Welcome to Evolent Health Earnings Conference Call for the Quarter Ended June 30, 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 later this evening and for 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. Frank Williams.

Thank you and good evening. I am Frank Williams, Chief Executive Officer of Evolent 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 a difficult time for many. I'll 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 [indiscernible] network. I'll then hand it to John to take us through a more detailed financial review of the second quarter and will close with an update on our organization and a summary of our key business and strategic objectives for the year. 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 June 30, 2020, increased 24.2% to $238.6 million from the comparable quarter of the prior year. Adjusted EBITDA for the quarter ended June 30, 2020 was $9 million. As of June 30, 2020, we had approximately $3.1 million total lives on the platform and with two partner additions in this quarter, we welcomed five new partners to the Evolent national network already this year. Overall, we're quite pleased with our top and bottom line results for the second quarter and based on the strong financial visibility we have on the third and fourth quarters, we expect to outperform the full year 2020 revenue and profit targets that we outlined at the beginning of the year. Accordingly, we now anticipate delivering over 30% revenue growth in our service business for calendar year 2020. In addition, this past quarter, we continue to make solid…

Thanks Frank and good evening, everyone. I hope you and your families are staying safe and healthy during this unprecedented time and I thank you for joining us. Our second quarter results exceeded our expectations on adjusted EBITDA and cash flow, largely as a result of strong performance across our customer base, the strength of our performance-based arrangements and our overall cost containment efforts. The strength of our operations also translates to being on track to outperform the high-end of our previously stated guidance range for the full year. Before going through our detailed results, I wanted to give a brief update on the COVID pandemic and its impact on our financials, which is modestly net positive for Q2 and our revised outlook for the year. As discussed during our first quarter earnings call, 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. On the membership front, through June, we have seen modest increases in Medicaid enrollments across select clients relative to the first quarter consistent with macro expectation during the COVID pandemic. These enrollment increases ramped across the second quarter and thus were not a meaningful contributor to our topline performance in the quarter. That said with over 50% of our lives in Medicaid, the continued shift towards higher Medicaid enrollments would likely be a net positive for us. Turning to medical utilization trends as expected, the disruption of care patterns nationwide during the quarter resulted in a reduction in overall medical utilization. This drove a modest net benefit to the economics of our performance-based arrangements in the quarter as expected with lower utilization partly offset by expenditures made to enhance the accessibility of our services during this important time. Overall medical utilization…

Thanks, John. I thought we'd close with a few words on our executive promotions and our focus heading into 2021. As you all read in our press release, effective October 1, Seth Blackley, a fellow Evolent Co-Founder and our current President will step into the Chief Executive Officer role. I will remain as Executive Chairman and intend to stay intensely focused on the business and look forward to continuing a very productive partnership with Seth, John and the executive team. The timing of a decision was largely related to Seth’s demonstration of readiness to take on the Chief Executive Officer mantle based on his history of achieving business results, his strategic vision and his unique, compelling and highly effective leadership style. As my partner and as President across the last decade, he has been a force in driving the overall strategy, as well as demonstrating a grasp of all aspects of the business. The Board and I both felt strongly that this was an opportune time for Seth to lead the next phase of the company's growth as we approach a billion in revenue this year with a focus on growth across the core solution areas that Seth has been leading and orienting to the market already for some time now. Well, most of you know Seth well, for those of you that don't. He's been an absolutely inspiring leader of our management team since the very beginning as a Co-Founder and has led the charge and building our national network of partners across the U.S., that helped to establish and refine our go-to-market strategy as well as creatively leveraging M&A to further the differentiation of our key solution areas. Seth has also led the New Century Health business since its acquisition in 2018. I'm certain Seth will have a tremendous impact in his new role as Chief Executive Officer. And personally, I'm excited to continue working with him and the team going forward. With that, it's my pleasure to turn the call over to Seth and have him discuss our key priorities heading into 2021.

