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Evolent Health Announces Third Quarter 2019 Results

WASHINGTON, Nov. 5, 2019 /PRNewswire/ -- Evolent Health, Inc. (EVH), a company providing an integrated value-based care platform to the nation's leading physician and payer organizations, today announced financial results for the quarter ended September 30, 2019.

Highlights from the third quarter of 2019 announcement include (all comparisons are to the quarter ended September 30, 2018):

  • GAAP revenue of $220.1 million, an increase of 46.8%; Adjusted Revenue of $220.3 million, an increase of 46.7%.
  • Net income (loss) attributable to Evolent Health, Inc. of $(25.5) million, Adjusted EBITDA of $3.3 million.
  • Lives on platform of approximately 3.7 million.
  • New partnership agreement for health plan services with Maryland Physicians Care MCO (MPC) to support Medicaid operations in Maryland for more than 200,000 Medicaid beneficiaries.
  • Expanded relationship with an existing partner for oncology and cardiovascular services.

Frank Williams, Chief Executive Officer of Evolent Health, Inc., commented, "Overall, we are quite pleased with our top and bottom-line results for the third quarter and the progress we have made in meeting our key strategic objectives for 2019. With seven new partners, as well as a strong pipeline and renewal environment, we have a high level of visibility for top-line growth and margin expansion as we head into 2020."

Mr. Williams commented, "Across the market, there is a broad, urgent focus on reducing health care costs and improving outcomes for both health care providers and managed care and government payers. This has created significant opportunities in our pipeline for our health plan services, specialty management services and population health services, particularly in Medicare and Medicaid. By serving as the bridge between providers and payers and delivering strong operational and clinical results for our partners, we are uniquely positioned in a large and growing market to establish new partnerships and significantly expand existing relationships."

Mr. Williams added, "We are excited to announce a new partnership with Maryland Physicians Care MCO, a Managed Care Organization that administers health care services to Medicaid beneficiaries enrolled in the Maryland HealthChoice program. MPC is highly-regarded in its market and has a strong reputation for providing exceptional care and services to its members. We look forward to leveraging our robust health plan and clinical platform to help MPC optimize health services for more than 200,000 Medicaid beneficiaries."

Mr. Williams concluded, "This quarter, we also continued to work closely with the Passport Health Plan team to make meaningful progress in driving administrative efficiency, optimizing network performance, improving clinical outcomes and driving a strong service experience for members. While Passport is currently awaiting a decision from the Kentucky Department of Medicaid Services on whether it will be awarded a new Medicaid contract, we are heartened by the fact that Passport posted a positive operating margin this quarter and continues to make strong progress."

Financial Results of Evolent Health, Inc.

In our earnings releases, prepared remarks, conference calls, slide presentations and webcasts, we may use or discuss non-GAAP financial measures. Definitions of the non-GAAP financial measures, as well as reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures, are included in this earnings release. See "Financial Statement Presentation" and "Non-GAAP Financial Measures" for more information.

Reported Results

Evolent Health, Inc. reported the following GAAP results:

  • Total revenue of $220.1 million and $149.9 million for the three months ended September 30, 2019 and 2018, respectively, an increase of 46.8%;
  • Cost of revenue of $131.8 million and $74.0 million for the three months ended September 30, 2019 and 2018, respectively, an increase of 78.1%;
  • Claims expenses of $34.8 million and $17.0 million for the three months ended September 30, 2019 and 2018, respectively, an increase of 104.8%;
  • Selling, general and administrative expenses of $58.8 million and $59.6 million for the three months ended September 30, 2019 and 2018, respectively, a decrease of 1.3%;
  • Net income (loss) attributable to Evolent Health, Inc. of $(25.5) million and $(12.4) million for the three months ended September 30, 2019 and 2018, respectively;
  • Earnings (loss) available to common shareholders, basic and diluted, of $(25.5) million and $(12.4) million for the three months ended September 30, 2019 and 2018, respectively; and
  • Earnings (loss) available to common shareholders, per basic and diluted share, of $(0.30) and $(0.16) for the three months ended September 30, 2019 and 2018, respectively.

Total cash and cash equivalents and investments, at amortized cost, as of September 30, 2019, were $115.6 million.

Adjusted Results

  • Adjusted Revenue of $220.3 million and $150.2 million for the three months ended September 30, 2019 and 2018, respectively, an increase of 46.7%;
  • Adjusted Cost of Revenue of $129.0 million and $73.0 million for the three months ended September 30, 2019 and 2018, respectively, an increase of 76.8%;
  • Claims expenses of $34.8 million and $17.0 million for the three months ended September 30, 2019 and 2018, respectively, an increase of 104.8%;
  • Adjusted Selling, General and Administrative Expenses of $53.1 million and $55.4 million for the three months ended September 30, 2019 and 2018, respectively, a decrease of 4.1%;
  • Adjusted EBITDA of $3.3 million and $4.8 million for the three months ended September 30, 2019 and 2018, respectively;
  • Adjusted Earnings (Loss) Available for Class A and Class B Shareholders of $(7.7) million and $(3.0) million for the three months ended September 30, 2019 and 2018, respectively; and
  • Adjusted Earnings (Loss) per Share Available for Class A and Class B Shareholders of $(0.09) and $(0.04) for the three months ended September 30, 2019 and 2018, respectively.

Business Outlook

We are not providing forward looking guidance for GAAP reported financial measures. A reconciliation of forward looking non-GAAP financial measures to the most comparable GAAP financial measure is provided in the "Guidance Reconciliation" table below.

