Evolent Health, Inc. [EVH] Filings

10-Q 1 evh-20240930.htm Q3 2024 10-Q evh-20240930


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

_________________________

FORM 10-Q

_________________________

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37415

_________________________

Evolent Health, Inc.

(Exact name of registrant as specified in its charter)

_________________________

Delaware

32-0454912

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

1812 N. Moore Street

Suite 1705

Arlington

Virginia

22209

(Address of principal executive offices)

(Zip Code)

(571) 389-6000

Registrant’s telephone number, including area code

_________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock of Evolent Health, Inc., par value $0.01 per share	EVH	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes S No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer S Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No S

As of November 1, 2024, there were 116,563,910 shares of the registrant’s Class A common stock outstanding.

Evolent Health, Inc.

Table of Contents


Item		Page
	PART I
1.	Financial Statements	1
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
3.	Quantitative and Qualitative Disclosures About Market Risk	49
4.	Controls and Procedures	50

	PART II
1.	Legal Proceedings	51
1A.	Risk Factors	51
2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
3.	Defaults Upon Senior Securities	52
4.	Mine Safety Disclosures	52
5.	Other Information	52
6.	Exhibits	53

	Signatures	55

Explanatory Note

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, “Evolent,” the “Company,” “we,” “our” and “us” refer to Evolent Health, Inc. and its consolidated subsidiaries. Evolent Health LLC, a subsidiary of Evolent Health, Inc. through which we conduct our operations, has owned all of our operating assets and substantially all of our business since inception. Evolent Health, Inc. is a holding company and its principal asset is all of the Class A common units of Evolent Health LLC.

FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE

Certain statements made in this report and in other written or oral statements made by us or on our behalf are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: “believe,” “anticipate,” “expect,” “estimate,” “aim,” “predict,” “potential,” “continue,” “plan,” “project,” “will,” “should,” “shall,” “may,” “might” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to our ability to weather current dynamics, continue to expand our footprint, future actions, trends in our businesses, prospective services, new partner additions/expansions, our guidance and business outlook and future performance or financial results, and the closing of pending transactions and the outcome of contingencies, such as legal proceedings. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

These statements are only predictions based on our current expectations and projections about future events. Forward-looking statements involve risks and uncertainties that may cause actual results, level of activity, performance or achievements to differ materially from the results contained in the forward-looking statements. Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements, include, among others:

•risks relating to our ability to efficiently integrate NIA and Machinify into our operations;

•the significant portion of revenue we derive from our largest partners, and the potential loss, non-renewal, termination or renegotiation of our relationship or contract with any significant partner, or multiple partners in the aggregate;

•our ability to terminate certain leases and recognize impairment charges in connection with our repositioning plan;

•evolution of the healthcare regulatory and political framework;

•uncertainty in the health care regulatory framework, including the potential impact of policy changes;

•our ability to offer new and innovative products and services and our ability to keep pace with industry standards, technology and our partners’ needs;

•risks related to completed and future acquisitions, investments, alliances and joint ventures, which could divert management resources, result in unanticipated costs or dilute our stockholders;

•the growth and success of our partners and certain revenues from our engagements, which are difficult to predict and are subject to factors outside of our control, including governmental funding reductions and other policy changes;

•our ability to accurately predict our exposure under performance-based contracts;

•risks relating to our ability to maintain profitability for our total cost of care and performance-based contracts and products, including capitation and risk-bearing contracts;

•our ability to effectively manage our growth and maintain an efficient cost structure, and to successfully implement cost cutting measures;

•changes in general economic conditions nationally and regionally in our markets, including increasing inflationary pressures and economic and business conditions and the impact thereof on the economy resulting from public health emergencies, epidemics, pandemics or contagious diseases;

•risks related to the failure of any bank in which we deposit our funds, which could reduce the amount of cash we have available to meet our cash commitments and make additional investments;

•our ability to recover the significant upfront costs in our partner relationships and develop our partner relationships over time;

•our ability to attract new partners and successfully capture new opportunities;

•the increasing number of risk-sharing arrangements we enter into with our partners could limit or negatively impact our profitability;

•our ability to estimate the size of our target markets for our services;

•our ability to maintain and enhance our reputation and brand recognition;

•consolidation in the health care industry;

•competition which could limit our ability to maintain or expand market share within our industry;

•risks related to audits by CMS and other governmental payers and actions, including whistleblower claims under the False Claims Act;

•our ability to partner with providers due to exclusivity provisions in our contracts in some of our partner and founder contracts;

•risks related to managing our offshore operations and cost reduction goals;

•our ability to contain health care costs, implement increases in premium rates on a timely basis, maintain adequate reserves for policy benefits or maintain cost effective provider agreements;

•our dependency on our key personnel, and our ability to attract, hire, integrate and retain key personnel;

•the impact of additional goodwill and intangible asset impairments on our results of operations;

•our indebtedness, our ability to service our indebtedness, and our ability to obtain additional financing on favorable terms or at all;

•our ability to achieve profitability in the future;

•the impact of litigation proceedings, government inquiries, reviews, audits or investigations;

•material weaknesses in the future may impact our ability to conclude that our internal control over financial reporting is not effective and we may be unable to produce timely and accurate financial statements;

•restrictions on the manner in which we access personal data and penalties as a result of privacy and data protection laws;

•liabilities and reputational risks related to our ability to safeguard the security and privacy of confidential data;

•data loss or corruption due to failures or errors in our systems and service disruptions at our data centers;

•adequate protection of our intellectual property, including trademarks;

•risks related to legal proceedings related to any alleged infringement, misappropriation or violation of third-party intellectual property rights;

•our use of “open source” software;

•our ability to protect the confidentiality of our trade secrets, know-how and other proprietary information;

•our reliance on third parties and licensed technologies;

•restrictions on our ability to use, disclose, de-identify or license data and to integrate third-party technologies;

•our reliance on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems for providing services to our partners and operating our business;

•our reliance on third-party vendors to host and maintain our technology platform;

•our obligations to make material payments to certain of our pre-IPO investors for certain tax benefits we may claim in the future;

•our ability to utilize benefits under the tax receivables agreement described herein;

•our obligations to make payments under the tax receivables agreement that may be accelerated or may exceed the tax benefits we realize;

•the terms of agreements between us and certain of our pre-IPO investors may contain different terms than comparable agreement we may enter into with unaffiliated third parties;

•the conditional conversion features of the 2025 Notes and the 2029 Notes (as defined below), which, if triggered, may adversely affect our financial condition and operating results;

•interest rate risk under the Credit Agreement (as defined below) and the terms of our Cumulative Series A Convertible Preferred Shares, par value $0.01 per share (“Series A Preferred Stock”);

•our debt following the NIA acquisition and our ability to meet our obligations;

•our ability to service our debt and pay dividends on our Series A Preferred Stock;

•the potential volatility of our Class A common stock price;

•the potential decline of our Class A common stock price if a substantial number of shares are sold or become available for sale, including those issuable upon conversion of our Series A Preferred Stock;

•our Series A Preferred Stock has rights, preferences and privileges that are not held by and are preferential to the rights of holders of our Class A common stock, and could in the future substantially dilute the ownership interest of holders of our Class A common stock;

•provisions in our certificate of incorporation and by-laws and provisions of Delaware law that discourage or prevent strategic transactions, including a takeover of us;

•the ability of certain of our investors to compete with us without restrictions;

•provisions in our certificate of incorporation which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees; and

•our intention not to pay cash dividends on our Class A common stock.

