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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 8-K
_________________________

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

February 27, 2018
Date of Report (Date of earliest event reported)   

Evolent Health, Inc.
(Exact name of registrant as specified in its charter)
_________________________


Delaware 
001-37415
32-0454912
(State or other jurisdiction of
incorporation or organization)
Commission File Number: 
(IRS Employer
Identification No.)
 
800 N. Glebe Road, Suite 500, Arlington, Virginia 22203
 
 
(Address of principal executive offices)(zip code)
 
  
(571) 389-6000
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
_________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐






Item 2.02.  Results of Operations and Financial Condition
 
On February 27, 2018, Evolent Health, Inc. issued a press release announcing its financial results for the quarter and full year ended December 31, 2017, a copy of which is furnished herewith as Exhibit 99.1.  
   
Item 7.01 Regulation FD Disclosure

Slides for Evolent Health, Inc.’s fourth quarter and full year earnings presentation on February 27, 2018 are furnished as Exhibit 99.2 to this Current Report on Form 8-K.

The information in Items 2.02 and 7.01 of this Current Report and the exhibits furnished therewith shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended ("the Exchange Act"), or otherwise subject to the liabilities of that Section.  The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act except as otherwise expressly stated in such filing.
 
Item 9.01.  Financial Statements and Exhibits

(d) Exhibits

The following exhibits are being furnished with this Form 8-K
 
Exhibit
 
 
Number
 
Description
 
 
 
 





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EVOLENT HEALTH, INC.
By:
 /s/ Lydia Stone
Name:
Lydia Stone
Title:
Principal Accounting Officer
 
and Corporate Controller

Dated: February 27, 2018





EXHIBIT INDEX

Exhibit
 
 
Number
 
Description
 
 
 
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


 
392365853_evhlogo.jpg
 
 

Evolent Health Announces Fourth Quarter and Full Year 2017 Results

WASHINGTON, D.C., February 27, 2018 Evolent Health, Inc. (“Evolent”) (NYSE: EVH), a company providing an integrated value-based care platform to the nation’s leading health systems and physician organizations, today announced financial results for the quarter and full year ended December 31, 2017.

Highlights from the fourth quarter and full year 2017 announcement include (all comparisons are to the quarter and full year ended December 31, 2016):

Quarter ended December 31, 2017:

GAAP revenue of $113.7 million, an increase of 29.2%; Adjusted Revenue of $114.0 million, an increase of 26.6%
Net income (loss) attributable to Evolent Health, Inc. of $(13.2) million, Adjusted EBITDA of $3.5 million
Lives on platform of approximately 2.7 million, an increase of 34.8%

Full year ended December 31, 2017:

GAAP revenue of $435.0 million, an increase of 71.1%; Adjusted Revenue of $436.4 million, an increase of 70.3%
Net income (loss) attributable to Evolent Health, Inc. of $(60.7) million, Adjusted EBITDA of $(2.2) million
Acquisition of assets of New Mexico Health Connections
New partnerships across 2017 including Beacon Health, Carilion Clinic, Community Care Cooperative, Crystal Run Healthcare, Houston Methodist and Orlando Health

Additional announcements:

Evolent adds four new provider partners to the Next Generation Accountable Care Organization (ACO) program for the 2018 performance year; New partners are: CoxHealth, Franciscan Missionaries of Our Lady Health System Health Leaders Network (FMOLHS-HLN), South Shore Health System and St. Joseph’s Health. Evolent is now supporting approximately 200,000 Medicare beneficiaries in its Next Generation ACO cohort nationwide.

Frank Williams, chief executive officer of Evolent Health, Inc., commented, “We are pleased with our results for the quarter and calendar year, having achieved our strategic and financial objectives while continuing to advance our position as the preferred partner for providers moving to value-based care.”

Evolent ended 2017 at the high end of its anticipated range for new partnerships, several of which included new geographies for Evolent operations, including Florida, Maine, Massachusetts, New York and New Mexico. The company experienced continued growth from existing partners in the form of new lives added and the adoption of new service offerings. In the aggregate, the company added approximately 700,000 lives to its platform, bringing the total life count to approximately 2.7 million as of December 31, 2017. This represented a growth of approximately 34.8% over the prior year.


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Mr. Williams continued, “With momentum continuing through the end of the year and into 2018, we are excited to bring four new partners into our cohort of providers participating in the Next Generation ACO program, CoxHealth, FMOLHS-HLN, South Shore Health System and St. Joseph’s Health. The commitment to two-sided risk models by CMS and its participating providers demonstrates that the movement toward public-private health care transformation remains strong as providers take steps toward more aggressive risk arrangements. We are pleased that the investments we’ve made in our technology platform, clinical knowledge base and risk management infrastructure are enabling Evolent to deliver deep expertise and drive strong clinical and financial results with these partners."

Mr. Williams added, “Overall, we accomplished a tremendous amount strategically and operationally in 2017 in the face of a new administration and legislative uncertainty across the year in the Medicaid, Medicare and Exchange markets. Based on recent conversations and actions from CMS and local state governments, we are encouraged by the consistent commitment to value-based care programs which is reflected in a strong pipeline entering 2018.”

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 United States of America generally accepted accounting principles (“GAAP”) results:

Revenue of $113.7 million and $88.0 million for the three months ended December 31, 2017 and 2016, respectively, an increase of 29.2%. Revenue of $435.0 million and $254.2 million for the years ended December 31, 2017 and 2016, respectively, an increase of 71.1%.
Cost of revenue of $65.5 million and $59.9 million for the three months ended December 31, 2017 and 2016, respectively, an increase of 9.5%. Cost of revenue of $269.4 million and $155.2 million for the years ended December 31, 2017 and 2016, respectively, an increase of 73.6%.
Selling, general and administrative expenses of $55.2 million and $57.6 million for the three months ended December 31, 2017 and 2016, respectively, a decrease of 4.2%. Selling, general and administrative expenses of $205.7 million and $160.7 million for the years ended December 31, 2017 and 2016, respectively, an increase of 28.0%.
Net income (loss) attributable to Evolent Health, Inc. of $(13.2) million and $(17.4) million for the three months ended December 31, 2017 and 2016, respectively. Net income (loss) attributable to Evolent Health, Inc. of $(60.7) million and $(159.7) million for the years ended December 31, 2017 and 2016, respectively.
Earnings (loss) available to common shareholders, basic and diluted, of $(13.2) million and $(17.4) million for the three months ended December 31, 2017 and 2016, respectively.
Earnings (loss) available to common shareholders, basic and diluted, of $(60.7) million and $(159.7) million for the years ended December 31, 2017 and 2016, respectively.
Earnings (loss) available to common shareholders, per basic and diluted share, of $(0.18) and $(0.33) for the three months ended December 31, 2017 and 2016, respectively.
Earnings (loss) available to common shareholders, per basic and diluted share, of $(0.94) and $(3.55) for the full years ended December 31, 2017 and 2016, respectively.


