts where it's less mathematical, where the contract might articulate, here are the key historical facts for cancer prevalence. And if prevalence moves outside of a band around that point, parties will come back to the table and update the capitation rate accordingly. Accordingly is not mathematical. Can't put it in a budget yet. But it starts a negotiation around something that is clearly outside of our control.
Excellent. I appreciate that. It's helpful to differentiate between kind of the changes in underlying assumptions and where the trend is. Part of this is that you enter into multi-year agreements with clients, and hopefully they're much longer in duration. The underwriting mechanism in year one can be adjusted for year two or wherever you are. Understanding that kind of re-benchmarking, rebasing versus kind of changing in the fundamental underlying assumptions. Related to that is a question that connects it to profitability. That says, are all rate increases the same in terms of profit margin contribution? In other words, do you have visibility into whether incremental profits from rate increases are going to be offset by higher rates you'll have to pay providers or incremental novel treatments coming to the market?
Yeah, it's a really good question. So go back again and make this distinction between rate increases that we're seeking based on things that are outside of our control. So increased prevalence, increased acuity, et cetera. And the annual inflators that we have that are typically set to account for normal course medical trend. As we look into next year, the biggest question is going to be, how does oncology trend interplay with those annual inflators? And so we're seeking this $100 million. It's sort of pretty clearly mathematical, whether it's contractual or not, but it's clearly mathematical around specific metrics, prevalence, acuity, unit cost, et cetera. I think there's also a moment of honesty here where nobody knows what medical trend will do year on year, moving from this year into next year.
I think a lot of payers themselves have been quite surprised by the pace of trend this year, and so I think we all across the industry have to have a level of humility that that's not currently knowable in the next year, and to the extent that trend subsides and reverts to a normal mean relative to our annual inflators, that is very helpful for our profitability. To the extent that trend continues to accelerate beyond what we would see as our normal inflators, that would have a negative impact on our profitability. Before you ask it, what are we doing about that fact?
One of the most important things that we believe we can do in this moment is, again, I come back to we believe that we have the best product in the market right now in terms of driving quality up and cost down in oncology care. Ultimately, trend itself is not something that we can control. We can just mitigate, and so what we are seeking to do, in addition to driving $100 million of new rates, is to identify markets where perhaps we need to narrow our risk so that we are not exposed to an unpredictable pace of trend next year. That will probably also involve, for a period of time, giving up some upside.
And so if we've historically talked about margin opportunity in the Performance Suites in the mid-teens, we may be in a moment right now where it's more important for us to limit our downside, cap our losses, and exchange that for faster sharing to the plan if we're operating at a higher profit margin. And do that right now a bit from a position of strength because we tend, unlike an insurance company, we don't have a tail on our risk. That's in part because we're not signing up the member. So we're not writing an insurance policy. We can hand the risk back if we can't come to the right arrangement with our partners around rates and other structures.
That gives us a bit of a position of strength to work together, ideally, in a sort of collaborative fashion, to say, what's the right sustainable structure here in this moment that's very dynamic to best serve your members and to fairly compensate Evolent for the value that we know we're creating? And I think in this moment, that probably looks like a narrower band of potential outcomes within the Performance Suite that may then expand again over time as trend stabilizes. But as we look into next year, that's an important focus for us. In addition to obtaining the right level of rate increases, it is obtaining the right sort of narrowed protections around potential losses that we can incur.
I appreciate that. And one of the issues here is kind of the right alignment between trend and the rates you receive and what the downstream costs are for the members you serve for your clients. And one discrete question around that is, at one point this year, you had discussed potential for retrospective rate increases that would maybe help solve some of that problem. But that talk has dissipated. So I wanted to ask if that's a mechanism that could be used in the future. Or have you and clients decided that some of the flaws of that, the lumpiness around it, for one, outweigh any of the merits?
So look, I think it's very much part of the conversation. Ultimately, we seek to be good partners in sustainable relationships over a long period of time because that's, we believe, how you grow the enterprise and deliver the most value. We are aware that in Medicaid, for example, there were a number of states that gave off- cycle rate increases that in some cases were retroactive. So it's a thing that happens in the industry, and it's clearly part of the discussion. Our orientation is ultimately, we are here to deliver value for our partners. And if we can do that in a sustainable way that drives the right economics for Evolent, then we can do that in either prospective or retrospective methods.
