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Section 1: 8-K (Q2 19 8-K)

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false0001628908 0001628908 2019-08-06 2019-08-06


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

August 6, 2019
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: 
 
(I.R.S. 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))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock of Evolent Health, Inc., par value $0.01 per share
EVH
New York Stock Exchange
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 August 6, 2019, Evolent Health, Inc. issued a press release announcing its financial results for the quarter ended June 30, 2019, a copy of which is furnished herewith as Exhibit 99.1.
   
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:
Chief Accounting Officer
 
and Corporate Controller
 
 
By:
 /s/ Jonathan Weinberg
Name:
Jonathan Weinberg
Title:
General Counsel and Secretary


Dated: August 6, 2019





EXHIBIT INDEX

Exhibit
 
 
Number
 
Description
 
 
 



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

 
399077786_evhlogoa09.jpg

 
 

Evolent Health Announces Second Quarter 2019 Results
WASHINGTON, D.C., August 6, 2019Evolent Health, Inc. (NYSE: EVH), a company providing an integrated value-based care platform to the nation’s leading physician and payer organizations, today announced financial results for the quarter ended June 30, 2019.

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

GAAP revenue of $192.0 million, an increase of 33.0%; Adjusted Revenue of $192.1 million, an increase of 32.9%.
Net income (loss) attributable to Evolent Health, Inc. of $(31.6) million, Adjusted EBITDA of $(7.7) million.
Lives on platform of approximately 3.5 million, an increase of 14.4%.
Expanded relationships with existing partners, including Passport Health Plan, Lee Health and WakeMed Key Community Care.
New partnership agreements supporting Michigan Healthcare Professionals, Integrated ACO and The South Bend Clinic in CMS’s Pathways to Success program in early 2020.

Frank Williams, Chief Executive Officer of Evolent Health, Inc., commented, “We are pleased with our top-line results for the second quarter and that we met our primary strategic objectives for the first half of the year. With six new partners, strong same store growth and a robust pipeline, we feel confident about our emerging growth outlook for 2020. Our focus on pursuing high-growth market segments, delivering demonstrable results for our partners and streamlining operations is driving strong top and bottom-line expansion as we head into Q4 and 2020.”

Mr. Williams commented, “We continue to see considerable momentum in the Medicare and Medicaid markets, from both provider and payer organizations looking to drive improved clinical and administrative performance and better manage risk-bearing arrangements with the support of a proven, technology-enabled partner. This has led to significant opportunities in our pipeline across lines of business and geographies, as evidenced in part by our expanded partner relationships in Medicaid, the Medicare ACO program and Medicare Advantage."

Mr. Williams added, “We are excited to announce new partnerships with Michigan Healthcare Professionals, Integrated ACO and The South Bend Clinic, three provider groups with strong networks of highly-engaged physicians and a reputation for delivering high-quality care. Along with WakeMed Key Community Care, who is a new entrant to the Pathways to Success program, we anticipate serving more than 60,000 beneficiaries with the potential to expand that number in the near future. We look forward to working with highly committed physician partners where we see clear alignment from a mission and strategy perspective.”

Mr. Williams concluded, "Lastly, we are pleased to report that we are seeing progress from our continued focus on driving performance improvement for Passport Health Plan. This year, we have collaborated with Passport to expand its clinical footprint with a focus on integrated care while generating significant improvements in administrative and clinical costs. Our focus on care management, integrated behavioral health, pharmacy management and specialty cost management through New Century Health is delivering

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demonstrably improved outcomes for Medicaid beneficiaries consistent with Passport’s focus on improving community health.”

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

Reported Results

Evolent Health, Inc. reported the following GAAP results:

Total revenue of $192.0 million and $144.3 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 33.0%;
Services revenue of $149.5 million and $125.2 million for the three months ended June 30, 2019 and 2018, respectively, before intersegment eliminations of $3.1 million and $3.6 million, respectively; and
True Health premiums revenue of $45.8 million and $22.9 million for the three months ended June 30, 2019 and 2018, respectively, before intersegment eliminations of $0.3 million and $0.2 million, respectively.
Cost of revenue of $108.4 million and $69.0 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 57.1%;
Claims expenses of $36.1 million and $18.4 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 95.8%;
Selling, general and administrative expenses of $66.9 million and $57.4 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 16.6%;
Net income (loss) attributable to Evolent Health, Inc. of $(31.6) million and $(9.9) million for the three months ended June 30, 2019 and 2018, respectively;
Earnings (loss) available to common shareholders, basic and diluted, of $(31.6) million and $(9.9) million for the three months ended June 30, 2019 and 2018, respectively; and
Earnings (loss) available to common shareholders, per basic and diluted share, of $(0.38) and $(0.13) for the three months ended June 30, 2019 and 2018, respectively.