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Adjusted Results

Adjusted Revenue of $114.0 million and $90.0 million for the three months ended December 31, 2017 and 2016, respectively, an increase of 26.6%. Adjusted Revenue of $436.4 million and $256.3 million for the years ended December 31, 2017 and 2016, respectively, an increase of 70.3%.
Adjusted Cost of Revenue of $64.2 million and $55.7 million for the three months ended December 31, 2017 and 2016, respectively, an increase of 15.2%. Adjusted Cost of Revenue of $262.5 million and $149.7 million for the years ended December 31, 2017 and 2016, respectively, an increase of 75.3%.
Adjusted selling, general and administrative expenses of $46.3 million and $42.0 million for the three months ended December 31, 2017 and 2016, respectively, an increase of 10.2%. Adjusted selling, general and administrative expenses of $176.1 million and $127.9 million for the years ended December 31, 2017 and 2016, respectively, an increase of 37.7%;
Adjusted EBITDA of $3.5 million and $(7.7) million for the three months ended December 31, 2017 and 2016, respectively. Adjusted EBITDA of $(2.2) million and $(21.4) million for the years ended December 31, 2017 and 2016, respectively.
Adjusted Loss Available to Class A and Class B Shareholders of $(3.1) million and $(12.0) million for the three months ended December 31, 2017 and 2016, respectively.
Adjusted Loss Available to Class A and Class B Shareholders of $(24.8) million and $(35.1) million for the years ended December 31, 2017 and 2016, respectively.
Adjusted Loss per Share Available to Class A and Class B Shareholders of $(0.04) and $(0.18) for the three months ended December 31, 2017 and 2016, respectively.
Adjusted Loss per Share Available to Class A and Class B Shareholders of $(0.35) and $(0.57) for the years ended December 31, 2017 and 2016, respectively.

Total cash, cash equivalents and restricted cash as of December 31, 2017, was $295.4 million. Of this amount, cash and cash equivalents was $238.4 million and restricted cash was $56.9 million.

Business Outlook

For the full year 2018, Adjusted Revenue is expected to be in the range of approximately $565.0 million to $585.0 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $495.0 million to $510.0 million, and True Health Premium Revenue, which is forecasted to be approximately $90.0 million to $95.0 million; Intercompany Eliminations are forecasted to be approximately $(20.0) million for the full year. Adjusted EBITDA is expected to be in the range of approximately $18.0 million to $23.0 million.

For the three months ended March 31, 2018, Adjusted Revenue is expected to be in the range of approximately $139.0 million to $143.0 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $122.0 million to $124.0 million, and True Health Premium Revenue, which is forecasted to be approximately $22.0 million to $24.0 million; Intercompany Eliminations are forecasted to be approximately $(5.0) million for the quarter. Adjusted EBITDA is expected to be in the range of approximately $3.0 million to $5.0 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 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 fourth quarter and full year performance this evening, February 27, 2018, at 5:30 p.m., Eastern Time. The conference call and a presentation to be made during the call will be available via live webcast on the Company’s Investor

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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 to the Evolent Health call. Participants are advised to dial in at least fifteen minutes prior to the call to register. The call and the accompanying presentation 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, Inc.

Evolent Health, Inc. partners with leading provider organizations to achieve superior clinical and financial results in value-based care. With a provider heritage and over 20 years of health plan administration experience, Evolent operates in more than 30 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
Robin Glass
443.213.0500
571.389.6005
Investor Relations
Media Relations
InvestorRelations@evolenthealth.com
RGlass@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, True Health New Mexico Premium Revenue, Adjusted Transformation Revenue, Adjusted Platform and Operations Revenue, Adjusted Cost of Revenue, Adjusted Selling, General and Administrative Expenses, Adjusted Depreciation and Amortization Expenses, Adjusted Operating Income (Loss), Adjusted Gross Margin, 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 Services Revenue, Adjusted Transformation Revenue and Adjusted Platform and Operations Revenue are defined as services revenue, transformation revenue, platform and operations revenue, respectively, adjusted to exclude the impact of purchase accounting adjustments. Adjusted Revenue is defined as the sum of Adjusted Services Revenue and True Health New Mexico Premium Revenue less intercompany eliminations. Management uses Adjusted Revenue, Adjusted Services Revenue, Adjusted Transformation Revenue and Adjusted Platform and Operations 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.

4



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 and transaction costs related to acquisitions and business combinations, securities offerings, as well as 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 transaction costs that are one-time and costs that are non-cash (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 adjusted to exclude the impact of one-time adjustments, such as goodwill impairment, and items arising from acquisitions and business combinations, such as (gain) loss on change in fair value of contingent consideration.

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 Gross Margin is defined as Adjusted Revenue less Adjusted Cost of Revenue, and reflects the adjustments made in those non-GAAP measures.

Adjusted EBITDA 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 goodwill impairment, (gain) loss on change in fair value of contingent consideration, income (loss) from equity affiliates, other income (expense), net, net (income) loss attributable to non-controlling interests, purchase accounting adjustments, stock-based compensation expenses, transaction costs related to acquisitions and business combinations, such as (gain) loss on change in fair value of contingent consideration and securities offerings, as well as one-time adjustments. Management uses Adjusted EBITDA as a supplemental performance measure because the removal of transaction costs, one-time or non-cash items (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 goodwill impairment, income (loss) from equity affiliates, (provision) benefit for income taxes, (gain) loss on change in fair value of contingent consideration, purchase accounting adjustments, stock-based compensation expenses and transaction costs related to acquisitions and business combinations, such as (gain) loss on change in fair value of contingent consideration, securities offerings, as well as 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.


