Evolent Health Inc
For the period ended Sep 30, 2024. Filed Nov 8, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 8, 2024
EVH$4.58+0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001628908-24-000090
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-08.
0001628908-24-000114
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 112 previous paragraphs and 125 current paragraphs.
63 unchanged; 44 reworded; 16 added; 4 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 10 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
Industry Climate
Current report
Our results for the three months ended September 30, 2024 were impacted by higher-than-expected medical costs in our specialty Performance Suite business versus our previous expectations. This included two components:
Current report
•Some of our partners submitted new claims data to us that we received and processed from September through early November. These data files included higher expenses for claims paid in quarters than what these partners had previously submitted to us.
Current report
•The third quarter saw an acceleration in specialty pharmacy costs industry-wide, particularly in oncology, as referenced by many of the largest health insurers in the country.
Current report
We believe the high medical cost inflation in the third quarter in our specialty Performance Suite was driven by a confluence of factors, including significant increases in disease prevalence, Medicaid redetermination-based adverse selection, rapid increases in unit costs, post-COVID acuity increases and provider coding intensity. We are unable to predict how these broader dynamics will impact our business and results of operations in the future.
Current report
Total revenue increased by $110.4 million, or 21.6%, to $621.4 million for the three months ended September 30, 2024, as compared to 2023. This increase is primarily due to growth in our Performance Suite of $60.8 million, net of a $41.8 million true-down of revenue related to a narrowed scope of services in select markets retroactive to the beginning of the year, higher revenue from one of our customers of $22.4 million and higher revenue from transitioning certain Specialty Technology and Services Suite customers to
Current report
(1)The decrease in Performance Suite PMPM for the three months ended September 30, 20254 compared to 2023 is driven primarily by $41.8M truedown of revenue related to a narrowed scope of services in select markets retroactive to the beginning of the year.
Current report
Depreciation and Amortization Expenses
Current report
Depreciation and amortization expenses decreased $2.7 million, or 8.3%, to $29.7 million for the three months ended September 30, 2024, as compared to 2023 due primarily to fully amortizing our NCH technology intangible and provider network contracts in 2023 resulting in lower amortization of $1.4 million and $0.5 million, respectively, offset, in part by $0.3 million of amortization of technology intangible assets acquired through our acquisition of Machinify.
Current report
(1)The decrease in Performance Suite PMPM for the nine months ended September 30, 20254 compared to 2023 is driven primarily by $41.8M truedown of revenue related to a narrowed scope of services in select markets retroactive to the beginning of the year.
Current report
Cost of revenue increased by $567.6 million, or 54.1%, to $1,616.6 million for the nine months ended September 30, 2024, as compared to 2023, principally as a result of the 35.5% growth in our revenue compared to the nine months ended September 30, 2023. The increase included approximately $569.0 million of higher claims cost compared to the prior year period, which is attributable to higher medical expenses in certain Performance Suite markets relating to higher disease prevalence and acuity of certain populations inclusive of $77.1 million related to transitioning certain Specialty and Technology Service Suite customers to Performance Suite. This increase in cost was offset by a $41.7 million true-down in claims expense for one of our Performance Suite customers, a decrease that was offset by a corresponding decrease in revenue as well as $9.6 million in professional fees due primarily to consulting services. Overall, the company faced higher medical costs but managed to reduce some expenses through strategic measures. These increases were offset in part by a decrease of $11.3 million from lower personnel costs.
Current report
Depreciation and Amortization Expenses
Current report
Depreciation and amortization expenses decreased $4.7 million, or 5.1%, to $89.1 million for the for the nine months ended September 30, 2024, as compared to 2023 primarily to fully amortizing our NCH technology intangible and provider network contracts in 2023 resulting in lower amortization of $4.1 million and $1.4 million, respectively, offset, in part by $1.6 million higher amortization on intangibles from our acquisition of NIA and Machinify.
Current report
(2)Represents the fair value of earn-out consideration related to the Machinify transaction. See “Part I - Item 1. Financial Statements - Note 17” for further details of the Company’s contingent consideration obligation.
Current report
Financing Commitments
Current report
Subsequent to September 30, 2024, Evolent entered into a debt financing commitment letter with Ares and Ares Capital Management, LLC pursuant to which Ares Capital LLC has committed to provide, subject to certain conditions, with secured debt financing to be available to the Company to fund acquisitions, ongoing working capital needs and other growth capital expenditure investments. See “Part II - Item 5. Other Information” for further details of the Company’s financing commitments.
Removed paragraphs (4)
Previous report
Represents less than 10.0% of the respective balance.
