Frank Williams - Chief Executive Officer Nicky McGrane - Chief Financial Officer.

Robert Jones - Goldman Sachs Jamie Stockton - Wells Fargo Ryan Daniels - William Blair Sean Wieland - Piper Jaffray Matthew Gillmor - Baird Richard Close - Canaccord Genuity David Larsen - Leerink Mohan Naidu - Oppenheimer Sean Dodge - Jefferies Donald Hooker - KeyBanc Capital Markets Stephanie Demko - Citi.

Welcome to Evolent Health Earnings Conference Call for the quarter ended June 30, 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 website in the section entitled Investor Relations. Here is 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 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 filings.

For additional information on the company's results and outlook, please refer to its second quarter news 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 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. .

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'll open the call this evening with a summary of our financial performance for the quarter and share our perspective on the overall market and our pipeline.

I'll then hand it to Nicky to take us through a detailed review of our second quarter results, and I'll close with an update on our clinical operations. As always, we're happy to take questions at the end of the call.

In terms of our results for the quarter ended June 30, 2018, total adjusted revenue increased 34.7% to $144.5 million from the comparable quarter of the prior year. Adjusted EBITDA for the quarter ended June 30, 2018, was $4.9 million compared to negative $3.6 million from the comparable quarter of the prior year.

As of June 30, 2018, we had approximately 3.1 million total lives on the platform. With the announcement of three Medicaid partners this spring and a new partnership with Torrance today we welcome the total of nine new partners to the Evolent national network this year.

Overall we’re pleased with our results having met our strategic and financial objectives for the quarter. In terms of the macro environment, we continue to be encouraged by the direction of the new administration in demonstrating a commitment to moving the market towards value-based care payment model.

First Secretary Azar, Seema Verma and key leaders in Congress have repeatedly emphasized the importance of accountable care and value based reimbursement as key tools for managing skyrocketing costs in both Medicare and Medicaid.

Second, while we haven't seen a market moving policy announcement to date we are seeing a number of exploratory moves that is sending a clear signal to providers about their future intentions.

For example, CMS is actively soliciting feedback from organizations through its sales RFI on value but seeking ways to remove regulatory and legal barriers progress of risk based models. In addition, new bipartisan house innovation caucus is also exploring ways to accelerate innovation through value-based models.

Secretary Azar also recently tapped new CMMI Director Adam Boehler, to lead the charge in accelerating one of his four key pillars the transition from fee for volume to value-based care.

Based on his extensive experience working on innovative risk performance improvement models we believe Director Boehler will be aggressive in developing new models that align financial incentives for providers in improving health outcomes.

These moves combined with significant efforts in several states to innovative in Medicaid, new HHS requirements around pricing transparency and supplemental benefits and the increasing use of waivers to drive innovation are creating opportunities for entrepreneurial provider organizations to move in to profitable risk based arrangements.

Most importantly if your physician group or health system attempting to read the tea leaves on future policy, all of the signs point towards an emphasis on population health and risk based contract.

To that end, we continue to engage Evolent network partners in productive conversations with policy stakeholders and lawmakers in DC and are encouraged by our most recent discussions both in improving the structure of current programs and then potentially introducing new initiatives that can help us accelerate market adoption.

In terms of our recent new partnerships and current pipeline, we come into August with both a strong and diverse pipeline across a number of key areas; we’re pleased to see a number of larger opportunities moving to our partner development process, and to see considerable interest from ITAs, health plans, health systems and larger networks across multiple regions.

While some organizations are looking to fundamentally transform their business others are more focused on improving operations using our scalable infrastructure and solutions.

We’re well positioned to meet both market needs through our integrated platform which serves all populations including the Medicaid, Medicare, commercial and individual segments.

Most importantly it's our ability to deliver positive clinical and financial results for our current partners that is both a strong reference base and established Evolent as the leader in the value-based care marketplace, in particular our investments in the Medicaid Center of Excellence and specifically in in-depth clinical programs the identified platform and an integrated health plan services infrastructure have led to considerable momentum and wins this year in several Medicaid markets.

Medicaid continues to present a significant opportunity for Evolent and our partners given that it represents over 550 billion in spending nationally on an annual basis.

We’re serving a critical role in several regions deploying a provider led managed care model alongside our provider partners to help lower medical costs and improve healthcare for at need patient populations.

In May we announced our partnership with Lee Health in Fort Myers, Florida to assist in providing physical and behavioral healthcare services to Florida statewide Medicaid managed care program in region eight.

And in June we were thrilled to announce two additional Medicaid partners in Florida, Baptist Healthcare in Pensacola serving regions one and two, and Nicklaus Children's Health System in Miami serving regions 9 and 11.