For the full year 2019, we are narrowing the range for Adjusted Revenue to be in the range of $838.0 million to $850.0 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $679.0 million to $689.0 million, and True Health premiums revenue, which is forecasted to be approximately $172.9 million to $174.9 million; intersegment eliminations are forecasted to be approximately $(13.7) million for the full year. We are forecasting Adjusted EBITDA to be in the range of $(11.1) million to $(8.1) million.

For the three months ending December 31, 2019, Adjusted Revenue is expected to be in the range of approximately $227.5 million to $239.5 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $195.0 million to $205.0 million, and True Health premiums revenue, which is forecasted to be approximately $36.0 million to $38.0 million; intersegment eliminations are forecasted to be approximately $(3.5) million for the quarter. Adjusted EBITDA is expected to be in the range of approximately $8.0 million to $11.0 million.

This "Business Outlook" section contains forward-looking statements, and actual results may differ materially. Factors that may cause actual results to differ materially from our current expectations are set forth below in "Forward Looking Statements - Cautionary Language" and Evolent Health, Inc.'s filings with the Securities and Exchange Commission ("SEC").

Web and Conference Call Information

As previously announced, Evolent Health, Inc. will hold a conference call to discuss its third quarter performance this evening, November 5, 2019, at 5:00 p.m., Eastern Time. The conference call will be available via live webcast on the Company's Investor Relations website at http://ir.evolenthealth.com. To participate by telephone, dial 855.940.9467 or 412.317.6034 for international callers, and ask to join the Evolent Health call. Participants are advised to dial in at least fifteen minutes prior to the call to register. The call will be archived on the company's website for one week and will be available beginning later this evening. Evolent Health invites all interested parties to attend the conference call.

Evolent Health Logo (PRNewsfoto/Evolent Health)

About Evolent Health

Evolent Health partners with leading provider and payer organizations to achieve superior clinical and financial results in value-based care and under full-risk arrangements. With a provider heritage and over 20 years of health plan administration experience, Evolent operates in more than 35 U.S. health care markets, actively managing care across Medicare, Medicaid, commercial and self-funded adult and pediatric populations. With the experience to drive change, Evolent confidently stands by a commitment to achieve results. For more information, visit www.evolenthealth.com.

Contacts:

Bob East

Kim Conquest

443.213.0500

540.435.2095

Investor Relations

Media Relations

InvestorRelations@evolenthealth.com

KConquest@evolenthealth.com

Financial Statement Presentation

Evolent Health, Inc. is a holding company and its principal asset is all of the Class A common units in its operating subsidiary, Evolent Health LLC, which has owned all of our operating assets and substantially all of our business since inception. The financial results of Evolent Health LLC are consolidated in the financial statements of Evolent Health, Inc.

Non-GAAP Financial Measures

In addition to disclosing financial results that are determined in accordance with GAAP, we present and discuss Adjusted Revenue, Adjusted Services Revenue, Adjusted Transformation Services Revenue, Adjusted Platform and Operations Services Revenue, Adjusted Cost of Revenue, Adjusted Selling, General and Administrative Expenses, Adjusted Depreciation and Amortization Expenses, Adjusted Total Operating Expenses, Adjusted Operating Income (Loss), Adjusted EBITDA, Services Adjusted EBITDA, True Health Adjusted EBITDA, Adjusted Earnings (Loss) Available to Class A and Class B Shareholders, Adjusted Earnings (Loss) per Share Available to Class A and Class B Shareholders and Adjusted Weighted-Average Class A and Class B Shares, which are all non-GAAP financial measures, as supplemental measures to help investors evaluate our fundamental operational performance.

Adjusted Transformation Services Revenue and Adjusted Platform and Operations Services Revenue are defined as transformation services revenue and platform and operations services revenue, respectively, before the effect of intersegment eliminations and adjusted to exclude the impact of purchase accounting adjustments. In addition, the company's Adjusted Transformation Services Revenue and Adjusted Platform and Operations Services Revenue for the nine months ended September 30, 2018, include a $4.5 million adjustment related to revenue that was contracted for prior to 2018 and that was properly excluded from revenue in our 2017 results under the revenue recognition rules then in effect under Accounting Standards Codification ("ASC") 605. On January 1, 2018, we adopted the new revenue recognition rules under ASC 606 using the modified retrospective method, which required us to include this $4.5 million as part of the cumulative transition adjustment to beginning retained earnings as of January 1, 2018. This is a one-time adjustment and it will not reoccur in future periods.

Adjusted Services Revenue is defined as the sum of Adjusted Transformation Services Revenue and Adjusted Platform and Operations Services Revenue. Adjusted Revenue is defined as the sum of Adjusted Services Revenue and True Health premiums revenue, less relevant intersegment eliminations. Management uses Adjusted Revenue, Adjusted Services Revenue, Adjusted Transformation Services Revenue and Adjusted Platform and Operations Services Revenue as supplemental performance measures because they reflect a complete view of the operational results. The measures are also useful to investors because they reflect the full view of our operational performance in line with how we generate our long term forecasts.

Adjusted Cost of Revenue and Adjusted Selling, General and Administrative Expenses are defined as cost of revenue and selling, general and administrative expenses, respectively, adjusted to exclude the impact of stock-based compensation expenses, severance costs, amortization of contract cost assets recorded as a result of a one-time ASC 606 transition adjustment, transaction costs related to acquisitions and business combinations, securities offerings and other one-time adjustments. Management uses Adjusted Cost of Revenue and Adjusted Selling, General and Administrative Expenses as supplemental performance measures, which are also useful to investors, because they facilitate an understanding of our long term operational costs while removing the effect of costs that are one-time (e.g. transaction costs) and non-cash (e.g. stock-based compensation expenses) in nature. Additionally, these supplemental performance measures facilitate understanding a breakdown of our Adjusted Total Operating Expenses.

