Welcome to Evolent Health Earnings Conference Call for the Quarter and Year Ended December 31, 2018. As a reminder this conference call is being recorded. Your host for the call today is Mr. Frank Williams, 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 Web site in the section entitled Investor Relation. 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 expectation. A description of some of the risks and uncertainties 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 filing. For additional information on the company's results and outlook please refer to its third quarter news release. 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 Web site, ir.evolenthealth.com. And the 8-K filed by the company with the SEC earlier today. At this time, I will turn the call over to the company's Chief Executive Officer, Mr. Frank Williams. Please go ahead.

Thank you and good evening. I'm Frank Williams, Chief Executive Officer of Evolent Health and I'm joined by Nicky McGrane, our Chief Financial Officer. I will open the call this evening with a summary of our recent financial results as well as an update on the market, our current pipeline and overall performance across the Evolent network. I will then hand it over to Nicky to take us through a more detailed review of the fourth quarter and full year 2018 result. I'll close with a summary of Evolent's key focus areas for 2019 and as always, we'll be happy to take questions at the end of the call. In terms of our results for the quarter, total adjusted revenue for the quarter ended December 31, 2018, increased 69.6% to $193.3 million from the comparable quarter of the prior year. Adjusted EBITDA for the quarter ended December 31, 2018, was $5.6 million compared to $3.5 million for the quarter ended December 31, 2017. Adjusted revenue increased 44.9% to $632.4 million for the year ended December 31, 2018, compared to $436.4 million for the prior year. Adjusted EBITDA [Technical Difficulty] December 31, 2018, was $23.2 million compared to negative $2.2 million for the year ended December 31, 2017. As of December 31, 2018, we had approximately $3.6 million total lives on the platform an increase of 32.9% year-over-year. Overall, we're pleased that we met our key financial objectives for the year and delivered strong operational and clinical performance for our partner organization. In terms of some of the highlights, the number of lives on the Evolent platform across the 3.5 million mark growing by over 30% across 2018. This growth was driven by our existing partners expanding their footprint, lives from new partners and the addition of New Century Health. In…

Thanks Frank and good evening everyone. I will begin today by covering a fourth quarter and full year 2018 financial results and we'll finish with an overview of our 2019 outlook. Before I go into details, I want to remind everyone that our fourth quarter results include a full quarter of impacts from the acquisition of New Century Health, which is embedded within our overall services segment results. Beginning with a consolidated fourth quarter results, adjusted revenue increased 69.6% year-over-year to $193.3 million through a combination of continued growth in our services segment including the impact of the New Century acquisition as well as the introduction of our True Health segment. Adjusted EBITDA increased $2.1 million year-over-year to $5.6 million. Adjusted loss available for Class A and Class B common shareholders was negative 5.4 million or negative $0.07 per share for the quarter compared to negative 3.1 million or negative $0.04 per share in the same period of the prior year. As of February 22, 2018, there were 79.4 million shares of our Class A common stock outstanding and 3.2 million shares of our Class B common stock outstanding. Fourth quarter results capped off a year in which we were able to meet the financial objectives that we set at the beginning of 2018. We achieved the high-end of our anticipated range for the new partnerships added and we ended the year with approximately 3.6 million lives in our platform. We exceeded our initial guidance in the top-line with adjusted revenue of $632.4 million representing 44.9% growth, $436.4 million of reported adjusted revenue in 2017. Adjusted EBITDA for the year was $23.2 million compared to negative $2.2 million in 2017 and right at the high end of our initial 2018 adjusted EBITDA range. Now let me provide some more details…

Thanks Nicky. I want to close now with a summary of our key focus areas for setting up a strong second half in 2019 and into 2020. We came into this year with a clear goal of mid teens growth in our service business as well as a run rate EBITDA in the $50 million to $60 million range. Based on the first half pressure points that I outlined earlier, we'll not meet that objective across 2019. However, we believe we have a visible path to get there on a run rate basis by the second half of the year. In order to get there, the leadership team is focused on the following five key areas. First, as we move away from our traditional fee for service provider sponsored MA business, we're driving a leaner cost structure across our operations as well as reorienting our investment strategy towards what we see as higher growth opportunities. Second, on the Medicaid front in Florida, we're working collaboratively with our partners on growing brand awareness and plan membership as well as rightsizing our supporting infrastructure to improve financial performance. We remain confident in the potential of these plans to grow market share and profitability while providing a unique community based model to Medicaid beneficiaries. Third, we have a strong late stage pipeline and are aggressively focused on deal closure across multiple segments. Medicaid continues to be promising as demonstrated by our two announced deals in this quarter as well as our Medicare ACO, New Century and Medicare Advantage opportunities. In Medicare Advantage, specifically we're working on a unique co-ownership structure with a financial partner that we believe will catalyze Tier 1 highly attractive markets and provider partners. Assuming a reasonable closure rate in our late stage deals, we believe we can be back…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Robert Jones of Goldman Sachs. Please. Go ahead.