In total Evolent will help launch and operate Medicaid plans in five regions of Florida that cover more than a million eligible beneficiaries; long-term it gives us a strong entry into the fourth largest Medicaid population in the United States, establishing a major presence in key markets like Miami-Dade, Palm Beach, Fort Myers, Pensacola and Tallahassee also creates a long-term growth opportunity in Medicare and other populations as we look to leverage the network and infrastructure in each market more broadly.

Implementation is currently underway as we hope our partners to further launch their respective health plans. Standing on the full infrastructure in six months is a heavy lift.

Teams have been working diligently to meet critical state driven readiness milestone throughout the summer and are focused on preparing for upcoming enrollment periods and operational readiness. Pending readiness review these three plans are slated to begin operations in late 2018 early 2019.

The fact that Evolent has the ability to leverage a significant investment in scalable operations and to rapidly deploy broad expertise to the market is an important part of the value proposition for our partner organizations.

There's no way that they could have done this on their own given the short time frame new capabilities required and on the ground resources needed to meet the needs of AKKA and ultimately perform in the market.

Switching gears to another important segment of our business one of our core competencies for helping provider organizations create and capture value is risk adjustment, which continues to represent a strong growth opportunity for Evolent.

In this area of our business we are highly focused on delivering the results for our partners to drive efficiency and improve performance across their networks. Recently one of our risk-adjustment partners exceeded its projected business case by more than $12 million, providing them with a much-needed financial boost in their value business.

It's not by accident, our methodical and unique approach of engaging network providers in the day-to-day process is also delivering highly differentiated results.

For example, rather than offering direct coding support we provide our partners with the education, training, technologies and actionable analytics they need to improve performance with their current workflows. Our risk-adjustment solutions powered in part by identify offers a single workflow to consolidate operations in a multi-payer environment.

Our ability to innovate and stay on the cutting edge of technology has also been critically important. Our solution integrates automation tools and machine learning risk-adjusted analytics and it's helped create a better provider and patient experience for a wide range of our partners.

We are also leveraging artificial intelligence to create rapid cycle improvements in our analytics package across multiple lines of business, as well as leveraging the network to identify rigorous operational best practices for improving performance. These innovations have helped Evolent stand out in the market as we continue to demonstrate results.

To that end, I'm pleased to announce a new risk-adjusted partnership with Torrance Health IPA and Torrance Memorial Integrated Physicians. Torrance Health IPA is a nonprofit multispecialty physician network and division of the award-winning Torrance Memorial Health System based south of Los Angeles.

Torrance Memorial Integrated Physicians was established in 2012 to launch a next-generation ACL. Torrance Health IPA and Torrance Memorial Integrated Physicians collectively manage more than 20,000 Medicare advantage and next-generation ACL lives.

These organizations are leveraging our identify population health platform and risk-adjustment solution to help enhance performance across a network of 500 providers in the Los Angeles Metro area with an ambition to expand the network and lives under management over time.

Torrance has a strong reputation as an innovator in the market and we are incredibly excited to welcome them to the Evolent network. Turning for a moment to our performance of True Health in Mexico. The plan is off to a strong start in 2018, exceeding its operational and financial targets.

In a recent study New Mexico coalition for healthcare value revealed that True Health in Mexico outperformed its competitors in the market in several key performance benchmarks, including the lowest number of hospital bed days and emergency department visits per capita.

Ultimately that means better lower cost healthcare for patients and an opportunity for True Health to expand market share over time. In terms of the overall environment around same-store growth and renewals we generally feel good about our overall performance across the network year-to-date.

As you look across our partner base we have a number partnerships that are performing quite well from an outcomes perspective and have strong possibilities for growth heading into next year. This includes the NextGen ACO cohort, as well as a number of our health plan services clients.

A few partners in the network have opportunities for stepwise increases in lives under management and we're working diligently to try to close those opportunities between now and the end of the year. We anticipate continued softness in the provider sponsored health plan segment in Medicare advantage, which represents roughly 4% of current revenue.

All in all, while we have several months to go to close out the year the Evolent network feels reasonably stable with some strong opportunities for expansion in certain areas and some expected contraction in others. In summary, were happy about our performance thus far in 2018 and feel good about our set up for the remainder of the year.

We welcome nine new partners to our network thus far and have a strong pipeline heading into the second half of the year. With that overview I will now turn it over to Nicky to touch on our financial performance for the quarter..

adjusted services revenue is forecasted to be within the range of $122 million to $124 million, True Health premium revenue is forecasted to be within the range of $22 million to $24 million; and intersegment eliminations are forecasted to be approximately negative $4 million.

Adjusted EBITDA in the third quarter is forecasted to be within the range of $3 million to $5 million. For the full-year we expect to be within our original guidance range of 570 to 585 million of total adjusted revenues.