Adjusted Depreciation and Amortization Expenses is defined as depreciation and amortization expenses adjusted to exclude the impact of amortization expenses related to intangible assets acquired through acquisitions and business combinations. Management uses Adjusted Depreciation and Amortization Expenses as a supplemental performance measure because it reflects a complete view of the operational results. The measure is also useful to investors because it facilitates understanding a breakdown of our Adjusted Total Operating Expenses.

Adjusted Total Operating Expenses is defined as the sum of Adjusted Cost of Revenue, Adjusted Selling, General and Administrative Expenses and Adjusted Depreciation and Amortization Expenses, and reflects the adjustments made in those non-GAAP measures. Adjusted Total Operating Expenses is further adjusted to exclude the impact of one-time adjustments, such as goodwill impairment, severance costs, items arising from acquisitions and business combinations and other transactions, such as gain (loss) on disposal of assets, changes in fair value of contingent consideration and indemnification asset.

Adjusted Operating Income (Loss) is defined as Adjusted Revenue less Adjusted Total Operating Expenses, and reflects the adjustments made in those non-GAAP measures.

Adjusted EBITDA is the sum of Services Adjusted EBITDA and True Health Adjusted EBITDA and is defined as EBITDA (net income (loss) attributable to Evolent Health, Inc. before interest income, interest expense, (provision) benefit for income taxes, depreciation and amortization expenses), adjusted to exclude income (loss) from equity method investees, gain (loss) on disposal of assets, changes in fair value of contingent consideration and indemnification asset, other income (expense), net, net (income) loss attributable to non-controlling interests, ASC 606 transition adjustments, purchase accounting adjustments, stock-based compensation expenses, severance costs, amortization of contract cost assets recorded as a result of a one-time ASC 606 transition adjustment, transaction costs related to acquisitions and business combinations,  and other one-time adjustments. Management uses Adjusted EBITDA as a supplemental performance measure because the removal of transaction costs, one-time or non-cash items (e.g. depreciation, amortization and stock-based compensation expenses) allows us to focus on operational performance. We believe that this measure is also useful to investors because it allows further insight into the period over period operational performance in a manner that is comparable to other organizations in our industry and in the market in general.

Adjusted Earnings (Loss) Available to Class A and Class B Shareholders is defined as earnings (loss) available to common shareholders adjusted to exclude income (loss) from equity method investees, (provision) benefit for income taxes, other income (expenses), net, gain (loss) on disposal of assets, change in fair value of contingent consideration and indemnification asset, net (income) loss attributable to non-controlling interests, ASC 606 transition adjustments, purchase accounting adjustments, stock-based compensation expenses, severance costs,  amortization of contract cost assets recorded as a result of a one-time ASC 606 transition adjustment, transaction costs related to acquisitions and business combinations and other one-time adjustments.

Adjusted Weighted-Average Class A and Class B Shares is defined as weighted average common shares (diluted) adjusted to include, in periods of net loss, the dilutive or potentially dilutive effect of the assumed conversion of Class B common shares to Class A common shares.

Adjusted Earnings (Loss) per Share Available to Class A and Class B Shareholders is defined as Adjusted Earnings (Loss) Available to Class A and Class B Shareholders divided by Adjusted Weighted-Average Class A and Class B Shares, and reflects the adjustments made in those non-GAAP measures.

Management uses Adjusted Earnings (Loss) Available to Class A and Class B Shareholders, Adjusted Weighted-Average Class A and Class B Shares and Adjusted Earnings (Loss) per Share Available to Class A and Class B Shareholders because these performance measures represent our core operating performance distributed amongst all of our investors which is not represented by the GAAP results across time due to our complex equity structure.  We believe that these measures are also useful to investors for the same reason.

These adjusted measures do not represent and should not be considered as alternatives to GAAP measurements, and our calculations thereof may not be comparable to similarly entitled measures reported by other companies. A reconciliation of these adjusted measures to their most comparable GAAP financial measures is presented in the tables below. We believe these measures are useful across time in evaluating our fundamental core operating performance.

Evolent Health, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)


(in thousands, except per share data)

For the Three


For the Nine


Months Ended


Months Ended


September 30,


September 30,


2019


2018


2019


2018

Revenue








Transformation services

$

5,184



$

9,230



$

10,481



$

23,950


Platform and operations services

171,438



118,094



463,252



341,258


Premiums

43,521



22,623



136,125



68,751


Total revenue

220,143



149,947



609,858



433,959










Expenses








Cost of revenue (exclusive of depreciation and amortization








expenses presented separately below)

131,763



73,967



357,587



214,945


Claims expenses

34,802



16,992



108,644



52,169


Selling, general and administrative expenses

58,808



59,566



200,578



172,495


Depreciation and amortization expenses

15,408



10,352



44,966



29,882


(Gain) loss on disposal of assets





(9,600)




Change in fair value of contingent consideration and indemnification asset

(500)



100



(300)



(1,404)


Total operating expenses

240,281



160,977



701,875



468,087


Operating income (loss)

(20,138)



(11,030)



(92,017)



(34,128)


Interest income

1,124



968



3,026



2,918


Interest expense

(3,630)



(853)



(10,812)



(2,561)


Income (loss) from equity method investees

(3,859)



(1,381)



(6,187)



(2,787)


Other Income (expense), net

(84)



(124)



(244)



(64)


Income (loss) before income taxes and








non-controlling interests

(26,587)



(12,420)



(106,234)



(36,622)


Provision (benefit) for income taxes

(849)



135



53



29


Net income (loss)

(25,738)



(12,555)



(106,287)



(36,651)


Net income (loss) attributable to non-controlling interests

(217)



(126)



(2,412)



(680)


Net income (loss) attributable to Evolent Health, Inc.

