Evolent Announces Second Quarter 2023 Results

WASHINGTON, Aug. 2, 2023 /PRNewswire/ -- Evolent Health, Inc. (NYSE: EVH), a company that specializes in better health outcomes for people with complex conditions through proven solutions that make health care simpler and more affordable, today announced financial results for the quarter ended June 30, 2023.

Highlights from the second quarter 2023 announcement include:

• Revenue of $469.1 million, an increase of $149.2 million, or 46.6%, from the three months ended June 30, 2022.
• Net loss attributable to common shareholders of Evolent Health, Inc. of $41.4 million resulting in a net loss margin of (8.8)%.
• Adjusted EBITDA of $47.4 million resulting in an Adjusted EBITDA margin of 10.1%.
• Total Lives on Platform of 78.6 million, up from 19.4 million for the three months ended June 30, 2022.
  • Composed of 3.8 million lives in our Performance Suite with an average PMPM of $24.20, 73.0 million in our Specialty Technology and Services Suite with an average PMPM of $0.35 and 1.8 million on our Administrative Services platform with an average PMPM of $14.22.
  • Average unique members of 41.8 million, up from 16.3 million from the three months ended June 30, 2022.
• Total cases managed during the quarter for case-based products totaled 15.0 thousand, yielding an average per case revenue of $2,505.

Evolent highlighted the following commercial arrangements to add to the 2023-year sales cycle, taking the total year-to-date count of new operating partnerships to six versus its annual target of six to eight:

• Evolent signed a new operating partnership with Molina in the state of Florida, bringing Performance Suite for both cardiology and oncology specialties for Molina's Medicaid and health care exchange members across the state; and
• Evolent also announced a new corporate agreement with a regional, non-profit health plan with over a million members. As part of the agreement Evolent will be replacing several legacy specialty vendors with its Technology and Services solution, helping create a more integrated environment for the health plan.
• In addition to these, Evolent also announced it signed two Technology and Services client expansions with existing operating partners. Evolent noted that early evidence of marketplace receptivity to the Company's integrated approach to specialty care was encouraging given the number of cross sales and strength of the sales pipeline looking forward.

Seth Blackley, Chief Executive Officer, and Co-Founder of Evolent stated, "We are pleased to report another quarter of strong results. We also had an outstanding quarter of new business momentum, adding two new operating partners plus two expansions and our specialty growth in the quarter, before the impact of acquisitions, was 32%. We are raising our Adjusted EBITDA range for 2023 and have confidence in our medium-term target of $300 million in Adjusted EBITDA run-rate exiting 2024. I want to thank all of Evolent's 5,000 employees for their dedication to improving care for our patients living with complex health conditions".

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 results in accordance with U.S. generally accepted accounting principles ("GAAP"):

• Revenue of $469.1 million and $319.9 million for the three months ended June 30, 2023 and 2022, respectively.
• Cost of revenue of $351.9 million and $249.7 million for the three months ended June 30, 2023 and 2022, respectively.
• Selling, general and administrative expenses of $90.4 million and $59.0 million for the three months ended June 30, 2023 and 2022, respectively.
• Net loss attributable to common shareholders of Evolent Health, Inc. of $(41.4) million and $(4.6) million for the three months ended June 30, 2023 and 2022, respectively.
  • Net loss margin of (8.8)% and (1.4)% for the three months ended June 30, 2023 and 2022, respectively.
• Loss attributable to common shareholders of Evolent Health, Inc., per basic and diluted share, of $(0.37) and $(0.05) for the three months ended June 30, 2023 and 2022, respectively.

Total cash and cash equivalents was $142.5 million as of June 30, 2023.

Adjusted Results

• Adjusted cost of revenue of $351.9 million and $248.5 million for the three months ended June 30, 2023 and 2022, respectively.
• Adjusted selling, general and administrative expenses of $69.6 million and $49.7 million for the three months ended June 30, 2023 and 2022, respectively.
• Adjusted EBITDA of $47.4 million and $21.7 million for the three months ended June 30, 2023 and 2022, respectively.
  • Adjusted EBITDA margin of 10.1% and 6.8% for the three months ended June 30, 2023 and 2022, respectively.
• Adjusted income attributable to common shareholders of $15.8 million and $9.3 million for the three months ended June 30, 2023 and 2022, respectively.
  • Adjusted income per share attributable to common shareholders of $0.14 and $0.10 for the three months ended June 30, 2023 and 2022, respectively.

