Welcome to Evolent Health's Earnings Conference Call for the Quarter Ended September 30, 2020. As a reminder, this conference call is being recorded. Your host for the call today is Mr. Seth Blackley, Chief Executive Officer of Evolent Health. This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section entitled Investor Relations. Here are some important introductory information. This call contains forward-looking statements under the U.S. Federal Securities Laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainty can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in the current and periodic filings. For additional information on the company's results and outlook, please refer to the second quarter news press release issued earlier today. As a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the company's press release issued today and posted on the Investor Relations section of the company's website ir.evolenthealth.com and the 8-K filed with the company with the SEC earlier today. At this time, I will turn the call over to the company's Chief Executive Officer, Mr. Seth Blackley.

Thank you, and good evening. I'm Seth Blackley, Chief Executive Officer of Evolent Health; and I'm joined by John Johnson, our Chief Financial Officer. We hope that you and your families are remaining healthy and safe. Thank you again for those that were able to join us virtually for our fifth annual Investor and Analyst Day on September 29. For those of you that were unable to join, the webcast replay and presentation are available on the Investor Relations portion of our website. I'll open the call this evening with a summary of our recent results including an update on the key elements of our strategic plan communicated at the Investor Day which are: one, strong organic growth in the core; two, scaling our EBITDA margins; and three strategic portfolio and balance sheet optimization. Next I'll provide an update on the market and the macro environment including our thoughts on the election. After that I'll share a few highlights from each of our three solutions: our specialty platform, New Century Health; our total cost of care solution, Evolent Care Partners; and our administrative solution, Evolent Health Services. I'll then hand it to John to take us through a more detailed financial review of the third quarter as well as provide guidance. We'll close with a summary of our key messages. As always we'll be happy to take questions at the end of the call. In terms of our results for the quarter, we're pleased that we have exceeded the midpoint of our range on the top and bottom line. Total revenue for the quarter was $264.6 million, up 20.2% as compared to the third quarter of 2019. Adjusted EBITDA for the quarter was $12.7 million. As of September 30, 2020, we had approximately 3.5 million total lives on the platform.…

Thanks, Seth, and good evening, everyone. Our third quarter results were right in line with our expectations on revenue and adjusted EBITDA, largely as a result of strong performance across our customer base, the strength of our performance-based arrangements, and our overall cost reduction efforts. We now expect to be at the higher end of our previously increased guidance range on adjusted EBITDA for the full year. This quarter's strong results demonstrate that we are executing on our attractive financial model as we continue to build momentum into 2021. We drove 33% organic services revenue growth in the third quarter relative to the same quarter last year through our focus on multiple channels of growth. We have executed on new partner wins having now signed up eight in the year and continue to drive strong same-store growth as demonstrated by the expansion with Somos. Our growth combined with our cost control drove adjusted EBITDA margins in the quarter of 4.8% of revenue, up about 100 basis points from Q2 and over 300 basis points from the third quarter of 2019. We also continue to make progress on our strategic review of health plan assets while we focus squarely on our three core services. As Seth mentioned, we recently partnered with Florida Blue Medicare and will initially be supporting over 125000 Medicare Advantage members with our New Century oncology platform beginning next year. We will earn fixed per member per month fees on that membership. As the first Blue Cross plan that we have added as a partner for our specialty care solution this further expands our differentiation serves as an important validation of the strength of our model and lays the foundation for future expansion not just in oncology, but in cardiology as well. Finally, we continue to focus on…

Thanks John. I'd like to close by quickly reiterating the three main takeaways from our recent Investor Day. First, we have confidence in our organic growth strategy and our mid-teens growth target. Signing Florida Blue Medicare and opening up the Blue Cross segment is an important step and the outlook for New Century Health is strong. Our other two solutions are also making important contributions highlighted by our expansion at Somos, as well as the two new physician group partners announced in the quarter. Second, the business is scaling. The cost initiative has been a success and we see a clear path to mid-teens adjusted EBITDA over time starting with margin expansion in 2021. And finally we are efficiently deploying capital as evidenced by the focused effort to monetize our health plan assets and use the capital to delever as communicated at IR day. So in summary, we are executing and you can see that the company is at an inflection point. I'm proud of our talented and committed team and I'm excited about the bright future we have ahead of us, particularly with the strong momentum that we are seeing headed into 2021. Thanks everyone for participating in tonight's call. And with that, we'll end our formal remarks and we're happy to take questions.

Thank you. [Operator Instructions] Our first question comes from Ryan Daniels with William Blair. Please go ahead.