Previous report
Adoption of New Accounting Standards
Previous report
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company adopted this standard starting in the first quarter of 2023, which did not have a material impact on our consolidated financial statements.
Previous report
Cost of revenue increased by $413.4 million, or 62.4%, to $1,075.8 million for the six months ended June 30, 2024, as compared to 2023, principally as a result of the 43.5% growth in our revenue compared to the six months ended June 30, 2023. The increase included approximately $414.7 million from higher claims cost from acquisitions and transition from ASO to risk based contracts for certain customers as well as $15.3 million in professional fees due primarily to the accrual of Medicare Shared Savings Program network gainshare. These increases were offset in part by a decrease of $9.7 million from lower personnel costs.
Reworded paragraphs (44)
Previous wording
On August 1, 2024, the Company completed its acquisition of Machinify, Inc. (“Machinify”) contemplated by the previously announced agreement to acquire certain assets of Machinify and the exclusive, perpetual and royalty-free license of Machinify Auth, a proven software platform that leverages the latest advances in artificial intelligence for cash consideration of $19.5 million, plus an earn-out of up to $12.5 million. The acquisition is expected be accounted for as a business combination.
Current wording
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. See “Part I - Item 1. Financial Statements - Note 4” in this Form 10-Q for more information related to the acquisition of Machinify.
Previous wording
We experience pricing pressures in the form of competitive prices in addition to rising costs for certain inflation-sensitive operating expenses such as labor, employee benefits and facility leases. We do not believe these impacts were material to our revenues or net income during the six months ended June 30, 2024. However, significant sustained inflation driven by the macroeconomic environment or other factors could negatively impact our margins, profitability and results of operations in future periods.
Current wording
We experience pricing pressures in the form of competitive prices in addition to rising costs for certain inflation-sensitive operating expenses such as labor, employee benefits and facility leases. We do not believe these impacts were material to our revenues or net income during the nine months ended September 30, 2024. However, significant sustained inflation driven by the macroeconomic environment or other factors could negatively impact our margins, profitability and results of operations in future periods.
Previous wording
The following table provides a summary of our total costs associated with our repositioning plans for the three and six months ended June 30, 2024, respectively , by major type of cost (in thousands):
Current wording
The following table provides a summary of our total costs associated with our repositioning plans for the nine months ended September 30, 2024, by major type of cost (in thousands):
Previous wording
Qualitative factors include macroeconomic, industry and market considerations, overall financial performance, industry, legal and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring our reporting unit’s fair value.
Current wording
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 our reporting unit is below its carrying amount. Qualitative factors include macroeconomic, industry and market considerations, overall financial performance, industry, legal and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring our reporting unit’s fair value.
Previous wording
If the Company determines that it is more likely than not that the fair value of our reporting unit is below the carrying amount, a quantitative goodwill assessment is required. In the quantitative evaluation, the fair value 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 the reporting unit’s fair value and a charge is reported in goodwill impairment on our consolidated statements of operations and comprehensive income (loss). We use both a discounted cash flow analysis and market multiple analysis in order to estimate our reporting units fair value. The discounted cash flow analysis relies on significant judgement and assumptions about expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates and operating margins. These assumptions are based on estimates of future revenue and earnings after considering such factors as general economic and market conditions which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The weighted average cost of capital is based on market-based factors/inputs but also considers the specific risk characteristics of the reporting unit’s cash flow forecast. A significant change to these estimates and assumptions could cause the estimated fair values of our reporting unit and intangible assets to decline and increase the risk of an impairment charge to earnings. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Current wording
If the Company determines that it is more likely than not that the fair value of our reporting unit is below the carrying amount, a quantitative goodwill assessment is required. In the quantitative evaluation, the fair value 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 the reporting unit’s fair value and a charge is reported in goodwill impairment on our consolidated statements of operations and comprehensive income (loss). We use both a discounted cash flow analysis and market multiple analysis in order to estimate the fair value of our reporting unit. The discounted cash flow analysis relies on significant judgement and assumptions about expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates and operating margins. These assumptions are based on estimates of future revenue and earnings after considering such factors as general economic and market conditions which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The weighted average cost of capital is based on market-based factors/inputs but also considers the specific risk characteristics of the reporting unit’s cash flow forecast. A significant change to these estimates and assumptions could cause the estimated fair values of our reporting unit and intangible assets to decline and increase the risk of an impairment charge to earnings. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Previous wording
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. We did not identify any qualitative factors that would trigger a quantitative goodwill impairment test during the three and six months ended June 30, 2024. We will perform our annual impairment test of October 31, 2024.
Current wording
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. We did not identify any qualitative factors that would trigger a quantitative goodwill impairment test during the three and nine months ended September 30, 2024. We will perform our annual impairment test of October 31, 2024.