Can you elaborate on what you mean by the narrowing of the scope? What does that look like for your clients? Is it less cases?
Yeah. Specifically, what I'm talking about, if I can just use health plan terms, is narrowing our MLR options. And so if previously we might have had possible MLR outcomes of between 85% and 110%, for example, we might be in a moment where I want to make that 90% to 100% or 90% to 98% because we're not making it worse. And so that's what I mean by narrowing the corridor of potential outcomes.
Just one more follow-up. In terms of, excuse me, the $100 million revenue opportunity, are you talking to all of your partners? Is it a narrow band of your partners? I know it's in oncology, but all of your partners?
It's a good question. It's not all of our partners, no. I think those contracts that are meaningfully underwater that require a significant step up, I think I noted on our earnings call, comprised about 50% of our revenue in the Performance Suite.
So you alluded and you just followed up on changes that can be made to the Performance Suite business model to deliver less volatile results. And maybe following up on that, to the extent that you come up with a best practices playbook for the Performance Suite, how long would that take out to roll across the whole book of business there? I assume some of the changes would be contractual in nature, and you have to go across many clients and many different geographies, and it might not be something that everyone would do in a single quarter, and it might just take time to execute against that. So yeah, so explain thoughts on developing the playbook and how long it would take to roll that out.
Yeah. So look, I think there's a short-term and a medium-term answer to that. First is, as I mentioned at the outset, we are viewing this with an extremely high level of urgency that as we move into next year, we are not sort of interested in absorbing losses beyond what we're contractually obligated to do. And so that gives us a real level of intensity around driving some of these conversations. And at the same time, there's a realism that we're talking with managed care organizations who are themselves having kind of a tough year. And so you would not hear me sort of affirmatively say that that's an overnight sort of discussion. So it can take some time. Where I think there is some historical precedent here, I'd point to two things.
One is we have had this sort of go-round earlier in the year where in a couple of markets at the beginning of the year, we noted a pretty significant change in the population. And on our May call, we noted that we're going to be going back to those particular partners and seeking rate increases that were consistent with that change in the population. And on our August call, we confirmed that we'd secured $35 million for those markets in 2024 above the revenue that we thought we would have coming into the year. And so we've done it before. And we've had these conversations. We've created the framework for what do we look at when we're evaluating these conversations together and how are we working on, again, in partnership with our clients here, making this sustainable for both parties.
Appreciate that. I want to hit on a couple more discrete items related to the Performance Suite because we began to question on them. And one is on the higher-than-expected costs in the Q3 and a specific callout that you had of $24 million in higher-than-expected costs from claims that had already been paid by your partner that you didn't have visibility on until relatively late in the game. So help us understand how that happened and what Evolent is doing to prevent similar instances of weaker visibility from popping up again in the future.
It's a really important question. And just to provide a little bit more context, our contracts stipulate that our partners are obligated, if they're paying claims that are in our scope, to send us in a timely fashion the full accounting of claims that they paid in the previous month. And that's typically a monthly view. So in April, we're getting a file that has everything that was paid by our partner in March. And what we learned, again, very late in the game, to use your language, was that for two of our partners, the files that we had been receiving were incomplete. And there were, in fact, claims that they had paid in prior months this year that they had not told us about. That, of course, changed our lag triangles and changed our outlook, both on the profitability in the H1 of the year.
So there's a $24 million impact relative to our expectations that we called out there. It also, of course, influenced our accruing for expenses that were incurred in Q3. And so, said another way, we called out an $18 million increase in Q3 claims that we saw. Part of that was driven by the receipt of these surprise new claims that changed the lag triangles and changed our expectation of how auths were translating into claims across this year. How do we make sure that never happens again? It was like your question, and it's exactly the right question. While our contracts have this obligation, there is not currently, in most of our contracts, teeth associated with that obligation.
And so, as a part of our conversations, both in the rate increases that we're talking about and potential sort of limiting of our losses as we move into next year, we're also introducing clauses that limit our liability if we're not receiving claims paid in a timely fashion because that is a clear obligation of our partners.
Makes sense. The second one here is something that didn't come up on the last call, but we published on an oncology Performance Suite client in Ohio for Medicaid and exchange lines. You had announced it on the Q2 call, launched September 1st, and by November 1st, the client was telling providers that this oncology quality program would be suspended as of December 1st. So I was hoping you could explain why a new launch was suspended so quickly after launching.
