Welcome to Evolent Health earnings conference call for the quarter ended March 31, 2020. 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 for later this evening and for next week via the webcast on the company's website in the section entitled Investor Relations. Here are some of the important introductory information. This call contains forward-looking statements under the U.S. Federal securities laws. These statements are subject to risk and uncertainty that could cause actual results to differ materially from historical experience or present expectations. A description of some of these 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 its first [ph] 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. Frank Williams.

Thank you and good evening. I am Frank Williams, Chief Executive Officer of Evolent Health and I am joined by Seth Blackley, our President and John Johnson, our Chief Financial Officer. First and foremost, I hope you and your families are all staying safe and healthy during what I know has been an extraordinarily difficult period from both a personal and public health perspective. The Coronavirus has had an unprecedented impact on the population, the healthcare delivery system and the overall economy. During this evening's call, I will share our perspective on the impact that COVID-19 is having on the healthcare industry in particular as well as how we have worked collaboratively with our partners to provide support to vulnerable patient populations in an effort to reduce infection rates and mortality. I will also provide a general update on the business, day-to-day operations and the pipeline. John will take us through a more detailed review of the first quarter and then I will close with a summary of our progress on Evolent's key strategic priorities for the year. As always, we will 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 March 31, 2020 increased 24.7% to $247.3 million from the comparable quarter of the prior year. Adjusted EBITDA for the quarter ended March 31, 2020, was $3.6 million. As of March 31, 2020, we had approximately 3.4 million total lives on the platform. And with two partner additions this quarter, we have welcomed three new partners to the Evolent national network already this year. Overall, we are pleased that we met our key financial objectives for the quarter and we continue to feel confident about meeting the revenue and profit targets for…

Thanks Frank and good evening everyone. Tonight, my thoughts are with everyone facing challenges during this difficult and unprecedented time. I would also like to express my gratitude to the dedication and professionalism with which the Evolent team is tackling the challenges presented by this crisis and preserving service for our partners in this most critical time. Our first quarter results were right on track with expectations and reflect solid execution against our key priorities for the quarter. Before taking you through the details, I wanted to spend a moment discussing the possible effects of the COVID-19 pandemic on our financials. As Frank mentioned during his remarks, we did not see a significant net impact on our results during the first quarter. This is consistent with our expectations given the recurring nature of our revenue model and the visibility we have into our revenue range for the year. The diversity of our revenue streams across Medicaid, Medicare and commercial lines of business, both fee-based and performance-based and principally sourced from health plan partners, further contributes to our financial stability. We are monitoring the pandemic across all areas of our business, but in particular, in the three areas of membership, medical utilization trends and liquidity. First, many expect pandemic to change enrollment profiles with increased unemployment driving an increase in Medicaid enrollment and a decrease in commercial membership. Through April, we have not seen material changes in our membership and based on what we know today, we are not expecting a net economic impact for membership at this time. That said, with over 50% of our lives in Medicaid, a shift towards higher Medicaid enrollments would likely be a net positive for us. Second, with respect to medical utilization trends, we may see impact in our health plans as well as…

Thanks John. I want to close with a few updates on our progress against our key strategic focus areas for the year. First and foremost, we are intently focused on continuing to leverage our differentiated solutions and talented employee base to provide the maximum support we can for our partners. Every week, we are seeing new innovations across our partner base in terms of ways to support the communities that our partners serve. We are documenting and disseminating these best practices across the network in an effort to minimize the impact of COVID-19 and support community health. Second, we believe this pandemic and the broader healthcare environment has emphasized the importance of our data-driven population health orientation as well as our integrated suite of clinical and administrative solutions. It has also helped us to refine our predictive modeling, deployment of AI and expansion of our virtual care management capabilities, which we believe will further drive our differentiation and demonstrable improvements in cost of quality. Third, we are focused on continuing to enhance our impact by driving consistent growth as well as meeting our financial objectives for 2020. We continue to make significant progress on achieving increased efficiency across the business in an effort to be cash flow breakeven this fall and consistently expand margins long term. Lastly, we will continue to emphasize building a high-performance organization, which feels particularly essential in this moment as our employees and their families do their best to balance so many aspects of their personal and professional lives during this time. We are providing a number of important resources to support our employees with a focus on maintaining a sense of community and connectedness in a remote working environment as well as supporting employees that have unique needs during this time. I am heartened and, frankly, amazed by how our employees have responded in this moment and know they will continue to provide excellent service to our partners and their communities over the coming months. Our partners are heroes and we feel honored to serve them in some capacity. Thank you again for participating in tonight's call. With that, we will end our formal remarks and we are happy to take questions.