We are making two small adjustments to full-year guidance, reducing the high end of the range in the services business by 5 million and adjusting the inter segment eliminations to 15 million to negative 15 million to negative 20 million. The adjustment in the services business guidance is due to timing of health prime launches in Florida.

As a result the components of full-year adjusted revenue as follows. Adjusted services revenue is forecasted to be within the range of $495 million to $505 million, True Health premium revenue is forecasted to be within the range of $90 million to $95 million; and intersegment eliminations are forecasted to be approximately negative $15 million.

We expect full-year adjusted EBITDA to be within the original range of 18 to 23 million but likely towards the middle to lower end of the range based on the timing issues in Florida cited above. In summary, we're pleased with our performance to the second quarter and first half of 2018.

Our focus now is on executing against our plans through the remainder of the year while continuing to drive continued growth and momentum into 2019. With that I will turn it back over to Frank. .

Thanks Nicky. I want to close with the few updates on our clinical operations much of the discussion in the healthcare policy world is centered on how they evolve the payment system to reduce borrowing spiraling cost pressure. Particularly clinical cost which makes up over 85% on total spending.

Accordingly an absolutely critical factor to success in value-based arrangements is openly in managing medical costs and reducing the medical loss ratio and that's why we've made such a significant investment in supporting analytics, integrated technology, clinical program development, physician engagement and embedded care management.

As a result the Evolent care model and platform is helping to drive some impressive consistent results for our partners across Medicare advantage, the NextGen ACO program, and Medicaid populations.

In our work with these populations we're seeing a 21% to 48% reduction in total medical expense a 33% to 66% production inpatient admissions and 36% to 51% in emergency department visits and a 7% increase in PCP visits.

These results and Evolent's care model have been validated by an independent third party and most importantly we're using our own rigorous evaluation process to understand which levers for each clinical condition give the greatest improvements in cost and quality,.

Our focus on rapid cycle learning and innovation is key to driving near-term results as well as in developing a world class clinical model for our provider partners. In particular our ability to identify and engage the right patients well before an adverse event occurs makes a tremendous impact from the clinical and cost standpoint.

Through pilot programs and other initiatives, we found we can overcome common industry issues such as claims lag by aggregating real time clinical and encounter data and applying artificial intelligence and machine learning algorithms.

In one partner market we are able to reduce the time between the normal lag in accessing critical claims data and patient outreach from an average of 96 days in the traditional payer world to two days. This timely engagement can help avoid unnecessary medical costs and the risk of an emergency department visit or long-term hospitals stay.

Integrating behavioral health into our clinical care also plays a vital role in delivering outcomes. In an effort to truly integrate behavioral healthcare into our clinical programs, we've incorporated behavioral health screenings into our assessments and clinical interactions to driving integrated care planning process.

We conducted more than 40,000 behavioral health screenings this year as part of our clinical programs, which equates to roughly 200 screenings per day. These are just a few examples of how we are focused on piloting and innovation enables results that we can scale across populations in markets.

Helping providers build confidence and experience in value based care is also essential to success in value arrangements. Over the years, our partners have generally done well in performance-based arrangements, including next-generation ACOs and delegated risk arrangements.

For instance in its first year as a next-gen ACO one of our partners saw 48% lower medical spend and 66% lower inpatient admissions through our complex care program. Earlier this year we launched our 2018 cohort of 10 next-generation ACO partners.

We are making good traction with the cohort over the course of the year and we have engaged more than 9000 MSSP and next-gen ACO numbers through June. Our cohort continues to benefit from sharing best practices which has been invaluable to clinical and operational results.

In general these types of outcomes are driving high levels of partner satisfaction across our markets. We have a strong partner base committed to continuing the value-based journey with us.

This has opened the door to many same store growth opportunities including expanded scope within our clinical programs, potential plan launches, new delegated risk arrangements and managing additional health plan administration capabilities.

In closing we are pleased with our results for the second quarter and remain focused on achieving our strategic and financial objectives in 2018. We look forward to continuing to deliver strong results for our partners this year to help advance their value-based care businesses and make a positive impact on patient care in their communities.

Thank you again for participating in this evening's call and we are happy now to take your questions..

[Operator Instructions] The first question is from Robert Jones of Goldman Sachs. Please go ahead..

Frank I think your comments around the administration support around ACOs and the general shift towards value based care I think is appreciated.

I was hoping maybe you could talk a little bit about the ACO opportunity in 2019 specifically, there has seem to be some concern that there is some hesitation from systems and ACOs to sign up just given some delays, FEOMB around a proposed rule and the release of the actual applications for 2019.

So just curious if that's crept into your conversations at this point of the year versus the conversations you're having around the ACO opportunities in previous years..