Yeah. It's a good question, and I'm not going to comment on particular customer situations, but let me make a general comment that there are sometimes regulatory or administrative items within a particular market that are not in reaction to the perception of our own quality or execution that cause programs to be paused every once in a while. It happens. Our understanding is that these are often temporary and not, again, a reflection on the implementation or the rollout of the product.
I appreciate that. Before I transition away from Performance Suite, maybe I open up to the audience and see if there are any questions people in the audience want to throw out.
You had mentioned a change in prevalence or increase in prevalence being one of the factors of increasing costs. This might be a naive question, but is there a particular reason in Performance Suite why we charge on a PMPM basis rather than a per-disease member basis?
That's not a naive question at all. I'll just repeat it for the transcript. Is there a reason that we charge on a per-member-per-month basis across the whole population rather than charging on a case-based basis for active cancer cases? There is a reason. And it is historically, those case-based models are very difficult for plans to administer. And so if you think of the infrastructure that exists at most health plans to administer value-based models, whether that's a subcapitation contract like ours or others, that is an area where, if you look under the covers, there's been tremendous improvement over the last five years. And I would posit we're still somewhat in our infancy as an industry in everybody's ability to administer those kinds of pretty nuanced division of financial responsibilities.
So that's the reason, which is that two, three, four years ago, that was not a thing as we were really getting the Performance Suite off the ground. That was not a thing that most of our customers could administer. I think it's a really interesting potential evolution of the product as we, as an industry, become more sophisticated in these types of arrangements because it would, to your point, solve this unknown variable of what is cancer prevalence doing. It's a good question.
All right. So maybe we'll move on to a broader margin and profitability question. And last year, we were getting lots of questions on the amount of one-time adjustments to the income statement, a lot of them related to the NIA integration and then the broader initiative to unite under the Evolent brand. And I think there was some skepticism over the sustainability of lower operating expenses. And a year later, I think you've proven critics wrong on that front. And now, in the face of some gross margin pressures, are discussing even more operating efficiencies. So is it as simple as before there were clear redundancies to streamline, and now it's a kind of no stone left unturned mentality, or will finding incremental efficiencies be more tactical from here?
Yeah. It's a good question. I'd say that we have hopefully demonstrated over the last several years a high level of discipline around our cost structure overall. I think the biggest theme there last year was the NIA and One Evolent integration where there were clear redundancies and clear opportunities that we had identified during the diligence of that asset back in 2022. And we executed on and captured those synergies as expected. As we look at what does that look like over the next two years, we're not sort of out to cut to the bone or to the muscle even. And I think that's really important context. We believe that ultimately the strategy that we're pursuing is taking a highly differentiated product into a fast-growing and attractive market. We don't want to underinvest in that.
Where we do see massive opportunities is in streamlining the work that is done to execute on these programs, and so earlier in the year, we announced the acquisition of some software assets from a company called Machinify that apply sort of targeted generative AI towards our specific use case, which is to say we have clinical reviewers who today have to look at, across two monitors, six different windows to evaluate a potential case and seek to identify the best path through for that particular patient, and that might take 30, 45 minutes. With the application of a generative AI-type model, what we've seen in our initial pilots is a very significant decrease in the time that it takes to pull all of that information together, and we think that can pay significant dividends from a gross margin perspective.
It's largely around the gross margin over the next several years. I think we've articulated an expectation that we start to see the real benefit of that by the H2 of 2025.
That's a lot. Appreciate that. Something that's creating efficiencies is probably also a growth opportunity as well. And you've alluded to the urgency around the at-risk business. And it certainly sounds like your focus is on lessening volatility and evolving that business model for the better. But I wouldn't expect that growth objectives are completely cast aside. So two more questions on this front is anything you can share around potential to add incremental specialties to your offerings? And more specifically, where are you at with marketing a performance suite solution for MSK to clients and prospects?
Yeah. So on the broader point, totally agree with you. Clearly, it's very urgent that we sort of right-size some of the performance arrangements that are currently underwater, and that is a huge focus across the organization. We also, as I mentioned this at the outset, think that we can operate at this moment from a position of strength. We have a really good product. We generate cash flow. We have strong balance sheets, and we can be there for health plans who need a solution like ours, and so we are seeking to use this moment of industry-wide dislocation to strengthen Evolent. To get to the sort of question under the question, what might that mean from an M&A perspective or a new product perspective? We're pretty focused internally right now.
