Evolent Health, Inc. (NYSE:EVH) Q4 2020 Earnings Conference Call February 25, 2021 5:00 PM ET Company Participants Seth Blackley - Chief Executive Officer John Johnson - Chief Financial Officer Conference Call Participants Ryan Daniels - William Blair Jack Rogoff - Goldman Sachs Cal Sternick - Cowen Matt Shea - Piper Sandler David Larsen - BTIG Operator Welcome to Evolent Health’s Earnings Conference Call for the Quarter and Year Ended December 31, 2020. As a reminder, this conference call is being recorded ...

[Form 10-K Details](index=1&type=section&id=Form%2010-K%20Details) This Annual Report (Form 10-K) for the fiscal year ended December 31, 2020, is filed by Evolent Health, Inc - This is an Annual Report (Form 10-K) filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2020[4](index=4&type=chunk) - The registrant is Evolent Health, Inc., incorporated in Delaware, with Commission File Number: 001-37415[4](index=4&type=chunk) - The company's Class A Common Stock (EVH) is registered on the New York Stock Exchange[3](index=3&type=chunk) [Registrant Information](index=1&type=section&id=Registrant%20Information) Evolent Health, Inc. is a well-known seasoned issuer and a Large Accelerated Filer, compliant with SEC reporting requirements - Evolent Health, Inc. is a well-known seasoned issuer and is required to file reports under Section 13 or 15(d) of the Act[5](index=5&type=chunk) - The registrant has filed all required reports during the preceding 12 months and has submitted all Interactive Data Files electronically[5](index=5&type=chunk) - Evolent Health, Inc. is classified as a **Large Accelerated Filer**[6](index=6&type=chunk) [Market Value and Shares Outstanding](index=3&type=section&id=Market%20Value%20and%20Shares%20Outstanding) As of the most recent second fiscal quarter, the market value of non-affiliate common equity was **$540.0 million**, with **86,091,822 Class A common shares** outstanding - The aggregate market value of voting and non-voting common equity held by non-affiliates was **$540.0 million** as of the last business day of the most recently completed second fiscal quarter[8](index=8&type=chunk) - As of February 22, 2021, there were **86,091,822 shares** of Class A common stock outstanding[9](index=9&type=chunk) [Documents Incorporated by Reference](index=3&type=section&id=Documents%20Incorporated%20by%20Reference) Selected portions of the Proxy Statement for the Annual Meeting of Shareholders on June 10, 2021, are incorporated into Part III of this Form 10-K - Selected portions of the Proxy Statement for the Annual Meeting of Shareholders, scheduled for June 10, 2021, are incorporated by reference into Part III of this Form 10-K[11](index=11&type=chunk) [Explanatory Note & Definitions](index=5&type=section&id=Explanatory%20Note%20%26%20Definitions) Evolent Health, Inc. operates as a holding company through its subsidiary, Evolent Health LLC, with key industry terms defined within the report - Evolent Health, Inc. is a holding company, and its operations are conducted through its subsidiary, Evolent Health LLC[14](index=14&type=chunk) - The report defines key terms such as ACA, ACOs, ASO, capitated arrangements, CMS, HIPAA, IPO, performance-based contracts, PBM, population health, and value-based care[15](index=15&type=chunk)[16](index=16&type=chunk) [Forward-Looking Statements - Cautionary Language](index=7&type=section&id=Forward-Looking%20Statements%20-%20Cautionary%20Language) The report contains forward-looking statements subject to risks and uncertainties, including reliance on partners, regulatory changes, and the COVID-19 pandemic - The report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially from predictions[19](index=19&type=chunk)[20](index=20&type=chunk) - Key risks include reliance on large partners, evolving value-based care market, regulatory uncertainty, ability to offer new products, acquisition risks, and the impact of the COVID-19 pandemic[20](index=20&type=chunk)[21](index=21&type=chunk) - Investors are cautioned not to place undue reliance on forward-looking statements due to the rapidly changing and competitive environment[22](index=22&type=chunk) [Market Data and Industry Forecasts and Projections](index=8&type=section&id=Market%20Data%20and%20Industry%20Forecasts%20and%20Projections) Market data and industry forecasts are based on public sources and internal estimates, with no assurance of accuracy due to various influencing factors - Market data and industry forecasts are based on publicly available sources, independent industry publications, and internal research/management estimates[23](index=23&type=chunk) - The accuracy of forecasted amounts is not assured, as forecasts are subject to change based on various factors, including those described in the 'Risk Factors' section[23](index=23&type=chunk) PART I [Item 1. Business](index=9&type=section&id=Item%201.