I would say we haven't seen a real impact on decision-making due to the delays you're referring to, we have a lot of interest in track three and as you know that does have some downside risk as well as significant upside. And so we have several partners evaluating participation in that program.

We have a number of NextGen partners, which have performed really well in that program and want to look for ways to expand and add lives to those populations. We are not just in the ACO side as you know, obviously are doing a lot on the Medicaid side and with providers that today have existing risk lives and yet want to enhance infrastructure.

So I would say overall pipeline feels pretty good.

It's our feeling that the new administration is going to come out with some new programs and policies that will really encourage providers to be moving more into significant downside risk oriented programs and will give them some incentives to do that obviously the earlier the better for us but I think that would surely be a catalyst, but overall I would say we feel generally good about the growth and depth of the pipeline and haven't seen a slowdown as a result of anything going on the government side..

Got it and then I guess Frank we kind of asked this question from time to time as you guys continue to grow but you mentioned nine customers to date I think you guys had a target of seven to nine for the year, to your comments it sounds like the pipeline is robust as ever particularly in Medicaid, anything you can share as far as how we should think about how much business you can take on -- how much business can the infrastructure handle..

Sure I mean, I think we done a pretty amazing job historically of accommodating growth and significant growth this year. As you know will be over our $500 million revenue business in a relatively short period of time.

So I do feel that we built a very scalable infrastructure I think in the first half of the year, we received 60,000 plus resumes so we will able to scale from a talent perspective, I would say if you think about launching five regions and three health plans in Florida that’s a heavy lift.

The teams working around the clock to make sure we're up and running and feel very good about our set up for next year that's a huge opportunity.

So I think the mix of business does matter NextGen track three, we have scalable infrastructure that can easily order to several clients trying to stand up an example would be for states and Medicaid at one time across multiple regions would probably strain our infrastructure, I think it would strain anybody.

Right now, I think we feel very confident in our ability to accommodate the existing partners that we brought on this year, my guess is we'll add couple between now and the end of the year and we feel good about our ability to accommodate that but surely in certain situations, there may be limits but a lot of the investment we've made has been around standardization, scalability, ability to bring on talent, train them quickly and deploy them and I think we’re very well-positioned to do that..

The next question is from Jamie Stockton of Wells Fargo. Please go ahead. .

I guess maybe the first quick one just cause I’m sure that there are lot of people who are going to be curious about this Nicky the sequential decline in revenue at the midpoint in Q3, is that transformation revenue kind of winding down before we see a tick back up around some of these Florida plans going live in Q4, just any color on that would be great?.

I mean Jamie I think to our point, we just see it as effectively consistent with what we outlined at the start of the year, broadly consistent across the first three quarters and so I mean as you know transformation does move around quarter to quarter, we expect live to be pretty consistent and PMPM across the back half of the year.

So I think we would expect Q3 to come in substantially on par with Q2 and so I don't really see an issue there..

And then maybe more high-level, it seems like and this -- I don’t think it’s going to overlap too much with what Bob asked about. But it seems like that you guys done have a really good job of leveraging the Medicaid Center of Excellence that you developed with Passport.

I mean to sign a lot of incremental Medicaid business, you’ve also had good let's say last nine months or so signing up a lot of business on the Medicare side.

Do you feel like Medicare is as far along as Medicaid is if you could just talk about maybe whether or not the momentum there could continue to build on a relative basis, and then maybe if you could just touch on your ability to share best practices between these clients and what you inning you think we’re in there?.

Sure. I think you're right.

We have obviously had a lot of success in Medicaid across really the last several quarters and if you go back to 2.5 years I don’t think we had any lives in Medicaid and we’re approaching 2 million lives and entrance into some very large states which have tremendous growth potential, I would say on the Medicare side we anticipate doubling of Medicare enrollees over the coming years.

You have the aging in of the baby boomer population, which is the very substantive and you have significant cost pressure on the federal budgets.

So I think we saw a lot of momentum in the last administration and then a pause last year as people were getting their feet on the ground, as we were getting new administrators in place but everything that we hear on both sides of the aisle suggest that the cost pressure is not abating that there is going to be an aggressive effort to force providers into downside risk and significant incentives for them to do.

So, that could take its form in a variety of ways, so, extensions of existing programs. New programs that are introduced and we feel very confident that that will be happening -- and again hard to guess timing with the federal government. But just based on what we've heard we believe we will see that.

You will also have major payers that are trying to be as competitive as they can in Medicare advantage and given a pressure on rates are looking for highly competitive network, so a lot of our work is working with existing pairs that have lives and creating delegated risk arrangements where they can delegate clinical functions and frankly providers can help deliver a better product to the marketplace.

So I would say it's obviously a large market today it is one that we see accelerating and the pressure will increase substantively.