Great. Thanks for the questions. Frank, clearly some significant new wins especially as you think about the opportunity you laid out in California. You also highlighted encouraging program development in Medicaid, the government ACO programs. But really just trying to get a better sense of the setback in the profitability trajectory. If I just think about some of the comments you guys made in the prepared remarks, could you maybe just help us think through how much of the slower ramp in EBITDA is really timing related as some of these early customers as you mentioned roll off versus the need for increased spend required to support some of the customers and services that you have in front of you.

Yes. I mean as -- we've talked about really across the last couple of months. I think the overall policy environment has shifted in a favorable direction when we think about what's come out of CMS that's both a new set of ACO programs to support for MA. When we look what's going on at the state Medicaid agencies, I do think it's pushing towards value and pushing towards provider driven models. If you think about the end of this year, we had a confluence of events which put pressure on the first half. First, the wind down of provider sponsored health plan segment which we've been talking about for a while that's been under pressure. And again, we have to serve that business out. So, we're not getting the same level of revenue and yet our costs are the same. So that put undue pressure on the first half. Second is Florida. Florida, we put a lot against, it was a relatively short timeframe because of the delays and final decision. So, we really had six months to stand up three plans in five regions. And then, the rules changed in terms of allowing incumbents in several regions. And so way under where we expected to be from a membership perspective. So, I think that was a pretty significant hit that we really didn't discover until we got into the beginning of this year. And again, a lot of infrastructure in place and difficult to adjust that right away. So, I do think in both of those areas both in terms of driving growth in Florida, and then just making sure on the wind downs and in Florida we get our cost structure in line. I think that'll have an immediate impact as we get into the second half of the year just in terms of EBITDA expansion and the growth that we talked about. On new business, we've got a couple of deals that we already know are going to be coming live at about the midpoint of the year, so that will bring some natural growth in. And as we commented just now our pipelines look very good and not early stage pipeline I mean that looks good. But what I'm most heartened by is our late stage, in final negotiations deals look very, very good. So, we believe with a normal closure rate, we'll see nice growth coming into the second half. So, you take the cost realignment and the growth that we expect from close deals and new and I think we get back on track in the second half with double-digit growth and the level of EBITDA run rate that we want to have for the full year. So, disappointed that it impacted the first half. I think we've got a clear path to getting where we need to get to a lot of focus and that's what we're planning to do coming into the second half of the year.

So then, I guess it's safe to say then Frank that the message really isn't that the profitability on a customer by customer level has changed. It was really more specific these items that you laid out.

That's correct. Absolutely correct.

And then I guess just the quick follow up for Nicky. You mentioned I think was a $55 million run rate. I believe you said second half so I just want to make sure I heard that correctly. And then I guess importantly as we look even just into the fourth quarter of '19, any sense you can give us on the expected exit EBITDA run rate as we think about moving out of 2019 into 2020?

Yes. Bobby, you heard it right. We talked about across the year. The $55 million is based on developing $27.5 million in the back half of the year which is the midpoint which would put us at $7.5 million for the full year, the midpoint of guidance. And so, obviously, annualized that's $55 million. I would say in general, there's a bias towards slightly higher in Q4 than Q3. We're still settling that out to be in that range of $55 million, it could be a bit above that. It's the fourth quarter is higher but that's the right way to think about it.

Okay, great. Thanks so much.

Thanks.

Our next question comes from Jamie Stockton of Wells Fargo. Please go ahead.

Hey good evening. Thanks for taking my questions. I guess maybe the first one, if we just think about Q1 versus Q4, it feels like there's a pretty substantial step down in revenue even if we set aside like MDWise going away. And also, the impact of the step up in the premium revenue and really think about the core business. Should we really lay all of that at the feet of wind down some of these provider sponsored health plans? And if that's the case can you give us a ballpark dollar figure for what the headwind is there?