5



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.

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Evolent Health, Inc.
Consolidated Statements of Operations
(unaudited)

(in thousands, except per share data)
For the Three
 
For the Years
 
Months Ended
 
Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Revenue
 
 
 
 
 
 
 
Transformation
$
5,666

 
$
12,061

 
$
29,466

 
$
38,320

Platform and operations
108,063

 
75,950

 
405,484

 
215,868

Total revenue
113,729

 
88,011

 
434,950

 
254,188

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Cost of revenue (exclusive of
 
 
 
 
 
 
 
depreciation and amortization
 
 
 
 
 
 
 
expenses presented separately below)
65,549

 
59,883

 
269,352

 
155,177

Selling, general and administrative expenses
55,196

 
57,592

 
205,670

 
160,692

Depreciation and amortization expenses
11,132

 
6,495

 
32,368

 
17,224

Goodwill impairment

 

 

 
160,600

Loss (gain) on change in fair value
 
 
 
 
 
 
 
of contingent consideration
100

 
(2,086
)
 
400

 
(2,086
)
Total operating expenses
131,977

 
121,884

 
507,790

 
491,607

Operating income (loss)
(18,248
)
 
(33,873
)
 
(72,840
)
 
(237,419
)
Interest income
843

 
164

 
1,656

 
970

Interest expense
(855
)
 
(247
)
 
(3,636
)
 
(247
)
Income (loss) from equity affiliates
(309
)
 
(379
)
 
(1,755
)
 
(841
)
Other Income (expense), net
150

 
2

 
171

 
4

Income (loss) before income taxes
 
 
 
 
 
 
 
and non-controlling interests
(18,419
)
 
(34,333
)
 
(76,404
)
 
(237,533
)
Provision (benefit) for income taxes
(4,628
)
 
(9,140
)
 
(6,637
)
 
(10,755
)
Net income (loss)
(13,791
)
 
(25,193
)
 
(69,767
)
 
(226,778
)
Net income (loss) attributable to
 
 
 
 
 
 
 
non-controlling interests
(631
)
 
(7,786
)
 
(9,102
)
 
(67,036
)
Net income (loss) attributable to
 
 
 
 
 
 
 
Evolent Health, Inc.
$
(13,160
)
 
$
(17,407
)
 
$
(60,665
)
 
$
(159,742
)
 
 
 
 
 
 
 
 
Earnings (Loss) Available to Common Shareholders
 
 
 
 
 
 
Basic
$
(13,160
)
 
$
(17,407
)
 
$
(60,665
)
 
$
(159,742
)
Diluted
(13,160
)
 
(17,407
)
 
(60,665
)
 
(159,742
)
 
 
 
 
 
 
 
 
Earnings (Loss) per Common Share
 
 
 
 
 
 
 
Basic
$
(0.18
)
 
$
(0.33
)
 
$
(0.94
)
 
$
(3.55
)
Diluted
(0.18
)
 
(0.33
)
 
(0.94
)
 
(3.55
)
 
 
 
 
 
 
 
 
Weighted-Average Common Shares Outstanding
 
 
 
 
 
 
Basic
74,689

 
52,177

 
64,351

 
45,031

Diluted
74,689

 
52,177

 
64,351

 
45,031


7



Evolent Health, Inc.
Condensed Consolidated Balance Sheets
(unaudited)

(in thousands)
As of
 
December 31,
 
2017
 
2016
Cash and cash equivalents
$
238,433

 
$
134,563

Restricted cash
56,930

 
35,466

Restricted investments
8,755

 
4,950

Investments, at amortized cost

 
44,341

Total current assets
378,182

 
264,966

Intangible assets, net
241,261

 
258,923

Goodwill
628,186

 
626,569

Total assets
1,312,697

 
1,199,839

 
 
 
 
Long-term debt, net of discount
121,394

 
120,283

Total liabilities
266,391

 
287,725

Total shareholders' equity (deficit) attributable to
 
 
 
Evolent Health, Inc.
1,010,879

 
702,526

Non-controlling interests
35,427

 
209,588

Total liabilities and shareholders' equity (deficit)
1,312,697

 
1,199,839



8



Evolent Health, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)

(in thousands)
For the Years
 
Ended
 
December 31,
 
2017
 
2016
Net cash and restricted cash provided by (used in) operating activities
$
(27,958
)
 
$
(35,510
)
Net cash and restricted cash provided by (used in) investing activities
(12,265
)
 
(96,657
)
Net cash and restricted cash provided by (used in) financing activities
165,557

 
150,185

 
 
 
 
Net increase (decrease) in cash and cash equivalents and restricted cash
125,334

 
18,018

Cash and cash equivalents and restricted cash as of beginning-of-year
170,029

 
152,011

Cash and cash equivalents and restricted cash as of end-of-year
$
295,363

 
$
170,029


9



Evolent Health, Inc.
Adjusted Results of Operations
(unaudited)
(in thousands)
For the Three Months Ended December 31, 2017
 
 
For the Three Months Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (1)
$
5,666

 
$

 
$
5,666

 
 
$
12,061

 
$
27

 
$
12,088

 
$
(6,395
)
 
(53.0
)%
 
$
(6,422
)
 
(53.1
)%
Platform and operations (1)
108,063

 
243

 
108,306

 
 
75,950

 
1,976

 
77,926

 
32,113

 
42.3
 %
 
30,380

 
39.0
 %
Total revenue
113,729

 
243

 
113,972

 
 
88,011

 
2,003

 
90,014

 
25,718

 
29.2
 %
 
23,958

 
26.6
 %
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses presented
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
separately below) (2)
65,549

 
(1,377
)
 
64,172

 
 
59,883

 
(4,165
)
 
55,718

 
5,666

 
9.5
 %
 
8,454

 
15.2
 %
Selling, general and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
administrative expenses (3)
55,196

 
(8,879
)
 
46,317

 
 
57,592

 
(15,547
)
 
42,045

 
(2,396
)
 
