Evolent Health Announces Second Quarter 2019 Results
WASHINGTON, Aug. 6, 2019 /PRNewswire/ -- Evolent Health, Inc. (NYSE: 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 June 30, 2019.
Highlights from the second quarter of 2019 announcement include (all comparisons are to the quarter ended June 30, 2018):
-- GAAP revenue of $192.0 million, an increase of 33.0%; Adjusted Revenue
of $192.1 million, an increase of 32.9%.
-- Net income (loss) attributable to Evolent Health, Inc. of $(31.6)
million, Adjusted EBITDA of $(7.7) million.
-- Lives on platform of approximately 3.5 million, an increase of 14.4%.
-- Expanded relationships with existing partners, including Passport Health
Plan, Lee Health and WakeMed Key Community Care.
-- New partnership agreements supporting Michigan Healthcare Professionals,
Integrated ACO and The South Bend Clinic in CMS's Pathways to Success
program in early 2020.
Frank Williams, Chief Executive Officer of Evolent Health, Inc., commented, "We are pleased with our top-line results for the second quarter and that we met our primary strategic objectives for the first half of the year. With six new partners, strong same store growth and a robust pipeline, we feel confident about our emerging growth outlook for 2020. Our focus on pursuing high-growth market segments, delivering demonstrable results for our partners and streamlining operations is driving strong top and bottom-line expansion as we head into Q4 and 2020."
Mr. Williams commented, "We continue to see considerable momentum in the Medicare and Medicaid markets, from both provider and payer organizations looking to drive improved clinical and administrative performance and better manage risk-bearing arrangements with the support of a proven, technology-enabled partner. This has led to significant opportunities in our pipeline across lines of business and geographies, as evidenced in part by our expanded partner relationships in Medicaid, the Medicare ACO program and Medicare Advantage."
Mr. Williams added, "We are excited to announce new partnerships with Michigan Healthcare Professionals, Integrated ACO and The South Bend Clinic, three provider groups with strong networks of highly-engaged physicians and a reputation for delivering high-quality care. Along with WakeMed Key Community Care, who is a new entrant to the Pathways to Success program, we anticipate serving more than 60,000 beneficiaries with the potential to expand that number in the near future. We look forward to working with highly committed physician partners where we see clear alignment from a mission and strategy perspective."
Mr. Williams concluded, "Lastly, we are pleased to report that we are seeing progress from our continued focus on driving performance improvement for Passport Health Plan. This year, we have collaborated with Passport to expand its clinical footprint with a focus on integrated care while generating significant improvements in administrative and clinical costs. Our focus on care management, integrated behavioral health, pharmacy management and specialty cost management through New Century Health is delivering demonstrably improved outcomes for Medicaid beneficiaries consistent with Passport's focus on improving community health."
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 $192.0 million and $144.3 million for the three months
ended June 30, 2019 and 2018, respectively, an increase of 33.0%;
-- Services revenue of $149.5 million and $125.2 million for the three
months ended June 30, 2019 and 2018, respectively, before
intersegment eliminations of $3.1 million and $3.6 million,
respectively; and
-- True Health premiums revenue of $45.8 million and $22.9 million for
the three months ended June 30, 2019 and 2018, respectively, before
intersegment eliminations of $0.3 million and $0.2 million,
respectively.
-- Cost of revenue of $108.4 million and $69.0 million for the three months
ended June 30, 2019 and 2018, respectively, an increase of 57.1%;
-- Claims expenses of $36.1 million and $18.4 million for the three months
ended June 30, 2019 and 2018, respectively, an increase of 95.8%;
-- Selling, general and administrative expenses of $66.9 million and $57.4
million for the three months ended June 30, 2019 and 2018, respectively,
an increase of 16.6%;
-- Net income (loss) attributable to Evolent Health, Inc. of $(31.6)
million and $(9.9) million for the three months ended June 30, 2019 and
2018, respectively;
-- Earnings (loss) available to common shareholders, basic and diluted, of
$(31.6) million and $(9.9) million for the three months ended June 30,
2019 and 2018, respectively; and
-- Earnings (loss) available to common shareholders, per basic and diluted
share, of $(0.38) and $(0.13) for the three months ended June 30, 2019
and 2018, respectively.