Look what I would say just again I'll cover them the macro and Nicky can chime in on the numbers. But if you take the provider sponsored segment and MDWise, those two together represent a pretty large block of revenue. And so, one, I do think that's a pretty substantial part of the issue and obviously impacted same-store level revenue. So those two things are pretty significant. Second, Florida given all the implementation resources we put against that and all the focus we put against and some level we have finite capacity that came in much lower than we expected. So, whereas we would've again expected maybe 60% of our growth to come from new clients and new partners, the fact that that came in substantially lower, and again, we had pretty high expectations there also made a pretty big difference. Timing which we talked about on some of the new business that we had visibility into. Again, normally would be front weighted if you think about a lot of our ACO launches over the last couple of years. They were actually in the first quarter and then just definitionally, we're taking a more conservative perspective on Passport for the year because we think that's appropriate. So, if you take those four things that's ultimately really what makes up the delta. Nicky, you want to comment at all on numbers.

Jamie what I would say is looking at Q4 versus Q1 I would first I point, let's focus on P&L revenue. The recurring part of the business, we are expecting to see transformation revenue lower this year than last year. It was 9 million in Q4. I think the run rate this year will be approximately five. It could be a bit below that in Q4, but in that zone. So, if I zero in on the P&OP, so I'm down about 8% Q1 versus Q4. NCHA had some ASO revenue, I'm excluding that putting that in dollar terms you're looking at about a $13 million decline in Q1 versus Q4 of last year in P&L revenue. Obviously, that a net number as Frank said our growth in Florida was lower than expected. So, you're looking at plus or minus about $70 million annualized of declines which is running at $17 million, $18 million in the first quarter. And as Frank said of that you're looking at the PHSP segment we've talked about 30 million of that a plus or minus 25 at MDWise. And then, modest attrition in other places. Passport being -- a more conservative stance on Passport. So, it really is in those areas as Frank laid out. And then, obviously, the impact of lower growth is compounded the challenge in the first quarter but that piece of the numerical analysis on the quarter versus Q4.

Okay. That's great. And then maybe just one more. But as we think about kind of the range of guidance, it's a pretty big line. Obviously, you've got a lot of stuff that could fall in second half of the year. If we think about the low-end of the range, is a fairway to assess that that you pretty much are able to get way with the stuff you've already signed in the high-end of the range would really be flushing out a lot of the late stage pipeline.

I would say that it obviously includes the things that we've already signed. If you take a normal closure rate which I would say on a historical basis has been -- we've been fairly conservative about how we usually think about it in guidance. But a normal closure rate around the existing pipeline that we have, and again, that's looking at where things are in each stage of the deal negotiation process. I would say we have reasonable assumptions not, hey, we're really going to stretch and close more of the pipeline than we normally would expect. So, if you apply a normal closure rate with the pipeline that we see in front of us do we feel we can get to the revenue levels we need to in the second half. And we do based on again a line by line analysis of where we are in that process.

Okay. Thank you.

Our next question comes from Ryan Daniels of William Blair. Please go ahead.

Yes. Thanks for taking the question. Let me start, Nicky a quick housekeeping one for you. And I apologize if you gave this, I get on a bit late. But you have the revenue contribution for New Century Health during the quarter, number one. And then, number two, regarding that asset, it's still anticipating kind of a mid-single-digit growth in 2019 before that accelerates in the back half of the year and into 2020.

Yes. I'll take you in reverse order. Yes, mid-single digits is still the right zone there. We feel good about it and as we talked you mentioned going into 2020 very good about getting with the growth -- double-digit growth there. In the fourth quarter, we had guided 44 to 46 on New Century. They came in above 48. As I said some of that was associated with some of the ASO business which will not recur next year but they had very solid performance in the fourth quarter.

That's helpful. And then, I know you guys have talked about the MA plans, Medicare Advantage likely winding down as those haven't reached scale and that probably derisks your revenue stream going forward, is that active? What type of revenue will be generated by those type of -- I guess I'd characterize them as riskier accounts or less scalable accounts as we entered the second half of the year.

Not sure exactly what you're referring to there but I would just say when we think about our traditional fee for service Medicare Advantage business particularly with single health systems. As we've talked about those plans really struggle to get to scale. We also had difficulty forcing the sort of discipline in health plan operations that you need to have to make those successful -- everything from network management to transfer pricing et cetera. I think as we think about our MA segment going forward where we see lots of opportunity, we want to make sure that we have the right partners, very committed to scale in the value business, clear agreement upfront that we can pull the levers that we need to drive successful performance. Obviously, there's a certain set of services that we provide that we'd be getting paid fees for, but surely would be a performance component to what we provide. And so, I think you would see, again a pretty normal stream of revenue, but greater scalability and longevity in that segment as we move to that sort of model. If you look across our other 35 or so partners, that spreads across our health plan services business, our value based care business where we're serving ACOs. And again, we don't see any material change to economics there. Those businesses we provide a set of services. We have some performance basis to those relationships and we believe they have long-term profitability characteristics that are very positive and then we now have New Century. And the good news with New Century is, they've been in business for 15 years. They have a lot of predictability with the way they manage the business and so we think that'll be a very profitable stream as well.