And so I think from new specialties or something like that, our perspective is the opportunity in front of us in the three core specialties we have, oncology, cardiology, and musculoskeletal conditions, is so vast, we don't need to add another specialty. At some point, it might make sense to do so if there was a highly accretive way of doing that, but it's not our focus. On potential evolutions of new risk models like the musculoskeletal offering, clearly a huge demand for that in the marketplace. A lot of work going on within Evolent on exactly how do you scope a risk-based product like that. You'll not be shocked to hear that in a high-trend environment, we're going to be very thoughtful about bringing on new risk in a new specialty.
That's not to say that we're slowing down that new product work, but we will be, I think, quite conservative in the initial risk that we take on in a new product like that.
Excellent. Maybe throw one more out there on the demand side. You've already alluded to the positive demand drivers, and last call, you announced a new client, top five national account for the Performance Suite. And you were getting the question, are you sure about entering into this new relationship given some of the challenges now, but I think that was overshadowed by everything else on the call, so I want to give you an opportunity to talk about what drove that new top five national health plan to Evolent, the potential for that relationship to expand over time and what they saw as differentiating from your offering.
Yeah. You know, I think I just go back to this fact that we've observed that across the industry, everyone who manages total cost of care is struggling with the escalating pace of specialty costs. And so the differentiation that we can bring around being highly provider-oriented, being set up with a track record of being able to influence those providers in a way that is not just classically we're out to make that, put that to the side, old school. New school is condition management in a way that is driving underlying behavior change, which is very difficult to do. And I think what those new clients that we've signed up over the last year have seen in our products and in our demos and as we've gotten implemented is that ability to drive underlying change in a way that, again, we think is quite differentiated.
So we're excited about that. Every time we land a new logo with a new market, we're creating, we're adding to our in-sale opportunity. We articulated, I think, a couple of years ago now that our current customer base at the time represented a $50 billion revenue opportunity if we were to fully penetrate that customer base. It's a massive in-sale opportunity and landing new big customers clearly just expands that opportunity. And we're really excited about that.
Excellent. Checking with the audience here to see if there's one. Jamie?
Yeah. I think you said earlier this year that you thought tech and services could be like 70% of your profitability. Obviously, the guidance is down. Is it fair to say that tech and services is now more like 100% or equal to 100%?
That's the math. That's right.
Any others from the audience? We'll close with one multi-part balance sheet capital deployment question. The focus coming into 2024, clearly away from M&A towards deleveraging. And I think your comments today so far have reinforced that. And as of the last call, a share buyback entered the conversation on capital deployment. So any updates that you can give on the balance sheet, also including the post-Q3 accounts receivable issue that had popped up as of the call?
Yeah. So let me hit that last one real quick, just by way of an update. We did receive payment on several backdated invoices or older invoices from one of our largest AR balances that you'll see in the queue after the call. So that's just an update there, not unexpected, but nice to have that confirmation. Broader capital deployment priorities. Look, our capital allocation strategy has not fundamentally changed, which is threefold. We're going to have continued investment in what we think are highly differentiated products. That's number one. We're going to continue to spend a fair bit of capital. This year, it's about 25. I would expect that to go up a little bit next year in capitalized software development to continue to propel the products forward. We will do strategic M&A in the right moments. What does strategic mean?
It means it extends our or accelerates our existing strategy and that it is attainable on a fair EBITDA multiple. We're not interested in paying up for assets. And at the moment, just to reiterate it, that's not our core focus. And then the third piece is doing so, achieving one and two in the context of a disciplined balance sheet and a disciplined and efficient capital structure. We did note on our call that we've secured an incremental $250 million of committed financing. Just to be explicit, the purpose of that financing is principally to provide a path for our 2025 convertible notes that are due next October. And we wanted to have a clear path articulated and established for those notes so that question was not an overhang on us here. On the buyback comment, we've never said that that was on the table.
All that comment was intended to do was to say, look, the board is open to any and all options for value creation, and that is a consistent theme, hopefully, that you've heard from us and will continue to hear from us as we navigate through seeking to execute on our strategy here.
Excellent. Well, we'll close with that. Thank you again, John and Seth, for joining us.
Thank you. Appreciate it.