The risks included here are not exhaustive. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K") and other documents filed with the SEC include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we undertake no obligation to publicly update any forward-looking statements to reflect events or circumstances that occur after the date of this report except to the extent expressly required by law.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

EVOLENT HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)




	September 30, 2024		December 31, 2023
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	96,583	$	192,825
Restricted cash and restricted investments	16,343		13,768
Accounts receivable, net (1)	407,902		446,749
Prepaid expenses and other current assets	23,183		30,331
Total current assets	544,011		683,673
Restricted cash and restricted investments	14,925		16,864
Investments and equity method investees	8,405		4,895
Property and equipment, net	73,941		78,194
Right-of-use assets - operating	9,244		11,983
Prepaid expenses and other noncurrent assets	3,914		4,028
Contract cost assets	13,203		12,120
Intangible assets, net	696,779		752,009
Goodwill	1,137,342		1,116,542
Total assets	$	2,501,764	$	2,680,308
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY
Liabilities
Current liabilities:
Accounts payable (1)	$	50,087	$	48,246
Accrued liabilities	120,454		149,849
Operating lease liability - current	6,220		9,738
Accrued compensation and employee benefits	31,614		56,385
Deferred revenue	2,621		5,976

Reserve for claims and performance - based arrangements	312,687		404,048
Total current liabilities	523,683		674,242
Long-term debt, net	599,668		597,049
Other long-term liabilities	3,247		3,637
Tax receivables agreement liability	108,105		107,932
Operating lease liabilities - noncurrent	29,318		38,009
Deferred tax liabilities, net	11,892		13,311
Total liabilities	1,275,913		1,434,180

Commitments and Contingencies (See Note 10)

Mezzanine Equity
Preferred class A common stock - $0.01 par value; 50,000,000 shares authorized; 175,000 issued, respectively	187,166		178,427

Shareholders' Equity
Class A common stock - $0.01 par value; 750,000,000 shares authorized; 116,550,263 and 115,424,833 shares issued, respectively	1,166		1,154
Additional paid-in-capital	1,818,024		1,808,121
Accumulated other comprehensive loss	(1,367)		(1,257)
Retained earnings (accumulated deficit)	(758,015)		(719,194)
Treasury stock, at cost; 1,537,582 shares issued, respectively	(21,123)		(21,123)




Total shareholders' equity	1,038,685		1,067,701
Total liabilities, mezzanine equity and shareholders' equity	$	2,501,764	$	2,680,308

(1) See Note 18 for amounts attributable to related parties included in these line items.

See accompanying Notes to Consolidated Financial Statements

EVOLENT HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands, except per share data)



	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue(1)	$	621,401	$	511,015	$	1,908,199	$	1,407,841
Expenses
Cost of revenue (1)	540,708		386,585		1,616,557		1,048,998
Selling, general and administrative expenses (1)	67,060		96,567		215,349		276,682
Depreciation and amortization expenses	29,701		32,404		89,074		93,813
Loss on disposal of non-strategic assets	—		2,097		—		2,097
Right-of-use assets impairment	—		—		—		24,065

Change in fair value of contingent consideration	200		11,300		9,108		12,047
Total operating expenses	637,669		528,953		1,930,088		1,457,702
Operating loss	(16,268)		(17,938)		(21,889)		(49,861)
Interest income	794		1,071		4,714		2,735
Interest expense	(6,010)		(14,614)		(18,002)		(41,967)

Gain (loss) from equity method investees	(2,229)		684		(3,623)		1,262


Change in tax receivables agreement liability	—		—		(173)		(66,184)
Other expense, net	(43)		(77)		(140)		(323)
Loss before income taxes	(23,756)		(30,874)		(39,113)		(154,338)
Benefit from income taxes	(619)		(5,550)		(292)		(74,709)


Loss before preferred dividends and accretion of Series A Preferred Stock	(23,137)		(25,324)		(38,821)		(79,629)
Dividends and accretion of Series A Preferred Stock	(8,094)		(7,872)		(24,018)		(21,236)
Net loss attributable to common shareholders of Evolent Health, Inc.	$	(31,231)	$	(33,196)	$	(62,839)	$	(100,865)

Loss per common share
Basic and diluted	$	(0.27)	$	(0.30)	$	(0.55)	$	(0.91)








Weighted-average common shares outstanding
Basic and diluted	114,862		112,282		114,565		110,464


Comprehensive loss
Net loss attributable to common shareholders of Evolent Health, Inc.	$	(31,231)	$	(33,196)	$	(62,839)	$	(100,865)
Other comprehensive loss, net of taxes, related to:
Foreign currency translation adjustment	(12)		(151)		(110)		(87)
Total comprehensive loss attributable to common shareholders of Evolent Health, Inc.	$	(31,243)	$	(33,347)	$	(62,949)	$	(100,952)

————————

(1)See Note 18 for amounts attributable to unconsolidated related parties included in these line items.

See accompanying Notes to Consolidated Financial Statements.

EVOLENT HEALTH, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE AND SHAREHOLDERS’ EQUITY

(unaudited, in thousands)


	For the Three Months Ended September 30, 2024
	Mezzanine Equity			Shareholders’ Equity
	Series A Preferred Stock			Class A Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of June 30, 2024	175	$	184,206	116,262	$	1,163	$	1,810,054	$	(1,355)	$	(734,878)	$	(21,123)	$	1,053,861

Stock-based compensation expense	—	—		—	—		14,416		—		—		—		14,416
Exercise of stock options	—	—		234	3		2,340		—		—		—		2,343
Restricted stock units vested, net of shares withheld for taxes	—	—		54	—		(692)		—		—		—		(692)







Foreign currency translation adjustment	—	—		—	—		—		(12)		—		—		(12)
Net loss attributable to common shareholders of Evolent Health, Inc.	—	2,960		—	—		(8,094)		—		(23,137)		—		(31,231)

Balance as of September 30, 2024	175	$	187,166	116,550	$	1,166	$	1,818,024	$	(1,367)	$	(758,015)	$	(21,123)	$	1,038,685

	For the Three Months Ended September 30, 2023
	Mezzanine Equity			Shareholders’ Equity
	Series A Preferred Stock			Class A Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of June 30, 2023	175	$	172,829	113,083	$	1,131	$	1,774,784	$	(1,114)	$	(660,459)	$	(21,123)	$	1,093,219


Stock-based compensation expense	—	—		—	—		10,222		—		—		—		10,222
Exercise of stock options	—	—		330	3		4,526		—		—		—		4,529
Restricted stock units vested, net of shares withheld for taxes	—	—		83	1		(1,604)		—		—		—		(1,603)