[Operator Instructions]. Our first question is from Charles Rhyee from Cowen. Go ahead.

Yes. Hi. Thanks for taking the questions. I wanted to just touch on guidance since it sort of the last thing you guys were talking about here, John. And then the write-down in GlobalHealth, can you just go a little bit more, you are saying that it doesn't impact guidance for this year. But how would have that affected the financials going forward if we were to retain this? And is there any way to kind of recoup this? Or are we no longer a partner on the health plan side of it and now it's just a service provider to GlobalHealth?

Yes. This is Frank. I will take that and John, you can feel free to add. I mean, I would say, if you look at our Medicare strategy as a whole, we have had a focus on delegated risk arrangement with national and regional payers. We have specialty management through New Century and then we support scaled plan through our service business. So when we entered into this joint venture, the thought was, here is a longer horizon investment we could make that is really an owned model for a segment of the market, with the idea being that it will be a multiple year investment and something that we could see an equity return from over time. I would say, looking at the strength of our strategy and where we are, we feel very good about our medium term growth outlook. We still have a service relationship with Global, which may enable us to continue to grow service revenues in the future in our core business. And sort of given those two things and our desire to really focus and prioritize our allocation of capital, we did decide that, look, from a pure equity return, if the need is for us to put additional capital in at this time relative to our other priorities, we are simply not going to do that. So as John said, you see no impact on our guidance that we just reiterated for this year. And as we mentioned, we think we could get additional service revenues out of Global. And as they continue to grow and expand, we would obviously grow with that in the future. However, we don't think, in most cases, we will see much of a return from the financial and equity investment that we made. Again, I think it's the right priority and the most important thing is we feel very good about our overall growth strategy over the medium term.

No, that's helpful. And just two quick clarifications. On the EmblemHealth announcement, the new partnership here, should we be adding 3.2 million members? Or it's a subset of the total membership?

Yes. We have had a couple of arrangements recently that start out, particularly with New Century, as a, what we call, light management model where it's essentially a management fee for a segment of the population and that's what we are starting out here with Emblem. We don't include those in our life count when it's a management fee-based arrangement. We do think it can expand over time and obviously could go beyond a couple of hundred thousand lives to cover several hundred. But again, we are not counting those in our life count, but it will be a significant revenue contributor as we go into 2021.

Okay. So just to be clear, we should not be adding members because of this deal for this year. Is that the right way to think about that?

Yes, it is. Again, we sort of called out the ASO portion of our New Century business and we do not count those in our overall life count because it is a lower PMPM. It still is a substantial revenue relationship, so we feel very good about its contribution to 2021. But we will not include them in our life count at this point.

Okay. And then you talked about and my last question, just on pipeline, you said meaningful engagement. Has there been any type of disruption in terms of, as a result of COVID in terms of meeting times and scheduling and getting people to engage with you? Or really, at this point, as you said, you haven't really seen any material change? Thank you.

Well, I would say, look, we came into the year with a really good pipeline. We are happy. We have closed three thus far this year. We feel good about our value proposition given the overall environment. Surely, we expect to see some delay in decision process. You could see a 30 to 60 day delay. As we talked about, we are really dependent on the pipeline for setup for 2021. So when you think about meeting our target of six to eight new partners by the end of the year, we feel very comfortable given the adjustment in time line that we can hit that objective and that we will be well set up as we go into 2021 based on what we know today.

Great. Thank you and congrats on the quarter.

Thanks.

Our next question is from Robert Jones from Goldman Sachs. Go ahead.