(4.2
)%
 
4,272

 
10.2
 %
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses (4)
11,132

 
(4,395
)
 
6,737

 
 
6,495

 
(2,257
)
 
4,238

 
4,637

 
71.4
 %
 
2,499

 
59.0
 %
Change in fair value of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
contingent consideration (5)
100

 
(100
)
 

 
 
(2,086
)
 
2,086

 

 
2,186

 
104.8
 %
 

 
 %
Total operating expenses
131,977

 
(14,751
)
 
117,226

 
 
121,884

 
(19,883
)
 
102,001

 
10,093

 
8.3
 %
 
15,225

 
14.9
 %
Operating income (loss)
$
(18,248
)
 
$
14,994

 
$
(3,254
)
 
 
$
(33,873
)
 
$
21,886

 
$
(11,987
)
 
$
15,625

 
46.1
 %
 
$
8,733

 
72.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses as a
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
percentage of total revenue
116.0
%
 
 
 
102.9
%
 
 
138.5
%
 
 
 
113.3
%
 
 
 
 
 
 
 
 

(1) 
We recorded deferred revenue adjustments of approximately $0.2 million and $2.0 million to transformation revenue and platform and operations revenue for the three months ended December 31, 2017 and 2016, respectively, resulting from our acquisitions and business combinations. As part of the Reorganization and as a result of gaining control of Evolent Health LLC, we recorded the fair value of deferred revenue resulting in a $4.9 million reduction to the book value. This resulted in an adjustment of less than $0.1 million to transformation revenue for the three months ended December 31, 2016.
(2) 
Adjustments to cost of revenue include approximately $0.2 million and $1.5 million in stock-based compensation expense for the three months ended December 31, 2017 and 2016, respectively, including a one-time expense of approximately $1.1 million during the three months ended December 31, 2016, related to the acceleration of Valence Health’s unvested equity awards that vested upon the close of the Valence Health acquisition. Stock-based compensation expense includes the value of equity awards granted to employees and non-employee directors of the Company or its consolidated subsidiaries. Adjustments also include transaction costs of approximately $1.1 million and $2.7 million for the three months ended December 31, 2017 and 2016, respectively, resulting from acquisitions and business combinations.
(3) 
Adjustments to selling, general and administrative expenses include approximately $4.0 million and $7.2 million in stock-based compensation expense for the three months ended December 31, 2017 and 2016, respectively, including a one-time expense of approximately $2.8 million during the three months ended December 31, 2016, related to the acceleration of Valence Health’s unvested equity awards that vested upon the close of the Valence Health acquisition. Stock-based compensation expense includes the value of equity awards granted to employees and non-employee directors of the Company or its consolidated subsidiaries. Adjustments also include transaction costs of approximately $4.8 million and $1.9 million for the three months ended December 31, 2017 and 2016, respectively, resulting from acquisitions, business combinations and costs relating to our securities offerings. There was an additional one-time adjustment of approximately $6.5 million for the three months ended December 31, 2016, related to a lease abandonment expense incurred as a result of the Valence Health acquisition.
(4) 
Adjustments to depreciation and amortization expenses of approximately $4.4 million and $2.3 million for the three months ended December 31, 2017 and 2016, respectively, relate to amortization of intangible assets acquired via asset acquisitions and business combinations.
(5) 
These adjustments represent changes in the fair value of contingent consideration associated with the Valence Health and Passport transactions.

10



Evolent Health, Inc.
Adjusted Results of Operations
(unaudited)
(in thousands)
For the Year Ended December 31, 2017
 
 
For the Year Ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (1)
$
29,466

 
$

 
$
29,466

 
 
$
38,320

 
$
114

 
$
38,434

 
$
(8,854
)
 
(23.1
)%
 
$
(8,968
)
 
(23.3
)%
Platform and operations (1)
405,484

 
1,467

 
406,951

 
 
215,868

 
1,976

 
217,844

 
189,616

 
87.8
 %
 
189,107

 
86.8
 %
Total revenue
434,950

 
1,467

 
436,417

 
 
254,188

 
2,090

 
256,278

 
180,762

 
71.1
 %
 
180,139

 
70.3
 %
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses presented
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
separately below) (2)
269,352

 
(6,850
)
 
262,502

 
 
155,177

 
(5,431
)
 
149,746

 
114,175

 
73.6
 %
 
112,756

 
75.3
 %
Selling, general and
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
administrative expenses (3)
205,670

 
(29,551
)
 
176,119

 
 
160,692

 
(32,753
)
 
127,939

 
44,978

 
28.0
 %
 
48,180

 
37.7
 %
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses (4)
32,368

 
(11,452
)
 
20,916

 
 
17,224

 
(2,773
)
 
14,451

 
15,144

 
87.9
 %
 
6,465

 
44.7
 %
Goodwill impairment (5)

 

 

 
 
160,600

 
(160,600
)
 

 
(160,600
)
 
(100.0
)%
 

 
 %
Change in fair value of
 
 
 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
contingent consideration (6)
400

 
(400
)
 

 
 
(2,086
)
 
2,086

 

 
2,486

 
119.2
 %
 

 
 %
Total operating expenses
507,790

 
(48,253
)
 
459,537

 
 
491,607

 
(199,471
)
 
292,136

 
16,183

 
3.3
 %
 
167,401

 
57.3
 %
Operating income (loss)
$
(72,840
)
 
$
49,720

 
$
(23,120
)
 
 
$
(237,419
)
 
$
201,561

 
$
(35,858
)
 
$
164,579

 
69.3
 %
 
$
12,738

 
35.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses as a
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
percentage of total revenue
116.7
%
 
 
 
105.3
%
 
 
193.4
%
 
 
 
114.0
%
 
 
 
 
 
 
 
 