Could you characterize kind of the percent of revenue you think is going to be with these non-scalable plans. I mean these are the ones you've talked about for a while, they've been winding down. They haven't reached scale. And I'm curious how much revenue exposure is the percentage of your P&O sales will still be in them after these most recent wind downs and kind of the growth in other areas of the organization, just trying to get it.

Yes. And I apologize, Ryan, I slightly missed your question. Specifically, it's a very small portion of our existing revenue base. So, the good news from sort of accelerating the wind down is, we have much less exposure to that segment and as you described sort of subscale value based businesses. So, that is a positive going forward.

Okay. And then, final question for me and I'll hop off. Just on Passport, I know we can't predict what's going to happen in the future. But do you have protection regarding kind of the Center of Excellence, the intellectual property or capital that's been created from that relationship such that you can continue to leverage that regardless of the longer term outcome there?

We do. I mean those are assets that we acquired when we made the initial investments. And obviously, we've put in a lot in terms of technology, in terms of the claims platform, in terms of clinical program development. Again, replying that across multiple markets and we believe very successfully and those are assets that we do own and would continue in any scenario.

Okay. Thanks. I'll hop in the queue.

Thanks.

Our next question comes from Sean Weiland of Piper Jaffray. Please go ahead.

Hi. Thank you. So, on Passport can you give us any of your views on maybe likely scenarios that are going to happen. I know you can't predict the future and go into court, but just exactly how that is factored into guidance and how we should think about that as we form our estimates. And also, what is the -- I know you said 10% to 12% of revenues, but how are they on a profitability standpoint for you guys?

Yes. I think as Nicky said, it's roughly 10% to 12% of revenues. It's average in terms of profitability and contribution. Obviously, an important partner for us. I would say it's pretty hard to speculate on the outcome. If you think about it, there's a lot of moving pieces as they work through the process probably will take several weeks and months before it's settled. They've obviously got an injunction that's live that will be heard in early March. The board, the leadership team is highly engaged with the various constituencies in the Commonwealth. We're not directly involved in some of those processes or we're not directly involved in the lawsuit or directly involved in some of the discussions with the state. So, I think difficult for us to speculate. They've been in business for 20 years. They have a fabulous reputation in the market. I think there's obviously a lot that they've contributed to the Medicaid program and so our hope is that, a reasonable compromise is developed between the Commonwealth and Passport and I think that's about the most we can say on it at this point.

Okay. Thank you for that. And then, maybe just a quick one on the Florida Medicaid, can you, I think you were expecting about a million new members from those five plans. Can you tell us about what that came in at?

I think we were -- there's a million -- little over a million members in aggregate across all five regions Sean. We would have been hoping for 12 plus percent to 120,000, 140,000 in that zip codes of 10% to 12% share across that region. Sitting here today we are below 50,000 were in the high 40s in terms of membership across the regions. So as Frank alluded to well below our expectations some of that was concentrated in areas where the incumbents were got back into the market and therefore the membership that became available to new entrants was lower than we had expected. But in aggregate, we were 120 to 140 and we are in the high 40s sitting here today. We hope we can grow that across the year. We're still an open enrollment in several of the regions. But obviously it's a start.

And to be fair, I mean I think one of the main advantages of a provider driven plan is their local brand in the marketplace. And if you just think about the tight timeframe for launching and readiness, it was really hard to get those brands out in the marketplace in a way that would be meaningful versus some of the incumbents. So, I think the short timeframe a lot of things happen. Originally, it was going to be decided earlier and really didn't get settled until the summer then a rabbit race to meet all the readiness requirements. And again, less of an ability and less time to really put the work in on the branding and obviously working across the network and physician community and everything else. Now, we have that opportunity and we do anticipate a membership expansion and that really has full flow through for us as we get that, but it's going to take some time across this year to get there.

Okay. Thank you very much.

Thanks.

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

Hey, thanks, for the question. I'm on the True Health revenue outlook. Obviously, a lot stronger going forward. You mentioned there's a change to the reinsurance arrangement. Can you flush that change out a little bit better, that wasn't kind of quite clear what change in -- causing you to recognize a lot more revenue?

Yes. So, we had been supporting them in the form of reinsurance called a quota share reinsurance this past year. And working with the state, we -- the nature of the reinsurance contract change and under GAAP we now consolidated it. So that's the driver. If I step back and look at the true business this year as Frank said very solid performance at the top and bottom-line seem reasonable growth expectations going into '19 in the commercial business, the reinsurance contract, it'll be a meaningful contributor across the year. We're not expecting much of any profitability out of the reinsurance contract, but we feel very good about the true business and the growth opportunities there. And it's really just the nature of the contract required us to consolidate in '19.