Previous wording
Performance Suite Lives on Platform are calculated by summing monthly members covered for specialty care services for contracts not under ASO arrangements, plus members managed by Complex Care in risk arrangements and divided by the number of months in the period. Specialty Technology and Services Suite Lives on Platform are calculated by summing monthly members covered for oncology, cardiology, musculoskeletal, advanced imaging and other diagnostics specialty care services for contracts under ASO arrangements divided by the number of months in the period. Administrative Services Lives on Platform are calculated by summing monthly members covered for administrative services implementation and core performance services divided by the number of months in the period. Cases are calculated by summing the number of individuals receiving services through our surgery management and advanced care planning programs in a given period. Members covered for more than one category are counted in each category.
Current wording
Performance Suite Lives on Platform are calculated by summing monthly members covered for specialty care services for contracts not under ASO arrangements, plus members managed by Complex Care in capitation arrangements and divided by the number of months in the period. Specialty Technology and Services Suite Lives on Platform are calculated by summing monthly members covered for oncology, cardiology, musculoskeletal, advanced imaging and other diagnostics specialty care services for contracts under ASO arrangements divided by the number of months in the period. Administrative Services Lives on Platform are calculated by summing monthly members covered for administrative services implementation and core performance services divided by the number of months in the period. Cases are calculated by summing the number of individuals receiving services through our surgery management and advanced care planning programs in a given period. Members covered for more than one category are counted in each category.
Previous wording
Total revenue increased by $178.0 million, or 37.9%, to $647.1 million for the three months ended June 30, 2024, as compared to 2023. This increase is primarily due to the expansion of new go lives in our risk markets of $149.6 million, growth of existing Performance Suite of $21.9 million, go lives from our musculoskeletal (“MSK”) offerings of $7.1 million and rate increases offset by lower run out services from our contract with Bright Health Management, Inc. (“Bright Health”) of $11.8 million and $13.3 million in lower accrued revenue from the Medicare Shared Savings Program (“MSSP”) in the quarter compared to the prior year period.
Current wording
Performance Suite of $28.2 million offset by lower run out services from our contract within our Administrative Services solution of $6.9 million.
Previous wording
The following table represents Evolent’s revenue disaggregated by end-market (in thousands):
Current wording
The following table represents Evolent’s revenue disaggregated by line of business (in thousands):
Previous wording
Cost of revenue increased by $188.4 million, or 53.5%, to $540.3 million for the three months ended June 30, 2024, as compared to 2023, due to growth in our revenue and a shift in mix towards our Performance Suite, which has a lower gross margin than our solutions. The increase in cost of revenue this quarter is driven primarily by $199.8 million of higher claims cost compared to the prior year period, which is attributable to higher medical expenses in certain markets for our Performance Suite relating to higher disease prevalence and acuity of the populations under management, inclusive of favorable developments of claims from prior years of $10.3 million. The growth in cost of revenue was also offset by a $10.5 million decrease in personnel costs compared to the prior year period.
Current wording
Cost of revenue increased by $154.1 million, or 39.9%, to $540.7 million for the three months ended September 30, 2024, as compared to 2023, due to growth in our revenue and a shift in mix towards our Performance Suite, which has a lower gross margin than our Specialty Technology and Services solutions. The increase in cost of revenue this quarter is driven primarily by $196.1 million of higher claims cost compared to the prior year period, which is attributable to acceleration in medical expenses in certain Performance Suite markets relating to higher disease prevalence and acuity of certain populations, higher specialty pharmaceutical costs and inclusive of $24.6 million related to transitioning certain Specialty and Technology Service Suite customers to Performance Suite. This increase in cost was offset by a $41.7 million true-down in claims expense for one of our Performance Suite customers related to a narrowed scope of services in select markets retroactive to the beginning of the year, a decrease that was offset by a corresponding decrease in revenue.
Previous wording
Approximately $1.2 million and $42.0 thousand of total cost of revenue was attributable to stock-based compensation expense for the three months ended June 30, 2024, and 2023 respectively. Cost of revenue represented 83.5% and 75.0% of total revenue for the three months ended June 30, 2024, and 2023 respectively. The majority of the increase in cost of revenue as a percentage of revenue was due to the rapid growth of our Performance Suite, which has a lower gross margin and longer maturation profile than our other product types.