Total cash and cash equivalents and investments, at amortized cost, as of June 30, 2019, were $110.0 million.
Adjusted Results
-- Adjusted Revenue of $192.1 million and $144.5 million for the three
months ended June 30, 2019 and 2018, respectively, an increase of 32.9%;
-- Adjusted Services Revenue of $149.7 million and $125.4 million for
the three months ended June 30, 2019 and 2018, respectively, before
intersegment eliminations of $3.1 million and $3.6 million,
respectively; and
-- True Health premiums revenue of $45.8 million and $22.9 million for
the three months ended June 30, 2019 and 2018, respectively, before
intersegment eliminations of $0.3 million and $0.2 million,
respectively.
-- Adjusted Cost of Revenue of $106.6 million and $68.2 million for the
three months ended June 30, 2019 and 2018, respectively, an increase of
56.4%;
-- Claims expenses of $36.1 million and $18.4 million for the three months
ended June 30, 2019 and 2018, respectively, an increase of 95.8%;
-- Adjusted Selling, General and Administrative Expenses of $57.1 million
and $53.0 million for the three months ended June 30, 2019 and 2018,
respectively, an increase of 7.6%;
-- Adjusted EBITDA of $(7.7) million and $4.9 million for the three months
ended June 30, 2019 and 2018, respectively;
-- Services Adjusted EBITDA of $(8.8) million and $5.6 million for
three months ended June 30, 2019 and 2018, respectively; and
-- True Health Adjusted EBITDA of $1.1 million and $(0.8) million for
the three months ended June 30, 2019 and 2018, respectively.
-- Adjusted Earnings (Loss) Available for Class A and Class B Shareholders
of $(21.4) million and $(2.3) million for the three months ended June
30, 2019 and 2018, respectively; and
-- Adjusted Earnings (Loss) per Share Available for Class A and Class B
Shareholders of $(0.26) and $(0.03) for the three months ended June 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 $825.0 million to $850.0 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $664.0 million to $684.0 million, and True Health premiums revenue, which is forecasted to be approximately $175.0 million to $180.0 million; intersegment eliminations are forecasted to be approximately $(14.0) million for the full year. We are lowering our target for Adjusted EBITDA to be in the range of $(10.0) million to $(2.0) million.
For the three months ending September 30, 2019, Adjusted Revenue is expected to be in the range of approximately $213.5 million to $225.5 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $175.0 million to $185.0 million, and True Health premiums revenue, which is forecasted to be approximately $42.0 million to $44.0 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 $2.0 million to $6.0 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 second quarter performance this evening, August 6, 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:
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 six months ended June 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 Six
Months Ended
Months Ended
June 30,
June 30,
2019 2018 2019 2018
---
Revenue
Transformation services $
1,944 $
8,215 $
5,297 $
14,720
Platform and operations services 144,522 113,346 291,814 223,164
Premiums 45,493 22,737 92,604 46,128
Total revenue 191,959 144,298 389,715 284,012
Expenses
Cost of revenue (exclusive of depreciation and amortization
expenses presented separately below) 108,383 69,003 225,824 140,978
Claims expenses 36,085 18,428 73,842 35,177
Selling, general and administrative expenses 66,932 57,403 141,770 112,929
Depreciation and amortization expenses 15,292 10,034 29,558 19,530
(Gain) loss on disposal of assets (9,600) (9,600)
Change in fair value of contingent consideration and indemnification asset 100 (1,604) 200 (1,504)
Total operating expenses 217,192 153,264 461,594 307,110
Operating income (loss) (25,233) (8,966) (71,879) (23,098)
Interest income 842 878 1,902 1,950
Interest expense (3,620) (855) (7,182) (1,708)
Income (loss) from equity method investees (1,904) (1,275) (2,328) (1,406)
Other Income (expense), net (587) 78 (160) 60
Income (loss) before income taxes and
non-controlling interests (30,502) (10,140) (79,647) (24,202)