Total cash and cash equivalents and investments, at amortized cost, as of June 30, 2019, were $110.0 million.

Adjusted Results

Adjusted Revenue of $192.1 million and $144.5 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 32.9%;
Adjusted Services Revenue of $149.7 million and $125.4 million for the three months ended June 30, 2019 and 2018, respectively, before intersegment eliminations of $3.1 million and $3.6 million, respectively; and
True Health premiums revenue of $45.8 million and $22.9 million for the three months ended June 30, 2019 and 2018, respectively, before intersegment eliminations of $0.3 million and $0.2 million, respectively.
Adjusted Cost of Revenue of $106.6 million and $68.2 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 56.4%;
Claims expenses of $36.1 million and $18.4 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 95.8%;

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Adjusted Selling, General and Administrative Expenses of $57.1 million and $53.0 million for the three months ended June 30, 2019 and 2018, respectively, an increase of 7.6%;
Adjusted EBITDA of $(7.7) million and $4.9 million for the three months ended June 30, 2019 and 2018, respectively;
Services Adjusted EBITDA of $(8.8) million and $5.6 million for three months ended June 30, 2019 and 2018, respectively; and
True Health Adjusted EBITDA of $1.1 million and $(0.8) million for the three months ended June 30, 2019 and 2018, respectively.
Adjusted Earnings (Loss) Available for Class A and Class B Shareholders of $(21.4) million and $(2.3) million for the three months ended June 30, 2019 and 2018, respectively; and
Adjusted Earnings (Loss) per Share Available for Class A and Class B Shareholders of $(0.26) and $(0.03) for the three months ended June 30, 2019 and 2018, respectively.

Business Outlook

We are not providing forward looking guidance for GAAP reported financial measures. A reconciliation of forward looking non-GAAP financial measures to the most comparable GAAP financial measure is provided in the “Guidance Reconciliation” table below. For the full year 2019, we are narrowing the range for Adjusted Revenue to be in the range of $825.0 million to $850.0 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $664.0 million to $684.0 million, and True Health premiums revenue, which is forecasted to be approximately $175.0 million to $180.0 million; intersegment eliminations are forecasted to be approximately $(14.0) million for the full year. We are lowering our target for Adjusted EBITDA to be in the range of $(10.0) million to $(2.0) million.

For the three months ending September 30, 2019, Adjusted Revenue is expected to be in the range of approximately $213.5 million to $225.5 million. The components of Adjusted Revenue include Adjusted Services Revenue, which is forecasted to be approximately $175.0 million to $185.0 million, and True Health premiums revenue, which is forecasted to be approximately $42.0 million to $44.0 million; intersegment eliminations are forecasted to be approximately $(3.5) million for the quarter. Adjusted EBITDA is expected to be in the range of approximately $2.0 million to $6.0 million.

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

Web and Conference Call Information
As previously announced, Evolent Health, Inc. will hold a conference call to discuss its second quarter performance this evening, August 6, 2019, at 5:00 p.m., Eastern Time. The conference call will be available via live webcast on the Company’s Investor Relations website at http://ir.evolenthealth.com. To participate by telephone, dial 855.940.9467 or 412.317.6034 for international callers, and ask to join the Evolent Health call. Participants are advised to dial in at least fifteen minutes prior to the call to register. The call will be archived on the company’s website for one week and will be available beginning later this evening. Evolent Health invites all interested parties to attend the conference call.
###
About Evolent Health
Evolent Health partners with leading provider and payer organizations to achieve superior clinical and financial results in value-based care and under full-risk arrangements. With a provider heritage and over 20 years of health plan administration experience, Evolent operates in more than 35 U.S. health care markets, actively managing care across Medicare, Medicaid, commercial and self-funded adult and

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pediatric populations. With the experience to drive change, Evolent confidently stands by a commitment to achieve results. For more information, visit www.evolenthealth.com.