%20Business) Evolent Health provides technology-enabled clinical and administrative solutions for value-based care, supporting health systems and payers in managing patient populations through recurring contracts and strategic divestitures [Market Opportunity](index=9&type=section&id=Market%20Opportunity) The **$4 trillion** U.S. healthcare market is rapidly transitioning to value-based care, driven by cost pressures and technology, requiring integrated clinical and administrative platforms - The U.S. health care market is projected to approach **$4 trillion** in spending during 2020, with less than half tied to value-based care models[26](index=26&type=chunk) - The shift to value-based care is accelerating due to price pressure in traditional fee-for-service (FFS) healthcare, incentivizing policies, and innovation in data and technology[26](index=26&type=chunk) - Providers and payers need infrastructure for clinical value creation (lowering cost, improving quality) and an administrative platform to operate value-based businesses[29](index=29&type=chunk) [Our Business](index=9&type=section&id=Our%20Business) Founded in 2011, Evolent Health delivers integrated, technology-enabled services to healthcare providers and payers, expanding through acquisitions and recent divestitures like Passport and True Health, leading to a 2021 segment reorganization - Evolent was founded in 2011 to enable providers to pursue a value-based business model, growing organically and through acquisitions[30](index=30&type=chunk) - Key acquisitions include Valence Health (TPA services, 2016), Aldera (software provider, 2016), True Health (commercial health plan, 2018), and New Century Health (specialty care management, 2018)[30](index=30&type=chunk) - In 2020, EVH Passport sold certain assets, including its Medicaid contract, to Molina Healthcare, Inc., and EVH Passport began winding down its business[33](index=33&type=chunk) - Effective Q1 2021, the Services segment will bifurcate into Evolent Health Services (Administrative Simplification, population health infrastructure) and Clinical Solutions (specialty management, total cost of care solutions)[35](index=35&type=chunk) [Services Overview](index=10&type=section&id=Services%20Overview) Evolent's Services segment provides clinical and administrative solutions, generating **87.3% of 2020 revenue** from recurring multi-year contracts driven by member count and service depth, with growth expected from existing and new partners - The Services segment includes clinical (total cost of care, specialty care management) and administrative (comprehensive health plan administration) solutions[36](index=36&type=chunk) - Platform and operations services accounted for **87.3% of consolidated revenue** in 2020 (up from 77.9% in 2019), providing strong visibility into future revenue[40](index=40&type=chunk) - Revenue from platform and operations contracts is typically driven by the number of members managed, population types (Medicare, Medicaid, Commercial), and the breadth of services utilized[40](index=40&type=chunk) [Clinical Solutions](index=11&type=section&id=Clinical%20Solutions) Evolent offers Total Cost of Care and Specialty Care Management solutions, leveraging proprietary technology like Identifi® and CarePro™ to deliver cost-effective, high-quality care in markets with significant addressable potential [Total Cost of Care Management Solution](index=11&type=section&id=Total%20Cost%20of%20Care%20Management%20Solution) This solution helps providers manage populations under value-based contracts, aiming to reduce total cost of care through targeted interventions and primary care coordination, with an estimated **$60 billion addressable market** - This solution enables providers to manage populations under value-based or ACO contracts, aiming to reduce total cost of care through targeted interventions and primary care coordination[46](index=46&type=chunk) - The economic model is primarily performance-based, aligning incentives with partners, and the estimated total addressable market is approximately **$60 billion**[46](index=46&type=chunk) - Core elements include Identifi® (proprietary technology for data aggregation, care workflows, patient engagement), population health performance, and delivery network alignment[47](index=47&type=chunk)[48](index=48&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) [Specialty Care Management Services Solution](index=12&type=section&id=Specialty%20Care%20Management%20Services%20Solution) Derived from New Century Health, this solution focuses on oncology and cardiology, using clinical analytics and proprietary pathways (CarePro™) to deliver high-quality, affordable care, with an estimated **$50 billion addressable market** - This solution, based on the New Century Health acquisition, focuses on oncology and cardiology markets, managing specialty care for Medicare, commercial, and Medicaid members[52](index=52&type=chunk)[53](index=53&type=chunk) - It uses clinical data analytics, predictive modeling, and proprietary clinical pathways (CarePro™) to deliver higher quality, more affordable