Exchange of 2024 Notes	—	—		1,294	13		23,060		—		—		—		23,073



Foreign currency translation adjustment	—	—		—	—		—		(151)		—		—		(151)
Net income attributable to common shareholders of Evolent Health, Inc.	—	2,777		—	—		(7,872)		—		(25,324)		—		(33,196)

Balance as of September 30, 2023	175	$	175,606	114,790	$	1,148	$	1,803,116	$	(1,265)	$	(685,783)	$	(21,123)	$	1,096,093

See accompanying Notes to Consolidated Financial Statements

EVOLENT HEALTH, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE AND SHAREHOLDERS’ EQUITY

(unaudited, in thousands)


	For the Nine Months Ended September 30, 2024
	Mezzanine Equity			Shareholders’ Equity
	Series A Preferred Stock			Class A Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of December 31, 2023	175	$	178,427	115,425	$	1,154	$	1,808,121	$	(1,257)	$	(719,194)	$	(21,123)	$	1,067,701

Stock-based compensation expense	—	—		—	—		45,861		—		—		—		45,861
Exercise of stock options	—	—		335	4		3,458		—		—		—		3,462
Restricted stock units vested, net of shares withheld for taxes	—	—		585	6		(10,832)		—		—		—		(10,826)
Performance stock units vested, net of shares withheld for taxes	—	—		205	2		(4,566)		—		—		—		(4,564)






Foreign currency translation adjustment	—	—		—	—		—		(110)		—		—		(110)
Net loss attributable to common shareholders of Evolent Health, Inc.	—	8,739		—	—		(24,018)		—		(38,821)		—		(62,839)

Balance as of September 30, 2024	175	$	187,166	116,550	$	1,166	$	1,818,024	$	(1,367)	$	(758,015)	$	(21,123)	$	1,038,685

	For the Nine Months Ended September 30, 2023
	Mezzanine Equity			Shareholders’ Equity
	Series A Preferred Stock			Class A Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Accumulated Deficit)		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of December 31, 2022	—	$	—	101,501	$	1,015	$	1,486,857	$	(1,178)	$	(606,154)	$	(21,123)	$	859,417


Stock-based compensation expense	—	—		—	—		29,898		—		—		—		29,898
Exercise of stock options	—	—		1,106	11		9,172		—		—		—		9,183
Restricted stock units vested, net of shares withheld for taxes	—	—		575	5		(10,378)		—		—		—		(10,373)
Performance stock units vested, net of shares withheld for taxes	—	—		202	2		(3,977)		—		—		—		(3,975)
Leveraged stock units vested, net of shares withheld for taxes	—	—		760	8		(8)		—		—		—		—
Exchange of 2024 Notes	—	—		1,294	13		23,060		—		—		—		23,073
Shares issued for acquisition	—	—		8,475	85		261,186		—		—		—		261,271
Class A common stock issued for payment of earn-outs	—	—		877	9		28,542		—		—		—		28,551
Issuance of series A preferred stock, net of issuance costs	175	168,000		—	—		—		—		—		—		—
Foreign currency translation adjustment	—	—		—	—		—		(87)		—		—		(87)
Net income attributable to common shareholders of Evolent Health, Inc.	—	7,606		—	—		(21,236)		—		(79,629)		—		(100,865)

Balance as of September 30, 2023	175	$	175,606	114,790	$	1,148	$	1,803,116	$	(1,265)	$	(685,783)	$	(21,123)	$	1,096,093

See accompanying Notes to Consolidated Financial Statements

EVOLENT HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	For the Nine Months Ended September 30,
	2024		2023
Cash Flows Provided by Operating Activities
Net loss before preferred dividends and accretion of Series A preferred stock	$	(38,821)	$	(79,629)
Adjustments to reconcile net loss to net cash and restricted cash provided by (used in) operating activities:
Change in fair value of contingent consideration	9,108		12,047
Loss on disposal of non-strategic assets	—		2,097

Loss (gain) from equity method investees	3,623		(1,262)
Depreciation and amortization expenses	89,074		93,813

Stock-based compensation expense	45,861		29,898
Deferred tax benefit	(1,916)		(78,196)
Amortization of contract cost assets	3,604		8,005
Amortization of deferred financing costs	2,650		2,912



Right-of-use asset impairment	—		24,065
Change in tax receivables agreement liability	173		66,184
Right-of-use operating assets	2,739		11,129
Other current operating cash inflows (outflows), net	180		(120)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net and contract assets	38,844		(112,177)
Prepaid expenses and other current and non-current assets	7,751		(16,394)
Contract cost assets	(4,687)		(3,958)
Accounts payable	1,260		(12,628)
Accrued liabilities	17,648		27,537
Operating lease liabilities	(12,209)		(10,432)
Accrued compensation and employee benefits	(24,780)		(8,807)
Deferred revenue	(3,355)		(136)
Reserve for claims and performance-based arrangements	(91,361)		100,012

Other long-term liabilities	(390)		(759)
Net cash and restricted cash provided by operating activities	44,996		53,201
Cash Flows Used In Investing Activities
Cash paid for asset acquisitions and business combinations	(16,947)		(388,246)


Disposal of non-strategic assets and divestiture of discontinued operations, net	—		577
Return of equity method investments	7		870

Purchases of investments and contributions to equity method investees	(7,320)		—

Investments in internal-use software and purchases of property and equipment	(18,742)		(22,693)

Net cash and restricted cash used in investing activities	(43,002)		(409,492)
Cash Flows (Used In) Provided by Financing Activities
Changes in working capital balances related to claims processing	584		7,925
Payment of contingent consideration	(70,355)		—
Proceeds from stock option exercises	3,462		9,183
Proceeds from issuance of long-term debt, net of offering costs	(529)		256,063

Repayment of long-term debt	—		(47,500)

Proceeds from issuance of preferred stock, net of offering costs	—		168,000
Payment of preferred dividends	(15,279)		(13,631)
Taxes withheld and paid for vesting of equity awards	(15,390)		(14,348)
Net cash and restricted cash (used in) provided by financing activities	(97,507)		365,692

See accompanying Notes to Consolidated Financial Statements


	For the Nine Months Ended September 30,
	2024		2023
Effect of exchange rate on cash and cash equivalents and restricted cash	(93)		(61)
Net (decrease) increase in cash and cash equivalents and restricted cash	(95,606)		9,340
Cash and cash equivalents and restricted cash as of beginning-of-period	223,457		215,158
Cash and cash equivalents and restricted cash as of end-of-period	$	127,851	$	224,498

See accompanying Notes to Consolidated Financial Statements

EVOLENT HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization

Evolent Health, Inc. was incorporated in December 2014 in the state of Delaware and through its subsidiaries is a market leader in connecting care for people with complex conditions like cancer, cardiovascular disease, and musculoskeletal diagnoses. We work on behalf of health plans and other risk-bearing entities and payers (our customers) to support physicians and other healthcare providers (our users) in providing the best evidence-based care to their patients. We believe adherence to the best evidence supports better outcomes for patients, a better experience for physicians, and lower costs for the healthcare system overall.