(1) 
Adjustments to platform and operations revenue include deferred revenue purchase accounting adjustments of approximately $1.5 million and $2.0 million for the years ended December 31, 2017 and 2016, respectively, resulting from our acquisitions and business combinations. As part of the Reorganization and as a result of gaining control of Evolent Health LLC, we recorded the fair value of deferred revenue resulting in a $4.9 million reduction to the book value. This resulted in an adjustment of approximately $0.1 million to transformation revenue for the year ended December 31, 2016.
(2) 
Adjustments to cost of revenue include approximately $1.4 million and $2.7 million in stock-based compensation expense for the years ended December 31, 2017 and 2016, respectively, including a one-time expense of approximately $1.1 million in 2016 related to the acceleration of Valence Health’s unvested equity awards that vested upon the close of the Valence Health acquisition. Stock-based compensation expense includes the value of equity awards granted to employees and non-employee directors of the Company or its consolidated subsidiaries. Adjustments also include transaction costs of approximately $5.5 million and $2.8 million for the years ended December 31, 2017 and 2016, respectively, resulting from acquisitions and business combinations.
(3) 
Adjustments to selling, general and administrative expenses include approximately $19.1 million and $19.8 million in stock-based compensation expense for the years ended December 31, 2017 and 2016, respectively, including a one-time expense of approximately $2.8 million in 2016 related to the acceleration of Valence Health’s unvested equity awards that vested upon the close of the Valence Health acquisition. Stock-based compensation expense includes the value of equity awards granted to employees and non-employee directors of the Company or its consolidated subsidiaries. Adjustments also include transaction costs of approximately $10.5 million and $6.5 million for the years ended December 31, 2017 and 2016, respectively, resulting from acquisitions, business combinations and costs relating to our securities offerings. There was an additional one-time adjustment of approximately $6.5 million for the year ended December 31, 2016, related to a lease abandonment expense incurred as a result of the Valence Health acquisition.
(4) 
Adjustments to depreciation and amortization expenses of approximately $11.5 million and $2.8 million for the years ended December 31, 2017 and 2016, respectively, relate to amortization of intangible assets acquired via asset acquisitions and business combinations.
(5) 
The adjustment represents a write down of goodwill during the first quarter of 2016.
(6) 
These adjustments represent changes in the fair value of contingent consideration associated with the Valence Health and Passport transactions.

11




Evolent Health, Inc.
Reconciliation of Adjusted EBITDA to Net Income (Loss)
Attributable to Evolent Health, Inc.
(unaudited)
(in thousands)
For the Three
 
For the Years
 
Months Ended
 
Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Net Income (Loss) Attributable to
 
 
 
 
 
 
 
Evolent Health, Inc.
$
(13,160
)
 
$
(17,407
)
 
$
(60,665
)
 
$
(159,742
)
Less:
 
 
 
 
 
 
 
Interest income
843

 
164

 
1,656

 
970

Interest expense
(855
)
 
(247
)
 
(3,636
)
 
(247
)
Benefit for income taxes
4,628

 
9,140

 
6,637

 
10,755

Depreciation and amortization expenses
(11,132
)
 
(6,495
)
 
(32,368
)
 
(17,224
)
EBITDA
(6,644
)
 
(19,969
)
 
(32,954
)
 
(153,996
)
Less:
 
 
 
 
 
 
 
Goodwill impairment

 

 

 
(160,600
)
Loss from equity affiliates
(309
)
 
(379
)
 
(1,755
)
 
(841
)
(Loss) gain on change in fair value
 
 
 
 
 
 
 
of contingent consideration
(100
)
 
2,086

 
(400
)
 
2,086

Impact of lease abandonment

 
(6,456
)
 

 
(6,456
)
Other income (expense), net
150

 
2

 
171

 
4

Net loss attributable to
 
 
 
 
 
 
 
non-controlling interests
631

 
7,786

 
9,102

 
67,036

Purchase accounting adjustments
(243
)
 
(2,003
)
 
(1,467
)
 
(2,090
)
Stock-based compensation expense
(4,265
)
 
(8,657
)
 
(20,437
)
 
(22,501
)
Transaction costs
(5,991
)
 
(4,599
)
 
(15,964
)
 
(9,227
)
Adjusted EBITDA
$
3,483

 
$
(7,749
)
 
$
(2,204
)
 
$
(21,407
)


12



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 Years
 
Months Ended
 
Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Earnings (Loss) Available to
 
 
 
 
 
 
 
Common Shareholders - Basic and Diluted (a)
$
(13,160
)
 
$
(17,407
)
 
$
(60,665
)
 
$
(159,742
)
Less:
 
 
 
 
 
 
 
Goodwill impairment

 

 

 
(160,600
)
Loss from equity affiliates
(309
)
 
(379
)
 
(1,755
)
 
(841
)
Benefit for income taxes
4,600

 
9,140

 
6,594

 
10,755

(Loss) gain on change in fair value
 
 
 
 
 
 
 
of contingent consideration
(100
)
 
2,086

 
(400
)
 
2,086

Impact of lease abandonment

 
(6,456
)
 

 
(6,456
)
Other income (expense), net

 
2

 

 
4

Net loss attributable to
 
 
 
 
 
 
 
non-controlling interests
631

 
7,786

 
9,102

 
67,036

Purchase accounting adjustments
(4,638
)
 
(4,329
)
 
(13,007
)
 
(4,932
)
Stock-based compensation expense
(4,265
)
 
(8,657
)
 
(20,437
)
 
(22,501
)
Transaction costs
(5,991
)
 
(4,599
)
 
(15,964
)
 
(9,227
)
 
 
 
 
 
 
 
 
Adjusted Earnings (Loss) Available
 
 
 
 
 
 
 
to Class A and Class B Shareholders (b)
$
(3,088
)
 
$
(12,001
)
 
$
(24,798
)
 
$
(35,066
)
 
 
 
 
 
 
 
 
Earnings (Loss) per Share Available
 
 
 
 
 
 
 
to Common Shareholders - Basic and Diluted (a) (1)
$
(0.18
)
 
$
(0.33
)
 
$
(0.94
)
 
$
(3.55
)
 
 
 
 
 
 
 
 
Adjusted Earnings (Loss) per Share Available
 
 
 
 
 
 
 
to Class A and Class B Shareholders (c) (2)
$
(0.04
)
 
$
(0.18
)
 
$
(0.35
)
 
$
(0.57
)
 
 
 
 
 
 
 
 
Weighted-average common shares - basic
74,689

 
52,177

 
64,351

 
45,031

Weighted-average common shares - diluted
74,689

 
52,177

 
64,351

 
45,031

Adjusted Weighted-Average Class A
 
 
 
 
 
 
 
and Class B Shares (3)
77,343

 
67,524

 
71,636

 
61,913


(1) 
For periods of net loss, shares used in both the diluted and basic 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.