And then, as a quick follow up, I thought you all made a comment that the guidance assumes a little bit more conservatism with respect to Passport. And so, I was just trying to understand what was assumed in the 2019 guidance with respect to the Passport revenue?

So, we use the 10% to 12%. And if I look at total revenue that would imply sort of $80 million to $100 million range and Passport in the guidance. In full year '18, we were north of that number. And so relative to a full year '18, it's lower and there's some we've tried. There's a range of outcomes in our guidance and we just try to be thoughtful about our Passport, what we've included in Passport for the year given what's going on there sort of based on what we're seeing today. But it is below what we got last year. That's the reference to conservatism.

Got it. Thanks Nicky.

Thanks.

Our next question comes from Richard Close of Canaccord Genuity. Please go ahead.

Great. Thanks. Obviously, a lot of headwinds here with board of Medicaid, MDWise. And in Passport, I was wondering if you could just talk to us a little bit about the confidence in terms of getting these expenses out I guess on MDWise and provider sponsor, specifically, and then, the ramping or getting the cost out on the board of Medicaid just your confidence levels in those areas?

Yes. I would say look on the cost side relative to MDWise and the provider sponsored health plan segment that's known we're already underway. We've taken some significant actions and it's pretty direct. So, we're very confident. We're going to get costs out related to those segments. Second, you asked about Florida. Frankly, we believe we can grow the membership there. We're not factoring a lot of that into our guidance this year. But, we do think there is opportunity to meaningfully expand the membership. And again, on the cost side, again, something we're already working on by just looking at efficiencies across the regions and the plans making sure our staffing levels are in line with the membership and the revenue ranges and can we have a very clear sign of line of sight there. So, I those are not obscure targets for us. They're very clear on what we need to do and what we're pursuing. But for some of the reasons, I mentioned we couldn't do it all in the first quarter because we had to support some of this through the first half of the year. So very clear first line of sight on those things. And then, as I said visibility with the two new clients that we announced today. And then, what I feel is a strong pipeline and again with traditional closure rates where we should see a nice revenue pickup in the second half. So, we put this out there because we believe we can get to where we need to by the second half of the year. And again, a lot of it based on very specific numbers and targets that we're actively pursuing.

Okay. And I appreciate that. And then, Frank maybe as a follow up, as we think about the model long-term, I guess your thoughts in terms of visibility of the business. Has anything changed there in terms of that? And then, the long-term profitability target?

Yes. I would say that, if you look at the history of the company since we started in late 2011. We've seen pretty consistent growth and very high growth, obviously, since that time. We generally have seen that growth come from our existing customer base, and then a portion of it from new partners that we bring on. Over the last couple of years, it's been a little more weighted towards new partners, so about 60% of our growth coming from that. And in general, we've been in that range year-over-year. I would say this year, we had a segment that we knew was weakening. We've been talking about for a while. And so, I think the combination of the wind down of that segment. And then, MDWise's consolidation issue which we're going to have every couple of years sometimes that will benefit us, sometimes it won't. So, I think an unusual confluence of events. And then, obviously a lot of eggs put in the Florida basket in a very rapid launch and not where we wanted to get to from a revenue perspective. So, as I look forward, I don't feel like the visibility characteristics have changed. We obviously have had a strong recurring revenue in the business historically. We generally have brought on new partners relatively consistently. And again, we've seen strong overall growth rates year-over-year. This year unfortunately we're not where we want to be when we do come into the year just by the very nature of our contracts. We usually have very high visibility into the forward year by the time we're giving guidance in February. So, I believe the business will continue to have those characteristics. We believe the profitability characteristics have not changed as a matter of fact some of our movement towards performance basis. We think there could be some upside from a profitability perspective long-term. So, I don't think there's anything we're saying that's radically different about the business. We've just got some challenges in the first half that we need to work through and feel like we can be in a good place in the second half of this year.

Okay. Thank you very much.

Thanks.

Our next question comes from Charles Rhyee of Cowen. Please go ahead.

Yes. Thanks for taking the question. I just want to ask on the consolidation of New Mexico NHMC. You said you are going to consolidate at 90%, but you also mentioned your capped-on risk at 5%. Can you talk exactly is that sort of at the EBITDA line that you're capped at or is it at the premium line? Can you just sort of the mechanics of that as we think about that?

Yes. We're just saying that under the nature of the contract, our lost exposure to the EBITDA line is the way to think about it is capped at that 5% level.

