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%;
• Services revenue of $179.9 million and $130.9 million for the three months ended September 30, 2019 and 2018, respectively, before intersegment eliminations of $3.3 million and $3.5 million, respectively; and
• True Health premiums revenue of $43.8 million and $22.8 million for the three months ended September 30, 2019 and 2018, respectively, before intersegment eliminations of $0.2 million and $0.2 million, respectively.
• 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 Services Revenue of $180.0 million and $131.1 million for the three months ended September 30, 2019 and 2018, respectively, before intersegment eliminations of $3.3 million and $3.5 million, respectively; and
• True Health premiums revenue of $43.8 million and $22.8 million for the three months ended September 30, 2019 and 2018, respectively, before intersegment eliminations of $0.2 million and $0.2 million, respectively.
• 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;
• Services Adjusted EBITDA of $3.1 million and $4.1 million for three months ended September 30, 2019 and 2018, respectively; and
• True Health Adjusted EBITDA of $0.2 million and $0.7 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.

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:

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.