13



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 Years
 
Months Ended
 
Ended
 
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Weighted-average common shares - diluted
74,689

 
52,177

 
64,351

 
45,031

Assumed conversion of Class B common
 
 
 
 
 
 
 
shares to Class A common shares
2,654

 
15,347

 
7,285

 
16,882

Adjusted Weighted-Average Class A and Class B Shares
77,343

 
67,524

 
71,636

 
61,913



14



Evolent Health, Inc.
Guidance Reconciliation
(unaudited)
(in thousands)
For the Three
For the Twelve
 
Months Ended
Months Ended
 
March 31,
December 31,
 
2018
2018
Services Revenue
 
$
121,000

 
 
$
495,500

 
Purchase Accounting Adjustments
 
2,000

 
 
7,000

 
Adjusted Services Revenue
 
123,000

 
 
502,500

 
True Health Premium Revenue
 
23,000

 
 
92,500

 
Intercompany Eliminations
 
(5,000
)
 
 
(20,000
)
 
Adjusted Revenue(1)
 
$
141,000

 
 
$
575,000

 
 
 
 
 
 
 
 
Net Income (Loss) Attributable to
 
 
 
 
 
 
Evolent Health, Inc.
 
$
(11,800
)
 
 
$
(43,000
)
 
Less:
 
 
 
 
 
 
Interest income
 
900

 
 
3,500

 
Interest expense
 
(1,000
)
 
 
(4,000
)
 
Depreciation and amortization expenses
 
(9,200
)
 
 
(37,000
)
 
EBITDA
 
(2,500
)
 
 
(5,500
)
 
Less:
 
 
 
 
 
 
Income (loss) from affiliates
 
(125
)
 
 
(500
)
 
Net (income) loss attributable to
 
 
 
 
 
 
non-controlling interests
 
(375
)
 
 
(1,500
)
 
Stock-based compensation
 
(5,000
)
 
 
(20,000
)
 
Transaction costs
 
(1,000
)
 
 
(4,000
)
 
Adjusted EBITDA
 
$
4,000

 
 
$
20,500

 

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



(1) GAAP revenues for the three months ended March 31, 2018, are expected to be $139.0 million, including Services Revenue of $121.0 million and True Health Premium Revenue of $23.0 million, excluding intercompany eliminations of $5.0 million. GAAP revenues for the twelve months ended December 31, 2018, are expected to be $568.0 million, including Services Revenue of $495.5 million and True Health Premium Revenue of $92.5 million, excluding intercompany eliminations of $20.0 million.

15



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 structural change in the market for health care in the United States;
uncertainty in the health care regulatory framework;
uncertainty in the public exchange market;
the uncertain impact of Centers for Medicare and Medicaid Services waivers to Medicaid rules;
the uncertain impact of the results of the 2018 congressional, state and local elections, as well as subsequent elections, may have on health care laws and regulations;
our ability to effectively manage our growth;
the significant portion of revenue we derive from our largest partners, and the potential loss, termination or renegotiation of customer contracts;
our ability to offer new and innovative products and services;
risks related to completed and future acquisitions, investments and alliances, including the acquisition of assets from New Mexico Health Connections (“NMHC”) and the acquisitions of Valence Health, Inc., excluding Cicerone Health Solutions, Inc. (“Valence Health”), and Aldera Holdings, Inc. (“Aldera”), which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders;
certain risks and uncertainties associated with the acquisition of assets from NMHC and the acquisition of Valence 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;
the growth and success of our partners, which is difficult to predict and is subject to factors outside of our control, including premium pricing reductions, selection bias in at risk membership and the ability to control and, if necessary, reduce health care costs, particularly in New Mexico;
our ability to attract new partners;
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 market;
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 payor 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;
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;

16



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 dependency on our key personnel, and our ability to attract, hire, integrate and retain key personnel;
the risk of potential future goodwill 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;
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;
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 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 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 remediate the material weakness in our internal control over financial reporting;
our expectations regarding the additional management attention and costs that will be required as we transition 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 Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, 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.

17
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

a4q17exhibitbc4
0 EVOLENT HEALTH OVERVIEW February 2018


 
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, 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, include, among others: the structural change in the market for health care in the United States; uncertainty in the health care regulatory framework; uncertainty in the public exchange market; the uncertain impact of CMS waivers to Medicaid rules; the uncertain impact the results of the 2018 congressional, state and local elections, as well as subsequent elections, may have on health care laws and regulations; our ability to effectively manage our growth; the significant portion of revenue we derive from our largest partners, and the potential loss, termination or renegotiation of customer contracts; our ability to offer new and innovative products and services; risks related to completed and future acquisitions, investments and alliances, including the acquisition of assets from NMHC and the acquisitions of Valence Health and Aldera, which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders; certain risks and uncertainties associated with the acquisition of assets from NMHC and the acquisition of Valence 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; the growth and success of our partners, which is difficult to predict and is subject to factors outside of our control, including premium pricing reductions, selection bias in at-risk membership and the ability to control and, if necessary, reduce health care costs, particularly in New Mexico; our ability to attract new partners; 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 market; 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 payor 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; 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 dependency on our key personnel, and our ability to attract, hire, integrate and retain key personnel; the risk of potential future goodwill 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; 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; 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 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 remediate the material weakness in our internal control over financial reporting; our expectations regarding the additional management attention and costs that will be required as we transition 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, 2017, 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 report.