Yes, guys. Thanks for taking the question and all the details thus far. I want to hit a little bit more on the Blues win that you announced tonight. Obviously, there's a significant market potential there more broadly. And I'm curious, how you think about targeting that opportunity kind of across the country if this is something where an initial Blues relationship can be leveraged or if you'll need some time to kind of ramp this up and get case studies with the Blues that they can share with other plans. And then any particular sales force investments you might make to target that big opportunity?

Thanks, Ryan. Its, Seth. I'm happy to take that one. Look the Blues segment is one where I think having a proof case with the Blue is helpful. And so I think just the fact that we have had this relationship in place with Florida Blue Medicare will be certainly helpful. I'd say second though that for some time now we've been developing those relationships. And probably the most important thing is frankly being able to show and prove that the outcomes are robust from other partners around the country. And we have a lot of that data now and feel very good about being able to share that data. And so I think the combination of those two things gives us pretty much everything we need with our existing sales force and an approach. Certainly, there are some things that we're doing incrementally that are what I would think of as blocking-and-tackling sales and marketing activities to get those executives together share the quality and value stories that we are seeing. But in general, I think, we have everything we need to kind of pursue that segment aggressively at this point.

That's helpful color. And then pipeline commentary sounds good as it's been most of the year. I'm curious if you could dive into a little bit more detail in regards to the three offerings and kind of, which of those in your view is seeing the most momentum or has the most potential for either net new client growth or for same client growth as we head into 2021? Thank you.

Sure. Yes, happy to Ryan. I think there's a macro comment on the market that really affects all three of the solutions Ryan that I'll start with, which is that our mission is really around improving cost and quality. There's these $1 trillion of waste and that's an evergreen opportunity. I think COVID is creating additional pressure on the buyers of health care: states, federal, government, employers. And so I'd just say in general that pressure is something that creates, while COVID is a very difficult situation for vulnerable patients and for the patients that we're taking care of it does create a tailwind for our pipeline overall. And then with respect to the differentiation, I would say that there's differentiation for each. For New Century Health, I think, there's a lot there that really hinges upon proven results. And oncology and cardiology we have fabulous data that says that we can help patients receive better care at a lower cost in a way that is clinically differentiated and that comes from the clinical IP, the technology and the way we deploy the services. So that's New Century. It's pretty evergreen. A lot of opportunity there. Second, on Evolent Health Services, I would say again, the pressure in the pipe from the market is a part of it. But I think the other part of it is we now I think increasingly also have good evidence Ryan that if you're particularly a regional plan or a provider looking to take and manage value we have a lot of proof cases across Somos. So what we're doing with Maryland Physicians Care that we're an ideal partner for organizations that have that profile and that makeup. There's a pretty big market there for that segment. And then with Evolent Care Partners, Ryan I'd say the differentiation is -- comes from our technology from our clinical approach and from our service model. But I'd say, that the one piece to add would be that the value-based care landscape while we don't need any new programs we don't need any policy changes I think just what's there in front of us particularly with COVID there's a lot of providers that are thinking, gosh, this model is important. I'm interested in value, and that's created I think an uptick what we're seeing in the pipeline there. I think a Biden administration there could be some accelerators even beyond what we have in our outlook, but that would be kind of upside to how we're thinking about things.

Yes. Great. I appreciate all. Thanks, guys.

Good.

Your next question comes from Robert Jones with Goldman Sachs. Please go ahead.

Great. Thanks for the questions. I guess, maybe just to go back to the Florida Blue win I think you mentioned 125,000 lives and you also said the plan, I think in totality is like 5 million lives. So just curious about the opportunity as far as go forward and thinking about a ramp into a bigger portion of that population? And then just relatedly based on the math you shared, Seth it seems like the PMPM there would be quite a bit higher than average if I'm thinking about it correctly. Just curious if a, if that's right; and b what might be driving the better PMPM dynamics around that customer?

Yes, why don't I I'll take the first part of that and I'll pass it to John for the second part. So just in terms of Florida Blue it's 125m000 lives. It's Medicare. It's oncology. And that will ramp across the first part of the year. And as I mentioned in the prepared remarks, it will be $75 million annualized run rate or more by the second half of the year. Obviously, that's just the Medicare lives and it's just oncology. So I think the opportunity is to go to additional lives. Whether it's commercial or other populations is there and certainly the opportunity for cardiology across all. I think speaking for the New Century Health team we are really impressed with the Florida Blue Medicare team and Florida Blue generally. It's a fabulous plan very innovative and our first job -- most important job is to deliver and execute and so we're very focused there. I'll pass it to John for your other question.