As of September 30, 2024, the Company had unrestricted cash and cash equivalents of $96.6 million. The Company believes it has sufficient liquidity to meet its working capital and capital expenditure requirements for at least the next twelve months as of the date the financial statements were issued.

We have one operating segment and one reportable segment as our chief operating decision maker, who is our Chief Executive Officer, reviews financial information on a consolidated basis for purposes of evaluating financial performance and allocating resources.

The Company’s headquarters is located in Arlington, Virginia.

Evolent Health LLC Governance

Our operations are conducted through Evolent Health LLC. Evolent Health, Inc. is a holding company whose only business is to act as the sole managing member of Evolent Health LLC. As such, it controls Evolent Health LLC’s business and affairs and is responsible for the management of its business.

Note 2. Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principles

Basis of Presentation

In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to fairly state our financial position, results of operations and cash flows. The interim consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain footnote disclosures normally included in financial statements prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) have been omitted pursuant to instructions, rules and regulations prescribed by the United States Securities and Exchange Commission (“SEC”). The disclosures provided herein should be read in conjunction with the audited financial statements and notes thereto included in our 2023 Form 10-K.

Summary of Significant Accounting Policies

Certain GAAP policies that significantly affect the determination of our financial position, results of operations and cash flows, are summarized below. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 2” in our 2023 Form 10-K for a complete summary of our significant accounting policies.

Accounting Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. In the accompanying unaudited interim consolidated financial statements, estimates are used for, but not limited to, the valuation of assets (including intangibles assets, goodwill and long-lived assets), liabilities, consideration related to business combinations and asset acquisitions, revenue recognition (including variable consideration), estimated selling prices for performance obligations in contracts with multiple performance obligations, reserves for claims and performance-based arrangements, credit losses, depreciable lives of assets, impairment of long-lived assets, stock-based compensation, deferred income taxes and valuation allowance, contingent liabilities, purchase price allocation in taxable stock transactions and useful lives of intangible assets.

Principles of Consolidation

The unaudited interim consolidated financial statements include the accounts of Evolent Health, Inc. and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

Cash and Cash Equivalents

We consider all highly liquid instruments with original maturities of three months or less to be cash equivalents. The Company holds materially all of our cash in bank deposits with the Federal Deposit Insurance Corporation (“FDIC”) participating banks, at cost, which approximates fair value.

Restricted Cash and Restricted Investments

Restricted cash and restricted investments include cash and investments used to collateralize various contractual obligations (in thousands) as follows:




	September 30, 2024		December 31, 2023
Collateral for letters of credit for facility leases (1)	$	1,903	$	2,132
Collateral with financial institutions (2)	16,518		16,237
Claims processing services (3)	12,847		12,263
Total restricted cash and restricted investments	$	31,268	$	30,632

Current restricted cash	$	16,343	$	13,768
Total current restricted cash and restricted investments	$	16,343	$	13,768

Non-current restricted cash	$	14,925	$	16,864
Total non-current restricted cash and restricted investments	$	14,925	$	16,864

————————

(1)Represents restricted cash related to collateral for letters of credit required in conjunction with lease agreements. See Note 11 for further discussion of our lease commitments.

(2)Represents collateral held with financial institutions for risk-sharing and other arrangements which are held in a FDIC participating bank account. See Note 17 for discussion of fair value measurement.

(3)Represents cash held by the Company related to claims processing services on behalf of partners. These are pass-through amounts and can fluctuate materially from period to period depending on the timing of when the claims are processed.

The following table provides a reconciliation of cash and cash equivalents and current and noncurrent restricted cash and restricted investments reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows (in thousands):


	September 30,
	2024		2023
Cash and cash equivalents	$	96,583	$	184,536
Restricted cash and restricted investments	31,268		39,962
Total cash and cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	127,851	$	224,498

Business Combinations

Companies acquired during each reporting period are reflected in the results of the Company effective from their respective dates of acquisition through the end of the reporting period. The Company allocates the fair value of purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Critical estimates used to value certain identifiable assets include, but are not limited to, expected long-term revenues, future expected operating expenses, cost of capital and appropriate discount rates.

The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed in the acquired entity is recorded as goodwill. If the Company obtains new information about facts and circumstances that existed as of the acquisition date during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period

or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded on the Company's consolidated statements of operations and comprehensive income (loss).

For contingent consideration recorded as a liability, the Company initially measures the amount at fair value as of the acquisition date and adjusts the liability to fair value at each reporting period. Changes in the fair value of contingent consideration, other than measurement period adjustments, are recognized in operating expenses on the consolidated statements of operations and comprehensive income (loss). Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred. See Note 4 for additional discussion regarding business combinations.

Goodwill

We recognize the excess of the purchase price, plus the fair value of any non-controlling interests in the acquiree, over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized, but is reviewed at least annually for indications of impairment, with consideration given to financial performance and other relevant factors. We perform impairment tests of goodwill at a reporting unit level on October 31 of each year. We perform impairment tests between annual tests if an event occurs, or circumstances change, that we believe would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Our goodwill impairment analysis first assesses qualitative factors to determine whether events or circumstances existed that would lead the Company to conclude it is more likely than not that the fair value of its reporting unit is below its carrying amount. If the Company determines that it is more likely than not that the fair value of its reporting unit is below the carrying amount, a quantitative goodwill assessment is required. In the quantitative evaluation, the fair value of our reporting unit is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds our reporting unit’s fair value and a charge is reported in goodwill impairment on our consolidated statements of operations and comprehensive income (loss). See Note 8 for additional discussion regarding the goodwill impairment test conducted during 2023 and review of qualitative factors for impairment during 2024.

Intangible Assets, Net

Identified intangible assets are recorded at their estimated fair values at the date of acquisition and are amortized over their respective estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are used.

The following summarizes the estimated useful lives by asset classification:


Corporate trade name			3 months
Customer relationships			11 - 25 years
Technology			5 years
Provider network contracts			3 - 5 years

As part of the organizational changes as a result of growth in our value-based specialty care business, we will sunset several corporate trade names and replace them with Evolent signifying our adoption and launch of a unified brand. As a result, we accelerated amortization such that all corporate trade names will be fully amortized by December 2024.

Intangible assets are reviewed for impairment if circumstances indicate the Company may not be able to recover the asset’s carrying value. The Company evaluates recoverability by determining whether the undiscounted cash flows expected to result from the use and eventual disposition of that asset or group exceed the carrying value at the evaluation date. If the undiscounted cash flows are not sufficient to cover the carrying value, the Company measures an impairment loss as the excess of the carrying amount of the long-lived asset or group over its fair value. See Note 8 for additional discussion regarding our intangible assets.