We believe across the next several quarters and in terms of best practices I think one of the things we feel really good about as you look across our cohort of NextGen partners we're seeing very consistent savings being generated that's both for the federal government and dollars in the pockets of our partners.

We have successfully taken best practices both from our clinical research center and other partners and shared those across the network and we're seeing substantive reductions in hospitalizations in total medical cost, improvements in quality and it really is -- it's proving this model that if we can get really deep in specific clinical areas and around specific patient populations you begin to have all sorts of insights all the way from the analytics to the actions that you take to the clinical programs you develop to how you engage physicians and ultimately how you engage patients.

So again we see Medicare as a big source of growth for us long term, and again, having 10 in our cohorts this year's has been big move towards that ultimate goal. .

Okay, thank you. .

The next question is from Ryan Daniels of William Blair, please go ahead..

I guess Frank little bit of the follow-up for you, given the clinical performance you've seen with your partners, you highlighted earlier there is an opportunity for some I think you used the term stepwise increases.

Is that working with those partners to bid on new at risk clients or to enter new programs like NextGen or is that really more of existing lives that they have in value-based programs that you don't yet have but given your performance and what you do have they're likely to move over to you. .

I would say most cases we see a substantive opportunity to bring on a fairly large new population.

There are some examples where you it would be additional services so we're working with a large body of lives there's a piece that we don't have today and we're going to add that on but the example you gave I think they have lives that we're not currently touching.

We don't have a lot of situations like that, because in most cases, we've really push the benefits of a fully integrated platform and the ability to have one operation across all their value lives and in most cases, we therefore have access to their full value business, at least as it currently stands, so it really isn't generating new opportunity. .

And then Nicky I know this is a very modest adjustment less than a 1% on the revenue so largely uneventful but can you give a little bit more detail on, I'm sure people ask about the Florida health plan does that relate to Lee Health which was one you already announced thinking that might start soon or is it something different from that?.

Yeah, I would say back in the dark days of February we gave full-year guidance we are just looking to the fourth quarter and the range of opportunities, but you know we would have hoped that across the five regions in Florida that the start dates would have been more the midpoint of the fourth quarter just based on what we've seen in history, two of the five are going live late in the fourth quarter.

So it's really just to do with that timing and expectation of start dates mid-quarter versus late in fewer rather than only two of the five going live late in the quarter. .

So really nothing, just timing issue, and last quick one for Frank you mentioned again a lot of positive developments in your NextGen ACO cohort when you go guys anticipate some of the incremental data becoming public or available at least for you guys to market to either existing NextGen operators your services or those who are interested in joining.

Thanks. .

I would say very soon I mean the good news is we obviously have immense amount of data that we track and so we are able to share some of the current performance year-to-date. We could do it on a disguise basis. There's a lag with government data.

There is a more comprehensive data set that has come out that we begun working with and we feel pretty confident when we we're allowed to release it, it will be excellent from a marketing perspective just looking at our cohort performance versus the average organization participating, we are not able to use that data today, but we believe we will across the coming months and agree that it would be very helpful in some of the work we're doing with organizations looking at some of these programs..

Okay, perfect, thank you so much guys..

The next question is from Sean Wieland of Piper Jaffray. Please go ahead..

Hi, thank you very much, long time listener, first time caller.

On the competitive landscape just curious your impressions initial impressions on the matters concern or teaming up if you think that that will have any implications in the competitive landscape? And what you think largely about the need to tie up with closer to any HR vendor?.

Yes, I mean we always monitor the market and competitive offerings. I think as we have discussed we are very committed to market leadership, and we always want to learn from the market and adjust accordingly.

What I would say in general is we feel really good about where we are setting we believe we built a comprehensive infrastructure, integrated all populations and we have a emerging national network and three million lives. So we do believe we established that leadership position.

As you know, we've really focused on full infrastructure for Tier 1 providers that are really committed to risk. That's what we believe we are built for.

And so being able to stand up five regions three Medicaid plans in Florida being able to support every aspect of what a passport does in Kentucky is where we've positioned our offering in the marketplace. Cerner, as you know has been in the market ever since we started and they serve everybody.

They may serve everyone we believe with a lighter offering than a fully comprehensive integrated full health plan offering that we ultimately bring to the table.

So we have a lot of Cerner client that are Evolent clients and we believe that will continue because we have a very distinctive value proposition and we totally understand when some clients have the Cerner sack and want to use some of the capabilities that they're building in population health.

That falls far short of some of the larger undertakings that we have with our partners in terms of full infrastructure. So I would say, given our strategic focus what we're trying to do in the marketplace all populations, integrated infrastructure we don't see a big impact from the partnership.

And I would say competitively if anything if you look at the XG offering that came out of Geisinger or anything I think that’s been folded back into Geisinger I think some of the major payer efforts and if you look at [HealthEngine] not as much emphasis on serving providers.