Hey, Bob. You're right on the math. The PMPM is a little higher and that's largely driven by the aggregate scope that is in this initial contract with Florida Blue Medicare. Just a little bit more expensive than some of the other New Century arrangements.

Okay. No, that's helpful. And I guess just John maybe one more quick one just on the guidance. It seems like there's, obviously, momentum in the business. And if I just look at the implied 4Q guide on both revs and EBITDA, it seems like it's calling for a sequential downtick from what you posted this quarter. Just curious if there's any timing dynamics anything around churn just what might help bridge that gap from what you posted in 3Q to what you're pointing to for 4Q.

Yes, yes. Good question. It's all about timing of some onetime revenues. I think I might have mentioned this in the August call. We had some visibility into onetime revenue that we expected to hit in either 3Q or 4Q and it did hit in 3Q. That's why you see the slightly higher revenue here. Nothing else really going on between third and fourth quarters.

Okay, great. Thanks so much.

Yes, thanks.

Our next question comes from Matthew Gillmor with Baird. Please go ahead.

Hey thanks. Just a couple of clarifications. I think on some of the 2021 commentary I believe you said that you continue to expect revenue in excess of $900 million, but the Florida Blue and maybe some of the other pipeline activity enhances your visibility around that. Is that how we should be thinking about sort of the 2021 view at this point?

You got it, Matt. This is John. Obviously, it's still too early to guide. But as we've gone across the year I think the continued strong performance on the growth front has given us incremental confidence in starting to exceed that $900 million number.

Okay. And then I think there was a mention of another $25 million to -- or $20 million to $25 million of expense savings. Was that sort of incremental to what you've discussed previously? And can you remind us where those savings are generally bucketed?

Yes, not incremental. We talked about that a little bit at the end of September at the IR Day. And it's principally related to getting the cost structure in the right place after the exit of Passport. And so most of those costs are related to the areas that were serving that business.

Okay, great. Thanks a lot.

Thanks Matt.

Our next question comes from Sean Wieland with Piper Sandler. Please go ahead.

Hi, thanks for taking the question. It's Jess on for Sean. I think we were just curious if you could talk a little bit about the dynamics behind lives on platform year-to-date just the sequential dip from Q4 to Q1 than the growth Q2 to Q3 if -- whether that's all just Medicaid reverification suspension and if the Passport lives are still on platform and to what extent.

Yes, hey Jess. The lives on platform across the year have performed pretty close to our expectations that we set out at the beginning of the year which is hitting sort of a low point in Q2 and then ramping across the back half of the year here. Biggest difference between Q2 and Q3 here it was actually driven by new go-lives in particular the Neighborhood Health plan going live up in New England. There was a modest amount a couple of points -- percentage points of increase driven by the Medicaid reverification item that I mentioned. But the bulk of the change was driven by new go-lives.

Got it. And then just a quick follow-up on the Centene lives on platform. Did those come out of the lives on platform number versus Q2 or Q1 just in light of the fact that they're now on NCH light product?

Yes, the -- you are right there. We do not include the lives from the Centene relationship in our reported lives number because of -- they are in this light model. So, no change there.

Got it. Thanks. That's helpful.

Next question comes from Charles Rhyee with Cowen. Please go ahead.

Yes, thanks for taking the questions. Seth I just wanted to ask you I think you guys might have talked a little bit about it at Analyst Day which is direct contracting. And just curious I think it's supposed to start sometime next year was it April? And curious as to sort of the appetite within your current customer base in entering that program. And do you expect that to be something that your clients are going to be participating in next year?

Sure Charles. Happy to take that one. So, the direct contracting program is not something that currently is in the outlook we have. It's a program we think is interesting. It's early for the program still in the CMMI phase within CMS. Our experience here over the last eight years is that the programs mature over the first year or two. I do think it potentially is quite interesting for us over the next few years. Our focus right now is delivering on what we have with the current Evolent Care Partners Network. But over time I think it could be quite interesting particularly as we see it mature a little bit. I think it is -- Charles, it's an example. There are other examples like it of what I would call policy accelerators that none of which are in any of these outlooks that we've shared and the medium-term metrics and there are others like it. And I think they're interesting and it indicates kind of where CMS is going. So, we'll keep a close eye on that one in other programs.

So, is it something that you'd want to see how the first year or so kind of works out in the experience you watched from a distance before maybe developing a program around it for your clients? Is that the right way to think of it?

Yes, that's the right way to think about it. And just a little more detail on it is that the programs always have a set of rules that are attached to them. And those rules tend to come out in draft form and they get comments and then they harden over the first year or two and they become more evergreen. And that's sort of what we're watching right now, but I do think it could be quite interesting as those get firmed up.