Frank, thank you. I’m excited and humbled to lead what I believe is a world-class organization. I look forward to building on Frank's legacy and to continue the strong partnership that you and I have had since founding the company together almost 10 years ago. I'd like to highlight four business and strategic objectives that will be key focus areas as we head into 2021. These objectives aim to ensure that we both continue to build a company that drives transformative change in health care and strong shareholder returns. First, focus will be a theme. We will remain focused on disciplined execution against the core growth strategy across New Century Health, Evolent Care Partners and Evolent Health Services. The strategy will allow Evolent to continue to scale our services model with technology and intellectual property at the core of all that we do. Second, we will ensure that our operating cash flow profile and our capital dollars are focused and deployed on our core businesses and then we have the balance sheet flexibility to continue to grow profitably. This work is highlighted by the expected return of capital from our Passport transaction as outlined by Frank and John as well as the fact that we’re projected to be cash flow positive in 2020. Third, while we will continue growing with providers, we’re accelerating our work with the payer community as we scale the business and continue our leadership position in value based care. Our work with payers leverages all the capabilities we built over a decade, and leans heavily on our credibility and expertise with providers. And finally, we will continue to be a leading destination for top talent and we will continue to be a high performance organization. Frank has built an incredible foundation for our culture and I believe that our team and culture will be a competitive advantage for many years to come. With that, I will turn the call back to Frank to close.

Thanks Seth and thanks to everyone for participating in tonight's call. With that, we'll end our formal remarks and we're happy to take questions.

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Ryan Daniels with William Blair. Please go ahead.

Yes, congrats Seth and thank you for taking the questions and for all the color. Can you start with a little bit more on the Molina agreement, it's great to see that they're already expanding into a new state. But can you give us a little bit more color about what drove that expansion before, the initial contract is even started. And then there's a follow-up to that just any key things that they are looking at, is they assess expanding into other markets, whether it's challenges in those markets or ROI from the initial deployment? Thank you.

Yes, thanks, Ryan. It's been nice getting to know the Molina team across the last several weeks and what I would say is we've had an opportunity to get our clinical people together and go really deep on the New Century clinical pathways on the approach to managing both cost and quality. We've learned also about how Molina approaches specialty management and I think there's been a really good fit with our approach and how they're thinking about those specialty areas strategically. Based on that, and with all the pressure that we see on managing medical costs and again making sure that high quality care is being provided and what are complex areas. I think based on that, there was a lot of attachment to the value proposition and a desire to get going early next year, not only in Kentucky, but also in a second market. As these things go, you begin working together and hopefully things go well and we have an opportunity to deliver value for Molina's members higher quality care, hopefully at high levels of efficiency. And then can expand that relationship over time. So all I would say at this point is we've really clicked in our early conversations, we're excited that we have two markets to begin in early 2021. Obviously, focused on strong delivery. And I think if that happens, we're hopeful that we'll have an opportunity to expand the relationship to other markets.

Okay, great. And can you talk a little bit about the sales investments, whether it's sales and marketing or direct sales team behind the New Century that's obviously been a strong growing asset seems like there's a lot of demand and several large new customers, so are you reallocating any sources from the administrative services or other areas to that. Can you just give us a little bit of a sales update there and I will hop-off. Thank you.

Sure Ryan, I can take that one. So when we acquired New Century initially, there was a very small team in place and we have over the last 18 plus months reallocated some team members, some of our stronger talents over to that business on the sales and marketing side. And at this point, I think the team is well staffed and in a good position. And it's been I think part of the reason that we've been able to accelerate the growth there over the last couple of years.

We can move on to our next question. Our next question will come from Robert Jones of Goldman Sachs. Please go ahead.

Great, thanks for taking my questions. This is Jack Rogoff on for Bob. I wanted to ask about guidance. It seems like the midpoint of implied 4Q services revenue guidance below the midpoint of 3Q guidance. I'm just curious, is there anything we should be aware of on cadence or attrition or maybe that's just conservatism on some performance based revenues you're expecting?

Yes, no two things in there, Jack, I think nothing specific that we're indicating there. I think the range that you see sort of permit flat quarter-to-quarter, we also do have some one-time items that could hit both this quarter and next quarter. And so that's what you're seeing there.

Got it. That makes sense. And then you talked about potential expansion with this Southeastern client when you announced this quarter. I'm curious what areas you'd be expanding in since you're already deploying both New Century modules. Is this more geographies? Is it Medicaid, or is it other Evolent offerings to this client?

