Evolent Health, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Evolent provides administrative, technology and clinical solutions supporting value-based care. Results are consolidated and generally reflect continuing operations; True Health is reported as a discontinued operation after its sale closed on March 31, 2021. Prior-period comparisons below are for Q1 2020 unless noted.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $215.1 million | $221.2 million; down 2.8% |
| Cost of revenue, excluding depreciation and amortization | $157.8 million; 73.4% of revenue | $175.6 million; 79.4% of revenue |
| Operating loss | $15.9 million | $25.1 million |
| Net loss | $9.8 million; $0.12 per share | $78.8 million; $0.93 per share |
| Adjusted EBITDA | $14.9 million | $3.9 million |
| Cash used in operating activities | $48.2 million | $20.5 million |
| Cash and cash equivalents at quarter-end | $236.0 million | $319.0 million at December 31, 2020 |
| Restricted cash and investments at quarter-end | $67.7 million | $21.6 million at December 31, 2020 |
Platform and operations services generated $214.7 million, while transformation services contributed $0.3 million. Segment revenue was $85.3 million for Evolent Health Services (EHS) and $130.2 million for Clinical Solutions. Segment Adjusted EBITDA was $5.9 million for EHS and $16.0 million for Clinical Solutions; corporate costs were $7.0 million.
At March 31, total assets were $1.306 billion and total liabilities were $688.3 million. Debt on the balance sheet was $26.6 million current and $202.1 million long-term, net of discounts. Aggregate principal of convertible notes was $316.3 million. The company repaid and terminated its Ares credit agreement in January 2021.
Changes versus the prior period
- Revenue declined $6.2 million. EHS revenue fell $11.5 million, primarily due to Passport wind-down, partly offset by new partners; Clinical Solutions revenue rose $5.4 million, including Florida Blue Medicare and expansion with existing partners.
- Cost of revenue fell 10.1%, and its share of revenue declined to 73.4%, reflecting the changed service mix and lower Passport-related costs. SG&A increased 12.5% to $58.6 million, including repositioning and shareholder-advisory costs.
- Net loss improved substantially from the prior-year quarter, which included a $47.1 million equity-method investment impairment and a $6.4 million disposal loss. Q1 2021 included a $19.2 million loss on debt repayment and a $23.0 million Passport membership-transfer gain; these items affect comparability.
- Cash and cash equivalents decreased from year-end, while restricted cash increased. Cash used in operations rose to $48.2 million; investing activities provided $46.0 million, substantially including Passport-related receipts and returns of equity-method investments.
Outlook, commentary and risks
- Management said available cash was expected to meet working-capital and capital-expenditure needs for at least 12 months. No quantified revenue or earnings guidance is provided in the filing.
- Management expects Passport wind-down to weigh on 2021 platform and operations growth. It expects cost of revenue as a percentage of revenue to decline over the longer term, subject to the mix of growth, and SG&A as a percentage of revenue to improve over time from cost initiatives.
- The repositioning plan is expected to continue through Q4 2021. Q1 costs were $5.4 million; total plan costs were estimated at $9.1 million, with $6.7 million incurred cumulatively through March 31.
- COVID-19 had not materially affected results or outlook to date, according to management. Medicaid enrollment and lower medical utilization had provided a modest near-term benefit, but future membership, utilization and pandemic effects were uncertain.
- Revenue is concentrated: Cook County Health and Hospitals Systems and Florida Blue Medicare represented 43.5% of Q1 revenue. Cook County represented 44.5% of trade receivables at quarter-end. Loss or renegotiation of a major partner could materially affect results.
- The securities class action concerning statements about Passport proceeded to discovery after a motion to dismiss was granted in part and denied in part. The company said it could not estimate the probability or range of loss. It also guarantees certain EVH Passport wind-down obligations; no amount had been funded as of March 31.
Important facts for investors to verify
- Whether Passport capital distributions, estimated at $130 million to $170 million in total, receive regulatory approval and are ultimately realized.
- Whether the remaining 50% of the Passport membership-related payment is received in Q1 2022; it is subject to contingencies.
- How quickly EHS replaces Passport-related revenue and whether Clinical Solutions growth and segment profitability continue.
- Cash conversion and working-capital trends, including restricted balances: $51.1 million of restricted cash related to claims processing is held on behalf of partners.
- Debt repayment and conversion exposure, including the $26.7 million principal amount of 2021 Notes due in December 2021 and the terms of the 2024 and 2025 convertible notes.
- Development and potential financial exposure from the securities litigation, Passport wind-down guarantee, and estimates for claims and performance-based reserves.