Great. Thanks for the questions. I guess, Frank, maybe just to pick up there on the confidence of adding the six to eight new partners for the year. You mentioned you already have three secured. Just trying to think about the mix of new wins in this environment. The two announced tonight where you were obviously on the New Century side. Anything you can share as far as where you are seeing greater appetite given all that's going on? Is it more New Century Health Plan side of the world? Or is there still an appetite kind of on the traditional sale of the total cost management model?

Yes. I would say that NCH has been particularly strong because of the immediate value proposition. It drives savings that are substantive right out of the gates. And in a world where there is increased budget pressure and also a need to really manage complex specialties like cardiovascular care and oncology, I think we are seeing a very strong pipeline there. If you step back, the organizations that have substantially developed value-based businesses are more protected today than those that simply stayed for fee-for-service. If you have a prepaid model and one that can balance some of the impacts on utilization, I think it highlights that having diversification across your revenue base from fee-for-service to value is the right strategic move to make, particularly in this environment and we all know this could stick around for a while. So I would say that it surely helps. With organizations that have been considering putting more dollars and more effort into their value strategies, this environment would highlight the need to do that. We are seeing demand as organizations think through delegated risk arrangements, shifting away from fee-for-service and getting more upfront, pre-budgeted paid healthcare. I think that's a big opportunity for us. And I think we will continue to see opportunities on the health plan support administrative piece where organizations need greater efficiency and really are looking to drive savings through an integrated infrastructure. So as I said, we will surely, just the last month, people have been scrambling and that surely has slowed down decision cycles, but we feel pretty confident in the level of overall demand. People still are engaging. So we are still moving things through processes, largely call and video based. So prospects are moving forward. And again overall, I would say this is a validation that a diverse and value-based revenue strategy makes sense, given the sort of thing that's going on with the pandemic and chronic care utilization.

No, that's helpful. And then I guess maybe just one follow-up and it's kind of a bigger picture question, Frank. But you guys mentioned that the lower cost trend, it seems to overall be a favorable dynamic across the business and understanding that your arrangements take on many different forms across the various customer types that you have. But it does seem like that lower cost trend is a favorable, at least directional, dynamic for the company. How should we think about the ability to help your clients control cost as utilization comes back, whether that's later this year or next year? Does that pose any additional challenges just in the way that you help your customers manage costs into the different arrangements that you have?

I think what I would say, if you step back and think of the potential impact on COVID, a couple of things to keep in mind and John highlighted this, a very diverse customer base. We obviously sell both to providers and payers, diverse from a population perspective. So I think there is some natural buffer from that. But if you look at our balance, one, over half our lives are in Medicaid and we are likely to see growth in membership in Medicaid across this year. That surely would have a positive impact. We are not taking that into account in our guidance today. And if you think on the utilization side, there's lots of different estimates out there. Surely, in the short term, you will see utilization improvement in both Medicaid and in many Medicare populations, frankly it depends on geography and also in commercial population. So I do think you naturally would get some utilization benefit in the short term. And then in a difficult economy and we know this from historical standards, the level of elective procedures and those types of utilization patterns usually don't go back to their normal for some time. People who are worried about being out of work, people who are worried about getting infected, probably will not go back at the same rate over the medium term. You will eventually see a bounce back. But if you just look at that overall picture, I would say, again, we are calling it neutral to net positive and I think that's an appropriate framework given our particular mix of revenue and the populations that we serve. On your cost question, as you get into next year and again, if you step back, if I am a health plan, if I am a provider in a value-based business, if I am a provider in fee-for-service, with all the things that we have seen, one, I am going to want to manage capacity in my facilities if there continues to be pressure from the pandemic because I am going to have a lot of medical cases, I have still got chronic patients and that's absolutely what we do in our population health model. We have adjusted our stratification to include COVID and other risk factors. We have engaged those patients successfully, not only reduces costs for performance in the value business but also helps on the utilization side as well. So I see this overall as a positive trend around the investments we have been making and a business model shift that I think we are going to continue to see on the provider side where having a balanced value-based business is going to be an important offset to lower utilization on the fee-for-service side, should that continue. So again, that's a view. It's an opinion. But that's where we see things today.