Yes, I mean I think what we've seen in a lot of situations as we start out in one solution area, and then we see the opportunity to grow in two ways, one the client is investing in growth. And as they add lives, we grow with them. Many times it will be in the same population area, but sometime they will go into other populations which would be either commercial or Medicaid. And then also once we start working together an opportunity to bring our other solution areas to bear and that could be both in the administrative solution area, where again, there's a number of things we provide in terms of clinical infrastructure. And then also if they're looking at working within the physician network to delegate risk, we can also use our total cost of care assets and capabilities to help support them. So right now we're focused again as we are in any new relationship on delivering on the core of what they've asked us to do. And then our hope is we build confidence across time, and see the type of cross sell that we've seen across the past year, which has been a big source of our growth this year. And hopefully that will apply to our five new partners that we've announced thus far this year.

Got it, thanks. Very helpful.

Our next question today will come from Matthew Gilmore of Baird. Please go ahead.

Hey, thanks for the question. And then congrats to Seth. I wanted to follow-up on guidance. It looks like you increased the service revenue guide by about $65 million and that's mostly combined to the back half of the year. Could you go through what some of the upside drivers were [Audio Gap]?

Hopefully on in this year, the possibility that we could have some strong growth in the back half of this year and so what you're seeing now is that full visibility into that rolling on and from some of the new partners that we've announced this year. So that's really the dynamic that we're seeing this year along with strong performance in our performance based arrangements. As we look at next year, and setting that up, obviously too early to comment on 2021 specifically, but certainly as we’re able to build up our starting point that will increase our starting point for next year.

Okay, fair enough. And then John, one more, I think this probably falls to you too, the platform lives picked down a little bit again, it's obviously not having a big impact on revenue, but can you just help us understand what caused that metric to go lower this quarter?

Yes, of course. As we not unexpected again, we sort of indicated that it likely be in the low-3s in the middle of the year here, and so consistent with our expectations, I would expect it from here between now and the end of the year to take backup as we have some of those new go lives coming on that we just talked about.

Okay, great. Thank you.

Our next question today will come from Charles Rhyee of Cowen. Please go ahead.

Yes, thanks for taking the questions and congrats to Seth. Just wanted to follow-up a little bit on the Passport. Is it possible to kind of help us think about the revenue differential between the services agreement with Passport which expires at the end of this year versus the New Century deal with Molina that starts next year. And then, I think Molina has talked about potentially closing the Passport deal early potential in the Fall here. What kind of impact would that have for you guys this year or anything like that?

Yes, I mean first of all, the closing date does not impact our revenues for this year, we'll be providing our full-suite of services through the end of the year, so or the close date doesn't impact that in any way. If you look at the Molina announcements both in Kentucky and in Washington, we'll start those sometime early next year. There's still a lot of work to do to understand what membership Molina will end-up within Kentucky, what the financial analysis will reveal about the population and what the ultimate PMPMs will be. And then as you know, a lot of our NCH business does ramp across time in the first year. So I would say safely between those two, we could expect a couple points of growth in 2021. I think that's safe to say and then we would hope that those expand significantly as we get to the back half of 2021, and into 2022, but that's our best guesstimate at this point, there's a lot of information we'll need to gather across the next 90 to 120 days before we have a sense of real revenue estimates.

Okay, that's helpful. If I could just follow-up on the question. We've talked a lot about New Century, maybe in the provider market, hospital market. What are some of the dynamics going on obviously, a lot of them are dealing with COVID right now. But as we think more broadly, the shift to value based care, maybe you can just help us understand sort of the general trends and themes in the provider side of the world? Thank you.