Contacts:

Bob East
Kim Conquest
443.213.0500
540.435.2095
Investor Relations
Media Relations

Financial Statement Presentation
Evolent Health, Inc. is a holding company and its principal asset is all of the Class A common units in its operating subsidiary, Evolent Health LLC, which has owned all of our operating assets and substantially all of our business since inception. The financial results of Evolent Health LLC are consolidated in the financial statements of Evolent Health, Inc.
Non-GAAP Financial Measures
In addition to disclosing financial results that are determined in accordance with GAAP, we present and discuss Adjusted Revenue, Adjusted Services Revenue, Adjusted Transformation Services Revenue, Adjusted Platform and Operations Services Revenue, Adjusted Cost of Revenue, Adjusted Selling, General and Administrative Expenses, Adjusted Depreciation and Amortization Expenses, Adjusted Total Operating Expenses, Adjusted Operating Income (Loss), Adjusted EBITDA, Services Adjusted EBITDA, True Health Adjusted EBITDA, Adjusted Earnings (Loss) Available to Class A and Class B Shareholders, Adjusted Earnings (Loss) per Share Available to Class A and Class B Shareholders and Adjusted Weighted-Average Class A and Class B Shares, which are all non-GAAP financial measures, as supplemental measures to help investors evaluate our fundamental operational performance.

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

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

Adjusted Cost of Revenue and Adjusted Selling, General and Administrative Expenses are defined as cost of revenue and selling, general and administrative expenses, respectively, adjusted to exclude the impact of stock-based compensation expenses, severance costs, amortization of contract cost assets recorded as

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

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

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

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

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

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

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


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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 and Comprehensive Income (Loss)
(unaudited)
(in thousands, except per share data)
For the Three
 
For the Six
 
Months Ended
 
Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
 
 
 
 
 
 
 
Transformation services
$
1,944

 
$
8,215

 
$
5,297

 
$
14,720

Platform and operations services
144,522

 
113,346

 
291,814

 
223,164

Premiums
45,493

 
22,737

 
92,604

 
46,128

Total revenue
191,959

 
144,298

 
389,715

 
284,012

 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
Cost of revenue (exclusive of depreciation and amortization
 
 
 
 
 
 
 
expenses presented separately below)
108,383

 
69,003

 
225,824

 
140,978

Claims expenses
36,085

 
18,428

 
73,842

 
35,177

Selling, general and administrative expenses
66,932

 
57,403

 
141,770

 
112,929

Depreciation and amortization expenses
15,292

 
10,034

 
29,558

 
19,530

(Gain) loss on disposal of assets
(9,600
)
 

 
(9,600
)
 

Change in fair value of contingent consideration and indemnification asset
100

 
(1,604
)
 
200

 
(1,504
)
Total operating expenses
217,192

 
153,264

 
461,594

 
307,110

Operating income (loss)
(25,233
)
 
(8,966
)
 
(71,879
)
 
(23,098
)
Interest income
842

 
878

 
1,902

 
1,950

Interest expense
(3,620
)
 
(855
)
 
(7,182
)
 
(1,708
)
Income (loss) from equity method investees
(1,904
)
 
(1,275
)
 
(2,328
)
 
(1,406
)
Other Income (expense), net
(587
)
 
78

 
(160
)
 
60

Income (loss) before income taxes and
 
 
 
 
 
 
 
non-controlling interests
(30,502
)
 
(10,140
)
 
(79,647
)
 
(24,202
)
Provision (benefit) for income taxes
1,398

 
(109
)
 
902

 
(106
)
Net income (loss)
(31,900
)
 
(10,031
)
 
(80,549
)
 
(24,096
)
Net income (loss) attributable to non-controlling interests
(285
)
 
(115
)
 
(2,195
)
 
(554
)
Net income (loss) attributable to Evolent Health, Inc.
$
(31,615
)
 
$
(9,916
)
 
$
(78,354
)
 
$
(23,542
)
 
 
 
 
 
 
 
 
Earnings (Loss) Available to Common Shareholders
 
 
 
 
 
 
 
Basic and Diluted
$
(31,615
)
 
$
(9,916
)
 
$
(78,354
)
 
$
(23,542
)
 
 
 
 
 
 
 
 
Earnings (Loss) per Common Share
 
 
 
 
 
 
 
Basic and Diluted
$
(0.38
)
 
$
(0.13
)
 
$
(0.97
)
 
$
(0.31
)
 
 
 
 
 
 
 
 
Weighted-Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic and Diluted
82,289

 
77,209

 
80,820

 
76,297

 
 
 
 
 
 
 
 
Comprehensive income (loss)
 
 
 
 
 
 
 
Net income (loss)
$
(31,900
)
 
$
(10,031
)
 
$
(80,549
)
 
$
(24,096
)
Other comprehensive income (loss), net of taxes, related to:
 
 
 
 
 
 
 
Foreign currency translation adjustment
11

 
(148
)
 