 
2 Non-GAAP Financial Measures In addition to disclosing financial results that are determined in accordance with GAAP, we present and discuss Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Revenue, Adjusted Transformation Revenue, Adjusted Platform and Operations Revenue, Adjusted Cost of Revenue, Adjusted Services Revenue, which are all non- GAAP financial measures, as supplemental measures to help investors evaluate our fundamental operational performance. Adjusted Revenue, Adjusted Transformation Revenue and Adjusted Platform and Operations Revenue are defined as revenue, transformation revenue, and platform and operations revenue, respectively, adjusted to include revenue, transformation revenue and platform and operations revenue, as applicable, of Evolent Health LLC for periods prior to the offering reorganization, and to exclude the impact of purchase accounting adjustments. 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 its operating assets and substantially all of its business since inception. Prior to the offering reorganization on June 4, 2015, the predecessor of Evolent Health, Inc. accounted for Evolent Health LLC as an equity method investment. The financial results of Evolent Health LLC have been consolidated in the financial statements of Evolent Health, Inc. following the offering reorganization. Management uses Adjusted Revenue, Adjusted Transformation Revenue and Adjusted Platform and Operations 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 Services Revenue, Adjusted Transformation Revenue and Adjusted Platform and Operations Revenue are defined as services revenue, transformation revenue, platform and operations revenue, respectively, adjusted to exclude the impact of purchase accounting adjustments. Adjusted Revenue is defined as the sum of Adjusted Services Revenue and True Health New Mexico Premium Revenue less intercompany eliminations. Management uses Adjusted Revenue, Adjusted Services Revenue, Adjusted Transformation Revenue and Adjusted Platform and Operations 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 EBITDA 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 include net income (loss) of Evolent Health LLC (less interest income [expense], net, depreciation and amortization expenses and other income [expense], net, of Evolent Health LLC) for the periods prior to the offering reorganization on June 4, 2015, and adjusted to exclude goodwill impairment, gain on change in fair value of contingent consideration, income (loss) from affiliates, other income (expense), net, net (income) loss attributable to non-controlling interests, purchase accounting adjustments, stock-based compensation expenses, transaction costs related to acquisitions and business combinations, such as gain on change in fair value of contingent consideration and securities offerings, as well as one-time adjustments. Management uses Adjusted EBITDA as a supplemental performance measure because the removal of transaction costs, one-time or non-cash items (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 EBITDA Margin is defined as Adjusted EBITDA divided by Adjusted Revenue. 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 the comparable GAAP financial measures is presented in the Appendix. We are not providing reconciliations for the forward-looking non-GAAP financial measures included in this presentation due to the inherent difficulty in forecasting and quantifying certain amounts that would be necessary for such reconciliations, including adjustments that could be made, the amount of which, based on historical experience, could be significant.


 
3 $40.3 $100.9 $163.5 $256.3 $436.4 2013 2014 2015 2016 2017 1 Non-GAAP measure, see “Non-GAAP Financial Measures” above for definition and Appendix A below for reconciliation to GAAP. GAAP revenues in 2013, 2014, 2015, 2016 and 2017 $25.7M, zero, $96.9M, $254.2M and $435.0M respectively. Evolent Health what we do Provide an integrated clinical, administrative and technology platform to support providers moving to value-base care arrangements our vision Build a national network of providers transforming care under value-based payment initiatives by the numbers 33K hospital bed days avoided in 2017 2,600+ Employees as of 31-Dec-17 30+ partners as of 27-Feb-18 2.7M lives on the platform as of 31-Dec-17 CAGR 81% differentiators Provider-driven, broad integrated platform, embedded and aligned partnerships, proven clinical and financial results historical growth Adj. Revenue1:


 
4 Sustained adjusted revenue growth period-over-period1 (in millions) Strong Revenue Growth CAGR: 27% Q4 20171 Q4 20161 $90M $114M 1 Non-GAAP measure; see “Non-GAAP Financial Measures” above for the definition and Appendix A below for reconciliation to GAAP. GAAP revenues in Q4 2016 and Q4 2017 were $88.0M and $113.8M, respectively. GAAP revenues in 2016 and 2017 were $254.2M and $435.0M, respectively. 2 Non-GAAP measure; see “Non-GAAP Financial Measures” above for the definition and Appendix B below for reconciliation to GAAP. Net income (loss) attributable to Evolent Health, Inc. in Q4 2016 and Q4 2017 was $(17.4)M and $(13.2)M, respectively. Net income (loss) attributable to Evolent Health, Inc. in 2016 and 2017 was $(159.7)M and $(60.7)M, respectively. Continued Strong Performance in 2017 Strong Adjusted EBITDA Growth $256.3M $436.4M CAGR: 70% 20161 20171 $(21.4)M $(2.2)M $(7.7)M $3.5M Q4 20162 Q4 20172 20162 20172 Sustained adjusted EBITDA growth period-over-period2 (in millions)


 
5 Medicaid, 49% Commercia l (Payer Partnership s, Employee, ASO, Individual, Group), 30% [CATEGOR Y NAME], [VALUE] Sources: Evolent Health Evolent is Active Across all Segments of the Growing Market Lives by Segment as of 31-Dec-17 2.7M+ 30+ partners as of 27-Feb-18 Continued Growth in Lives CAGR: 35% 2.0M 2.7M 31-Dec-16 31-Dec-17 Lives supported


 
6 Strong Recent Partner Additions MEDICAID COMMERCIAL MEDICARE


 
7 Financial Metrics1 Full Year 2018 Adjusted Services Revenue $495 - $510 million True Health Premium Revenue $90 - $95 million Intercompany Eliminations ($20 million) Adjusted Revenue $565 - $585 million Adjusted EBITDA2 $18 - $23 million Adjusted EBITDA Margin 3.2% - 3.9% 1 Non-GAAP measures, see “Non-GAAP Financial Measures” above for definition and Appendix C below for reconciliation to comparable GAAP measures. These estimates are subject to change as future events and opportunities arise. 2 Assumes breakeven on an Adjusted EBITDA basis for True Health 2018 Guidance: Full Year


 
8 Financial Metrics1 Q1 2018 Adjusted Services Revenue $122 - $124 million True Health Premium Revenue $22 - $24 million Intercompany Eliminations ($5 million) Adjusted Revenue $139 - $143 million Adjusted EBITDA2 $3 - $5 million Adjusted EBITDA Margin 2.2% - 3.5% 2018 Guidance: Q1 2018 1 Non-GAAP measures, see “Non-GAAP Financial Measures” above for definition and Appendix C below for reconciliation to comparable GAAP measures. These estimates are subject to change as future events and opportunities arise. 2 Assumes breakeven on an Adjusted EBITDA basis for True Health