So, is that are you going to -- we should think about was it like about 17,000 additional lives that we're going to be adding, when we think about against the premium guidance?

Yes. I mean this is a reinsurance contract more than the lives. But so yes, I mean they have I mean -- I would say you think about there is no variability in the number there, Charles. But I would say it's at 80-ish million-dollar kind of revenue next year. We based on their underlying performance we think that's a breakeven opportunity. We just put in the 5%. It is a cap. It is a capped arrangement, but we think this is a breakeven opportunity for us next year within the context. So it's a reinsurance contract. I do think in the passage of time, we look at that business as a solid business and that we continue to support it because we think there might be strategic opportunities there. So, it's not just a financial arrangement today there's operational synergies between the two businesses and in the passage of time that is something we're thinking about, if there's a way to bring those organizations together. But right now, it's primarily a financial arrangement.

Okay. That's helpful. And then, with River City Medical, you talked about 300,000 lives and we're talking about some of the back-half year start. Is there a ramp up period for those lives as well as at least think about the 300 a kind of coming on board all at once? Is sort of how we get sort of this back-half revenue mostly?

I think they'll be some ramp up in the second half. I mean a lot of it is coming online towards the middle of the year, but some of the services get feathered in as we move into the third and fourth quarter. So, it'll be a strong add for us, but some of that, again, it probably won't be fully, fully operational until the third or fourth quarter.

Okay. And maybe one last one for me on the board of Medicaid, you said we're still in open enrollment, but a short window here, when would be the next open enrollment period. Would we just kind of go back to a normal cycle for people to kind of go into this or is it now just more of a rolling basis?

It's more of a normal cycle that we would come back into rather than a rolling basis.

Turning point being that, Chuck, two of the regions went live in February 1, so their open enrollment continues for some period of time, 90 days after that. So, we still got some time in the window. It's not all for the second quarter.

Do you have any ability to influence this like or is it really up to these provider groups that the helps systems or in Florida to do their own marketing et cetera? Is there any way you can assist there or is it really just depend on how they perform in terms of getting enrollment?

Yes. We're obviously going to support them in the process, we need them on board and actively putting in the time and energy. There's a lot they can do to influence those across the next several weeks and months. And so, we're pushing hard and ultimately, we do it together. But they get the fact that this is a priority, I think they believe these are real strategic assets that they're building. And obviously want to continue to grow the membership into '20 and '21 and '22 and so that's what we're going to try to support them in doing.

Okay. Great. Thank you.

Thank you.

Our next question comes from David Larsen of SVB Leerink. Please go ahead.

Hi. How many lives on platform are expected in 1Q of '19? And then, how many lives do you expect to have on the platform by the end of the year?

When I think we'll see a little fluctuation across the year we're starting at 3.6. We've obviously got the wind down of a couple of the contracts that I mentioned. So, you'll probably see a little bit a dip in lives and then we'll also see a pickup in some of the out quarters. So, I don't have precise numbers, but think that that's why we're at 3.6. We'll probably see a little bit of a dip down and then a pickup in the second half of the year.

Yes. Well, I would just add to that David is that I think on the growth, what you're going to see this year the price point is going to be some fluctuations down a couple of hundred thousand in the Q1, bounce around a little bit I wouldn't say it'll change tremendously from there. Of the growth there's a good amount of cross-sell and growth from existing partners. And so, you may see some higher PMPM more growth may come in the form of higher PM necessarily than life growth is some of the opportunities we have.

Okay. And then, with the $70 million of annualized revenue decline, you keep mentioning this 30 million provider sponsored plans, aren't a lot of your clients’ providers that are sponsoring a plan like a lot of these Medicaid deals in Florida have IDN that have created a health plan, right? So just trying to get a sense for what's unique about this. You call it a segment provider sponsored plan segment. What's unique about those customers relative to the rest of your customers?

Yes. I think what we're referring to is single health system plans almost exclusively focused on Medicare Advantage. And so, what you have in those situations is, you don't get to a large life count. You don't build a large revenue base and yet you have a pretty significant infrastructure particularly in MA and you're caught a little bit in not getting to scale. In the Medicaid situations that we're talking about, if you think about those plans, they have a much larger number of lives. Many times, it's multiple providers and health systems that are part of those networks. And so, you have to scale in terms of revenue, and therefore, when you think about the infrastructure costs and the things that you're investing in, you can actually generate a pretty significant return on the investment. So that's really the specific segment that we're talking about, single health systems a lot of the -- most of the focus on MA that simply don't get to scale. Yes, you're correct. I mean a lot of the organizations we work with are potentially providers getting into the health plan business, but we're talking about over a much larger network. So, you might have multiple health systems and provider groups that are part of the organization again covering a much larger geography and then doing it across multiple populations and particularly Medicaid helps because you start out with a large number of lives.