35

 
(148
)
Total comprehensive income (loss)
(31,889
)
 
(10,179
)
 
(80,514
)
 
(24,244
)
Total comprehensive income (loss) attributable to
 
 
 
 
 
 
 
non-controlling interests
(285
)
 
(115
)
 
(2,195
)
 
(554
)
Total comprehensive income (loss) attributable to
 
 
 
 
 
 
 
Evolent Health, Inc.
$
(31,604
)
 
$
(10,064
)
 
$
(78,319
)
 
$
(23,690
)

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Evolent Health, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
(in thousands)
 
As of
 
 
As of
 
 
June 30,
December 31,
 
 
2019
 
 
2018
 
Cash and cash equivalents
 
$
92,821

 
 
$
228,320

 
Restricted cash
 
44,346

 
 
160,005

 
Restricted investments
 
812

 
 
818

 
Total current assets
 
240,864

 
 
487,966

 
Investments, at amortized cost
 
17,132

 
 
10,010

 
Intangible assets, net
 
326,586

 
 
335,036

 
Goodwill
 
772,164

 
 
768,124

 
Total assets
 
1,652,256

 
 
1,722,281

 
 
 
 
 
 
 
 
Accounts payable
 
28,758

 
 
146,760

 
Long-term debt, net of discount
 
225,642

 
 
221,041

 
Total liabilities
 
505,500

 
 
532,925

 
Total shareholders' equity (deficit) attributable to
 
 
 
 
 
 
Evolent Health, Inc.
 
1,130,678

 
 
1,143,824

 
Non-controlling interests
 
16,078

 
 
45,532

 
Total liabilities and shareholders' equity (deficit)
 
1,652,256

 
 
1,722,281

 


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Evolent Health, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
(in thousands)
For the Six
 
Months Ended
 
June 30,
 
2019
 
2018
Net cash and restricted cash provided by (used in) operating activities
$
(39,242
)
 
$
(18,004
)
Net cash and restricted cash provided by (used in) investing activities
(90,816
)
 
(19,376
)
Net cash and restricted cash provided by (used in) financing activities
(121,071
)
 
(3,665
)
Effect of exchange rate on cash and cash equivalents and restricted cash
(29
)
 
7

 
 
 
 
Net increase (decrease) in cash and cash equivalents and restricted cash
(251,158
)
 
(41,038
)
Cash and cash equivalents and restricted cash as of beginning-of-period
388,325

 
295,363

Cash and cash equivalents and restricted cash as of end-of-period
$
137,167

 
$
254,325



9



Evolent Health, Inc.
Reconciliation of Adjusted Results of Operations
(unaudited)
(in thousands)
For the Three Months Ended June 30, 2019
 
 
For the Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Evolent Health, Inc.
 
Evolent Health, Inc.
 
Evolent
 
 
 
Evolent
 
 
Evolent
 
 
 
Evolent
 
as Reported
 
as Adjusted
 
Health, Inc.
 
 
 
Health, Inc.
 
 
Health, Inc.
 
 
 
Health, Inc.
 
Change Over Prior Period
 
Change Over Prior Period
 
as Reported
 
Adjustments
 
as Adjusted
 
 
as Reported
 
Adjustments
 
as Adjusted
 
$
 
%
 
$
 
%
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transformation services (1)
$
1,944

 
$

 
$
1,944

 
 
$
8,215

 
$

 
$
8,215

 
$
(6,271
)
 
(76.3
)%
 
$
(6,271
)
 
(76.3
)%
Platform and operations services (1)
144,522

 
165

 
144,687

 
 
113,346

 
216

 
113,562

 
31,176

 
27.5
 %
 
31,125

 
27.4
 %
Premiums
45,493

 

 
45,493

 
 
22,737

 

 
22,737

 
22,756

 
100.1
 %
 
22,756

 
100.1
 %
Total revenue
191,959

 
165

 
192,124

 
 
144,298

 
216

 
144,514

 
47,661

 
33.0
 %
 
47,610

 
32.9
 %
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses presented
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
separately below) (2)
108,383

 
(1,738
)
 
106,645

 
 
69,003

 
(815
)
 
68,188

 
39,380

 
57.1
 %
 
38,457

 
56.4
 %
Claims expenses
36,085

 

 
36,085

 
 
18,428

 

 
18,428

 
17,657

 
95.8
 %
 
17,657

 
95.8
 %
Selling, general and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
administrative expenses (3)
66,932

 
(9,864
)
 
57,068

 
 