Current wording
Approximately $1.1 million and $51.0 thousand of total cost of revenue was attributable to stock-based compensation expense for the three months ended September 30, 2024, and 2023 respectively. Cost of revenue represented 87.0% and 75.7% of total revenue for the three months ended September 30, 2024, and 2023 respectively. The majority of the increase in cost of revenue as a percentage of revenue was due to the rapid growth of our Performance Suite solution, which has a lower gross margin and longer maturation profile than our other product types and acceleration in specialty oncology pharmacy costs. We expect the claims expense portion of our cost of revenue to grow at the pace of overall growth in specialty spend for cancer and cardiovascular conditions, offset by the impact of our clinical interventions.
Previous wording
Selling, general, and administrative expenses decreased by $21.2 million, or 23.5%, to $69.2 million for the three months ended June 30, 2024, as compared to 2023, principally as a result of lower TSA fees related to our acquisition of NIA of $8.5 million, professional fees of $10.9 million and a reduction in personnel costs of $7.5 million as a result of the 2023 Repositioning Plan.
Current wording
Selling, general, and administrative expenses decreased by $29.5 million, or 30.6%, to $67.1 million for the three months ended September 30, 2024, as compared to 2023, principally as a result of lower TSA fees related to our acquisition of NIA of $2.6 million, professional fees in the prior period of $9.8 million as a result of the 2023 Repositioning Plan and a $14.5 million decrease in personnel costs as a result of lower headcount and bonus accruals.
Previous wording
Approximately $11.5 million and $8.9 million of total selling, general and administrative costs were attributable to stock-based compensation expense for the three months ended June 30, 2024, and 2023, respectively. Acquisition and severance costs accounted for approximately $1.0 million and $0.4 million of total selling, general and administrative expenses for the three months ended June 30, 2024, and 2023, respectively. Selling, general and administrative expenses represented 10.7% and 19.3% of total revenue for the three months ended June 30, 2024, as compared to 2023, respectively, driven in part by the Company’s 2023 Repositioning Plan which concluded in the three months ended June 30, 2024.
Current wording
Approximately $13.3 million and $10.2 million of total selling, general and administrative costs were attributable to stock-based compensation expense for the three months ended September 30, 2024, and 2023, respectively. Selling, general and administrative expenses represented 10.8% and 18.9% of total revenue for the three months ended September 30, 2024, as compared to 2023, respectively, driven in part by the Company’s 2023 Repositioning Plan which concluded in the second quarter of 2024.
Previous wording
We recorded a loss on change in fair value of contingent consideration of $8.9 million for the six months ended June 30, 2024 primarily related to the liabilities acquired as a result of the acquisitions of NIA in January 2023. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 17” in this Form 10-Q for more information related to changes in the fair value of contingent consideration.
Current wording
We recorded a loss on change in fair value of contingent consideration of $0.2 million for the three months ended September 30, 2024 primarily related to the liabilities acquired as a result of the acquisitions of Machinify in August 2024 and $11.3 million for the three months ended September 30, 2023, related to the liabilities acquired as a result of the acquisitions of Machinify in August 2024, NIA in January 2023 and IPG in August 2022. See “Part I - Item 1. Financial Statements and Supplementary Data - Note 17” in this Form 10-Q for more information related to changes in the fair value of contingent consideration.
Previous wording
Comparison of the Results for The Six Months Ended June 30, 2024 to 2023
Current wording
Comparison of the Results for The Nine Months Ended September 30, 2024 to 2023
Previous wording
Total revenue increased by $390.0 million, or 43.5%, to $1,286.8 million for the six months ended June 30, 2024, as compared to 2023. The increase in revenue is primarily from $296.1 million from new risk contracts, $38.9 million from transitioning a Specialty Technology and Services Suite customer to the Performance Suite, $31.7 million from new MSK contracts and $17.6 million from new oncology and cardiology contracts. Growth was also offset in part by a $27.9 million reduction in revenue from the run out of the Bright Health contract.
Current wording
Total revenue increased by $500.4 million, or 35.5%, to $1,908.2 million for the nine months ended September 30, 2024, as compared to 2023. The increase in revenue is primarily from $343.3 million from new Performance Suite contracts, $90.6 million from transitioning a customer from Specialty Technology and Services Suite to the Performance Suite, $36.8 million from new Specialty Technology and Services Suite contracts and $44.8 million from new oncology and cardiology contracts. Growth was also offset in part by a $34.8 million reduction in revenue from the run out of an Administrative Services contract.