Okay. And then, for the 25 million from the MDWise, is that all of MDWise or like how much of MDWise is remaining. And like what are your thoughts on that piece of the business -- the rest of the business?

Yes. That's really all of MDWise, so it will fully roll-off. And again, a pretty unique situation acquired by McLaren, which is an MSO provider of some of these services for them, it was really a make versus buy decision. And you can imagine they already have a built up infrastructure and as a result made a lot of sense for them to put this onto their platform. They don't do the full set of things that we do. But when we looked at the sort of economic potential of what might be remaining, it didn't make sense for us and so that will fully come off our platform.

Okay. And then, just one last one for me. You talked about double-digit top-line growth, I think in the back half of the year, is that the health services piece of the business. And does that include New Century Health. So, on an organic basis, I imagine, I mean how would you expect revenue growth to trend?

Yes. So, it is the health services part of the business. New Century we're including their pro forma revenues in the base. So, we're talking double-digit on services inclusive of New Century on a pro forma basis.

Okay. So, would be double digits organically?

Yes, Correct.

Okay. Thank you.

Our next question comes from Sandy Draper of SunTrust. Please go ahead.

Thanks very much. Most of my questions have been asked and answered, maybe just one follow up to you Nicky, in terms of the comment on the PMPM. And that was actually going to be one of my questions about the potential volatility there. You sort of commented around [14.15, 15] [ph] as being a fairly stable level. With some of these fluctuations this year. How big of a range should we be thinking about of how much the PMPM could fluctuate. And I realize that's as much of a math question not with the business you're actually pricing definitely to [indiscernible] math calculate. But I'm just trying to get a sense of how much that can fluctuate versus lives? Thanks.

Yes. Sandy, I may want to follow up, I've got to do some more math. When we the end of the year with 15 bucks Q4 pro forma. I think what we've seen in the last several years with the mix of business. It's a bucket. I would say about 50 kind of range if I were to speculate 10% variability on it. You don't tend to see it very vast significantly. Obviously, New Century they're coming in at a higher PMPM. And so, I would expect to see trend up across the back half of the year, but not materially changing if I look at the last several years of mix changes. So I would think 10% would be sort of a cap in terms of where it could go to.

Okay, great. That's helpful. Thanks.

Thanks.

Our next question comes from Mohan Naidu of Oppenheimer. Please go ahead.

Thanks for taking my questions. Frank, I want to go back to the Medicare pathways to success. Getting help us to understand the magnitude of tailwind when we could see from this. You made some comments that were the late stage pipeline that is helping, but there are sizable jump in early stage conversations you are having that you can point towards this. And could this be a much higher source of deal flow for you into 2020?

Look I mean I think as we talked about with the new administration coming in, we went through a period where there was real uncertainty about the direction of health policy. Was the new administration HHS, CMS going to support value based care or were they going to put the brakes on it. There was a relative silence for a year out of both of those organizations. And then, I would say in the second half of last year, we saw a real pickup in communication, in making it very clear that Medicare is [Technical Difficulty] through MA and through the ACO program, they're talking about direct contracting models. Seeing a lot more activity in Medicaid as well. And so, if you're a provider and you're sitting a bit on the sidelines wondering if you really need to move in this direction and now you see that the new administration is coming very aggressively with these programs and that's how you're going to need to qualify for MACRA and things that are very important to your physician partners. Then for a lot of the market you're recognizing you need to step forward into some form of risk and you need to get experience because it's going to be in your Medicare book, it's likely to be in Medicare, starting to see a little more pickup on the commercial side. So, I would just say, it's a call to action for a lot of the market to step forward and evaluate their risk strategy and how they're going to get experience and value. Not all of that will be in the Pathways to Success program, some might decide look we're actually going to go straight to Medicare Advantage and form a broader provider network and approach it that way. They might also look to Medicaid, they might look to delegated risk arrangements with payers which we support and have supported very successfully. But I think the general answer to your question is, yes, I think it's going to represent a pickup in the market. It sends a very clear signal to physician IPAs and networks as well as health systems that this is where the market is going and ultimately, you're going to have to gain experience if you're going to avoid margin compression. And again, that helps set up a number of our conversations. So, as I said before, great breadth and depth to our pipeline, I think that's going to continue into the second half of the year. I think we feel good about the tailwinds from a policy perspective and how that sets up 2020. And obviously, we have to execute on it. But I would say that the overall environment is very positive.

So, Frank, quick follow up on the next gen ACOs that you have I believe you have 10 or so, do they need to change anything specific to these, move on to these new guidelines and potentially impact your revenues?