Great. And just a follow-up. I don't know if you guys mentioned it, but did you guys give the lives on a True Health for the quarter?

It's about 24,000 Charles.

Okay, great. Thanks a lot guys.

Our next question comes from Sandy Draper with Truist. Please go ahead.

Thanks very much. Maybe first just start on just making sure I've got the dynamics right with the Passport sale. So, the deal is closed but not -- so the balance sheet everything there is still reflective of Passport. So, when I'm thinking about the statutory capital will that stay on your balance sheet? And I'm just trying to think of the dynamics of how that actually works with it gone recouping it? Could you keep all of that? I'm just trying to understand that. And then the second part following is maybe just help me think through the step down in terms of revenue. I think you've said before John don't expect a cliff where on January 1st all Passport revenue goes away. There's maybe a wind down. So, we may have a bigger impact in the second quarter. Could you just help me go through those two issues around Passport?

Yes, happy to Sandy. So, first on the balance sheet, look the way to think about it is to focus on the statutory capital number that I mentioned which is a little over $140 million on 9/30. As you think about capital return to Evolent that's sort of the starting point. And then we have an opportunity as we've talked about to earn an additional amount from Molina based on membership retention into next year. The mechanics of that capital return will be subject to regulatory approval and just moving the cash from the regulated entity into the parent entity at which point we could proceed with our plan to use that cash to pay down the debt. That's the balance sheet there. And I apologize, Sandy I forgot your second question. Could you ask?

About the revenue just about did it -- all passport doesn't go away on January 1st. So how do we think about it winding down through the first half of the year?

Yes. Good. So net change in passport revenue '20 into 2021 is probably around $230 million ballpark and a little more than half of that will turn off immediately on January 1st. There will be as usual a bit of a stub in the first quarter that's sort of a fraction of a normal quarter. And then it will be -- it will real trail out after that. So that's the way to think about it and model it.

Okay. Great. That's helpful. If I can maybe squeeze one more and probably for Seth on the Blue Cross Blue Shield deal. When you guys are going after someone new in talking to -- I don't know if you were only talking to the Medicare portion. But is this a situation where their Medicare plan is really having issues with oncology costs and so they want to talk to you specific about that. And so that's why they're not going to sign up for cardiology you're not going broader. Or I'm just trying to think of the sales dynamics of, is it really you find a pain point of the customer where it's really struggling with cardiology. It's oncology something else and then you can grow from there, or how does it typically work? And maybe if you can give you specific anecdotes with this deal because it's obviously very large.

Yes. Look I think, in general answer, generally first, which is if you go around to the Managed Care organizations you think about -- let's take Medicare as an example. Cardiology and oncology are 25% of their total premium. And they're two of the specialties that have higher trends right? And it's not anything specific to any one payer and oncology as an example. It's heavily influenced by what's coming out of the FDA and the fabulous treatments that are becoming available to patients. But it creates an incredibly tough dynamic for any plan to kind of get it right with respect to how do I make sure that every patient gets the very best treatment possible, the right treatment but we also manage costs because when we spend too much on a therapeutic that is not providing value or is actually hurting the patient, those are dollars that are coming away from the ability to coordinate care, manage care, help other vulnerable patients right? So I think this is an issue with just about every health plan in the country. So I don't -- Florida Blue but I could go to any other organization. And cardiology is a little bit different but there's similar dynamics there. And so I think as to whether why cardiology, why oncology it might just depend on where they're seeing trend in a particular year or where they feel like they have a particular pain point. But I think what interesting about New Century is the degree to which it's 25% of premium. So these are big numbers. And anything that we and they can do together to make care better for the patient while reducing cost, that's helping them live their mission, right? They are trying to take every dollar they can to coordinate care for vulnerable patients. And so I think we just find in general Sandy that there's a lot of opportunity with this area. And again it might be a particular person has a pain point around oncology one year and cardiology the next. I think the key for Evolent and New Century is that whatever we do, we do an excellent job and we deliver. And that's most of the work we've done has come out of what I call word-of-mouth or understanding of "Gosh this went really well over here. Let's do more over there." And so that's where the big opportunity comes from and there's not particular nuances at this market. That market is pretty broad-based in the opportunity here.

Okay. That’s really helpful color. Thanks, Seth.

You're welcome.

This concludes our question-and-answer session. I would like to turn the conference back over to Seth Blackley for any closing remarks.

Thanks everybody for the time tonight. Stay safe and we look forward to connecting over the days and weeks ahead.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.