Okay. Got it. Thanks Frank.

Thanks.

Our next question is from Ryan Daniels from William Blair. Go ahead.

Hi guys. Thanks for taking the questions. Frank, maybe one for you. Given the strength you are seeing in New Century, has there been internal debate about shifting some investment dollars towards that asset, especially as it relates to moving beyond cardiac and oncology specialty services into other areas?

Hi Ryan, it's Seth. I can take that one. I think the first fact on New Century in terms of opportunity is just the fact that we are really sub-5% penetrated today around cardiology and oncology. So the overwhelming opportunity is to continue to do more of what we are doing with cardiology and oncology. And so within that, we have certainly done a lot in terms of adding key talent into that business that have helped it scale and will continue to help it scale. So there's clearly something we have already done there. And I think the biggest opportunity, Ryan, is to just keep going down that vector, stay focused and executing on what's right here in front of us, which is going from a reasonably modest market share to something much more substantial and get the scale benefits of that. Over time, I do think there's a unique model we have of sitting in between the payer and the provider. We are helping drive down cost, but we do it in a way that the oncologists and cardiologists and ultimately, other specialists, primary care physicians, I think feel better about than maybe the traditional approach to managed care. So I think the model does apply quite well outside of cardiology and oncology. So what I would say in the medium term is, absolutely. I think in the short term, we will likely stay a bit more focused on a couple of specialties. If something comes along in the medium term that we feel like we can apply the same model to, I think we would certainly look at it.

Okay. That's helpful color. And then, Frank, any thoughts on the interim final rule around the Medicare ACOs? It seems overall favorable that they won't hold providers accountable for COVID costs. They are allowing kind of automated extensions for the year, staying in the same risk model, but they also block new entrants. I am curious, one, your overall thoughts? And two, did that or will that impact your pipeline at all given that they are not the allowing entrants into that kind of niche value-based care model? Thanks.

Yes. Great question, Ryan. I agree with you. I think overall, the response from CMS has been strong. They have been actively working with us, with our provider partners. They want to get it right. They ultimately want to move payment to these types of models and therefore, they want to be supportive. In some of the models, it's a comparative regional benchmark. So as long as you have done a good job given the situation that you are in, which we feel we have with our partners, you can still perform well. And obviously they need to look at the overall data and make appropriate adjustments. But I think they have been very, very reasonable. I think through our ACO program and you just look at the opportunities to work with other payers, there are certain programs where there may not be restrictions. We don't see it as a major issue impacting our pipeline at this point. So again, good same-store growth potential with the existing partners that we have and then there may be segments, program segments that still will be expanding as we go into 2021 but nothing material there.

Okay. Perfect. And then one last follow-up and this isn't critically important, but I am not sure I understand it. Why are you required to write down effectively your entire investment simply because you didn't participate in the most recent capital call for the asset GlobalHealth?

Hi Ryan, it's John. I think as we think about the valuation of that financing round here in the middle of the pandemic, it was a down valuation which led to the write-down. I think not an optimal capital markets right now, still we believe the right strategic call.

That makes sense. Thank you so much.

Thanks.

Our next question is from Sandy Draper from SunTrust. Go ahead.

Thank you very much. Maybe just a follow-up actually to, I think, Charles' first question, maybe for John or Frank, feel free to chime in. One, I just want to make sure I understand that the three customers that you have signed so far today, are they having any meaningful contribution to revenue or lives this year? I wasn't quite clear if those three partners were in this year at all or really, I know you talked a lot about deals this year set up next year. I just wanted to make sure I was clear on that.

Primarily, they will represent growth going into next year. So they will kick off, we think, in the second half of the year. But they will be fully ramped by January of next year. And so they will really contribute to growth next year.

Okay. That's my first question. Second is, if I take the first quarter that you did and the midpoint of the second quarter for adjusted services revenue, to get to the midpoint, I mean you did raise the guidance a little bit, at least I think you did, it would imply that you are actually having down services revenue in the third and fourth quarter. Is there anything that I am forgetting that's rolling off anything that would cause that? I am just trying to understand, obviously, the mid to upper end of the range, it's not. But what's the conservatism that would suggest that that revenue would actually be down in the third and fourth quarter?