 
9 APPENDIX


 
10 For the years ended December 31, 2017, 2016, 2015, 2014 and 2013: Appendix A: Non-GAAP Reconciliation Evolent Health, Inc. Adjusted Revenue (1) We recorded deferred revenue adjustments of approximately $0.2 million and $2.0 million to transformation revenue and platform and operations revenue for the three months ended December 31, 2017 and 2016, respectively, resulting from our acquisitions and business combinations. (2) Adjustments to platform and operations revenue include deferred revenue purchase accounting adjustments of approximately $1.5 million for the year ended December 31, 2017, resulting from our acquisitions and business combinations. (3) We recorded deferred revenue adjustments of approximately $2.0 million to transformation revenue and platform and operations revenue during 2016, related to purchase accounting adjustments from the Valence Health and Aldera acquisitions. As part of the Reorganization and as a result of gaining control of Evolent Health LLC, we recorded the fair value of deferred revenue resulting in a $4.9 million reduction to the book value. This resulted in adjustments of approximately $0.1 million and $4.8 million to transformation revenue and platform and operations revenue for the years ended December 31, 2016 and 2015, respectively, related to purchase accounting adjustments which reflect the portion of the adjustment that would have been recognized in the respective period. (4) Represents the results of operations of Evolent Health LLC for the period January 1, 2015, through June 3, 2015. (5) Represents the results of operations of Evolent Health LLC for the period January 1, 2014, through December 31, 2014. (6) Represents the results of operations of Evolent Health LLC for the period September 23, 2013, through December 31, 2013. (in millions) Add: Evolent Evolent Evolent Health, Inc. Health LLC Health, Inc. as Reported Operations Adjustments as Adjusted Q4 2017 Transformation 5.7$ -$ -$ 5.7$ Platform and operations 108.1 - 0.2 (1) 108.3 Total revenue 113.8 - 0.2 114.0 Q4 2016 Transformation 12.1$ -$ -$ 12.1$ Platform and operations 75.9 - 2.0 (1) 77.9 Total revenue 88.0 - 2.0 90.0 2017 Transformation 29.5$ -$ -$ 29.5$ Platform and operations 405.5 - 1.4 (2) 406.9 Total revenue 435.0 - 1.4 436.4 2016 Transformation 38.3$ -$ 0.1$ (3) 38.4$ Platform and operations 215.9 2.0 (3) 217.9 Total revenue 254.2 - 2.1 256.3 2015 Transformation 19.9$ 15.8$ (4) 1.5$ (3) 37.2$ Platform and operations 77.0 46.0 (4) 3.3 (3) 126.3 Total revenue 96.9 61.8 4.8 163.5 2014 Transformation -$ 36.3$ (5) -$ 36.3$ Platform and operations - 64.6 (5) - 64.6 Total revenue -$ 100.9$ -$ 100.9$ 2013 Transformation 22.1$ 12.5$ (6) -$ 34.6$ Platform and operatio s 3.6 2.1 (6) - 5.7 Total revenue 25.7$ 14.6$ -$ 40.3$


 
11 Appendix B: Reconciliation of Adjusted EBITDA to Net Income (Loss) Attributable to Evolent Health, Inc. (in thousands) For the Three For the Years Months Ended Ended December 31, December 31, 2017 2016 2017 2016 Net Income (Loss) Attributable to Evolent Health, Inc. (13,160)$ (17,407)$ (60,665)$ (159,742)$ Less: Interest income 843 164 1,656 970 Interest expense (855) (247) (3,636) (247) (Provision) benefit for income taxes 4,628 9,140 6,637 10,755 Depreciation and amortization expenses (11,132) (6,495) (32,368) (17,224) EBITDA (6,644) (19,969) (32,954) (153,996) Less: Goodwill impairment - - - (160,600) Income (loss) from affiliates (309) (379) (1,755) (841) Gain (Loss) on change in fair value of contingent consideration (100) 2,086 (400) 2,086 Loss on lease abandonment - (6,456) - (6,456) Impact of lease termination - - 496 - Other income (expense), net 150 2 171 4 Net (income) loss attributable to non-controlling interests 631 7,786 9,102 67,036 Purchase accounting adjustments (243) (2,003) (1,467) (2,090) Stock-based compensation expense (4,265) (8,657) (20,437) (22,501) Transaction costs (5,991) (4,599) (16,460) (9,227) Adjusted EBITDA 3,483$ (7,749)$ (2,204)$ (21,407)$ Adjusted Revenue 113,972$ 90,014$ 436,417$ 256,278$ Adjusted EBITDA Margin 3.1% -8.6% -0.5% -8.4%


 
12 Appendix C: Guidance Reconciliation (in thousands) For the Three For the Twelve Months Ended Months Ended March 31, December 31, 2018 2018 Services Revenue 121,000$ 495,500$ Purchase Accounting Adjustments 2,000 7,000 Adjusted Services Revenue 123,000 502,500 True Health Premium Revenue 23,000 92,500 Intercompany eliminations (5,000) (20,000) Adjusted Revenue (1) 141,000$ 575,000$ Net Income (Loss) Attributable to Evolent Health, Inc. (11,800)$ (43,000)$ Less: Interest income 900 3,500 Interest expense (1,000) (4,000) Depreciation and amortization expenses (9,200) (37,000) EBITDA (2,500) (5,500) Less: Income (loss) from equity affiliates (125) (500) Net (income) loss attributable to non-controlling interests (375) (1,500) Stock-based compensation expense (5,000) (20,000) Transaction costs (1,000) (4,000) Adjusted EBITDA 4,000$ 20,500$ (1) GAAP revenues for the three months ended March 31, 2018, are expected to be $139.0 million, including Services Revenue of $121.0 million and True Health Premium Revenue of $23.0 million, excluding intercompany eliminations of $5.0 million. GAAP revenues for the twelve months ended December 31, 2018, are expected to be $568.0 million, including Services Revenue of $495.5 million and True Health Premium Revenue of $92.5 million, excluding intercompany eliminations of $20.0 million.


 
13 800 N Glebe Rd, Suite 500 • Arlington, VA 22203 • evolenthealth.com


 
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