Well, at some point they run in next gen ACO, will come to an end because they're sunsetting that program. They have the opportunity to jump into the new partners for Success program. There's a bunch of different variants in the way you can participate in that program. So, they can clearly mimic some of the same structural aspects of next gen probably with some improvements to the program and so we would think a number of our partners would evaluate leaping into those programs or if they've done well on the program maybe even going further into MA delegated risk or MA programs.

Okay. Thanks a lot.

Thanks.

Our next question comes from Steve Halper of Cantor Fitzgerald. Please go ahead.

Hi. I don't mean to go through this again, but I just want some clarity on. Could you just go through the mechanics of the NMHC premium revenue that you're now including on the income statement why that happened. And does that recur like in 2020 as well?

Why it happened Steve as I said, if I go back to that the fourth quarter of '17, this is a sort of a sister plan and we chose to provide some financial support to them. We were required -- we chose and slash was required to change the nature of the reinsurance which under GAAP required us to consolidate it. Vis-à-vis the question of, is this going to recur. I think the commentary we made is that, we knew this would be -- this stands out. This is a big number hitting our P&L. And the reason we chose to do that is because we do think going into 2020 is one of two outcomes under the reinsurance, we would stay in place or there might be some tighter strategic tie in with these guys with that NMHC. So, it was a choice we made to support them for current day reasons in terms of the shared physician infrastructure and whatnot that those goes today. And we think there's an opportunity in some shape of form to continue in this business in 2020 and beyond. So hopefully it's not a one-year thing that sticks out, but we did it because we actually think there's a strategic rationale going forward.

Right. No, I get that. So just to be clear, so the financial support from the time when you bought TruCare that you were providing to the legacy plan, which was also a customer is now considered a reinsurance policy for them correct and that's why you're consolidating the premium revenue?

Correct. The last one was a form of reinsurance but under GAAP did not required to consolidate. It's just the GAAP as a form of reinsurance change, we moved from a non-consolidation to consolidation form.

Got it. Now I understand it. Thank you so much.

Welcome.

Our next question comes from Stephanie Demko of Citi. Please go ahead.

Hey guys. Thank you for taking my question. On the Passport side, is there any balance sheet risk, if they were to go insolvent, or put it another way have your joint investment after the Passport given you any exposure [and a tail] [ph] event beyond the rev?

No. No, we don't have any broader exposure.

Got it. And one follow up. This is a bit more conceptual. So, in light of the Passport risk that's happening right now. Has that had any impact or has it changed your philosophy towards the co-investing strategy?

No, I don't think so. I mean again this model has been something we've been working on for a couple of years. We have it in several situations in different forms. I would say overall, we believe that segment has performed at very strong levels. We think there's a lot of sustainability to the clients and the value businesses that we're building. The situation with Passport is pretty unique. Having a retroactive rate situation, and then, again this type of dispute with the state, we're obviously hopeful that it settles out in a positive direction for both the state Medicaid beneficiaries and Passport. But it really hasn't changed our strategy and if anything, we believe we can build scalable, sustainable value business with great profitability and longevity we're going to be very selective about how we do it and what our exposure is. So, you see us being very careful about the way we invest and thinking through the cash flow -- long-term cash flow of the relationships and the returns that we've generated. And I think if you look at the average returns that we've generated they've been high again. If you look holistically at the relationship. So, we want to make sure we're learning from every partnership that we do and very disciplined as to how we set up performance based arrangements or use our balance sheet. I think we've done that. We're going to learn from every relationship, but there's no big change in strategy based on what we see happening with Passport specifically.

Understood. So, with that in mind, this is the last one out of me. If there was a tail event for Passport and given the importance of feel in your business, what would prevent you from potentially acquiring some of their assets, if not the whole business?

Again, it's pretty hard to speculate on that. I don't think we've thought about acquiring a full Medicaid plan. It's just not in our strategic wins at this point. Again, in our certain situations we've talked about co-ownership models where we might have a minority stake in something. But related to Passport that's not something that is currently being evaluated. As I said there's lots of moving pieces relative to their business. They have a long history. They have an existing group of very supportive shareholders that's just not been something that we've spent time on. We're really focused on supporting strong operations, clinical performance improvement, financial performance and doing everything we can to maximize that in the coming months, which I think is the right place for us to be focused.

All right. Understood. They are helpful. All right. Thank you, guys.

Thanks.

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

Well, we appreciate everyone participating in the call. Great set of questions. We'll obviously have the opportunity to see many of you out on the road and up and coming healthcare conferences and we look forward to continuing the discussion. Thanks again for participating.

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