57,403

 
(4,390
)
 
53,013

 
9,529

 
16.6
 %
 
4,055

 
7.6
 %
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses (4)
15,292

 
(6,359
)
 
8,933

 
 
10,034

 
(2,769
)
 
7,265

 
5,258

 
52.4
 %
 
1,668

 
23.0
 %
(Gain) loss on disposal of assets (5)
(9,600
)
 
9,600

 

 
 

 

 

 
(9,600
)
 
 %
 

 
 %
Change in fair value of contingent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consideration and indemnification asset (6)
100

 
(100
)
 

 
 
(1,604
)
 
1,604

 

 
1,704

 
106.2
 %
 

 
 %
Total operating expenses
217,192

 
(8,461
)
 
208,731

 
 
153,264


(6,370
)

146,894

 
63,928

 
41.7
 %
 
61,837

 
42.1
 %
Operating income (loss)
$
(25,233
)
 
$
8,626

 
$
(16,607
)
 
 
$
(8,966
)
 
$
6,586

 
$
(2,380
)
 
$
(16,267
)
 
(181.4
)%
 
$
(14,227
)
 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses as a


 
 
 


 
 


 
 
 


 
 
 
 
 
 
 
 
percentage of total revenue
113.1
%
 
 
 
108.6
%
 
 
106.2
%
 
 
 
101.6
%
 
 
 
 
 
 
 
 

(1) 
Adjustments to platform and operations services revenue include deferred revenue purchase accounting adjustments of approximately $0.2 million for the three months ended June 30, 2019 and 2018, resulting from our acquisitions and business combinations.
(2) 
Adjustments to cost of revenue include approximately $0.9 million and $0.4 million in stock-based compensation expense for the three months ended June 30, 2019 and 2018, respectively. The adjustments also include approximately $0.7 million and $0.5 million related to the amortization of contract cost assets recorded as a result of the one-time ASC 606 transition adjustment for the three months ended June 30, 2019 and 2018, respectively. Adjustments also include transaction costs of $0.1 million for the three months ended June 30, 2019 and 2018, resulting from acquisitions and business combinations.
(3) 
Adjustments to selling, general and administrative expenses include $3.9 million and $4.3 million in stock-based compensation expense for the three months ended June 30, 2019 and 2018, respectively. Adjustments also include transaction costs of $2.1 million and $0.1 million for the three months ended June 30, 2019 and 2018, respectively, resulting from acquisitions and business combinations. Adjustments also include one-time severance costs of approximately $3.9 million for the three months ended June 30, 2019.
(4) 
Adjustments to depreciation and amortization expenses of approximately $6.4 million and $2.8 million for the three months ended June 30, 2019 and 2018, respectively, relate to amortization of intangible assets acquired via asset acquisition and business combinations.
(5) 
The adjustment reverses the impact of deconsolidation gain related to Global Health transaction.
(6) 
The adjustment reverses the impact of changes in fair value of our contingent consideration and indemnification asset.

10




Evolent Health, Inc.
Reconciliation of Adjusted Results of Operations
(unaudited)
(in thousands)
For the Six Months Ended June 30, 2019
 
 
For the Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Evolent Health, Inc.
 
Evolent Health, Inc.
 
Evolent
 
 
 
Evolent
 
 
Evolent
 
 
 
Evolent
 
as Reported
 
as Adjusted
 
Health, Inc.
 
 
 
Health, Inc.
 
 
Health, Inc.
 
 
 
Health, Inc.
 
Change Over Prior Period
 
Change Over Prior Period
 
as Reported
 
Adjustments
 
as Adjusted
 
 
as Reported
 
Adjustments
 
as Adjusted
 
$
 
%
 
$
 
%
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transformation services (1)
$
5,297

 
$

 
$
5,297

 
 
$
14,720

 
$
3,655

 
$
18,375

 
$
(9,423
)
 
(64.0
)%
 
$
(13,078
)
 
(71.2
)%
Platform and operations services (1)
291,814

 
761

 
292,575

 
 
223,164

 
1,276

 
224,440

 
68,650

 
30.8
 %
 
68,135

 
30.4
 %
Premiums
92,604

 

 
92,604

 
 
46,128

 

 
46,128

 
46,476

 
100.8
 %
 
46,476

 
100.8
 %
Total revenue
389,715

 
761

 
390,476

 
 
284,012

 
4,931

 
288,943

 
105,703

 
37.2
 %
 
101,533

 
35.1
 %
Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue (exclusive of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses presented
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
separately below) (2)
225,824