Business Outlook

We do not believe we can meaningfully reconcile guidance for non-GAAP Adjusted EBITDA to net income (loss) attributable to common shareholders of Evolent Health, Inc. because the company cannot provide guidance for the more significant reconciling items between net income (loss) attributable to common shareholders of Evolent Health, Inc. and Adjusted EBITDA without unreasonable effort. This is due to the fact that future period non-GAAP guidance includes adjustments for items not indicative of our core operations, and as a result from changes to our business due to acquisitions and other events. Such items may, from time to time, include gain on transfer of membership; loss on repayment/extinguishment of debt; gain from equity method investees, change in fair value of contingent consideration, change in tax receivable agreement liability, other income (expense), right-of-use asset impairments, repositioning costs, stock-based compensation expense, severance costs, amortization of contract cost assets, strategy and shareholder advisory expenses, acquisition-related costs, loss from discontinued operations, dividends and accretion on Series A Preferred Stock and certain other items the company believes to be non-indicative of its ongoing operations. Such adjustments may be affected by changes in ongoing assumptions, judgements, as well as nonrecurring, unusual or unanticipated charges, expenses or gains (losses) or other items that may not directly correlate to the underlying performance of our business operations. The exact amount of these adjustments are not currently determinable but may be significant.

Third Quarter 2023 Guidance

For the three months ending September 30, 2023, revenue is expected to be in the range of approximately $500 million to $520 million. Adjusted EBITDA is expected to be in the range of approximately $42 million to $47 million.

Full Year 2023 Guidance

The Company is reiterating its previously-stated guidance for revenue and raising its Adjusted EBITDA guidance for the year ending December 31, 2023, with revenue expected to be in the range of approximately $1.935 billion to $1.965 billion and Adjusted EBITDA expected to be in the range of approximately $185 million to $200 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").

Additional Outlook Information

Cash deployed for software development is expected to be in the range of $35 million - $40 million for the year ended December 31, 2023.

Web and Conference Call Information

Evolent Health, Inc. will hold a conference call to discuss its second quarter performance this evening, August 2, 2023, at 5:00 p.m., Eastern Time. To listen to a live broadcast via the internet and view the accompanying materials, please visit the Company's Investor Relations website at http://ir.evolenthealth.com. PLEASE NOTE: Use the following updated numbers to participate by telephone, dial 855.940.9467 or 412.317.6034 for international callers, and reference the "Evolent 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 invites all interested parties to attend the conference call.

About Evolent

Evolent (NYSE: EVH) specializes in better health outcomes for people with complex conditions through proven solutions that make health care simpler and more affordable. Evolent serves a national base of leading payers and providers and is consistently recognized as a top place to work in health care nationally. Learn more about how Evolent is changing the way health care is delivered by visiting evolenthealth.com.

Contacts:

Seth Frank
Investor Relations
[email protected]

Non-GAAP Financial Measures

The Company views the following activities as integral to understanding its non-GAAP financial measures:

• Repositioning costs include severance, termination benefits and related payroll taxes of $4.7 million, dedicated employee costs of $1.7 million and third-party professional services of $4.8 million. Repositioning costs are not part of Evolent's normal course of business and are incurred when there is a business reason to enact a repositioning plan. Adjusting for these costs gives a better view of the Evolent's normal operating costs. We only adjust costs that (i) are included within selling, general and administrative expenses on the consolidated statement of operations, (ii) meet the criteria outlined within the respective repositioning plan and (iii) does not relate to normal business operations or ongoing activities.
  • Dedicated employee costs primarily include project management and technology staff costs needed to migrate acquired businesses to Evolent's integrated technology platform and costs related to the consolidation of internal operations, strategies, processes and platforms. Dedicated employee costs are limited to employees that will have no role in ongoing operations and have no planned role at Evolent once the repositioning activities are completed.
  • Professional services costs primarily relate to services provided by a third-party vendor to review our operating model and organizational design in order to improve our profitability, create value through our solutions and invest in strategic opportunities in future periods.
• Acquisition-related costs include but are not limited to integration consultants, investor outreach services, external valuation and accounting advisory services, legal fees and transaction bonuses paid to certain employees.
• Purchase accounting adjustments include amortization expense on intangible assets such as corporate trade names, customer, relationships, provider network contracts and existing technology related to acquisitions and business combinations. We believe it is important for the reader to understand that revenue generated from acquisitions is included within revenue in calculating adjusted income to common shareholders however amortization expense from acquired intangible assets is excluded in determining adjusted income to common shareholders because it does not directly relate to the services performed for the Company's customers.

In addition to disclosing financial results that are determined in accordance with GAAP, we present Adjusted Cost of Revenue, Adjusted Selling, General and Administrative Expenses, Adjusted Income Attributable to Common Shareholders, Adjusted Income per Common Share Attributable to Common Shareholders, Adjusted EBITDA and Adjusted EBITDA Margin, which are all non-GAAP financial measures, as supplemental measures to help investors evaluate our fundamental operational performance.

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, acquisition-related costs and repositioning costs. Management believes Adjusted Cost of Revenue and Adjusted Selling, General and Administrative Expenses are useful to investors, because they facilitate an understanding of our long-term operational costs while removing the effect of costs that are not a representative component of the day-to-day operating performance of our business, and are useful to management as supplemental performance measures.