$

(25,521)



$

(12,429)



$

(103,875)



$

(35,971)










Earnings (Loss) Available to Common Shareholders








Basic and Diluted

$

(25,521)



$

(12,429)



$

(103,875)



$

(35,971)










Earnings (Loss) per Common Share








Basic and Diluted

$

(0.30)



$

(0.16)



$

(1.27)



$

(0.47)










Weighted-Average Common Shares Outstanding








Basic and Diluted

83,819



77,999



81,831



76,871










Comprehensive income (loss)








Net income (loss)

$

(25,738)



$

(12,555)



$

(106,287)



$

(36,651)


Other comprehensive income (loss), net of taxes, related to:








Foreign currency translation adjustment

(68)



(116)



(33)



(264)


Total comprehensive income (loss)

(25,806)



(12,671)



(106,320)



(36,915)


Total comprehensive income (loss) attributable to








non-controlling interests

(217)



(126)



(2,412)



(680)


Total comprehensive income (loss) attributable to








Evolent Health, Inc.

$

(25,589)



$

(12,545)



$

(103,908)



$

(36,235)


 

Evolent Health, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


(in thousands)


As of



As of



September 30,

December 31,



2019



2018


Cash and cash equivalents


$

96,734




$

228,320



Restricted cash


109,019




160,005



Restricted investments


813




818



Total current assets


308,012




487,966



Investments, at amortized cost


18,910




10,010



Intangible assets, net


317,200




335,036



Goodwill


771,887




768,124



Total assets


1,713,901




1,722,281










Accounts payable


120,024




146,760



Long-term debt, net of discount


227,996




221,041



Total liabilities


589,553




532,925



Total shareholders' equity (deficit) attributable to







Evolent Health, Inc.


1,108,460




1,143,824



Non-controlling interests


15,888




45,532



Total liabilities and shareholders' equity (deficit)


1,713,901




1,722,281



 

Evolent Health, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)


(in thousands)

For the Nine


Months Ended


September 30,


2019


2018

Net cash and restricted cash provided by (used in) operating activities

$

(55,832)



$

4,317


Net cash and restricted cash provided by (used in) investing activities

(102,460)



(24,933)


Net cash and restricted cash provided by (used in) financing activities

(24,299)



(7,935)


Effect of exchange rate on cash and cash equivalents and restricted cash

19



35






Net increase (decrease) in cash and cash equivalents and restricted cash

(182,572)



(28,516)


Cash and cash equivalents and restricted cash as of beginning-of-period

388,325



295,363


Cash and cash equivalents and restricted cash as of end-of-period

$

205,753



$

266,847


 

Evolent Health, Inc.

Reconciliation of Adjusted Results of Operations

(unaudited)


(in thousands)

For the Three Months Ended September 30, 2019



For the Three Months Ended September 30, 2018























Evolent Health, Inc.


Evolent Health, Inc.


Evolent




Evolent



Evolent




Evolent


as Reported


as Adjusted


Health, Inc.




Health, Inc.



Health, Inc.




Health, Inc.


Change Over Prior Period


Change Over Prior Period


as Reported


Adjustments


as Adjusted



as Reported


Adjustments


as Adjusted


$


%


$


%

Revenue





















Transformation services

$

5,184



$



$

5,184




$

9,230



$



$

9,230



$

(4,046)



(43.8)

%


$

(4,046)



(43.8)

%

Platform and operations services (1)

171,438



165



171,603




118,094



214



118,308



53,344



45.2

%


53,295



45.0

%

Premiums

43,521





43,521




22,623





22,623



20,898



92.4

%


20,898



92.4

%

Total revenue

220,143



165



220,308




149,947



214



150,161



70,196



46.8

%


70,147



46.7

%

Expenses





















Cost of revenue (exclusive of





















depreciation and amortization





















expenses presented





















separately below) (2)

131,763



(2,720)



129,043




73,967



(988)



72,979



57,796



78.1

%


56,064



76.8

%

Claims expenses

34,802





34,802




16,992





16,992



17,810



104.8

%


17,810



104.8

%

Selling, general and





















administrative expenses (3)

58,808



(5,678)



53,130




59,566



(4,173)



55,393



(758)



(1.3)

%


(2,263)



(4.1)

%

Depreciation and amortization





















expenses (4)

15,408



(6,101)



9,307




10,352



(2,739)



7,613



5,056



48.8

%


1,694



22.3

%

Change in fair value of contingent





















consideration and indemnification asset (5)

(500)



500






100



(100)





(600)



(600.0)

%




%

Total operating expenses

240,281



(13,999)



226,282




160,977



(8,000)



152,977



79,304



49.3

%


73,305



47.9

%

Operating income (loss)

$

(20,138)



$

14,164



$

(5,974)




$

(11,030)



$

8,214



$

(2,816)



$

(9,108)



(82.6)

%


$

(3,158)



%






















Total operating expenses as a





















percentage of total revenue

109.1

%




102.7

%



107.4

%




101.9

%











(1)

Adjustments to platform and operations services revenue include deferred revenue purchase accounting adjustments of approximately $0.2 million for the three months ended September 30, 2019 and 2018, resulting from our acquisitions and business combinations.

(2)

Adjustments to cost of revenue include approximately $1.6 million and $0.4 million in stock-based compensation expense for the three months ended September 30, 2019 and 2018, respectively. The adjustments also include approximately $0.4 million and $0.6 million related to the amortization of contract cost assets recorded as a result of the one-time ASC 606 transition adjustment for the three months ended September 30, 2019 and 2018, respectively. Adjustments also include contract cost assets impairment charge of $0.6 million for the three months ended September 30, 2019. Adjustments also include transaction costs of $0.1 million for the three months ended September 30, 2019, resulting from acquisitions and business combinations.