Provision (benefit) for income taxes 1,398 (109) 902 (106)
Net income (loss) (31,900) (10,031) (80,549) (24,096)
Net income (loss) attributable to non-controlling interests (285) (115) (2,195) (554)
Net income (loss) attributable to Evolent Health, Inc. $
(31,615) $
(9,916) $
(78,354) $
(23,542)
Earnings (Loss) Available to Common Shareholders
Basic and Diluted $
(31,615) $
(9,916) $
(78,354) $
(23,542)
Earnings (Loss) per Common Share
Basic and Diluted $
(0.38) $
(0.13) $
(0.97) $
(0.31)
Weighted-Average Common Shares Outstanding
Basic and Diluted 82,289 77,209 80,820 76,297
Comprehensive income (loss)
Net income (loss) $
(31,900) $
(10,031) $
(80,549) $
(24,096)
Other comprehensive income (loss), net of taxes, related to:
Foreign currency translation adjustment 11 (148) 35 (148)
Total comprehensive income (loss) (31,889) (10,179) (80,514) (24,244)
Total comprehensive income (loss) attributable to
non-controlling interests (285) (115) (2,195) (554)
Total comprehensive income (loss) attributable to
Evolent Health, Inc. $
(31,604) $
(10,064) $
(78,319) $
(23,690)
Evolent Health, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands) As of As of
June 30, December 31,
2019 2018
Cash and cash equivalents $
92,821 $
228,320
Restricted cash 44,346 160,005
Restricted investments 812 818
Total current assets 240,864 487,966
Investments, at amortized cost 17,132 10,010
Intangible assets, net 326,586 335,036
Goodwill 772,164 768,124
Total assets 1,652,256 1,722,281
Accounts payable 28,758 146,760
Long-term debt, net of discount 225,642 221,041
Total liabilities 505,500 532,925
Total shareholders' equity (deficit) attributable to
Evolent Health, Inc. 1,130,678 1,143,824
Non-controlling interests 16,078 45,532
Total liabilities and shareholders' equity (deficit) 1,652,256 1,722,281
Evolent Health, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
For the Six
Months Ended
June 30,
2019 2018
---
Net cash and restricted cash provided by (used in) operating activities $
(39,242) $
(18,004)
Net cash and restricted cash provided by (used in) investing activities (90,816) (19,376)
Net cash and restricted cash provided by (used in) financing activities (121,071) (3,665)
Effect of exchange rate on cash and cash equivalents and restricted cash (29) 7
Net increase (decrease) in cash and cash equivalents and restricted cash (251,158) (41,038)
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 $
137,167 $
254,325
Evolent Health, Inc.
Reconciliation of Adjusted Results of Operations
(unaudited)
(in thousands) For the Three Months Ended June 30, 2019 For the Three Months Ended June 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) $
1,944
$ $
1,944 $
8,215
$ $
8,215 $
(6,271) (76.3) $
(6,271) (76.3)
% %
Platform and operations services (1) 144,522 165 144,687 113,346 216 113,562 31,176 27.5 31,125 27.4
% %
Premiums 45,493 45,493 22,737 22,737 22,756 100.1 22,756 100.1
%
%
Total revenue 191,959 165 192,124 144,298 216 144,514 47,661 33.0 47,610 32.9
% %
Expenses
Cost of revenue (exclusive of
depreciation and amortization
expenses presented
separately below) (2) 108,383 (1,738) 106,645 69,003 (815) 68,188 39,380 57.1 38,457 56.4
% %
Claims expenses 36,085 36,085 18,428 18,428 17,657 95.8 17,657 95.8
% %
Selling, general and
administrative expenses (3) 66,932 (9,864) 57,068 57,403 (4,390) 53,013 9,529 16.6 4,055 7.6
% %
Depreciation and amortization
expenses (4) 15,292 (6,359) 8,933 10,034 (2,769) 7,265 5,258 52.4 1,668 23.0
% %
(Gain) loss on disposal of assets (5) (9,600) 9,600 (9,600) % %
Change in fair value of contingent
consideration and indemnification asset (6) 100 (100) (1,604) 1,604 1,704 106.2
% %
Total operating expenses 217,192 (8,461) 208,731 153,264 (6,370) 146,894 63,928 41.7 61,837 42.1
% %
Operating income (loss) $
(25,233) $
8,626 $
(16,607) $
(8,966) $
6,586 $
(2,380) $
(16,267) (181.4)
% $
(14,227) %
Total operating expenses as a
percentage of total revenue 113.1 108.6 106.2 101.6
% % % %
(1) Adjustments to platform and operations
services revenue include deferred
revenue purchase accounting
adjustments of approximately $0.2
million for the three months ended
June 30, 2019 and 2018, resulting
from our acquisitions and business
combinations.