Research and Development Costs

Research and development costs consist primarily of personnel and related expenses (including stock-based compensation and employee taxes and benefits) for employees engaged in research and development activities as well as third-party fees. All such costs are expensed as incurred. We focus our research and development efforts on activities that support our technology infrastructure, clinical program development, data analytics and network development capabilities. Research and development costs are recorded within cost of revenue and selling, general and administrative expenses on our consolidated statements of operations and comprehensive income (loss).

Reserves for Claims and Performance-based Arrangements

Reserves for claims and performance-based arrangements reflect estimates of payments under performance-based arrangements and the ultimate cost of claims that have been incurred but not reported, including expected development on reported claims, those that have been reported but not yet paid (reported claims in process) and other medical care expenses and services payable that are primarily composed of accruals for incentives and other amounts payable to health care professionals and facilities. The Company uses actuarial principles and assumptions that are consistently applied in each reporting period and recognizes the actuarial best estimate of the ultimate liability along with a margin for adverse deviation. This approach is consistent with actuarial standards of practice that the liabilities be adequate under moderately adverse conditions.

The process of estimating reserves involves a considerable degree of judgment by the Company and, as of any given date, is inherently uncertain. The methods for making such estimates and for establishing the resulting liability are continually reviewed and adjustments are reflected in current results of operations in the period in which they are identified as experience develops or new information becomes known. See Note 20 for additional discussion regarding our reserves for claims and performance-based arrangements.

Right of Offset

Certain customer arrangements give the Company the legal right to net payment for amounts due from customers and claims payable. As of September 30, 2024 and December 31, 2023, approximately 68% and 57%, respectively, of gross accounts receivable has been netted against claims payable in lieu of cash receipt. Furthermore, as of September 30, 2024, approximately 20% of our accounts receivable, net could ultimately be settled on a net basis, once the criteria for netting have been met. Additionally, the Company offsets its accounts receivable and claims reserve under its total cost of care management solution.

Leases

The Company enters into various office space, data center and equipment lease agreements in conducting its normal business operations. At the inception of any contract, the Company evaluates the agreement to determine whether the contract contains a lease. If the contract contains a lease, the Company then evaluates the term and whether the lease is an operating or finance lease. Most leases include one or more options to renew or may have a termination option. The Company determines whether these options are reasonably certain to be exercised at the inception of the lease. The rent expense is recognized on a straight-line basis in the consolidated statements of operations and comprehensive income (loss) over the terms of the respective leases. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Further, the Company treats all lease and non-lease components as a single combined lease component for all classes of underlying assets.

The Company also enters into sublease agreements for some of its leased office space. Rental income attributable to subleases is immaterial and is offset against rent expense over the terms of the respective leases.

The Company reviews long-lived assets, which include operating lease right-of-use asset assets, for impairment when facts or circumstances indicate the carrying amount of an asset or asset group may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets, the carrying values are reduced to the estimated fair value. Fair values are determined based on quoted market values, discounted cash flows and external market data, as applicable.

Refer to Note 11 for additional lease disclosures.

Revenue Recognition

Our revenue contracts are typically multi-year arrangements with customers to provide solutions designed to lower the medical expenses of our partners and include our total cost of care management and specialty care management services solutions, provide comprehensive health plan operations and claims processing services, and also include transition or run-out services to customers.

We use the following 5-step model, outlined in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), to determine revenue recognition from our contracts with customers:

• Identify the contract(s) with a customer

• Identify the performance obligations in the contract

• Determine the transaction price

• Allocate the transaction price to performance obligations

• Recognize revenue when (or as) the entity satisfies a performance obligation

See Note 5 for further discussion of our policies related to revenue recognition.

Series A Senior Convertible Preferred Shares

In accordance with ASC 480, Distinguishing Liabilities from Equity, the shares of Series A Senior Convertible Preferred Shares are classified within temporary equity, as events outside the Company’s control triggers such shares to become redeemable. Costs associated with the issuance of redeemable preferred stock are presented as discounts to the fair value of the redeemable preferred stock and are amortized using the effective interest method, over the term of the respective series of preferred shares. Refer to Note 12 - Convertible Preferred Equity for further discussion.

Note 3. Recently Issued Accounting Standards

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which enhances the disclosures required for operating segments in the Company's annual and interim consolidated financial statements, including those companies with a single operating segment. ASU 2023-07 is effective retrospectively for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard on our disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate. The standard also requires that entities disclose income (or loss) from continuing operations before income tax expense (or benefit) and income tax expense (or benefit) each disaggregated between domestic and foreign. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company is currently assessing the impact of ASU 2023-09 on its disclosures.

Note 4. Transactions

Business Combinations

Machinify

On August 1, 2024, the Company completed its acquisition of certain assets of Machinify, Inc. and the exclusive, perpetual and royalty-free license of Machinify Auth, (“Machinify”), a software platform that leverages the latest advances in artificial intelligence. The acquisition consideration was $28.5 million which included $19.5 million of cash, $11.0 million which was paid upon closing and $8.5 million which was paid on November 1, 2024, as well as an earn-out consisting of additional consideration of up to $12.5 million payable in cash or shares of the Company’s Class A common stock at the election of the Company. As of August 1, 2024, the contingent consideration was fair valued at $9.0 million. See Note 17 for additional information regarding the fair value determination of the earn-out consideration.

The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of August 1, 2024, as follows (in thousands):


Purchase consideration:
Cash	$	19,500
Fair value of contingent consideration	9,000
Total consideration	$	28,500

Identifiable intangible assets acquired:
Technology	7,700
Total identifiable intangible assets acquired	7,700

Liabilities assumed:

Accrued compensation and employee benefits	9
Total liabilities assumed	9

Goodwill	20,809
Net assets acquired	$	28,500

Identifiable intangible assets associated with technology will be amortized on a straight-line basis over their preliminary estimated useful lives of 5 years. The fair value of the intangible assets was determined using the replacement cost method which involves estimating an asset’s value by the cost to replace the asset with a similar asset in a similar condition on the closing date of the transaction. Goodwill is calculated as the difference between the acquisition date fair value of the total consideration and the fair value of the net assets acquired and represents the future economic benefits that we expect to achieve as a result of the acquisition. The goodwill is deductible for tax purposes.

National Imaging Associates Inc.

On January 20, 2023, the Company completed its acquisition of NIA, including all of the issued and outstanding shares of capital stock of NIA as well as certain assets held by Magellan Health, Inc. (“Magellan”) and certain of its subsidiaries that were used in the Magellan Specialty Health division. NIA is a specialty benefit management organization that focuses on managing cost and quality in the areas of radiology, musculoskeletal, physical medicine and genetics. The transaction is expected to accelerate our strategy to become a leading provider of value-based specialty care solutions as well as diversify our revenue streams with a larger customer portfolio.

Total acquisition consideration, net of cash on hand and certain closing adjustments, was $715.7 million, based on the closing price of the Company’s Class A common stock on the NYSE on January 20, 2023. The acquisition consideration consisted of approximately $387.8 million of cash consideration (inclusive of certain post-closing adjustments), 8.5 million shares of the Company’s Class A common stock, fair valued at $261.3 million as of January 20, 2023, and an earn-out consisting of additional consideration of up to $150.0 million payable in cash and, at the Company’s election, up to 50% in shares of the Company’s Class A common stock (the “Contingent Consideration”). As of January 20, 2023, the Contingent Consideration was fair valued at $66.6 million. See Note 17 for additional information regarding the fair value determination of the earn-out consideration.