 
(3,347
)
 
222,477

 
 
140,978

 
(2,451
)
 
138,527

 
84,846

 
60.2
 %
 
83,950

 
60.6
 %
Claims expenses
73,842

 

 
73,842

 
 
35,177

 

 
35,177

 
38,665

 
109.9
 %
 
38,665

 
109.9
 %
Selling, general and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
administrative expenses (3)
141,770

 
(25,161
)
 
116,609

 
 
112,929

 
(10,488
)
 
102,441

 
28,841

 
25.5
 %
 
14,168

 
13.8
 %
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
expenses (4)
29,558

 
(12,094
)
 
17,464

 
 
19,530

 
(5,405
)
 
14,125

 
10,028

 
51.3
 %
 
3,339

 
23.6
 %
(Gain) loss on disposal of assets (5)
(9,600
)
 
9,600

 

 
 

 

 

 
(9,600
)
 
 %
 

 
 %
Change in fair value of contingent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
consideration and indemnification asset (6)
200

 
(200
)
 

 
 
(1,504
)
 
1,504

 

 
1,704

 
113.3
 %
 

 
 %
Total operating expenses
461,594

 
(31,202
)
 
430,392

 
 
307,110

 
(16,840
)
 
290,270

 
154,484

 
50.3
 %
 
140,122

 
48.3
 %
Operating income (loss)
$
(71,879
)
 
$
31,963

 
$
(39,916
)
 
 
$
(23,098
)
 
$
21,771

 
$
(1,327
)
 
$
(48,781
)
 
(211.2
)%
 
$
(38,589
)
 
(2,908.0
)%
Total operating expenses as a
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
percentage of total revenue
118.4
%
 
 
 
110.2
%
 
 
108.1
%
 
 
 
100.5
%
 
 
 
 
 
 
 
 

(1) 
Adjustments to platform and operations services revenue include deferred revenue purchase accounting adjustments of approximately $0.8 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively, resulting from our acquisitions and business combinations. Adjustments to transformation services revenue and platform and operations services revenue for the six months ended June 30, 2018, also include approximately $3.7 million and $0.8 million, respectively, resulting from our transition adjustments related to the implementation of ASC 606.
(2) 
Adjustments to cost of revenue include approximately $1.7 million and $0.8 million in stock-based compensation expense for the six months ended June 30, 2019 and 2018, respectively. The adjustments also include approximately $1.5 million and $1.0 million related to the amortization of contract cost assets recorded as a result of the one-time ASC 606 transition adjustment for the six months ended June 30, 2019 and 2018, respectively. Adjustments also include transaction costs of $0.1 million resulting from acquisitions and business combinations for the six months ended June 30, 2019. Adjustments also include one-time severance costs of approximately $0.7 million for the six months ended June 30, 2018.
(3) 
Adjustments to selling, general and administrative expenses include $7.6 million and $7.8 million in stock-based compensation expense for the six months ended June 30, 2019 and 2018, respectively. Adjustments also include transaction costs of $3.1 million and $1.9 million for the six months ended June 30, 2019 and 2018, respectively, resulting from acquisitions and business combinations. Adjustments also include one-time severance costs of approximately $14.5 million and $0.8 million for the six months ended June 30, 2019 and 2018, respectively.
(4) 
Adjustments to depreciation and amortization expenses of approximately $12.1 million and $5.4 million for the six months ended June 30, 2019 and 2018, respectively, relate to amortization of intangible assets acquired via asset acquisition and business combinations.
(5) 
The adjustment reverses the impact of deconsolidation gain related to Global Health transaction.

11



(6) 
The adjustment reverses the impact of changes in fair value of our contingent consideration and indemnification asset.

12



Evolent Health, Inc.
Segment Results
(unaudited)

 
 
 
 
 
 
 
Intersegment
 
 
 
 
 
Services
 
True Health
Eliminations
Consolidated
Adjusted Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Services:
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Transformation Services
 
$
1,944

 
 
$

 
 
$

 
 
$
1,944

 
Adjusted Platform and Operations Services
 
147,764

 
 

 
 
(3,077
)
 
 
144,687

 
Adjusted Services Revenue
 
149,708

 
 

 
 
(3,077
)
 
 
146,631

 
True Health:
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 

 
 
45,764

 
 
(271
)
 
 
45,493

 
Adjusted Revenue
 
149,708

 
 
45,764

 
 
(3,348
)
 
 
192,124

 
Purchase accounting adjustments (1)
 
(165
)
 
 

 
 

 
 