Previous wording
The following table represents Evolent’s revenue disaggregated by end-market (in thousands):
Current wording
The following table represents Evolent’s revenue disaggregated by line of business (in thousands):
Previous wording
The following table represents the Company’s Lives on Platform, Cases, Average PMPM fees, Revenue per Case and Average Unique Members for the three and six months ended June 30, 2024 and 2023 (Average Lives on Platform/Cases in thousands):
Current wording
The following table represents the Company’s Lives on Platform, Cases, Average PMPM fees, Revenue per Case and Average Unique Members for the three and nine months ended September 30, 2024 and 2023 (Average Lives on Platform/Cases in thousands):
Previous wording
Approximately $2.2 million and $1.6 million of total cost of revenue was attributable to stock-based compensation expense for the six months ended June 30, 2024, and 2023, respectively. Cost of revenue represented 83.6% and 73.9% of total revenue for the six months ended June 30, 2024, and 2023 respectively. Our cost of revenue increased as a percentage of our total revenue due to a change in the mix of our service offerings with the rapid growth of our Performance Suite solutions. We expect our cost of revenue to decrease as a percentage of total revenue over the longer-term subject to the composition of our growth.
Current wording
Approximately $3.3 million and $1.6 million of total cost of revenue was attributable to stock-based compensation expense for the nine months ended September 30, 2024, and 2023, respectively. Cost of revenue represented 84.7% and 74.5% of total revenue for the nine months ended September 30, 2024, and 2023 respectively. Our cost of revenue increased as a percentage of our total revenue due to higher medical costs with the rapid growth of our Performance Suite solution, which has a lower gross margin and longer maturation profile than our other product types and acceleration in specialty oncology pharmacy costs. We expect the claims expense portion of our cost of revenue to grow at the pace of overall growth in specialty spend for cancer and cardiovascular conditions, offset by the impact of our clinical interventions.
Previous wording
Selling, general, and administrative expenses decreased by $31.8 million, or 17.7%, to $148.3 million for the six months ended June 30, 2024, as compared to 2023. The decrease was primarily driven by lower TSA fees related to our NIA acquisition of $16.1 million recorded in 2023 and lower bad debt expense of $5.1 million due to collection timing from our customers, offset by higher stock compensation of $11.1 million due to the achievement and change in projected achievement of certain performance measurements and $3.2 million from an increase in technology services.
Current wording
Selling, general, and administrative expenses decreased by $61.3 million, or 22.2%, to $215.3 million for the nine months ended September 30, 2024, as compared to 2023. The decrease was primarily driven by lower TSA fees related to our NIA acquisition of $13.5 million recorded in 2023, $31.6 million of lower professional fees as a result of the 2023 Repositioning Plan, a $17.2 million decrease in personnel costs as a result of lower headcount and bonus accruals and lower bad debt expense of $9.5 million due to collection timing from our customers, offset by higher stock compensation of $14.3 million due to the achievement and change in projected achievement of certain performance measurements.
Previous wording
Approximately $29.2 million and $18.1 million of total selling, general and administrative expenses were attributable to stock-based compensation expense for the six months ended June 30, 2024 and 2023, respectively. Acquisition and severance costs accounted for approximately $1.3 million and $12.0 million of total selling, general and administrative expenses for the six months ended June 30, 2024 and 2023, respectively. Selling, general and administrative expenses represented 11.5% and 20.1% of total revenue for the six months ended June 30, 2024, as compared to 2023, respectively, driven in part by the Company’s 2023 Repositioning Plan which concluded in the three months ended June 30, 2024.
Current wording
Approximately $42.5 million and $28.3 million of total selling, general and administrative expenses were attributable to stock-based compensation expense for the nine months ended September 30, 2024 and 2023, respectively. Acquisition and severance costs accounted for approximately $5.1 million and $15.2 million of total selling, general and administrative expenses for the nine months ended September 30, 2024 and 2023, respectively. Selling, general and administrative expenses represented 11.3% and 19.7% of total revenue for the nine months ended September 30, 2024, as compared to 2023, respectively, driven in part by the Company’s 2023 Repositioning Plan which concluded in the second quarter of 2024.
Previous wording
During the six months ended June 30, 2023, the Company decommissioned its Chicago, IL lease and wrote off the associated right-of-use asset, recognizing an impairment charge of $24.1 million in right-of-use assets impairment on the consolidated statements of operations and comprehensive income (loss). There were no such impairments in 2024.
Current wording
During the nine months ended September 30, 2023, the Company decommissioned its Chicago, IL lease and wrote off the associated right-of-use asset, recognizing an impairment charge of $24.1 million in right-of-use assets impairment on the consolidated statements of operations and comprehensive income (loss). There were no such impairments in 2024.
Previous wording
The decrease in interest expense for the three and six months ended June 30, 2024 compared to the same periods in 2023 is primarily due to the repayment of the Term Loan Facility of the Credit Agreement in a prior period, offset by interest expense from the 2029 Notes. See “Part I - Item 1. Financial Statements and Supplementary Data - Note 9” in this Form 10-Q for more information related to interest expense by debt issuance.