(3)

Adjustments to selling, general and administrative expenses include $4.2 million and $3.7 million in stock-based compensation expense for the three months ended September 30, 2019 and 2018, respectively. Adjustments also include transaction costs of $1.2 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively, resulting from acquisitions and business combinations. Adjustments also include one-time severance costs of approximately $0.3 million for the three months ended September 30, 2019.

(4)

Adjustments to depreciation and amortization expenses of approximately $6.1 million and $2.7 million for the three months ended September 30, 2019 and 2018, respectively, relate to amortization of intangible assets acquired via asset acquisition and business combinations.

(5)

The adjustment reverses the impact of changes in fair value of our contingent consideration.

 


Evolent Health, Inc.

Reconciliation of Adjusted Results of Operations

(unaudited)


(in thousands)

For the Nine Months Ended September 30, 2019



For the Nine Months Ended September 30, 2018























Evolent Health, Inc.


Evolent Health, Inc.


Evolent




Evolent



Evolent




Evolent


as Reported


as Adjusted


Health, Inc.




Health, Inc.



Health, Inc.




Health, Inc.


Change Over Prior Period


Change Over Prior Period


as Reported


Adjustments


as Adjusted



as Reported


Adjustments


as Adjusted


$


%


$


%

Revenue





















Transformation services (1)

$

10,481



$



$

10,481




$

23,950



$

3,655



$

27,605



$

(13,469)



(56.2)

%


$

(17,124)



(62.0)

%

Platform and operations services (1)

463,252



926



464,178




341,258



1,490



342,748



121,994



35.7

%


121,430



35.4

%

Premiums

136,125





136,125




68,751





68,751



67,374



98.0

%


67,374



98.0

%

Total revenue

609,858



926



610,784




433,959



5,145



439,104



175,899



40.5

%


171,680



39.1

%

Expenses





















Cost of revenue (exclusive of





















depreciation and amortization





















expenses presented





















separately below) (2)

357,587



(6,067)



351,520




214,945



(3,439)



211,506



142,642



66.4

%


140,014



66.2

%

Claims expenses

108,644





108,644




52,169





52,169



56,475



108.3

%


56,475



108.3

%

Selling, general and





















administrative expenses (3)

200,578



(30,839)



169,739




172,495



(14,661)



157,834



28,083



16.3

%


11,905



7.5

%

Depreciation and amortization





















expenses (4)

44,966



(18,195)



26,771




29,882



(8,144)



21,738



15,084



50.5

%


5,033



23.2

%

(Gain) loss on disposal of assets (5)

(9,600)



9,600












(9,600)



%




%

Change in fair value of contingent





















consideration and indemnification asset (6)

(300)



300






(1,404)



1,404





1,104



78.6

%




%

Total operating expenses

701,875



(45,201)



656,674




468,087



(24,840)



443,247



233,788



49.9

%


213,427



48.2

%

Operating income (loss)

$

(92,017)



$

46,127



$

(45,890)




$

(34,128)



$

29,985



$

(4,143)



$

(57,889)



(169.6)

%


$

(41,747)



(1,007.7)

%

Total operating expenses as a





















percentage of total revenue

115.1

%




107.5

%



107.9

%




100.9

%











(1)

Adjustments to platform and operations services revenue include deferred revenue purchase accounting adjustments of approximately $0.9 million and $0.6 million for the nine months ended September 30, 2019 and 2018, respectively, resulting from our acquisitions and business combinations. Adjustments to transformation services revenue and platform and operations services revenue for the nine months ended September 30, 2018, also include approximately $3.7 million and $0.8 million, respectively, resulting from our transition adjustments related to the implementation of ASC 606.

(2)

Adjustments to cost of revenue include approximately $3.3 million and $1.1 million in stock-based compensation expense for the nine months ended September 30, 2019 and 2018, respectively. The adjustments also include approximately $1.9 million and $1.7 million related to the amortization of contract cost assets recorded as a result of the one-time ASC 606 transition adjustment for the nine months ended September 30, 2019 and 2018, respectively.  Adjustments also include contract cost assets impairment charge of $0.6 million for the nine months ended September 30, 2019. Adjustments also include transaction costs of $0.3 million resulting from acquisitions and business combinations for the nine months ended September 30, 2019. Adjustments also include one-time severance costs of approximately $0.7 million for the nine months ended September 30, 2018.

(3)

Adjustments to selling, general and administrative expenses include $11.8 million and $11.4 million in stock-based compensation expense for the nine months ended September 30, 2019 and 2018, respectively.  The adjustments also include approximately $0.1 million and $0.1 million related to the amortization of contract cost assets recorded as a result of the one-time ASC 606 transition adjustment for the nine months ended September 30, 2019 and 2018, respectively.  Adjustments also include transaction costs of $4.1 million and $2.3 million for the nine months ended September 30, 2019 and 2018, respectively, resulting from acquisitions and business combinations. Adjustments also include one-time severance costs of approximately $14.8 million and $0.8 million for the nine months ended September 30, 2019 and 2018, respectively.

(4)

Adjustments to depreciation and amortization expenses of approximately $18.2 million and $8.1 million for the nine months ended September 30, 2019 and 2018, respectively, relate to amortization of intangible assets acquired via asset acquisition and business combinations.

(5)

The adjustment reverses the impact of deconsolidation gain related to Global Health transaction.

