Evolent Health, Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated July 16, 2020, discloses a material definitive agreement entered into by Evolent Health, Inc. ("Evolent") and its subsidiary, Passport Health Plan, Inc. ("Passport"). The filing details the sale of Passport's Kentucky Medicaid and Dual Special Needs Plan (D-SNP) assets to Molina Healthcare, Inc. ("Molina"). This transaction follows Passport's failure to secure a new Medicaid contract for plan years 2021-2024 in a recent Kentucky state request for proposal.
Key Financial Metrics and Transaction Value
The filing outlines a multi-component transaction with the following financial terms:
- Closing Payment: $20.0 million in cash to be placed in escrow until January 1, 2021.
- Membership Payment: Up to approximately $40.0 million in additional cash, contingent on D-SNP and Medicaid plan enrollment thresholds following the 2021 open enrollment period.
- Real Property Sale: $8.0 million for the sale of real property assets to a Molina affiliate, subject to adjustments.
- Repayment Obligation: If the Medicaid contract transfer (Medicaid Closing) does not occur by January 1, 2021, Passport must repay $7.5 million of the Closing Payment.
- Estimated Total Transaction Value: Evolent estimates total cash proceeds from the asset sale, real property sale, and winding up of Passport to range between $130.0 million and $170.0 million.
The filing does not provide finalized revenue, profit, cash flow, or margin figures for the period ended June 30, 2020, as financial statements were not yet finalized at the time of filing.
Material Changes and Operational Impact
Passport will transfer specific assets to Molina, including intellectual property, Medicaid and D-SNP contract rights, provider agreements, and real property leases. Passport will retain cash, cash equivalents, risk-based capital, and accounts receivable for services performed prior to the transfer. Molina will assume financial risk for the D-SNP business immediately upon closing and the Medicaid business upon the transfer of the contract. Substantially all Passport employees and relevant Evolent employees will be hired by Molina on January 1, 2021.
Guidance, Outlook, and Risks
Guidance and Outlook: Evolent anticipates meeting or exceeding previously issued Adjusted Revenue and Adjusted EBITDA guidance for the three months ended June 30, 2020. However, the company notes these are preliminary estimates subject to change.
Risks and Contingencies:
- Closing Conditions: The transaction is subject to customary closing conditions, including governmental approvals (Kentucky Cabinet for Family Services and Department of Insurance) and the absence of legal proceedings.
- Timing: The closing is expected on or before September 1, 2020, or within three business days of required approvals. The transfer of the Medicaid contract may occur after the initial closing if approvals are delayed but must occur by December 31, 2020.
- Forward-Looking Uncertainties: Actual proceeds depend on the successful closing of transactions, retention of membership through open enrollment, and Passport's performance through the end of plan year 2020.
Investor Verification Checklist
- Verify the receipt of required governmental approvals for the Medicaid Novation and D-SNP transfer.
- Monitor the finalization of Q2 2020 financial statements to confirm Adjusted Revenue and Adjusted EBITDA against preliminary guidance.
- Track enrollment numbers for the D-SNP and Medicaid plans post-open enrollment to assess the potential $40.0 million Membership Payment.
- Confirm the status of the real property title and environmental reports required for the $8.0 million property sale.
- Review the final distribution of statutory capital and assets from Passport to EH Holding Company to validate the total transaction value estimate.