So in my mind the competitive landscape has probably simplified across the last year and a half and again we feel like we have a substantial lead in the market but we will continue to monitor and continue to innovate our tool so that it has clear differentiation for providers that again are really leaping into risk and want to do it across multiple products.

But that’s our perspective based on what we know today..

Alright, thank you for that, a follow up on your commentary around the pipeline is your pipeline consists largely of net new footprints or is it cross sell within your existing base..

I would say both. I think a lot of times when we use the term pipeline in this context we're talking about new, but to be fair, we obviously look at both our current partners and opportunities there as one aspect of the pipeline and then fully new opportunities.

I would say in both of those areas I feel like current partners we have some very substantial growth opportunities that we believe we can close between now and let's say the first quarter of next year and I would say on the new pipeline side a pretty robust and pretty deep across a variety of segments.

Some existing providers that have existing lives so they already our footprint in the value business but are looking for more specific infrastructure opportunities and Medicaid across several states, and then also we touched earlier on in some of the government ACO programs where we have a number of providers looking to get more engaged in downside risk because they realized that's where the market's going but that’s generally how I would characterize a lot of physician ACOs which has been a newer segment for us but a lot of opportunities there as well.

.

The next question is from Matthew Gillmor of Baird. Please go ahead. .

A quick follow-up to Sean on the renewal discussions for 2019 I think Frank gave some puts and takes with some larger clients looking to increase and then maybe some risk with respect to Medicare advantage and some of his clients pulling back but of course if you could just compare the discussions this year versus last year, and specifically was curious to know if the growth opportunities you saw were bigger than the attrition risk and how that kind of compares versus this time last year..

I would just say last year felt a bit like a deer in the headlights moment because the government really haven’t said anything well into August about where they stood on value, what they were thinking from a program perspective.

There's been a whipsaw repeal, replace, replace, repeals I think it was a very unique moment and very difficult for providers to know whether they should really continue with a lot of these programs or whether they should pause and see where the government was going to come out.

I would say the good news is that there's been enough statements, enough action by the new administrators that any provider would get a sense that okay that's where there they're going to continue to go on in there is going to be a push towards value and so I would say incrementally that definitely helps us because we're not having to get over real inertia in the market.

I would say you know, general environments, both current network renewal environment pipeline you know we said we feel pretty good about where we are if you go across the last several quarters and I would say we're in a similar position today.

So again based on what I see feeling pretty good we've obviously got the normal work we have to do between now and the end of the year both with current partners and new but slightly improved to last year, but still some work to do to close out the year. .

And then one follow-up to Florida and I suspect you'll probably defer on this, but I was curious as you think about the 1 million lives in the regions that you're serving, do you have any expectations terms of how many lives your clients will be serving?.

I would say that it is a real guessing game. We’re -- in five regions the program is just getting rolled out it’s across three provider partners.

I think what we feel best about is that there is a very strong proposition for local providers that have been in the market in many cases for over 50 years that have very strong brands that have very connected physicians that are part of those organizations that are embedded in the community, that they have some real advantages over traditional national plans that have less brand recognition.

Sometimes the brand recognition just because their managed-care payers isn’t positive.

And so I do think we like the positioning of our partners relative to the other alternatives in the market and we’ve done our best to make all sorts of estimates but I think it would be premature to try to throw out a tight range on what we believe, just that we feel we can have some very successful plans in those regions obviously we will take some time to build those up, and we also see the entry into Florida and opportunities for other populations as a really significant win, not only for our partners but also for Evolent..

The next question is from Richard Close of Canaccord Genuity. Please go ahead..

As a follow-up to that question. I guess maybe thinking about it on the expense side, depending on how the enrollment tracks. Once you get those plans or those regions up and operational.

They don't meet the expectations may be that you set with your partners, is there any risk of a negative impact with respect to EBITDA from expenses that you incur during those ramp up periods?.

Look, I would say any time you do a large implementation and imagine you get much less revenues than you expect, it’s surely going to have an immediate impact on EBITDA.

Now we would have a lot of time to make adjustments and lower the expense base and respond and hopefully we would make up for that in forward periods and that's something that's definitionally true with the flexibility of our model and infrastructure and how we would deploy resources. So I think we could adjust very quickly.

But by definition, you’ve stocked up -- you’ve set your budget level based on what you think the population is going to be and again some of that is going to be variable, I mean you would need to make some adjustments.

So look we do a lot of work I mean the good news is we stood up over 30 partners we’ve got a lot in Medicaid, we’ve got deep expertise in our team. So, we have people involved to get as precise as we can. And then to be conservative and how we’re building infrastructure to make sure we’re managing cost well and all those sorts of things.