The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of January 20, 2023, as follows (in thousands):


Purchase consideration:
Cash	$	387,823
Fair value of Class A common stock issued	261,271
Fair value of contingent consideration	66,600
Total consideration	$	715,694

Tangible assets acquired:
Accounts receivable	$	28,065
Prepaid expenses and other current assets	675

Total tangible assets acquired	28,740

Identifiable intangible assets acquired:
Customer relationships	345,100
Technology	50,700
Corporate trade name	8,200
Total identifiable intangible assets acquired	404,000

Liabilities assumed:

Accrued liabilities	5,409
Accrued compensation and employee benefits	6,173
Deferred tax liabilities, net	100,486
Deferred revenue	142

Total liabilities assumed	112,210

Goodwill (1)	395,164
Net assets acquired	$	715,694

————————

(1)Goodwill acquired does not include $1.0 million of measurement period adjustments of $2.4 million in reductions due to goodwill written off upon disposal of non-strategic assets subsequent to March 31, 2023.

The fair value of the receivables acquired, as shown in the table above, approximates the gross contractual amounts and is expected to be collectible in full. Identifiable intangible assets associated with customer relationships, technology and the corporate trade name will be amortized on a straight-line basis over their preliminary estimated useful lives of 15 years, 5 years, and 2 years, respectively. The customer relationships are primarily attributable to existing contracts with current customers. The technology consists primarily of proprietary software that supports NIA’s core business applications and specialty business. The corporate trade name reflects the value that we believe the NIA brand name carries in the market, however due to organization changes we will retire the NIA trade name by December 2024. The fair value of the intangible assets was determined using the income approach and the relief from royalty approach. The income approach estimates fair value for an asset based on the present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The relief from royalty approach estimates the fair value of an asset by calculating how much an entity would have to spend to lease a similar asset. Goodwill is calculated as the difference between the acquisition date fair value of the total consideration and the fair value of the net assets acquired and represents the future economic benefits that we expect to achieve as a result of the acquisition. The Company received carryover tax basis in the assets and liabilities acquired; accordingly, the Company recognized net deferred tax liabilities associated with the difference between the book basis and the tax basis for the assets and liabilities acquired. The goodwill is not deductible for tax purposes. Additionally, a tax benefit of $56.1 million was recorded in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2023, to account for the valuation allowance release primarily related to the acquired intangible assets, which resulted in a deferred tax liability that provided a source of income supporting realization of other deferred tax assets.

Note 5. Revenue Recognition

Our performance obligation in these arrangements is to provide an integrated suite of services, including access to our platform that is customized to meet the specialized needs of our partners and providers. Generally, we will apply the series guidance to the performance obligation as we have determined that each time increment is distinct. We primarily utilize a variable fee structure for these services that typically includes a monthly payment that is calculated based on a specified per member per month rate, multiplied by the number of members that our partners are managing under a value-based care arrangement or a percentage of plan premiums. Our arrangements may also include other variable fees related to service level agreements, shared medical savings arrangements and other performance measures. Variable consideration is estimated using the most likely amount based on our historical experience and best judgment at the time. Due to the nature of our arrangements, certain estimates may be constrained if it is probable that a significant reversal of revenue will occur when the uncertainty is resolved. We recognize revenue over time using the time elapsed output method. Fixed consideration is recognized ratably over the contract term. In accordance with the series guidance, we allocate variable consideration to the period to which the fees relate. Our revenue includes certain services which are billed on a per-case basis.

Contracts with Multiple Performance Obligations

Our contracts with customers may contain multiple performance obligations, primarily when the partner has requested both administrative services and other services such as our specialty care management or total cost of care management services as these services are distinct from one another. When a contract has multiple performance obligations, we allocate the transaction price to each performance obligation based on the relative standalone selling price using the expected cost margin approach. This approach requires estimates regarding both the level of effort it will take to satisfy the performance obligation as well as fees that will be received under the variable pricing model. We also take into consideration customer demographics, current market conditions, the scope of services and our overall pricing strategy and objectives when determining the standalone selling price.

Principal vs. Agent

We use third parties to assist in satisfying our performance obligations. In order to determine whether we are the principal or agent in the arrangement, we review each third-party relationship on a contract-by-contract basis. As we integrate goods and services provided by third parties into our overall service, we control the services provided to the customer prior to its delivery. As such, we are the principal and we will recognize revenue on a gross basis. In certain cases, we do not control the services from third parties before it is delivered to the customer, thereby recognizing revenue on a net basis.

Disaggregation of Revenue

The following table represents Evolent’s revenue disaggregated by line of business and product type (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Medicaid	$	214,627	$	195,259	$	646,819	$	587,611
Medicare	238,527		208,166		794,160		474,535
Commercial and other	168,246		107,590		467,220		345,695
Total	$	621,400	$	511,015	$	1,908,199	$	1,407,841

Performance Suite	$	435,100	$	323,722	$	1,344,920	$	840,171
Specialty Technology and Services Suite	85,474		81,230		255,992		223,598
Administrative Services	59,396		68,713		178,735		229,534
Cases	41,430		37,350		128,552		114,538
Total	$	621,400	$	511,015	$	1,908,199	$	1,407,841

Transaction Price Allocated to the Remaining Performance Obligations

For contracts with a term greater than one year, we have allocated approximately $24.4 million of transaction price to performance obligations that are unsatisfied as of September 30, 2024. We do not include variable consideration that is allocated entirely to a wholly unsatisfied performance obligation accounted for under the series guidance in the calculation. As a result, the balance

represents the value of the fixed consideration in our long-term contracts that we expect will be recognized as revenue in a future period and excludes the majority of our revenue, which is primarily derived based on variable consideration as discussed in Note 2. We expect to recognize revenue on approximately 31% and 100% of these remaining performance obligations by December 31, 2024 and 2025 respectively. However, because our existing contracts may be canceled or renegotiated including for reasons outside our control, the amount of revenue that we actually receive may be more or less than this estimate and the timing of recognition may not be as expected.

Contract Balances

Contract balances consist of accounts receivable, contract assets and deferred revenue. Contract assets are recorded when the right to consideration for services is conditional on something other than the passage of time. Contract assets relating to unbilled receivables are transferred to accounts receivable when the right to consideration becomes unconditional. We classify contract assets as current or non-current based on the timing of our rights to the unconditional payments. Our contract assets are generally classified as current and recorded within prepaid expenses and other current assets on our consolidated balance sheets. Our current accounts receivables are classified within accounts receivable, net on our consolidated balance sheets and our non-current accounts receivable are classified within prepaid expenses and other non-current assets on our consolidated balance sheets.