(6)

The adjustment reverses the impact of changes in fair value of our contingent consideration and indemnification asset.

 


Evolent Health, Inc.

Segment Results

(unaudited)









Intersegment






Services


True Health

Eliminations

Consolidated

Adjusted Revenue













Three Months Ended September 30, 2019













Services:













Adjusted Transformation Services


$

5,184




$




$




$

5,184



Adjusted Platform and Operations Services


174,853







(3,250)




171,603



Adjusted Services Revenue


180,037







(3,250)




176,787



True Health:













Premiums





43,765




(244)




43,521



Adjusted Revenue


180,037




43,765




(3,494)




220,308



Purchase accounting adjustments (1)


(165)










(165)



  Total revenue


$

179,872




$

43,765




$

(3,494)




$

220,143
















Three Months Ended September 30, 2018













Services:













Adjusted Transformation Services


$

9,230




$




$




$

9,230



Adjusted Platform and Operations Services


121,845







(3,537)




118,308



Adjusted Services Revenue


131,075







(3,537)




127,538



True Health:













Premiums





22,829




(206)




22,623



Adjusted Revenue


131,075




22,829




(3,743)




150,161



Purchase accounting adjustments (1)


(214)










(214)



  Total revenue


$

130,861




$

22,829




$

(3,743)




$

149,947
























Segments







Services


True Health

Total


Three Months Ended September 30, 2019













Adjusted EBITDA


$

3,139




$

194




$

3,333



















Three Months Ended September 30, 2018













Adjusted EBITDA


$

4,065




$

732




$

4,797








(1)

Purchase accounting adjustments pertain to Adjusted Platform and Operations Services Revenue. There were no purchase accounting

adjustments in relation to Adjusted Transformation Services Revenue or True Health premiums revenue.

 


Evolent Health, Inc.

Segment Results

(unaudited)









Intersegment






Services


True Health

Eliminations

Consolidated

Adjusted Revenue













Nine Months Ended September 30, 2019













Services:













Adjusted Transformation Services


$

10,481




$




$




$

10,481



Adjusted Platform and Operations Services


473,564







(9,386)




464,178



Adjusted Services Revenue


484,045







(9,386)




474,659



True Health:













Premiums





136,905




(780)




136,125



Adjusted Revenue


484,045




136,905




(10,166)




610,784



Purchase accounting adjustments (1)


(926)










(926)



  Total revenue


$

483,119




$

136,905




$

(10,166)




$

609,858
















Nine Months Ended September 30, 2018













Services:













Adjusted Transformation Services


$

27,605




$




$




$

27,605



Adjusted Platform and Operations Services


353,697







(10,949)




342,748



Adjusted Services Revenue


381,302







(10,949)




370,353



True Health:













Premiums





69,353




(602)




68,751



Adjusted Revenue


381,302




69,353




(11,551)




439,104



ASC 606 transition adjustment (2)


(4,498)










(4,498)



Purchase accounting adjustments (1)


(647)










(647)



  Total revenue


$

376,157




$

69,353




$

(11,551)




$

433,959
























Segments







Services


True Health

Total


Nine Months Ended September 30, 2019













Adjusted EBITDA


$

(21,157)




$

2,038




$

(19,119)



















Nine Months Ended September 30, 2018













Adjusted EBITDA


$

16,674




$

921




$

17,595








(1)

Purchase accounting adjustments pertain to Adjusted Platform and Operations Services Revenue. There were no purchase accounting

adjustments in relation to Adjusted Transformation Services Revenue or True Health premiums revenue.

(2)

Adjustment to Adjusted Transformation Services Revenue was approximately $3.7 million and the adjustment to Adjusted Platform and

Operations Services Revenue was approximately $0.8 million. See "Non-GAAP Financial Measures" above for more information on

adjustments pertaining to the implementation of ASC 606.

 


Evolent Health, Inc.

Reconciliation of Adjusted EBITDA to Net Income (Loss)

Attributable to Evolent Health, Inc.

(unaudited)


(in thousands)

For the Three


For the Nine


Months Ended


Months Ended


September 30,


September 30,


2019


2018


2019


2018

Net Income (Loss) Attributable to








Evolent Health, Inc.

$

(25,521)



$

(12,429)



$

(103,875)



$

(35,971)


Less:








Interest income

1,124



968



3,026



2,918


Interest expense

(3,630)



(853)



(10,812)



(2,561)


(Provision) benefit for income taxes

849



(135)



(53)



(29)


Depreciation and amortization expenses

(15,408)



(10,352)



(44,966)



(29,882)


EBITDA

(8,456)



(2,057)



(51,070)



(6,417)


Less:








Income (loss) from equity method investees

(3,859)



(1,381)



(6,187)



(2,787)


Gain (loss) on disposal of assets





9,600




Change in fair value of contingent consideration








and indemnification asset

500



(100)



300



1,404


Other income (expense), net

(84)



(124)



(244)



(64)


Net (income) loss attributable to








non-controlling interests

217



126



2,412



680


ASC 606 transition adjustments







(4,498)


Purchase accounting adjustments

(165)



(214)



(926)



(647)


Stock-based compensation expense

(5,758)



(4,047)



(15,045)



(12,560)


Severance costs

(307)





(14,790)



(1,489)


Amortization of contract cost assets

(1,061)



(658)



(2,613)



(1,797)


Transaction costs

(1,272)



(456)



(4,458)



(2,254)


Adjusted EBITDA

$

3,333



$

4,797



$

(19,119)



$

17,595



 


Evolent Health, Inc.