(165
)
 
Total revenue
 
$
149,543

 
 
$
45,764

 
 
$
(3,348
)
 
 
$
191,959

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Services:
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Transformation Services
 
$
8,215

 
 
$

 
 
$

 
 
$
8,215

 
Adjusted Platform and Operations Services
 
117,177

 
 

 
 
(3,615
)
 
 
113,562

 
Adjusted Services Revenue
 
125,392

 
 

 
 
(3,615
)
 
 
121,777

 
True Health:
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 

 
 
22,939

 
 
(202
)
 
 
22,737

 
Adjusted Revenue
 
125,392

 
 
22,939

 
 
(3,817
)
 
 
144,514

 
Purchase accounting adjustments (1)
 
(216
)
 
 

 
 

 
 
(216
)
 
Total revenue
 
$
125,176

 
 
$
22,939

 
 
$
(3,817
)
 
 
$
144,298

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segments
 
 
 
 
 
 
Services
 
True Health
Total
 
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
(8,797
)
 
 
$
1,123

 
 
$
(7,674
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
5,643

 
 
$
(758
)
 
 
$
4,885

 
 
 
 

(1) 
Purchase accounting adjustments pertain to Adjusted Platform and Operations Services Revenue. There were no purchase accounting adjustments in relation to Adjusted Transformation Services Revenue or True Health premiums revenue.

13



Evolent Health, Inc.
Segment Results
(unaudited)

 
 
 
 
 
 
 
Intersegment
 
 
 
 
 
Services
 
True Health
Eliminations
Consolidated
Adjusted Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Services:
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Transformation Services
 
$
5,297

 
 
$

 
 
$

 
 
$
5,297

 
Adjusted Platform and Operations Services
 
298,710

 
 

 
 
(6,135
)
 
 
292,575

 
Adjusted Services Revenue
 
304,007

 
 

 
 
(6,135
)
 
 
297,872

 
True Health:
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 

 
 
93,140

 
 
(536
)
 
 
92,604

 
Adjusted Revenue
 
304,007

 
 
93,140

 
 
(6,671
)
 
 
390,476

 
Purchase accounting adjustments (1)
 
(761
)
 
 

 
 

 
 
(761
)
 
Total revenue
 
$
303,246

 
 
$
93,140

 
 
$
(6,671
)
 
 
$
389,715

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Services:
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Transformation Services
 
$
18,375

 
 
$

 
 
$

 
 
$
18,375

 
Adjusted Platform and Operations Services
 
231,852

 
 

 
 
(7,412
)
 
 
224,440

 
Adjusted Services Revenue
 
250,227

 
 

 
 
(7,412
)
 
 
242,815

 
True Health:
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 

 
 
46,524

 
 
(396
)
 
 
46,128

 
Adjusted Revenue
 
250,227

 
 
46,524

 
 
(7,808
)
 
 
288,943

 
ASC 606 transition adjustment (2)
 
(4,498
)
 
 

 
 

 
 
(4,498
)
 
Purchase accounting adjustments (1)
 
(433
)
 
 

 
 

 
 
(433
)
 
Total revenue
 
$
245,296

 
 
$
46,524

 
 
$
(7,808
)
 
 
$
284,012

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segments
 
 
 
 
 
 
Services
 
True Health
Total
 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
(24,296
)
 
 
$
1,844

 
 
$
(22,452
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
12,609

 
 
$
189

 
 
$
12,798

 
 
 
 

(1) 
Purchase accounting adjustments pertain to Adjusted Platform and Operations Services Revenue. There were no purchase accounting adjustments in relation to Adjusted Transformation Services Revenue or True Health premiums revenue.
(2) Adjustment to Adjusted Transformation Services Revenue was approximately $3.7 million and the adjustment to Adjusted Platform and Operations Services Revenue was approximately $0.8 million. See “Non-GAAP Financial Measures” above for more information on adjustments pertaining to the implementation of ASC 606.