Hi. This is John. I will take that one and Frank can jump in. As we look at the overall sort of arc of the year here, the quarter-over-quarter growth from Q4 into Q1 and then Q1 into Q2 sort of played out as we expected with strong growth coming from both new partners and the full weight of the Passport and CountyCare cross-sells coming in from NCH. As we look at the rest of the year, we have put out a set of guidance that we feel quite confident in and very comfortable with and also recognize that we are in the middle of a pandemic. And so are sticking with that guidance at this time.

Yes. And I would just say, Sandy, I think your specific question is a little bit about Q1 versus the rest of the year. We had a little bit of a pass-through expense in Q1 and an increase there that we knew or thought was likely to happen. And so that's why you see a slight increase there. But we sort of expected revenue to be somewhat ratable throughout the year. Obviously, if you look at our Q3 and Q4 growth versus the prior year, we are at a growth rate north of 20%. It's possible, as I said, we will get a revenue pickup as we find out more about enrollments, particularly in Medicaid throughout the year, but we are not factoring that into our guidance at this point.

Okay. I really appreciate the comments.

Our last question is from Jessica Tassan from Piper Sandler. Go ahead.

Hi. Thanks for taking the questions. I think we are just interested to know if you could talk a little bit, I guess, qualitatively about the virtual care capabilities at New Century and just kind of how many of the providers were using virtual care pre and post COVID and any investments you might have had to make in order to enable that over the first quarter and any that might continue in second, third? Thanks.

Hi Jessica, it's Seth. Yes. Look, I think I will answer that a little bit more broadly first and then we can talk about the virtual care. Just in general, we pulled together our entire scientific advisory board nationally around oncology, in particular given that, obviously, cancer, in many cases, is more dangerous than COVID, so the treatments have to go on and put together a very holistic update on all the pathways that we think are relevant for patients. So everything from how do we treat patients in the home where they need infusion, how do you provide longer-lasting agents that don't have to come in as frequently if they do have to come in. And then virtual is one piece of that broader puzzle that had six or seven different elements to it. So we sort of rolled that out nationally. The telemedicine capabilities are capabilities that the providers have directly on their own. We facilitated them and then we have helped make decisions with the physicians on when telemedicine is appropriate, when bringing them into the office setting is appropriate. And we have done that again through adjusting our pathways but also adjusting the way that the drug regimens go. So I think I don't have a specific number for you on the percent increase in telemedicine, but it's incredibly large, multiples and multiples of what it was pre-COVID and it probably accounts for up to third to half of patient visits in many practices. So it's become very substantial. But I think the important thing is, it's part of a broader pathway redesign that we did holistically around COVID which I think the oncologists really appreciate and certainly the right answer for the patient.

I would just add, sorry, outside of New Century, our traditional model has been to have multiple modalities of virtual care management in ways we can interact with patients. We also have an integrated health approach. So in our Medicaid populations where you have, as an example, high incidence of substance abuse disorder during a pandemic, you want those patients to still have access to counseling, so that they can continue to stick with their treatment regimen. And so we have been able to integrate, whether it's virtual behavioral health, substance abuse counseling, our normal care management for more severe chronic patients. And so it's just been an extension of what we have been doing historically. But I think in NCH, as Seth said, we made some specific investments across the last couple of months.

Awesome. And then just quickly on the New Century Health, are those for the most part straightforward PMPMs? Or are they tied to any kind of outcomes or volume sort of threshold?

The nice thing with New Century is, as we talked about, we are getting paid a base fee, as an example, in the Emblem relationship, but we also have performance incentives. If we perform well on quality metrics, on overall cost metrics, then you can have increased profitability with that arrangement and frankly in a lot of our relationships with NCH.

Got it. That's helpful. Thank you.

Thanks.

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

We appreciate everyone participating in the call. I know there are some virtual conferences coming up, which we will be participating in and we look forward to interacting with many of you during those conferences, but thanks again for participating tonight. Good night.

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