Sure, and good question. First of all, from a healthcare payer perspective, people that are purchasing healthcare, it's obviously a tougher economy. There's a lot of focus on cost, and making sure that premiums are efficient. And so I do think you're going to see more pressure in terms of value based arrangements, which really are the best way to address healthcare cost increases. So we're hearing that in the market. And I'd say from the full range of players that are out there, from a physician perspective, they generally have had a hit to cash flows as a result of COVID, lower office visits in many cases, lower elective procedures. So there is an opportunity for physician organizations that are efficient to move to risk-based arrangements and to do so very profitably. And so we’re seeing if you just look at general demand from physician organizations that we're talking to, we're seeing increased interest in demand in what we do and potentially working together. There still are a lot of issues that need to be sorted out with CMS in terms of their ACO programs, everything from beneficiary alignments, quality reporting, how they're going to handle payment methodologies in COVID. So you have organizations that have stepped forward and said, look, we want to move in this direction. One way is through CMS programs, we need a little more information, but we want to prepare. And then second obviously, is taking delegated arrangements from local payers which we support. And again there you don't really have to wait for various policy decisions. And so I do think we'll see more in terms of delegated arrangements both with our existing base but also in attracting new physician groups. For Health Systems, it's the two-canoe issue that a lot of them have largely relied on fee-for-service as the base of their economic model, that's generally hurt them in this recent period. And I think there's an acknowledgement that having dual financial models if they can be well managed is an opportunity to hedge and so if you think about health systems that have lost a lot of volume, cash Flow has been impacted moving towards a more substantial participation in Medicare and potentially Medicaid risk is surely attractive and we’re seeing more activity there. But primarily, I would say we're seeing it on the physician side. We're seeing a lot of pressure from those paying for healthcare. That takes a little time to cascade through the system. But I think we'll start to see the impact of that as we get towards the middle of 2021 and into 2022.

Great, thanks a lot, guys.

Thank you.

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

Great, thanks. Congratulations to all, just curious maybe to go follow-up on Charles question on Passport. I think it was 22% of revenue in the first quarter. Do you have whether it was in the second quarter or for the first half total?

I think it would be slightly less than that. I think it'd be slightly less than that, given the revenue growth we've had on the other side. And it's been we've had a little bit of membership increase there, but it's been largely stable. John, feel free to add any detail for that?

Yes, it's the same ballpark.

Okay, great. Thanks and then Seth, maybe if you could dive in a little bit deeper on the fourth strategy you had or fourth point there in terms of accelerating work with the payer community? Is there any additional details that you can give us on that? What exactly are the intentions there?

Yes, sure, Richard. Thanks for the question. So since we've started at once, we've really served this bridge between the payer and provider community from the starts. And over time, we've done a lot of work with providers and then that migrates through ACOs or other models up to the payer community. Of late, you've seen a lot of announcements from us, starting with the payer, and ultimately working with the provider community, the capability in the middle to engage physicians to change the way healthcare is delivered, deliver higher quality, lower cost care, that all remains exactly the same. But as you've sort of seen across the last 12 months, we've had, I'd say a disproportionate share of announcements with the payer side is sort of the starting point for these relationships. And I think what we're finding particularly with New Century, but just in general that you can continue to accomplish a lot of the same work with the same capabilities, but the actual original contract starts on the payer side. And often those organizations have slightly more lives, a little bit more scaled out of the gates in some of the provider organizations and so that's been a nice way for us to scale and grow. And I think the statement is just sort of saying we plan to continue that again, doesn't really change what we're doing in the middle of the bridge. And it certainly doesn't have any implication for the fact that we'll still also in certain cases start with the provider of Health System, or often an independent physician group as we do with Evolent care partners but think that go-to-market sales side of what we do has shifted a little bit and will kind of continue to be a little bit heavier weighted in that direction as we head forward.

Okay, so it's not like having additional services to the payer community is just going with what you have already unfold there?

Correct, and it's sort of making it clear that we’re funding a fair bit of success there, when we started this first announcements around the New Century acquisition, it was new for us and it's been an important part and we’re just stating we plan to continue down that path.

Great, thank you.

I mean and I'd say you just to add, I mean if you look at the penetration within total opportunity in oncology and cardiovascular services just within our existing client base, it is a tremendous growth opportunity as Seth said, with what we have today and so we obviously want to take advantage of that and grow off of that existing base at the same time, there are a lot of extensions and additional things we could do within those specialties and also in new specialty areas that surely would fit the strategic vision that Seth laid out. So the nice thing is we've got a lot with what we have. We've got some nice extensions we can do off of that and a huge penetration potential. And we can also look for opportunities for other specialty areas that make sense, given the feedback we got in our existing relationships.

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

Thanks very much and I echo my congrats to you Seth as well as to the whole team. I guess maybe just following up on this line of questioning about payers and providers and as you're doing more payers, one of the payers, one of the things that you talked about a lot, I am going to go way back to the IPO in early days was pretty much sole focused on the providers when you were in the camp as a provider and as you're doing more payer work, have you had any conversations with providers, were there like, yeah but now that you're short in payer camp, we're not sure you're really working for us anymore. How do you manage that relationship where you're working with providers and payers and potentially at times it may be some bumps? How do you deal with that?

