Evolent Health, Inc. (NYSE:EVH) Q4 2019 Earnings Conference Call February 25, 2020 5:00 PM ET Company Participants Frank Williams - CEO John Johnson - CFO Seth Blackley - President Conference Call Participants Jared Haase - William Blair Jack Rogoff - Goldman Sachs Jamie Stockton - Wells Fargo Matthew Gillmor - Robert Baird Richard Close - Canaccord Genuity Donald Hooker - KeyBanc Sean Wieland - Piper Sandler Stan Berenshteyn - SunTrust Charles Rhyee - Cowen Operator Welcome to Evolent Health's Earnings Con ...

| --- | --- | |------------------------------------|-------| | | | | | | | | | | J.P. Morgan Healthcare Conference: | | | Evolent Health January 15, 2020 | | | 1 | | Safe Harbor Statement Certain statements in this presentation 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, ...

Evolent Health, Inc. (NYSE:EVH) Q3 2019 Earnings Conference Call November 5, 2019 5:00 PM ET Company Participants Frank Williams – Chief Executive Officer John Johnson – Chief Financial Officer Conference Call Participants Ryan Daniels – William Blair Jack Rogoff – Goldman Sachs Jamie Stockton – Wells Fargo Sean Wieland – Piper Jaffray Matthew Gillmor – Robert Baird Richard Close – Canaccord Genuity Charles Rhyee – Cowen Sandy Draper – SunTrust Stephanie Demko – Citi Operator Welcome to Evolent Health’s Ear ...

Revenue Growth - Evolent Health reported a significant revenue increase of 25% year-over-year, reaching $200 million in the latest quarter[7]. - Evolent anticipates continued growth, projecting revenue to exceed $850 million for the upcoming fiscal year, representing a 20% increase[9]. - Total revenue for the three months ended September 30, 2019, was $220,143,000, representing an increase from $149,947,000 in the same period of 2018, a growth of approximately 47%[13]. - For the nine months ended September 30, 2019, total revenue was $609,858,000, compared to $433,959,000 for the same period in 2018, marking an increase of 40.5%[127]. - Revenue from service agreements with joint venture entities was $11.8 million for the three months ended September 30, 2019, compared to $5.1 million for the same period in 2018[103]. User Enrollment and Market Expansion - The company highlighted a 30% growth in user enrollment, bringing the total to 1.5 million members across its health plans[7]. - Evolent is expanding its market presence, with plans to enter three new states by the end of the year, aiming to increase its footprint in the healthcare sector[9]. Profitability and Losses - The company reported a net income of $10 million, compared to a loss of $5 million in the same quarter last year, indicating improved profitability[9]. - The company reported a net loss of $25,521,000 for the three months ended September 30, 2019, compared to a net loss of $12,429,000 for the same period in 2018, indicating a worsening of approximately 105%[13]. - Net loss for the nine months ended September 30, 2019, was a loss of $106,287 thousand, compared to a loss of $36,651 thousand in 2018, indicating a significant increase in losses[16]. Operating Expenses and Financial Health - Evolent is focused on maintaining a strong cost structure, with operating expenses growing at a slower rate than revenue, at 15% year-over-year[9]. - The company’s total operating expenses for the three months ended September 30, 2019, were $240,281,000, up from $160,977,000 in the same period of 2018, an increase of approximately 49%[13]. - Total current assets decreased to $308,012,000 as of September 30, 2019, down from $487,966,000 as of December 31, 2018, a decline of approximately 37%[12]. - The company’s cash and cash equivalents decreased significantly to $96,734,000 as of September 30, 2019, from $228,320,000 as of December 31, 2018, a reduction of approximately 58%[12]. Acquisitions and Investments - The company completed the acquisition of Valence Health, which is expected to contribute an additional $50 million in annual revenue[9]. - The acquisition of New Century Health was completed on October 1, 2018, for a total merger consideration of $205.1 million, which included $118.7 million in cash and 3.1 million shares of Class B common stock valued at $83.2 million[41][42]. - The acquisition of assets from New Mexico Health Connections on January 2, 2018, involved a cash payment of $10.3 million, expected to enhance the company's value-based care model in New Mexico[44][46]. Regulatory Compliance and Risk Management - The company emphasized the importance of regulatory compliance and is actively managing risks associated with healthcare policy changes[9]. - The company has not recorded a liability under the Tax Receivables Agreement (TRA) due to being in a full valuation allowance position[90]. Stock and Equity - The company reported a basic and diluted loss per common share of $0.30 for the three months ended September 30, 2019, compared to a loss of $0.16 for the same period in 2018[13]. - The total equity as of September 30, 2019, was $1,124.3 million, compared to $1,046.3 million as of December 31, 2017, reflecting an increase of approximately 7.5%[21]. Cash Flow and Liquidity - Cash flows from operating activities resulted in a net cash outflow of $55,832 thousand for the nine months ended September 30, 2019, compared to a cash inflow of $4,317 thousand in 2018[16]. - As of September 30, 2019, Evolent Health, Inc. reported cash and cash equivalents of $96.7 million, indicating sufficient liquidity for the next 12 months[23]. Segment Performance - Evolent Health operates through two segments: Services and True Health, with the Services segment focusing on technology-enabled value-based care services[26]. - For the three months ended September 30, 2019, transformation services revenue was $5.2 million, while platform and operations services revenue was $171.0 million[56]. Contingent Considerations and Liabilities - The company recorded a short-term contingent consideration liability fair valued at $5.9 million at the time of the Momentum Health Group transaction[103]. - The contingent consideration related to the GlobalHealth transaction was valued at $6.7 million, with a significant input being stock price volatility at 60%[116].