So I feel good about how we’ve approached it and obviously we’ll have to see when we come out, but we would adjust very quickly if for some reason we weren’t where we wanted to be on the revenue side..

And Frank -- excuse me, I thought it was interesting that you highlighted behavior, health, and some of the screenings that you've done there so far this year and I've had some conversations with Nicky actually during the quarter on Behavioral Health do you think that's a big differentiation point for you guys the amount of Behavioral Health you're doing and the ultimately the results that you guys are posting in some of your clinical operations in terms of that's a competitive differentiation point for you guys?.

Well first of all I would hope the Behavioral Health conversations with Nicky weren’t about his behavior, but I know what you are referring to if that's what it was.

But in all honesty if you think about population health and a lot of costs existing with chronic condition patients and the amount of times that a Behavioral Health issue co-presents it is a major, major area that needs to be emphasized and if anything across the last 20 years it was deemphasized and many times not integrated and you could do all that you could do on the clinical side, but if you weren't addressing the Behavioral Health side it was difficult to get a depressed patient to get really engaged in their health.

And so that it's a place by the way our lineage with UPMC that is one of their big areas of expertise is incorporated in Behavioral Health so very early on we adopted some of the things that they have done in their model and then we began to expand and think through how do we think about the pharmacy site so were using those analytics to identify patients that have that diagnosis but aren't picking-up their meds.

How do we make sure a social worker is involved if there is certain issues that present themselves that maybe barriers to people's recovery.

How do we make sure that we're doing huddles with primary care physicians around these complex patients and making sure they're getting that picture in terms of what they're doing and then how do we track compliance through our care management activity through the ways that we engage with patients.

How do we have softer outreaches that again continue to engage them and identify issues and so that is a big areas of emphasis I think it's made a difference and frankly our wins in Florida and other Medicaid situations as organizations see what we've invested there and it is an area where we plan to continue to invest because I think ultimately it will deliver better outcomes for patients, lower costs and better economics for our providers.

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The next question is from David Larsen of Leerink. Please go ahead. .

Hi, congrats on a good quarter.

Are there any other states in the near or medium-term that we should be watching following Florida that have significant RFP activity ongoing?.

I would say on the Medicaid side, we have some immediate activity going on with existing providers that are already in the Medicaid market.

So again we have to close those out but I think you could see us entering you know a few other states as a result of that activity on the larger state front there are several states that we are doing work today, where we see significant opportunity again, generally for those opportunities that wouldn't be 1-1- '19 we would really be talking about '20.

But, several states where we are pretty encouraged by the dialogue that we're having and the potential that we see to do something pretty substantive. .

The next question is from Mohan Naidu of Oppenheimer. Please go ahead..

Thanks for taking my questions, Frank you referred to machine learning and artificial intelligence couple of times.

Can you talk about your efforts there first off, are these in a situation right now that can make material impact for you or your clients? Do you have access to data to explore and create the new scenarios here?.

Yes, again I think this is an area where from the very beginning we invested in heavy duty analytics and pulling data from multiple sources all the way from claims and clinical to wearables to lab to pharmacy, we began working with the data we began testing programs.

We have built an incredible team internally that is really rigorous in terms of their approach. And I would say it's already having a tremendous impact.

We believe that our ability to predict patients that are going to incur a major medical event in the coming year and again those are not the same patients that cost you a lot last year, but new patients and not only predict but also know the ones that you can impact and then what intervention is actually going to have the greatest opportunity to engage them and then being able to really test those clinical insights, adjust the rules based on what we are seeing in the market, develop clinical program interventions that you test and continue to hone so you end up with a very powerful care management organization that's really driven by analytics insight using machine learning and experience to do that.

And I’d just say already I feel like it's had a major impact and why we are seeing the consistent clinical savings data across multiple partners that team continues to really push the envelope we're doing some really interesting things with some clinical research centers around the country and taking their insights and driving it through the network.

So I see this as for us really what we were built to do and we got started and you start doing things and you ultimately have to prove the model and I feel very confident that we can deliver superior clinical results working with our partners and it's only going to get better with all the insights and learning and again, the ability to use technology to advance our efforts..

The next question is from Sean Dodge of Jefferies. Please go ahead..

Frank going back to the Florida wins, all the five plans you will be supporting are MMA plans.

If we think about the types of services Evolent is going to be providing to each, will that support look pretty similar across all of them? I guess what I’m getting right at here is are the PMPM Evolent will be paid by each of the plan give me pretty similar or are there variations in the services that you are going to use that will cause a differential there?.

There can be different rates by region, right, so you are going to have some differences just simply in terms of how the rate structure works. There are a different mix of services that we might be doing with one provider versus another.

In general I don't think those are hugely material but you will see some variability but I don’t think you will see anything substantially different. Nicky if you have anything to add feel free but again I think in general, you will see similar PMPMs..