Deferred revenue includes advance customer payments and billings in excess of revenue recognized. We classify deferred revenue as current or non-current based on the timing of when we expect to recognize revenue. Our current deferred revenue is recorded within deferred revenue on our consolidated balance sheets and non-current deferred revenue is recorded within other long-term liabilities on our consolidated balance sheets.

The following table provides information about receivables, contract assets and deferred revenue from contracts with customers as of September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Short-term receivables (1)	$	406,786	$	446,220

Short-term deferred revenue	2,621		5,976
Long-term deferred revenue	293		1,173

————————

(1)Excludes pharmacy rebate receivable and pharmacy claims receivable.

Changes in deferred revenue for the nine months ended September 30, 2024 are as follows (in thousands):


Deferred revenue
Balance as of beginning-of-period	$	7,149
Reclassification to revenue, as a result of performance obligations satisfied	(5,041)
Cash received in advance of satisfaction of performance obligations	806
Balance as of end of period	$	2,914

The amount of revenue, excluding customer discounts of $1.2 million and $4.3 million for the three and nine months ended September 30, 2024, respectively, recognized from performance obligations satisfied (or partially satisfied) in a previous period was $(18.1) million and $2.6 million for the three and nine months ended September 30, 2024, respectively, due primarily to retroactive contract amendments offset by net gain share as well as changes in other estimates.

Contract Cost Assets

Certain bonuses and commissions earned by our sales team are considered incremental costs of obtaining a contract with a customer that we expect to be recoverable. The capitalized contract acquisition costs are classified as non-current assets and recorded within contract cost assets on our consolidated balance sheets. Amortization expense is recorded within selling, general and administrative expenses on the accompanying consolidated statements of operations and comprehensive income (loss). As of September 30, 2024 and December 31, 2023, the Company had $2.8 million and $2.8 million, respectively, of contract acquisition cost assets, net of accumulated amortization recorded in contract cost assets on the consolidated balance sheets. In addition, the Company recorded amortization expense of $0.3 million and $0.9 million for the three and nine months ended September 30, 2024, respectively, and $0.3 million and $1.0 million for the three and nine months ended September 30, 2023, respectively.

In our revenue contracts, we incur certain costs related to the implementation of our platform before we begin to satisfy our performance obligation to the customer. The costs, which we expect to recover, are considered costs to fulfill a contract. Our contract

fulfillment costs primarily include our employee labor costs and third-party vendor costs. The capitalized contract fulfillment costs are classified as non-current and recorded within contract cost assets on our consolidated balance sheets. Amortization expense is recorded within cost of revenue on the accompanying consolidated statements of operations and comprehensive income (loss). As of September 30, 2024 and December 31, 2023, the Company had $10.4 million and $9.3 million, respectively, of contract fulfillment cost assets, net of accumulated amortization recorded in contract cost assets on the consolidated balance sheets. In addition, the Company recorded amortization expense including the acceleration of amortization of contract costs for certain customers of $0.9 million and $2.7 million for the three and nine months ended September 30, 2024, respectively, and $2.0 million and $7.0 million for the three and nine months ended September 30, 2023, respectively.

These costs are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be the shorter of the contract term or five years. The period of benefit is based on our technology, the nature of our partner arrangements and other factors.

Note 6. Credit Losses

We are exposed to credit losses primarily through our accounts receivable from revenue transactions, investments held at amortized cost and other notes receivable. We estimate expected credit losses based on past events, current conditions and reasonable and supportable forecasts. Expected credit losses are measured over the remaining contractual life of these assets. As part of our consideration of current and forward-looking economic conditions, current inflationary pressures on our customers’ and other third parties’ ability to pay, we did observe a modest increase in delinquencies with certain partners’ mainly due to timing of payments which resulted in a higher provision for credit losses during the three months ended September 30, 2024.

Accounts Receivable from Revenue Transactions

Accounts receivable represent the amounts owed to the Company for goods or services provided to customers or third parties. Current accounts receivables are classified within accounts receivable, net on the Company’s consolidated balance sheets, while non-current accounts receivables are classified within prepaid expenses and other noncurrent assets on the Company’s consolidated balance sheets.

We monitor our ongoing credit exposure through active review of counterparty balances against contract terms, due dates and business strategy. Our activities include timely account reconciliation, dispute resolution and payment confirmation. In addition, the Company will establish a general reserve based on delinquency rates. Historical loss rates are determined for each delinquency bucket in 30-day past-due intervals and then applied to the composition of the reporting date balance based on delinquency. The allowance implied from application of the historical loss rates is then adjusted, as necessary, for current conditions and reasonable and supportable forecasts.

The following table compiles the percentages of outstanding accounts receivable based on our aging analysis of our trade accounts receivable, non-trade accounts receivable and contract assets (in thousands):


	September 30, 2024			December 31, 2023
Current	64		%	54		%
Past due 1-60 days	15		%	17		%
Past due 61+ days	21		%	29		%
Accounts receivable, net of allowance	$	410,568		$	472,350

The following table summarizes the changes in allowance for credit losses on our accounts receivables, certain non-trade accounts receivable and contract assets (in thousands):


	For the Nine Months Ended September 30,
	2024		2023
Balance as of beginning of period	$	(16,361)	$	(10,180)
Acquisitions	—		(240)
Provision for credit losses	(1,050)		(10,814)
Charge-offs(1)	5,722		2,701
Balance as of end of period	$	(11,689)	$	(18,533)

————————

(1) Charge offs for the nine months ended September 30, 2024 and 2023 are due primarily to balances written-off that were previously reserved.

Note 7. Property and Equipment, Net

The following summarizes our property and equipment (in thousands):


	September 30, 2024		December 31, 2023
Computer hardware	$	14,703	$	21,501
Furniture and equipment	1,717		1,297
Internal-use software development costs	228,960		212,913
Leasehold improvements	1,502		1,052
Total property and equipment	246,882		236,763
Accumulated depreciation expense	(172,941)		(158,569)
Total property and equipment, net	$	73,941	$	78,194

The Company capitalized $5.7 million and $16.0 million for the three and nine months ended September 30, 2024, respectively, and $4.3 million and $18.1 million for the three and nine months ended September 30, 2023, respectively, of internal-use software development costs. The net book value of capitalized internal-use software development costs was $68.1 million and $70.9 million as of September 30, 2024 and December 31, 2023, respectively.

Depreciation expense related to property and equipment was $7.5 million and $22.9 million for the three and nine months ended September 30, 2024, respectively, and $8.5 million and $24.8 million for the three and nine months ended September 30, 2023, respectively, of which amortization expense related to capitalized internal-use software development costs was $6.3 million and $19.3 million for the three and nine months ended September 30, 2024, respectively and $6.6 million and $20.1 million for the three and nine months ended September 30, 2023, respectively.