Current wording
The decrease in interest expense for the three and nine months ended September 30, 2024 compared to the same periods in 2023 is primarily due to repayment of the Term Loan Facility of the Credit Agreement in 2023, offset by interest expense incurred on our 2029 Notes. See “Part I - Item 1. Financial Statements - Note 9” in this Form 10-Q for more information related to interest expense by debt issuance.
Previous wording
Due to the reduction in the Company’s valuation allowance primarily resulting from deferred tax liabilities established as part of the NIA acquisition, the Company has recorded the remaining TRA liability of $66.2 million for the six months ended June 30, 2023.
Current wording
Due to the reduction in the Company’s valuation allowance primarily resulting from deferred tax liabilities established as part of the NIA acquisition, the Company has recorded the remaining TRA liability of $66.2 million for the nine months ended September 30, 2023.
Previous wording
An income tax provision (benefit) of $(0.2) million and $0.3 million was recognized for the three and six months ended June 30, 2024, respectively, which resulted in effective tax rates of (17.5)% and (2.1)%, respectively. An income tax provision (benefit) of $(1.0) million and $(69.2) million was recognized for the three and six months ended June 30, 2023, respectively, which resulted in effective tax rates of 2.7% and 56.0%, respectively. The decrease in benefits from income taxes was driven primarily by a reduction in the Company’s valuation allowance primarily resulting from deferred tax liabilities established as part of the NIA acquisition in January 2023.
Current wording
An income tax benefit of $0.6 million and $0.3 million was recognized for the three and nine months ended September 30, 2024, respectively, which resulted in effective tax rates of 2.6% and 0.7%, respectively. An income tax benefit of $5.6 million and $74.7 million was recognized for the three and nine months ended September 30, 2023, respectively, which resulted in effective tax rates of 18.0% and 48.4%, respectively. The income tax benefit recorded during the nine months ended September 30, 2024 primarily relates to the expected tax effect of net losses, partially offset by state and foreign taxes. The income tax benefit recorded during the nine months ended September 30, 2023, primarily relates to the reduction in the valuation allowance resulting from deferred tax liabilities established as part of the NIA acquisition accounting, partially offset by state and foreign taxes.
Previous wording
We pay quarterly regular cash dividends on the Series A Preferred Stock at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%. In addition, we accrete deferred financing costs and the redemption value in excess of par value in additional paid-in-capital on the consolidated balance sheets. The Company paid $10.1 million of dividends and accreted $5.8 million of deferred issuance costs and redemption value during the six months ended June 30, 2024.
Current wording
We pay quarterly regular cash dividends on the Series A Preferred Stock at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%. In addition, we accrete deferred financing costs and the redemption value in excess of par value in additional paid-in-capital on the consolidated balance sheets. The Company paid $5.1 million and $15.3 million of dividends and accreted $3.0 million and $8.7 million of deferred issuance costs and redemption value for the three and nine months ended September 30, 2024, respectively.
Previous wording
The Company reported net loss attributable to common shareholders of Evolent Health, Inc. of $31.6 million and $67.7 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, the Company had $101.3 million of cash and cash equivalents and $36.7 million in restricted cash and restricted investments.
Current wording
The Company reported net loss attributable to common shareholders of Evolent Health, Inc. of $62.8 million and $100.9 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the Company had $96.6 million of cash and cash equivalents and $31.3 million in restricted cash and restricted investments.
Previous wording
The following summary of cash flows (in thousands) has been derived from our financial statements included in “Part I - Item 1. Financial Statements and Supplementary Data - Consolidated Statements of Cash Flows:”
Current wording
The following summary of cash flows (in thousands) has been derived from our financial statements included in “Part I - Item 1. Financial Statements - Consolidated Statements of Cash Flows:”
Previous wording
Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include net income from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities.
Current wording
Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include net loss from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities.
Previous wording
Cash flows provided by operating activities of $26.3 million for the six months ended June 30, 2024 were affected by decreases in accounts receivable from timing of our partner and vendor payments including higher cash receipts from certain performance-based customers as well as an increase of $8.9 million from contingent consideration, which was more than offset by payment for claims and performance-based arrangements of $86.5 million. Of the total $88.8 million in NIA contingent consideration paid in the period, $22.2 million represented a change in fair value of NIA contingent consideration in excess of the initial fair value at the acquisition date through payment date, and is therefore included in cash flows provided by operating activities.