Reconciliation of Adjusted Earnings (Loss) Available to Class A and Class B

Shareholders to Earnings (Loss) Available to Common Shareholders

(unaudited)


(in thousands, except per share data)

For the Three


For the Nine


Months Ended


Months Ended


September 30,


September 30,


2019


2018


2019


2018

Earnings (Loss) Available to








Common Shareholders - Basic and Diluted (a)

$

(25,521)



$

(12,429)



$

(103,875)



$

(35,971)


Less:








Income (loss) from equity method investees

(3,859)



(1,381)



(6,187)



(2,787)


(Provision) benefit for income taxes







136


Other income (expense), net





431




Gain (loss) on disposal of assets





9,600




Change in fair value of contingent consideration








and indemnification asset

500



(100)



300



1,404


Net (income) loss attributable to








non-controlling interests

217



126



2,412



680


ASC 606 Transition Adjustment







(4,498)


Purchase accounting adjustments

(6,266)



(2,953)



(19,121)



(8,791)


Stock-based compensation expense

(5,758)



(4,047)



(15,045)



(12,560)


Severance costs

(307)





(14,790)



(1,489)


Amortization of contract cost assets

(1,061)



(658)



(2,613)



(1,797)


Transaction costs

(1,272)



(456)



(4,458)



(2,254)


Adjusted Earnings (Loss) Available








to Class A and Class B Shareholders (b)

$

(7,715)



$

(2,960)



$

(54,404)



$

(4,015)










Earnings (Loss) per Share Available to








Common Shareholders - Basic and Diluted (a) (1)

$

(0.30)



$

(0.16)



$

(1.27)



$

(0.47)










Adjusted Earnings (Loss) per Share Available








to Class A and Class B Shareholders (b) (2)

$

(0.09)



$

(0.04)



$

(0.65)



$

(0.05)










Weighted-average common shares - basic

83,819



77,999



81,831



76,871


Weighted-average common shares - diluted

83,819



77,999



81,831



76,871


Adjusted Weighted-Average Class A








and Class B Shares (3)

84,525



78,765



83,481



78,122




(1)

For periods of net loss, shares used in both the basic and diluted earnings per share calculation represent basic shares as using diluted shares

would be anti-dilutive.

(2)

Represents Adjusted Earnings (Loss) Available to Class A and Class B Shareholders divided by Adjusted Weighted-Average Class A and Class B

Shares as described in footnote 3 below.

(3)

Represents the weighted-average common shares (diluted) adjusted to include, in periods of net loss, the dilutive or potentially dilutive effect of the

assumed conversion of Class B common shares to Class A common shares. See the reconciliation of Adjusted Weighted-Average Class A and

Class B Shares to diluted weighted-average common shares on the following page.

 


Evolent Health, Inc.

Reconciliation of Adjusted Weighted-Average Class A and Class B

 Shares to Diluted Weighted-Average Common Shares

(unaudited)


(in thousands)

For the Three


For the Nine


Months Ended


Months Ended


September 30,


September 30,


2019


2018


2019


2018

Weighted-average common shares - diluted

83,819



77,999



81,831



76,871


Assumed conversion of Class B common








shares to Class A common shares

706



766



1,650



1,251


Adjusted Weighted-Average Class A and Class B Shares

84,525



78,765



83,481



78,122



 


Evolent Health, Inc.

Guidance Reconciliation

(unaudited)


(in thousands)

For the Three

For the Twelve


Months Ended

Months Ended


December 31,

December 31,



2019



2019


Services revenue


$

199,800




$

682,919



Purchase accounting adjustments


200




1,126



Adjusted Services Revenue


200,000




684,045



Premiums revenue


37,000




173,905



Intersegment eliminations


(3,500)




(13,666)



Adjusted Revenue


$

233,500




$

844,284










Net Income (Loss) Attributable to







Evolent Health, Inc.


$

(16,786)




$

(135,321)



Less:







Interest income


500




2,000



Interest expense


(3,000)




(12,000)



Depreciation and amortization expenses


(15,000)




(60,000)



EBITDA


714




(65,321)



Less:







Income (loss) from equity method investees


(2,000)




(8,000)



Net (income) loss attributable to







non-controlling interests


(136)




(1,095)



Purchase accounting adjustments


(200)




(1,126)



Stock-based compensation expense


(5,000)




(20,000)



Severance costs





(14,500)



Amortization of contract cost assets


(450)




(3,000)



Transaction costs


(1,000)




(8,000)



Adjusted EBITDA


$

9,500




$

(9,600)





 

The guidance reconciliation provided above reconciles the midpoint of the respective guidance ranges to the most comparable GAAP measure.

FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE

Certain statements made in this release and in other written or oral statements made by us or on our behalf are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: "believe," "anticipate," "expect," "estimate," "aim," "predict," "potential," "continue," "plan," "project," "will," "should," "shall," "may," "might" and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services, future performance or financial results and the outcome of contingencies, such as legal proceedings. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

These statements are only predictions based on our current expectations and projections about future events.  Forward-looking statements involve risks and uncertainties that may cause actual results, level of activity, performance or achievements to differ materially from the results contained in the forward-looking statements. Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements, include, among others:

  • the significant portion of revenue we derive from our largest partners, and the potential loss, termination or renegotiation of our relationship or contract with Passport or another significant partner, or multiple partners in the aggregate;
  • uncertainty relating to expected future revenues from and our relationship with one of our largest customers, Passport, and the value of our pending investment in Passport, including as a result and timing of the ongoing Medicaid request for proposal process in the Commonwealth of Kentucky;
  • the structural change in the market for health care in the United States;
  • uncertainty in the health care regulatory framework, including the potential impact of policy changes;
  • uncertainty in the public exchange market;
  • the uncertain impact of CMS waivers to Medicaid rules and changes in membership and rates;
  • the uncertain impact the results of elections may have on health care laws and regulations;
  • our ability to effectively manage our growth and maintain an efficient cost structure;
  • our ability to offer new and innovative products and services;
  • risks related to completed and future acquisitions, investments, alliances and joint ventures, including the partnership with Global Health, the acquisition of assets from New Mexico Health Connections ("NMHC"), and the acquisitions of Valence Health Inc., excluding Cicerone Health Solutions, Inc. ("Valence Health"), Aldera Holdings, Inc. ("Aldera"), NCIS Holdings, Inc. ("New Century Health"), and the pending transactions with Passport, which may be difficult to integrate, divert management resources, or result in unanticipated costs or dilute our stockholders;
  • our ability to consummate opportunities in our pipeline;
  • certain risks and uncertainties associated with the pending Passport transaction, the acquisition of assets from NMHC and the acquisitions of Valence Health, Aldera and New Century Health, including future revenues may be less than expected, the timing and extent of new lives expected to come onto the platform may not occur as expected and the expected results of Evolent may not be impacted as anticipated;
  • risks relating to our ability to maintain profitability for our and New Century Health's performance-based contracts and products, including capitation and risk-bearing contracts;
  • the growth and success of our partners, which is difficult to predict and is subject to factors outside of our control, including governmental funding reductions and other policy changes, enrollment numbers for our partners' plans (including in Florida), premium pricing reductions, selection bias in at-risk membership and the ability to control and, if necessary, reduce health care costs;
  • our ability to attract new partners and successfully capture new growth opportunities;
  • the increasing number of risk-sharing arrangements we enter into with our partners;
  • our ability to recover the significant upfront costs in our partner relationships;
  • our ability to estimate the size of our target markets;
  • our ability to maintain and enhance our reputation and brand recognition;
  • consolidation in the health care industry;
  • competition which could limit our ability to maintain or expand market share within our industry;
  • risks related to governmental payer audits and actions, including whistleblower claims;
  • our ability to partner with providers due to exclusivity provisions in our contracts;
  • restrictions and penalties as a result of privacy and data protection laws;
  • adequate protection of our intellectual property, including trademarks;
  • any alleged infringement, misappropriation or violation of third-party proprietary rights;
  • our use of "open source" software;
  • our ability to protect the confidentiality of our trade secrets, know-how and other proprietary information;
  • our reliance on third parties and licensed technologies;
  • our ability to use, disclose, de-identify or license data and to integrate third-party technologies;
  • data loss or corruption due to failures or errors in our systems and service disruptions at our data centers;
  • online security risks and breaches or failures of our security measures, including with respect to privacy of health information;
  • our reliance on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems for providing services to our users;
  • our reliance on third-party vendors to host and maintain our technology platform;
  • our ability to contain health care costs, implement increases in premium rates on a timely basis, maintain adequate reserves for policy benefits or maintain cost effective provider agreements;
  • the risk of a significant reduction in the enrollment in our health plan;
  • our ability to accurately underwrite performance-based risk-bearing contracts;
  • risks related to our offshore operations;
  • our dependency on our key personnel, and our ability to attract, hire, integrate and retain key personnel;
  • the risk of potential future goodwill and intangible asset impairment, including as a result of a loss by Passport in the ongoing Medicaid request for proposal process in the Commonwealth of Kentucky, on our results of operations;
  • our indebtedness and our ability to obtain additional financing;
  • our ability to achieve profitability in the future;
  • the requirements of being a public company;
  • our adjusted results may not be representative of our future performance;
  • the risk of potential future litigation;
  • the impact of changes in accounting principles and guidance on our reported results;
  • our holding company structure and dependence on distributions from Evolent Health LLC;
  • our obligations to make payments to certain of our pre-IPO investors for certain tax benefits we may claim in the future;
  • our ability to utilize benefits under the tax receivables agreement described herein;
  • our ability to realize all or a portion of the tax benefits that we currently expect to result from past and future exchanges of Class B common units of Evolent Health LLC for our Class A common stock, and to utilize certain tax attributes of Evolent Health Holdings and an affiliate of TPG Global, LLC (along with its affiliates, "TPG");
  • distributions that Evolent Health LLC will be required to make to us and to the other members of Evolent Health LLC;
  • our obligations to make payments under the tax receivables agreement that may be accelerated or may exceed the tax benefits we realize;
  • different interests among our pre-IPO investors, or between us and our pre-IPO investors;
  • the terms of agreements between us and certain of our pre-IPO investors;
  • the conditional conversion feature of the 2025 Notes, which, if triggered, could require us to settle the 2025 Notes in cash;
  • the impact of the accounting method for convertible debt securities that may be settled in cash;
  • the potential volatility of our Class A common stock price;
  • the potential decline of our Class A common stock price if a substantial number of shares are sold or become available for sale or if a large number of Class B common units are exchanged for shares of Class A common stock;
  • provisions in our second amended and restated certificate of incorporation and second amended and restated by-laws and provisions of Delaware law that discourage or prevent strategic transactions, including a takeover of us;
  • the ability of certain of our investors to compete with us without restrictions;
  • provisions in our second amended and restated certificate of incorporation which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees;
  • our intention not to pay cash dividends on our Class A common stock;
  • our ability to maintain effective internal control over financial reporting;
  • our expectations regarding the additional management attention and costs that will be required as we have transitioned from an "emerging growth company" to a "large accelerated filer"; and
  • our lack of public company operating experience.

The risks included here are not exhaustive. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements.  Our Annual Report on Form 10-K for the year ended December 31, 2018, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, and other documents filed with the SEC include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this release.

Cision

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