(2) Adjustments to cost of revenue include
approximately $0.9 million and $0.4
million in stock-based compensation
expense for the three months ended
June 30, 2019 and 2018, respectively.
The adjustments also include
approximately $0.7 million and $0.5
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 June 30, 2019 and 2018,
respectively. Adjustments also
include transaction costs of $0.1
million for the three months ended
June 30, 2019 and 2018, resulting
from acquisitions and business
combinations.
(3) Adjustments to selling, general and
administrative expenses include $3.9
million and $4.3 million in stock-
based compensation expense for the
three months ended June 30, 2019 and
2018, respectively. Adjustments also
include transaction costs of $2.1
million and $0.1 million for the
three months ended June 30, 2019 and
2018, respectively, resulting from
acquisitions and business
combinations. Adjustments also
include one-time severance costs of
approximately $3.9 million for the
three months ended June 30, 2019.
(4) Adjustments to depreciation and
amortization expenses of
approximately $6.4 million and $2.8
million for the three months ended
June 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.
Reconciliation of Adjusted Results of Operations
(unaudited)
(in thousands) For the Six Months Ended June 30, 2019 For the Six Months Ended June 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) $
5,297
$ $
5,297 $
14,720 $
3,655 $
18,375 $
(9,423) (64.0) $
(13,078) (71.2)
% %
Platform and operations services (1) 291,814 761 292,575 223,164 1,276 224,440 68,650 30.8 68,135 30.4
% %
Premiums 92,604 92,604 46,128 46,128 46,476 100.8 46,476 100.8
% %
Total revenue 389,715 761 390,476 284,012 4,931 288,943 105,703 37.2 101,533 35.1
% %
Expenses
Cost of revenue (exclusive of
depreciation and amortization
expenses presented
separately below) (2) 225,824 (3,347) 222,477 140,978 (2,451) 138,527 84,846 60.2 83,950 60.6
% %
Claims expenses 73,842 73,842 35,177 35,177 38,665 109.9 38,665 109.9
% %
Selling, general and
administrative expenses (3) 141,770 (25,161) 116,609 112,929 (10,488) 102,441 28,841 25.5 14,168 13.8
% %
Depreciation and amortization
expenses (4) 29,558 (12,094) 17,464 19,530 (5,405) 14,125 10,028 51.3 3,339 23.6
% %
(Gain) loss on disposal of assets (5) (9,600) 9,600 (9,600) % %
Change in fair value of contingent
consideration and indemnification asset (6) 200 (200) (1,504) 1,504 1,704 113.3
% %
Total operating expenses 461,594 (31,202) 430,392 307,110 (16,840) 290,270 154,484 50.3 140,122 48.3
% %
Operating income (loss) $
(71,879) $
31,963 $
(39,916) $
(23,098) $
21,771 $
(1,327) $
(48,781) (211.2) $
(38,589) (2,908.0)
% %
Total operating expenses as a
percentage of total revenue 118.4 110.2 108.1 100.5
% % % %
(1) Adjustments to platform and operations
services revenue include deferred revenue
purchase accounting adjustments of
approximately $0.8 million and $0.4 million
for the six months ended June 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 six months ended June 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 $1.7 million and $0.8 million
in stock-based compensation expense for the
six months ended June 30, 2019 and 2018,
respectively. The adjustments also include
approximately $1.5 million and $1.0 million
related to the amortization of contract cost
assets recorded as a result of the one-time
ASC 606 transition adjustment for the six
months ended June 30, 2019 and 2018,
respectively. Adjustments also include
transaction costs of $0.1 million resulting
from acquisitions and business combinations
for the six months ended June 30, 2019.