14




Evolent Health, Inc.
Reconciliation of Adjusted EBITDA to Net Income (Loss)
Attributable to Evolent Health, Inc.
(unaudited)
 
(in thousands)
For the Three
 
For the Six
 
Months Ended
 
Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Net Income (Loss) Attributable to
 
 
 
 
 
 
 
Evolent Health, Inc.
$
(31,615
)
 
$
(9,916
)
 
$
(78,354
)
 
$
(23,542
)
Less:
 
 
 
 
 
 
 
Interest income
842

 
878

 
1,902

 
1,950

Interest expense
(3,620
)
 
(855
)
 
(7,182
)
 
(1,708
)
(Provision) benefit for income taxes
(1,398
)
 
109

 
(902
)
 
106

Depreciation and amortization expenses
(15,292
)
 
(10,034
)
 
(29,558
)
 
(19,530
)
EBITDA
(12,147
)
 
(14
)
 
(42,614
)
 
(4,360
)
Less:
 
 
 
 
 
 
 
Income (loss) from equity method investees
(1,904
)
 
(1,275
)
 
(2,328
)
 
(1,406
)
Gain (loss) on disposal of assets
9,600

 

 
9,600

 

Change in fair value of contingent consideration
 
 
 
 
 
 
 
and indemnification asset
(100
)
 
1,604

 
(200
)
 
1,504

Other income (expense), net
(587
)
 
78

 
(160
)
 
60

Net (income) loss attributable to
 
 
 
 
 
 
 
non-controlling interests
285

 
115

 
2,195

 
554

ASC 606 transition adjustments

 

 

 
(4,498
)
Purchase accounting adjustments
(165
)
 
(216
)
 
(761
)
 
(433
)
Stock-based compensation expense
(4,750
)
 
(4,718
)
 
(9,287
)
 
(8,513
)
Severance costs
(3,881
)
 
105

 
(14,483
)
 
(1,489
)
Amortization of contract cost assets
(776
)
 
(578
)
 
(1,552
)
 
(1,139
)
Transaction costs
(2,195
)
 
(14
)
 
(3,186
)
 
(1,798
)
Adjusted EBITDA
$
(7,674
)
 
$
4,885

 
$
(22,452
)
 
$
12,798



15



Evolent Health, Inc.
Reconciliation of Adjusted Earnings (Loss) Available to Class A and Class B
Shareholders to Earnings (Loss) Available to Common Shareholders
(unaudited)
 
(in thousands, except per share data)
For the Three
 
For the Six
 
Months Ended
 
Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Earnings (Loss) Available to
 
 
 
 
 
 
 
Common Shareholders - Basic and Diluted (a)
$
(31,615
)
 
$
(9,916
)
 
$
(78,354
)
 
$
(23,542
)
Less:
 
 
 
 
 
 
 
Income (loss) from equity method investees
(1,904
)
 
(1,275
)
 
(2,328
)
 
(1,406
)
(Provision) benefit for income taxes

 
129

 

 
136

Other income (expense), net

 

 
431

 

Gain (loss) on disposal of assets
9,600

 

 
9,600

 

Change in fair value of contingent consideration
 
 
 
 
 
 
 
and indemnification asset
(100
)
 
1,604

 
(200
)
 
1,504

Net (income) loss attributable to
 
 
 
 
 
 
 
non-controlling interests
285

 
115

 
2,195

 
554

ASC 606 Transition Adjustment

 

 

 
(4,498
)
Purchase accounting adjustments
(6,524
)
 
(2,985
)
 
(12,855
)
 
(5,838
)
Stock-based compensation expense
(4,750
)
 
(4,718
)
 
(9,287
)
 
(8,513
)
Severance costs
(3,881
)
 
105

 
(14,483
)
 
(1,489
)
Amortization of contract cost assets
(776
)
 
(578
)
 
(1,552
)
 
(1,139
)
Transaction costs
(2,195
)
 
(14
)
 
(3,186
)
 
(1,798
)
Adjusted Earnings (Loss) Available
 
 
 
 
 
 
 
to Class A and Class B Shareholders (b)
$
(21,370
)
 
$
(2,299
)
 
$
(46,689
)
 
$
(1,055
)
 
 
 
 
 
 
 
 
Earnings (Loss) per Share Available to
 
 
 
 
 
 
 
Common Shareholders - Basic and Diluted (a) (1)
$
(0.38
)
 
$
(0.13
)
 
$
(0.97
)
 
$
(0.31
)
 
 
 
 
 
 
 
 
Adjusted Earnings (Loss) per Share Available
 
 
 
 
 
 
 
to Class A and Class B Shareholders (b) (2)
$
(0.26
)
 
$
(0.03
)
 
$
(0.56
)
 
$
(0.01
)
 
 
 
 
 
 
 
 
Weighted-average common shares - basic
82,289

 
77,209

 
80,820

 
76,297

Weighted-average common shares - diluted
82,289

 
77,209

 
80,820

 
76,297

Adjusted Weighted-Average Class A
 
 
 
 
 
 
 
and Class B Shares (3)
83,369

 
78,071

 
82,949

 
77,795