[Part I - Financial Information](index=4&type=section&id=PART%20I) [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Evolent Health's H1 2019 unaudited financials detail revenue, net loss, balance sheet, cash flows, and new lease accounting Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $92,821 | $228,320 | | Goodwill | $772,164 | $768,124 | | Total Assets | $1,652,256 | $1,722,281 | | Long-term debt, net | $225,642 | $221,041 | | Total Liabilities | $505,500 | $532,925 | | Total Shareholders' Equity | $1,146,756 | $1,189,356 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 (in thousands) | Three Months Ended June 30, 2018 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2018 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $191,959 | $144,298 | $389,715 | $284,012 | | Operating Loss | $(25,233) | $(8,966) | $(71,879) | $(23,098) | | Net Loss Attributable to Evolent | $(31,615) | $(9,916) | $(78,354) | $(23,542) | | Diluted Loss Per Share | $(0.38) | $(0.13) | $(0.97) | $(0.31) | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(39,242) | $(18,004) | | Net cash used in investing activities | $(90,816) | $(19,376) | | Net cash used in financing activities | $(121,071) | $(3,665) | - The company operates through two segments: Services (population health platform, claims processing, specialty care management) and True Health (a commercial health plan in New Mexico)[25](index=25&type=chunk) - Effective January 1, 2019, the company adopted the new lease accounting standard ASU 2016-02, resulting in the recording of right-of-use assets and lease liabilities of approximately **$51.4 million** and **$47.4 million**, respectively[46](index=46&type=chunk) - On May 24, 2019, the company acquired an approximately **43%** ownership interest in Momentum Health Group (owner of GlobalHealth) by contributing **$15.0 million** in cash, **1.6 million** shares of Class A common stock, and its Medicare Advantage business (True Health Indiana, Inc.), resulting in a **$9.6 million** non-cash gain on disposal of assets[115](index=115&type=chunk) - A shareholder class action lawsuit was filed against the company and two of its officers on August 8, 2019. The company believes the case is without merit and intends to defend against the claims[142](index=142&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Evolent Health's H1 2019 financial performance, explaining revenue growth, widening losses, and key transactions Revenue and Expense Comparison (in thousands) | Metric | Six Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$389,715** | **$284,012** | **$105,703** | **37.2%** | | Transformation services | $5,297 | $14,720 | $(9,423) | (64.0)% | | Platform and operations services | $291,814 | $223,164 | $68,650 | 30.8% | | Premiums | $92,604 | $46,128 | $46,476 | 100.8% | | **Total Operating Expenses** | **$461,594** | **$307,110** | **$154,484** | **50.3%** | | Cost of revenue | $225,824 | $140,978 | $84,846 | 60.2% | | Claims expenses | $73,842 | $35,177 | $38,665 | 109.9% | | SG&A expenses | $141,770 | $112,929 | $28,841 | 25.5% | | **Operating Loss** | **$(71,879)** | **$(23,098)** | **$(48,781)** | **(211.2)%** | - The company entered into an Asset Purchase Agreement to acquire substantially all assets and liabilities of Passport Health Plan for **$70.0 million** in cash and a **30%** equity interest in the buyer entity. The deal is expected to close in Q4 2019, contingent on regulatory approvals and the outcome of Kentucky's Medicaid RFP[147](index=147&type=chunk) - Platform and operations services revenue increased by **30.8%** for the six months ended June 30, 2019, primarily due to the acquisition of New Century Health, an increase in average PMPM fees, and a **14.4%** growth in lives on the platform[175](index=175&type=chunk) - Cost of revenue as a percentage of Services revenue increased from **59.3%** to **76.0%** year-over-year for the six-month period, mainly due to the New Century Health acquisition[176](index=176&type=chunk)[177](index=177&type=chunk) - Net cash used in operating activities increased to **$39.2 million** for the first six months of 2019 from **$18.0 million** in the prior year, driven by a larger net loss, though partially offset by non-cash expenses[193](index=193&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Evolent Health discloses market risks, including interest