Adjustments also include one-time severance
costs of approximately $0.7 million for the
six months ended June 30, 2018.
(3) Adjustments to selling, general and
administrative expenses include $7.6 million
and $7.8 million in stock-based
compensation expense for the six months
ended June 30, 2019 and 2018, respectively.
Adjustments also include transaction costs
of $3.1 million and $1.9 million for the six
months ended June 30, 2019 and 2018,
respectively, resulting from acquisitions
and business combinations. Adjustments also
include one-time severance costs of
approximately $14.5 million and $0.8 million
for the six months ended June 30, 2019 and
2018, respectively.
(4) Adjustments to depreciation and amortization
expenses of approximately $12.1 million and
$5.4 million for the six months ended June
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 June 30, 2019
---
Services:
Adjusted Transformation Services $
1,944
$
$ $
1,944
Adjusted Platform and Operations Services 147,764 (3,077) 144,687
Adjusted Services Revenue 149,708 (3,077) 146,631
True Health:
Premiums 45,764 (271) 45,493
Adjusted Revenue 149,708 45,764 (3,348) 192,124
Purchase accounting adjustments (1) (165) (165)
Total revenue $
149,543 $
45,764 $
(3,348) $
191,959
Three Months Ended June 30, 2018
---
Services:
Adjusted Transformation Services $
8,215
$
$ $
8,215
Adjusted Platform and Operations Services 117,177 (3,615) 113,562
Adjusted Services Revenue 125,392 (3,615) 121,777
True Health:
Premiums 22,939 (202) 22,737
Adjusted Revenue 125,392 22,939 (3,817) 144,514
Purchase accounting adjustments (1) (216) (216)
Total revenue $
125,176 $
22,939 $
(3,817) $
144,298
Segments
Services True Health Total
Three Months Ended June 30, 2019
---
Adjusted EBITDA $
(8,797) $
1,123 $
(7,674)
Three Months Ended June 30, 2018
---
Adjusted EBITDA $
5,643 $
(758) $
4,885
(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
Six Months Ended June 30, 2019
---
Services:
Adjusted Transformation Services $
5,297
$
$ $
5,297
Adjusted Platform and Operations Services 298,710 (6,135) 292,575
Adjusted Services Revenue 304,007 (6,135) 297,872
True Health:
Premiums 93,140 (536) 92,604
Adjusted Revenue 304,007 93,140 (6,671) 390,476
Purchase accounting adjustments (1) (761) (761)
Total revenue $
303,246 $
93,140 $
(6,671) $
389,715
Six Months Ended June 30, 2018
---
Services:
Adjusted Transformation Services $
18,375
$
$ $
18,375
Adjusted Platform and Operations Services 231,852 (7,412) 224,440
Adjusted Services Revenue 250,227 (7,412) 242,815
True Health:
Premiums 46,524 (396) 46,128
Adjusted Revenue 250,227 46,524 (7,808) 288,943
ASC 606 transition adjustment (2) (4,498) (4,498)
Purchase accounting adjustments (1) (433) (433)
Total revenue $
245,296 $
46,524 $
(7,808) $
284,012
Segments
Services True Health Total
Six Months Ended June 30, 2019
---
Adjusted EBITDA $
(24,296) $
1,844 $
(22,452)
Six Months Ended June 30, 2018
---
Adjusted EBITDA $
12,609 $
189 $
12,798
(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 Six
Months Ended
Months Ended
June 30,
June 30,
2019 2018 2019 2018
---
Net Income (Loss) Attributable to
Evolent Health, Inc. $
(31,615) $
(9,916) $
(78,354) $
(23,542)
Less:
Interest income 842 878 1,902 1,950
Interest expense (3,620) (855) (7,182) (1,708)
(Provision) benefit for income taxes (1,398) 109 (902) 106
Depreciation and amortization expenses (15,292) (10,034) (29,558) (19,530)
EBITDA (12,147) (14) (42,614) (4,360)
Less:
Income (loss) from equity method investees (1,904) (1,275) (2,328) (1,406)
Gain (loss) on disposal of assets 9,600 9,600
Change in fair value of contingent consideration
and indemnification asset (100) 1,604 (200) 1,504