Adjusted EBITDA is defined as net loss attributable to common shareholders of Evolent Health, Inc. before interest income, interest expense, benefit from (provision for) income taxes, depreciation and amortization expenses, adjusted to exclude change in the tax receivable agreement liability, gain from equity method investees, changes in fair value of contingent consideration, other income (expense), net, right-of-use asset impairments, repositioning costs, stock-based compensation expense, severance costs, amortization of contract cost assets, dividends and accretion on Series A Preferred Stock, acquisition-related costs and loss from discontinued operations.

Management believes that Adjusted EBITDA is useful to investors because it allows further insight into the period over period operational performance. Management also uses Adjusted EBITDA as a supplemental performance measure because the removal of repositioning costs, acquisition-related costs, severance or non-cash items (e.g. depreciation, amortization, right-of-use asset impairment and stock-based compensation expense) allows us to focus on operational performance.

Adjusted EBITDA Margin is as defined Adjusted EBITDA divided by Revenue. Management believes that this measure is useful to investors because it allows further insight into the period over period operational performance. Management also uses Adjusted EBITDA Margin as a supplemental performance measure because it allows the investor to understand operational performance compared to revenues over time.

Adjusted Income Attributable to Common Shareholders is defined as net loss attributable to common shareholders of Evolent Health, Inc. adjusted to exclude gain from equity method investees, other income (expense), net, changes in fair value of contingent consideration, provision (benefit) for income taxes, change in tax receivable agreement liability, purchase accounting adjustments, right-of-use asset impairment, repositioning costs, stock-based compensation expenses, severance costs, amortization of contract cost assets recorded as a result of a one-time ASC 606 transition adjustment, dividends and accretion on Series A Preferred Stock and acquisition-related costs.

Adjusted Income per Share Attributable to Common Shareholders is defined as Adjusted Income Attributable to Common Shareholders divided by Weighted-Average Common Shares, and reflects the adjustments made in those non-GAAP measures.

Management believes that Adjusted Income Attributable to Common Shareholders and Adjusted Income per Share Attributable to Common Shareholders are useful to investors because excluding non-cash items (e.g. depreciation, amortization and stock-based compensation expenses) allows investors to focus on operational performance. These measures are also useful to management 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.

Lives on Platform and Per Member Per Month ("PMPM") Fee

Performance Suite Lives on Platform are calculated by summing monthly members covered for specialty care services for contracts not under ASO arrangements, plus members managed by Evolent Care Partners in risk arrangements and divided by the number of months in the period. Specialty Technology and Services Suite Lives on Platform are calculated by summing monthly members covered for oncology, cardiology, musculoskeletal, advanced imaging and other diagnostics specialty care services for contracts under ASO arrangements divided by the number of months in the period. Administrative Services Lives on Platform are calculated by summing monthly members covered for administrative services implementation and core performance services divided by the number of months in the period. Cases are calculated by summing the number of individuals receiving services through our surgery management and advanced care planning programs in a given period. Members covered for more than one category are counted in each category.

Performance Suite Average PMPM fee is defined as revenue pertaining to our Performance Suite during the period reported divided by Performance Suite Lives on Platform for the period divided by the number of months in the period. Specialty Technology and Services Suite Average PMPM fee is defined as revenue pertaining to the Specialty Technology and Services Suite during the period reported divided by Specialty Technology and Services Suite Lives on Platform for the period divided by the number of months in the period. Administrative Services Average PMPM fee is defined as revenue pertaining to the Administrative Services during the period reported divided by the Administrative Services Lives on Platform for the period divided by the number of months in the period. Revenue per Case is calculated by the revenue pertaining to surgery management and advanced care planning programs divided by the number of cases for a given period.

Average Unique Members are calculated by summing members covered by our Performance Suite, Specialty Technology and Services Suite and Administrative Services. In cases where clients cross between multiple products, we only capture members from the product with the maximum number of members.

Management uses Lives on Platform, PMPM fees, Cases, Revenue per Case and Average Unique Members because we believe that they provide insight into the unit economics of our services. We believe that these measures are also useful to investors because they allow further insight into the period over period operational performance. We believe that these measures are also useful to investors because they allow further insight into the period over period operational performance.

Due to our change in segments during the first quarter of 2023, the Company changed its presentation of Lives on Platform to reflect the membership that corresponds to quarterly revenue. The Company recast periods prior to the first quarter of 2023 to reflect the current presentation of Lives on Platform, PMPM fees, Cases and Revenue per Case. The current Performance Suite maps to the prior disclosure of the Clinical Solutions Performance Suite. The current Specialty Technology and Services Suite maps to the prior disclosure of the Clinical Solutions New Century Health Technology and Services Suite. The current Administrative Services maps to the prior disclosure of Evolent Health Services segment. There has been no change in the presentation of Cases from prior period.