Current wording
Cash flows provided by operating activities of $45.0 million for the nine months ended September 30, 2024 were affected by decreases in accounts receivable of $38.8 million from timing of our partner and vendor payments including higher cash receipts from certain performance-based customers, offset by higher payment for claims and performance-based arrangements of $91.4 million, a reduction in accrued compensation and benefits of $24.8 million due to year end bonus payments and severance of $2.9 million and payments for office lease consolidation of $6.7 million. Of the total $88.8 million in NIA contingent consideration paid in the period, $22.2 million represented a change in fair value of NIA contingent consideration in excess of the initial fair value at the acquisition date through payment date, and is therefore presented in cash flows provided by operating activities under changes in accrued expenses.
Previous wording
Cash flows used in operating activities of $7.3 million for the six months ended June 30, 2023 were primarily due to our net loss of $54.3 million, non-cash items including depreciation and amortization expenses of $61.4 million, stock-based compensation expense of $19.7 million, deferred tax benefit of $(71.0) million, impairment of the right-of-use asset connected to our Chicago, IL office lease of $24.1 million and change in our tax receivable liability of $66.2 million. Our operating cash outflows were affected by the timing of our customer and vendor payments primarily driven by lower cash receipts from certain customers of approximately $53.1 million and additional increases in accounts receivable from our acquisition of NIA of $40.4 million combined with a reduction of our accrued compensation and employee benefits due to end of year bonus payments and severance of $(20.6) million, offset in part by higher restricted cash held for claims processing services of $33.1 million.
Current wording
Cash flows provided by operating activities of $53.2 million for the nine months ended September 30, 2023 were primarily due to our net loss of $79.6 million, non-cash items including depreciation and amortization expenses of $93.8 million, stock-based compensation expense of $29.9 million, deferred tax benefit of $(78.2) million, impairment of the right-of-use asset connected to our Chicago, IL office lease of $24.1 million and change in our tax receivables liability of $66.2 million. Our operating cash inflows were affected by the timing of our customer and vendor payments primarily driven by lower cash receipts from certain customers of approximately $98.4 million and additional increases in accounts receivable from our acquisition of NIA of $38.5 million combined with a reduction of our accrued compensation and employee benefits due to end of year bonus payments and severance of $(8.8) million, offset in part by higher reserve for claims and performance-based arrangements of $100.0 million and restricted cash held for claims processing services of $7.9 million.
Previous wording
Cash flows used in investing activities of $23.3 million for the six months ended June 30, 2024 were primarily attributable to a purchase of investments for $4.9 million and $12.5 million of investments in internal-use software and purchases of property and equipment.
Current wording
Cash flows used in investing activities of $43.0 million for the nine months ended September 30, 2024 were primarily attributable to cash paid for asset acquisitions and business combinations of $16.9 million which is inclusive of $11.0 million for the purchase of Machinify and $3.0 million for investment in future equity notes, and $18.7 million of investments in internal-use software and purchases of property and equipment.
Previous wording
Cash flows used in investing activities of $403.3 million in the six months ended June 30, 2023 were primarily attributable to $388.2 million paid for acquisitions and $15.9 million of investments in internal-use software and purchases of property and equipment.
Current wording
Cash flows used in investing activities of $409.5 million in the nine months ended September 30, 2023 were primarily attributable to $388.2 million paid for the acquisition of NIA and $22.7 million of investments in internal-use software and purchases of property and equipment.
Previous wording
Cash flows used in financing activities of $88.5 million for the six months ended June 30, 2024, were primarily related to $6.1 million of restricted cash inflows from working capital related to claims processing offset, in part by $10.1 million of preferred dividends paid on our Series A Preferred Stock and $14.7 million from withholding taxes paid on of vested restricted stock units that were net settled. Additional cash used in financing activities included $66.6 million, the portion of the NIA contingent consideration representing the fair value at the acquisition date.
Current wording
Cash flows used in financing activities of $97.5 million for the nine months ended September 30, 2024 were primarily related to $15.3 million of preferred dividends paid on our Series A Preferred Stock and $15.4 million from withholding taxes paid on of vested restricted stock units that were net settled. Additional cash used in financing activities include the portion of the NIA contingent consideration representing the fair value at the acquisition date of $66.6 million.
Previous wording
Cash flows provided by financing activities of $403.1 million in the six months ended June 30, 2023, were primarily related to $256.1 million received from our Acquisition Facilities in connection with our Credit Agreement and $168.0 million from the issuance of preferred equity, offset in part, by $37.5 million of cash outflows related to the payment on our Revolving Facility, $8.5 million of preferred dividends paid on our Series A Preferred Stock and $12.7 million from withholding taxes paid in respect of vested restricted stock units that were net settled.