rate, foreign currency, and equity market exposures from share exchanges - The company has fixed-rate convertible notes totaling **$225.6 million** (net), so its debt service costs are not subject to interest rate fluctuations[204](index=204&type=chunk) - Foreign currency risk is related to the Indian Rupee for its subsidiary in India, but the impact on results has been immaterial to date[205](index=205&type=chunk) - Equity market risk stems from the potential exchange of Class B common stock for Class A common stock, which would increase the outstanding share count and could trigger payments under the Tax Receivables Agreement[207](index=207&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded Evolent Health's disclosure controls were effective as of June 30, 2019, with no material internal control changes - The principal executive officer and principal financial officer concluded that as of June 30, 2019, the company's disclosure controls and procedures were effective[210](index=210&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, internal controls[210](index=210&type=chunk) [Part II - Other Information](index=60&type=section&id=PART%20II) [Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) Evolent Health is involved in legal disputes, including a shareholder class action filed August 8, 2019, believed to be without merit - Information regarding legal proceedings is contained in Note 9 of the financial statements[212](index=212&type=chunk) - A putative shareholder class action complaint was filed against the Company, its CEO, and another officer on August 8, 2019. The company believes the case is without merit and intends to defend against the claims vigorously[142](index=142&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) Evolent Health highlights material risks including revenue concentration, Kentucky Medicaid RFP outcome, acquisition integration, and goodwill impairment - The company has significant revenue concentration with its largest partners. Passport accounted for **13.1%** of revenue for the six months ended June 30, 2019. The loss of this partner would negatively impact results[213](index=213&type=chunk) - A material risk exists related to Passport's bid in the ongoing Kentucky Medicaid RFP. If Passport is not awarded a contract, Evolent expects to receive no material revenue from Passport after June 30, 2020, and the value of its pending investment will be negatively impacted[214](index=214&type=chunk)[215](index=215&type=chunk) - Acquisitions, including the completed New Century Health deal and the pending Passport transaction, pose numerous risks such as integration difficulties, unanticipated costs, and potential dilution of stockholders[215](index=215&type=chunk)[217](index=217&type=chunk) - The company's stock price declined significantly in Q2 2019, which was considered as a potential triggering event for goodwill impairment. While management concluded a quantitative test was not necessary as of June 30, 2019, a sustained decline could lead to future impairment charges[221](index=221&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Evolent Health issued **154,026** Class A common shares on June 18, 2019, for an acquisition, exempt from registration - On June 18, 2019, the company issued **154,026** shares of Class A common stock for the acquisition of The Accountable Care Organization Ltd. The sale was unregistered, relying on exemptions for private offerings[221](index=221&type=chunk) [Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including agreements and CEO/CFO certifications

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q _________________________ (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2019 OR ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 001-37415 _________________________ Evolent Health, Inc. Not Applicable (Former ...

| --- | --- | --- | |-----------------------------------------------------------------|-------------------------------------------------------------------------------------------------------|-----------------------------| | | | | | | _________________________ | | | | Evolent Health, Inc. (Exact name of registrant as specified in its charter) _________________________ | | | | | | | Delaware (State or other jurisdiction of | | 32-0454912 (I.R.S. Employer | | incorporation or organization) | | Identification N ...