Yeah I would say that we know we're going to be effective if the relationship works for both the payer and the providers that are participating and that's true in any relationship where you're delegating risk, where you're asking providers to take a more active role in managing care, it has to be the right arrangement, there has to be a collaborative philosophy the rest of the alignments and we will only work in situations with payers that are committed to that philosophy. And I think the fact that providers recognize that for them to get scale and value-based care, they need lives that payers have a lot of lives and if they can have an Evolent bridge, the relationship so they know they're getting reasonable terms, they know that they're going to get delegated appropriately the clinical functions that are necessary for them to perform, that there is a fair balance that allows both of those groups to work together very collaborative. So how we haven't gotten a push back because we have not moved away from our philosophy to make sure we have that alignment in any relationship that we're in between payers and providers and as a result, I think that's why you’ve seen the growth on the payer side. What it's allowed us to do is go exactly to where lives exist today under managed care, under value-based relationships and therefore get our provider partners to scale and so I think it's been a very effective strategy and it obviously diversifies our revenue base. We're not dependent on the market moving or going directly to a place in the market where it exists today and yet we're serving as a catalyst in a place where it's been difficult sometimes for payers and providers to work together effectively because we're bringing a philosophy that really creates that alignment and make sure that these relationships ultimately work.

Great, Appreciate that, that's helpful commentary Frank and then maybe just a quick follow-up for John, when I look at the expenses I am primarily not as much books on the claims expenses because I understand why that's down, but I look at the cost of the core Evolent as well as SG&A down fairly inevitably sequentially. Can you just remind me besides just normal cost controls etcetera are there any sort of expenses that you are, I can't remember if you took some things off the table that when things get back to normal you're going to bring back and there is a step-up in expenses like I can't remember if you there are pay cuts anywhere 401(k) match, things like that I just can't recall if there were expenses that are not there now that once think gets back to normal you will turn back on?

Sandy, good question. I think fundamentally what you're seeing here is just the result of this focus that we've had on driving cost efficiency year-over-year. You look at the comparable quarter last year, our SG&A line is down 15 million and that's I would indicate that that real cost reduction that is sustainable. Obviously there are always and outs of working capital but what you're seeing in the numbers is the result of that work that we've done.

[Operator instructions] And our next question will come from Anne Samuel of JPMorgan.

Maybe just following up on that, that margin question, you’ve done a lot of work on managing the expense base. So as growth returns to a midteens revenue run rate going forward, how should we be thinking about the piece of margin expansion and how much of that is going to come from leverage versus further expense control?

So I think what we've generally thought of in terms of multiyear margin expansion opportunity here is the ability to add a couple of points in adjusted EBITDA margin a year from both of those levers, lever A being growth and lever B being cost efficiencies through automation and otherwise. I think we continue to see both of those levers being important as we move into the future.

And then maybe you seem far away but as we approach November, do you see any potential disruption to the momentum you’ve spoken about around value based care if we were to see change in the administration?

We don't. I think the good news for us is that what we saw obviously going back to the Obama administration was a real commitment to value-based care to a lot of the principles that started with early ACO programs. We then had a pause when the new administration came out and as you know there were some tumult with the director of HHS. So there really was a pause in the market, but now what we've seen is a full commitment to value with partners and success, with direct contracting, with a lot of the things the administration has supported. So I think we can say that it is a bipartisan agreement that fee-for-service payments and Medicare is going to go away and under a reasonable period of time. So we're confident that either way we're going to see support for value-based care programs and then remember, what we just talked about earlier was a diversification of the revenue base to the existing paralyze that exist today also is a hedge if there were to be some interruption for some reason. We don't see that happening but that's the whole point of a more diverse revenue base that really allows us to drive pretty consistent growth we believe over the medium term with the existing solution areas that we have.

Ladies and gentlemen, this will conclude our question-and-answer session and at this time, I'd like to turn the conference back over to Frank Williams for any closing remarks.

Thank you everyone for participating in the call. I know we have some opportunities both through some virtual conferences coming up and individual meetings virtually to interact with many of you and we look forward to it and again appreciate you participating in the call. Thank you.

The conference has now concluded. We thank you for attending today's presentation and you may now disconnect your lines.