Current wording
Cash flows provided by financing activities of $365.7 million in the nine months ended September 30, 2023, were primarily related to $256.1 million received from our Acquisition Facilities in connection with our Credit Agreement and $168.0 million from the issuance of preferred equity, offset in part, by $47.5 million of cash outflows related to repayment on our Acquisition Facilities, $13.6 million of preferred dividends paid on our Series A Preferred Stock and $14.3 million from withholding taxes paid in respect of vested restricted stock units that were net settled.
Previous wording
We believe that the amount of cash and cash equivalents on hand and cash flows from operations will be adequate for us to execute our business strategy and meet anticipated requirements for lease obligations, capital expenditures working capital and debt service for the next twelve months. Our estimated known contractual obligations (in thousands) as of June 30, 2024, were as follows:
Current wording
We believe that the amount of cash and cash equivalents on hand and cash flows from operations, plus borrowings under our credit facilities and if necessary, additional funding through other forms of financing, will be adequate for us to execute our business strategy and meet anticipated requirements for lease obligations, capital expenditures working capital and debt service for the next twelve months. Our estimated known contractual and other obligations (in thousands) as of September 30, 2024, were as follows (including as discussed in the narrative below):
Previous wording
(1)Refer to the discussion in “Part I - Item 1. Financial Statements and Supplementary Data - Note 9” for additional information on payment dates for our convertible notes interest.
Current wording
(1)Refer to the discussion in “Part I - Item 1. Financial Statements - Note 9” for additional information on payment dates for our convertible notes interest.
Previous wording
In addition, as of June 30, 2024, we had $37.5 million of aggregate principal amount in a secured revolving credit facility which will mature in 2029. The interest rate for the secured revolving credit facility will be calculated, at the option of the borrowers at either the Adjusted Term SOFR Rate (as defined in the Credit Agreement) plus 4.00%, or the base rate plus 3.00%.
Current wording
As of September 30, 2024, we had $37.5 million of aggregate principal amount in a secured revolving credit facility which will mature in 2029. Subsequent to September 30, 2024, we drew the remaining $37.5 million of aggregate principal amount under our secured revolving credit facility as a result of a slow-down in collections from certain health plan partners in September 2024 and October 2024. The interest rate for the secured revolving credit facility will be calculated, at the option of the borrowers at either the Adjusted Term SOFR Rate (as defined in the Credit Agreement) plus 4.00%, or the base rate plus 3.00%.
Previous wording
Also, as of June 30, 2024, we had 175,000 shares of the Series A Preferred Stock outstanding. Regular dividends on the Series A Preferred Stock are paid quarterly in cash in arrears at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%. The regular dividend rate will also increase by 2.0% per annum upon the occurrence and during the continuance of certain triggering events.
Current wording
In addition, as of September 30, 2024, we had 175,000 shares of the Series A Preferred Stock outstanding. Regular dividends on the Series A Preferred Stock are paid quarterly in cash in arrears at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%. The regular dividend rate will also increase by 2.0% per annum upon the occurrence and during the continuance of certain triggering events.
Previous wording
The Company holds ownership interests in joint ventures and other entities which are accounted for under the equity method. Our joint ventures and other investments from time to time may, and some do, include put or call features under which we could be contractually required to purchase interests from our joint venture partner at an exercise price determined in reference to a multiple of the dollar amount of our joint venture partner’s total capital contributions, the performance of the joint venture, and other factors. One of our investments includes a put option that could be exercised by our joint venture partner which, if exercised, would require us to acquire the interests in the joint venture that we do not own for a price that may be up to $50.0 million.
Current wording
The Company holds ownership interests in joint ventures and other entities which are accounted for under the equity method. Our joint ventures and other investments from time to time may, and some do, include put or call features under which we could be contractually required to purchase interests from our joint venture partner at an exercise price determined in reference to a multiple of the dollar amount of our joint venture partner’s total capital contributions, the performance of the joint venture, and other factors. One of our investments includes a put option that can be exercised by our joint venture partner in the first half of 2025 which, if exercised, would require us to acquire the interests in the joint venture that we do not own for a price that may be up to $50.0 million.
Showing the first 40 of 44 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Change in Fair Value of Contingent Consideration
Current report — wording carried from elsewhere
We recorded a loss on change in fair value of contingent consideration of $9.1 million for the nine months ended September 30, 2024 primarily related to the liabilities acquired as a result of the acquisitions of Machinify in August 2024 and NIA in January 2023 and $12.0 million for the nine months ended September 30, 2023, related to the liabilities acquired as a result of the acquisitions of NIA and IPG in August 2022. See “Part I - Item 1. Financial Statements - Note 17” in this Form 10-Q for more information related to changes in the fair value of contingent consideration.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
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 our reporting unit is below its carrying amount.