Note 8. Goodwill and Intangible Assets, Net

Goodwill

Goodwill has an estimated indefinite life and is not amortized; rather, it is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Our annual goodwill impairment review occurs on October 31 of each fiscal year. We evaluate qualitative factors that could cause us to believe the estimated fair value of our reporting unit may be lower than the carrying value and trigger a quantitative assessment, including, but not limited to (i) macroeconomic conditions, (ii) industry and market considerations, (iii) our overall financial performance, including an analysis of our current and projected cash flows, revenues and earnings, (iv) a sustained decrease in share price and (v) other relevant entity-specific events including changes in management, strategy, partners, or litigation.

We did not identify any qualitative factors that would trigger a quantitative goodwill impairment test for the nine months ended September 30, 2024. We perform our annual impairment test on October 31, 2024.

2023 Goodwill Impairment Test

On October 31, 2023, the Company performed its annual goodwill impairment review for fiscal year 2023. In addition, the Company underwent organizational changes which required a reassessment of reporting units. As a result, the Company determined it has one reporting unit due to the economic similarity of the services provided to our partners. Based on our qualitative assessment, we did not

identify sufficient indicators of impairment that would suggest the fair value of our reporting unit was below its respective carrying values. As a result, a quantitative goodwill impairment analysis was not required.

Change in Goodwill

The following table summarizes the changes in the carrying amount of goodwill, for the periods presented (in thousands):


	For the Nine Months Ended September 30,
	2024		2023
Balance, beginning of period	$	1,116,542	$	722,774
Goodwill acquired (1)	20,809		395,164
Measurement period adjustment	—		(391)
Foreign currency translation	(9)		(4)
Balance, end of period	$	1,137,342	$	1,117,543

————————

(1)Goodwill acquired from the addition of NIA in January 2023 and Machinify in August 2024 as described in Note 4.

Intangible Assets, Net

Details of our intangible assets (in thousands, except weighted-average useful lives) are presented below:


	September 30, 2024							December 31, 2023
	Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Weighted- Average Remaining Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Corporate trade name	0.3	$	51,965	$	46,959	$	5,006	1.0	$	51,965	$	30,288	$	21,677
Customer relationships	13.7	806,668		174,561		632,107		14.5	806,668		139,150		667,518
Technology	3.2	169,715		113,609		56,106		3.8	162,015		101,566		60,449
Below market lease, net	0.0	1,218		1,218		—		0.0	1,218		1,218		—
Provider network contracts	1.7	21,244		17,684		3,560		1.1	18,054		15,689		2,365
Total intangible assets, net		$	1,050,810	$	354,031	$	696,779		$	1,039,920	$	287,911	$	752,009

Amortization expense related to intangible assets was $22.2 million and $66.2 million for the three and nine months ended September 30, 2024, respectively and $23.8 million and $68.9 million for the three and nine months ended September 30, 2023, respectively.

Future estimated amortization of intangible assets (in thousands) as of September 30, 2024, is as follows:


2024	$	21,845
2025	65,159
2026	64,909
2027	62,168
2028	50,233
Thereafter	432,465
Total future amortization of intangible assets	$	696,779

Intangible assets are reviewed for impairment if circumstances indicate the Company may not be able to recover the assets’ carrying value. We did not identify any circumstances during the three and nine months ended September 30, 2024 that require an impairment test for our intangible assets.

Note 9. Long-term Debt

Terms of Convertible Senior Notes

The Company issued $117.1 million aggregate principal amount of its 3.50% Convertible Senior Notes due 2024 in August 2020 (the “2024 Notes”) in privately negotiated exchange and/or subscription agreements, $172.5 million aggregate principal amount of its 1.50% Convertible Senior Notes due 2025 in October 2018 (the “2025 Notes”) in private placements to qualified institutional buyers within the meaning of Rule 144A under the Securities Act and $402.5 million aggregate principal amount of its 3.50% Convertible Senior Notes due 2029 in December 2023 (the “2029 Notes,” and together with the 2024 Notes and 2025 Notes, the “Convertible Senior Notes”), in private placements to qualified institutional buyers within the meaning of Rule 144A under the Securities Act. All 2025 Notes and 2029 Notes will mature on the date in the table below, unless earlier repurchased, redeemed or converted in accordance with their respective terms prior to such date. As of October 13, 2023, no 2024 Notes remained outstanding.

The Convertible Senior Notes are recorded on our accompanying consolidated balance sheets at their net carrying values. All of our Convertible Senior Notes also have embedded conversion options and contingent interest provisions, which have not been recorded as separate financial instruments and their fair values are Level 2 inputs. Refer to Note 17 for additional discussion on the fair value classifications of our Convertible Senior Notes.

The 2025 Notes and 2029 Notes are convertible into cash, shares of the Company's Class A common stock, or a combination of cash and shares of the Company's Class A common stock, at the Company's election, based on an initial conversion rate of Class A common stock per $1,000 principal amount of the 2025 Notes and 2029 Notes, which is equivalent to an initial conversion price of the Company’s Class A common stock. In the aggregate, the 2025 Notes and 2029 Notes are initially convertible into 20.3 million shares of the Company’s Class A common stock. The conversion rate may be adjusted under certain circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash or shares of the Company’s Class A common stock, or a combination of cash and shares of the Company’s Class A common stock, at the Company’s election.

The following table summarizes the terms of our Convertible Senior Notes as of September 30, 2024 (in thousands, except per share conversion rates and prices):


	2025 Notes			2029 Notes
Aggregate principal amount at issuance	$	172,500		$	402,500
Interest rate per annum	1.5		%	3.5		%
Debt issuance costs	$	5,929		$	11,598
Net proceeds	$	166,571		$	390,902
Issuance date	October 22, 2018			December 8, 2023
Maturity date	October 15, 2025			December 1, 2029
Interest payment dates (1)	April 15 and October 15			June 1 and December 1

Conversion rate per $1,000 of principal	29.9135			26.3125
Conversion price	$	33.43		$	38.00
Shares issuable upon conversion(2)	5,160			10,592

Carrying value	$	171,142		$	392,435
Unamortized debt discount and issuance costs	1,358			10,065
Outstanding principal	$

Evolent Health, Inc. [EVH] Filings
10-Q	[2024-11-08]
10-Q	[2024-08-09]
10-Q	[2024-05-10]
10-K	[2024-02-23]
10-Q	[2023-11-02]
10-Q	[2023-08-03]
10-Q	[2023-05-04]
10-K	[2023-02-24]
10-Q	[2022-11-03]
10-Q	[2022-08-03]
10-Q	[2022-05-05]
10-K	[2022-02-24]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-02-26]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-28]
10-K	[2020-03-02]
10-Q	[2019-11-05]
10-Q	[2019-08-09]
10-Q	[2019-05-09]
10-K	[2019-02-28]
10-Q	[2018-11-08]
10-Q	[2018-08-09]
10-Q	[2018-05-10]
10-K	[2018-03-01]
10-Q	[2017-11-09]
10-Q	[2017-08-07]
10-Q	[2017-05-10]
10-K	[2017-03-03]
10-Q	[2016-11-10]
10-Q	[2016-08-09]
10-Q	[2016-05-16]
10-K	[2016-02-29]
10-Q	[2015-11-06]
10-Q	[2015-08-07]
S-1	[2015-05-05]