Other income (expense), net (587) 78 (160) 60
Net (income) loss attributable to
non-controlling interests 285 115 2,195 554
ASC 606 transition adjustments - (4,498)
Purchase accounting adjustments (165) (216) (761) (433)
Stock-based compensation expense (4,750) (4,718) (9,287) (8,513)
Severance costs (3,881) 105 (14,483) (1,489)
Amortization of contract cost assets (776) (578) (1,552) (1,139)
Transaction costs (2,195) (14) (3,186) (1,798)
Adjusted EBITDA $
(7,674) $
4,885 $
(22,452) $
12,798
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 Six
Months Ended
Months Ended
June 30,
June 30,
2019 2018 2019 2018
---
Earnings (Loss) Available to
Common Shareholders - Basic and Diluted (a) $
(31,615) $
(9,916) $
(78,354) $
(23,542)
Less:
Income (loss) from equity method investees (1,904) (1,275) (2,328) (1,406)
(Provision) benefit for income taxes - 129 136
Other income (expense), net - 431
Gain (loss) on disposal of assets 9,600 9,600
Change in fair value of contingent consideration
and indemnification asset (100) 1,604 (200) 1,504
Net (income) loss attributable to
non-controlling interests 285 115 2,195 554
ASC 606 Transition Adjustment - (4,498)
Purchase accounting adjustments (6,524) (2,985) (12,855) (5,838)
Stock-based compensation expense (4,750) (4,718) (9,287) (8,513)
Severance costs (3,881) 105 (14,483) (1,489)
Amortization of contract cost assets (776) (578) (1,552) (1,139)
Transaction costs (2,195) (14) (3,186) (1,798)
Adjusted Earnings (Loss) Available
to Class A and Class B Shareholders (b) $
(21,370) $
(2,299) $
(46,689) $
(1,055)
Earnings (Loss) per Share Available to
Common Shareholders - Basic and Diluted (a) (1) $
(0.38) $
(0.13) $
(0.97) $
(0.31)
Adjusted Earnings (Loss) per Share Available
to Class A and Class B Shareholders (b) (2) $
(0.26) $
(0.03) $
(0.56) $
(0.01)
Weighted-average common shares - basic 82,289 77,209 80,820 76,297
Weighted-average common shares - diluted 82,289 77,209 80,820 76,297
Adjusted Weighted-Average Class A
and Class B Shares (3) 83,369 78,071 82,949 77,795
(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 Six
Months Ended Months Ended
June 30, June 30,
2019 2018 2019 2018
---
Weighted-average common shares - diluted 82,289 77,209 80,820 76,297
Assumed conversion of Class B common
shares to Class A common shares 1,080 862 2,129 1,498
Adjusted Weighted-Average Class A and Class B Shares 83,369 78,071 82,949 77,795
Evolent Health, Inc.
Guidance Reconciliation
(unaudited)
(in thousands) For the Three For the Twelve
Months Ended Months Ended
September 30, December 31,
2019 2019
Services revenue $
179,800 $
672,800
Purchase accounting adjustments 200 1,200
Adjusted Services Revenue 180,000 674,000
Premiums revenue 43,000 177,500
Intersegment eliminations (3,500) (14,000)
Adjusted Revenue $
219,500 $
837,500
Net Income (Loss) Attributable
to
Evolent Health, Inc. $
(22,320) $
(126,877)
Less:
Interest income 500 2,000
Interest expense (3,000) (12,000)
Depreciation and amortization
expenses (15,000) (60,000)
EBITDA (4,820) (56,877)
Less:
Income (loss) from equity
method investees (2,000) (6,000)
Net (income) loss attributable
to
non-controlling interests 180 1,023
Purchase accounting adjustments (200) (1,200)
Stock-based compensation
expense (5,000) (20,000)
Severance costs (14,500)
Amortization of contract cost
assets (800) (3,200)
Transaction costs (1,000) (7,000)
Adjusted EBITDA $
4,000 $
(6,000)
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 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 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, 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.
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SOURCE Evolent Health