Agreed, pretty similar across all three, small variations but broadly similar..

And then just with the fair assumption for PMPMs related to those is something in the mid 20s in the ballpark?.

Yes, that’s the reason but we think about it more percent of premium but that’s not a bad P&L target to aim at..

The next question is from Donald Hooker of KeyBanc Capital Markets. Please go ahead. .

You called out, I guess this isn’t really new, but you mentioned some ongoing weakness with the provider sponsored MA plans looking out with a crystal ball what might change your optimism level there.

Are you looking for something from DC, what are you looking for there?.

I would just say, as you know when we launched the business we had a few provider sponsored MA plans that we worked with, there are some reason structurally why those plans if they don't really aggressively get to scale can struggle from an economic perspective.

So some of the plans we worked had an initial bolus of lives, did some things which sort of disadvantaged the plans because they're really promoting the fee-for-service business and when you do that you put economic pressure on the plan. So what I would say if you look at Premier I think as you know they exited their MA business this year.

That's an example of something that portion of our work with them will go away, going into next year. And so I do think with those specific plans you will see some of the softness.

We've done a lot of things to try to address that, so one making sure that up front we set up those plans for success in terms of things like transfer pricing and network we're being very disciplined about how you ultimately run the economics of the plan, making sure you got enough regional coverage that you can get to a large bolus of live so you look at the overall plant and feel like you can get 15, 20, 25,000 lives over time and to get the scale.

So I would say looking at other programs like NextGen or you can begin working with partners get them experience, get them confident and then migrate them into Medicare Advantage when they had more experience simply than late leaping in.

So I feel like we've done a lot of things to address it on a go forward basis, small portion of our total revenue today but we like to give you color on good things going on across the network and some of the things that created pressure and that's one area where again, we will likely expect some softness, going into next year..

Got you and then maybe focus on maybe something a little bit more positive the SOMOS IPA you announced last quarter seem pretty promising.

I think that was a list this quarter I remember 300,000 or 400,000 members or something this quarter it seemed like there were some opportunity to expand that over time, you guys invested a lot of money into that or some money into that I should say. Any updated plans there for expansion going to next year or the year after..

I would just share what you -- agree with what you just said, it's a phenomenal organization they have a great reputation and incredible experience in managing MLR and doing it effectively, incredible ability to engage patients, we were off to a great start with them we wanted to implement around this initial trainer thousand lives get that base in place get our clinical infrastructure in place and we have a number of areas from a growth perspective that we're excited about that are in process and my hope is that it is something that will have an impact on '19 in terms of growth both in terms of lives and also some of the services that we'll be providing..

The next question is from Stephanie Demko of Citi. Please go ahead. .

Hi guys, thank you for taking my questions and congrats on the quarter, given recent tailwinds on the regulatory front could we see the new wins pace maybe increase above the seven to nine target over the near term and similar to the earlier capacity question could you just give us an update on the new higher pipeline and machine learning investments to help us frame how you’re scaling with these wins?.

Sure. In terms of new clients, we’re obviously already at the higher end of our range with nine new partners this year. My guess is we will go above the range and we obviously have to close out an additional partnership or two but my guess is that we ultimately end up going ahead of the range.

We’re becoming a pretty large company we’re approaching 600 million in revenue this year. And by definition, just given our footprint our number of partners will probably go up, not prepared to change our expected range at this point but might go up to eight to 10 next year.

We’ll just have to sort of see based on where we end the year and how the pipeline feels.

In terms of investments as I mentioned 62,000 resumes in the first half of the year, just an incredible base of talent we’re bringing into the organization I think that’s one of our biggest competitive advantages and we’re investing lots of on board that talent rapidly to bring them up to speed to provide training and development opportunities so they’re on a very steep career path but I think that is one of our biggest competitive advantages is talent, and then on the technology side, I would just say that the investments that we have made have paid off.

We have a differentiated platform, highly integrated, it’s allowing us to standardize and reduce costs in many areas and then it’s enabling us to do incredible things from a clinical performance perspective.

So that is an area where we want to continue investing we want to do it in ways that really differentiate our offering and the results this year, are bringing us confidence that we’re getting significant payback..

Good, good to hear, and then one follow-up related on the True Health business, can you just give us an idea about your risk capitation in that business and how you’re handling reinsurance to the book?.

This is Nicky, we have a per member reinsurance that’s very sort of market to market standard reinsurance per member and -- so again a pretty comprehensive policy in line with I would say market standards. .

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

Well we appreciate -- we appreciate everyone for participating in the call and we’ll see a number of you on the conference starting tomorrow and across next week and look forward to seeing many of you in person. Thanks again..

The conference has now concluded; thank you for attending today’s presentation. You may now disconnect..