care[53](index=53&type=chunk)[59](index=59&type=chunk) - The estimated total addressable market for New Century Health is **$50 billion**[53](index=53&type=chunk) [Administrative Solution: Comprehensive Health Plan Administration Services](index=13&type=section&id=Administrative%20Solution%3A%20Comprehensive%20Health%20Plan%20Administration%20Services) Evolent provides comprehensive health plan administrative services, including TPA, enrollment, and PBM, to support value-based care and health plan operations for providers and regional payers, with an estimated **$23 billion addressable market** - This solution helps providers and regional payers build infrastructure for value-based care and health plan operations, primarily on an ASO or fee-based model[61](index=61&type=chunk) - Services include health plan administration, risk management, analytics and reporting, leadership, and integrated pharmacy benefit management (PBM)[61](index=61&type=chunk)[63](index=63&type=chunk) - The estimated total addressable market for this solution is **$23 billion**[61](index=61&type=chunk) [True Health](index=14&type=section&id=True%20Health) True Health, a New Mexico physician-led health plan, contributed **11.5% of consolidated revenue in 2020** and served approximately **24,000 members**, with an agreement for its sale expected to close in the first half of 2021 - True Health is a physician-led health plan in New Mexico, offering various insurance products[64](index=64&type=chunk) True Health Revenue Contribution | Year | % of Consolidated Revenue | | :--- | :------------------------:| | 2020 | 11.5% | | 2019 | 20.3% | - As of December 31, 2020, True Health served approximately **24,000 members**[67](index=67&type=chunk) - An agreement to sell True Health to Bright Health Management, Inc. is expected to close in the first half of 2021[34](index=34&type=chunk)[74](index=74&type=chunk) [Significant Activities](index=14&type=section&id=Significant%20Activities) Recent significant activities include the issuance of **$117.1 million** in 3.50% Convertible Senior Notes due 2024, the sale of EVH Passport assets, repayment of the Credit Agreement, and an agreement to sell True Health for **$22.0 million** - Issued **$117.1 million** aggregate principal amount of 3.50% Convertible Senior Notes due 2024 in August 2020, partly by exchanging 2021 Notes[70](index=70&type=chunk) - Completed the sale of EVH Passport's assets, including the Passport Medicaid Contract, to Molina Healthcare on September 1, 2020, leading to EVH Passport's consolidation as a wholly-owned subsidiary[71](index=71&type=chunk)[72](index=72&type=chunk) - Repaid and terminated the Credit Agreement with Ares Capital Corporation for **$98.6 million** and settled outstanding warrants for **$13.7 million** on January 8, 2021[73](index=73&type=chunk) - Entered into an agreement on January 11, 2021, to sell True Health to Bright Health Management, Inc. for **$22.0 million** plus excess risk-based capital, subject to closing conditions[74](index=74&type=chunk) [Financing Strategy](index=15&type=section&id=Financing%20Strategy) Evolent's financing strategy maintains liquidity through a mix of debt and equity, with **$263.3 million** in long-term debt, net of discount, outstanding as of December 31, 2020 - The capital structure utilizes a mix of debt (convertible debt, lines of credit, long-term credit agreements) and equity (common stock issuance) to maintain liquidity[75](index=75&type=chunk) - As of December 31, 2020, the company had **$263.3 million** of long-term debt, net of discount, outstanding[75](index=75&type=chunk) [Competitive Strengths](index=15&type=section&id=Competitive%20Strengths) Evolent Health's competitive strengths include its early innovation in value-based care, differentiated specialty solutions, comprehensive offerings, deep market experience, proprietary technology, provider-heritage brand, and partnership-driven model - Early innovator in comprehensive value-based care solutions, founded in 2011 before the rapid expansion of programs like Medicare ACOs[77](index=77&type=chunk) - Offers a differentiated, performance-based solution in high-cost oncology and cardiology markets, managing over **3.6 million lives** as of December 31, 2020[78](index=78&type=chunk) - Leverages integrated proprietary technology (Identifi® and CarePro™) to deliver a connected delivery ecosystem and scale value-based services[82](index=82&type=chunk)[83](index=83&type=chunk) - Provider-heritage brand identity and partnership-driven business model differentiate the company, fostering cultural alignment and shared financial benefits[83](index=83&type=chunk)[84](index=84&type=chunk) [Growth Opportunities](index=16&type=section&id=Growth%20Opportunities) Evolent Health aims for growth by expanding within its existing partner base, cross-selling solutions, capturing value through risk-sharing, capitalizing on government programs, and pursuing strategic acquisitions and new specialty lines - Growth avenues include increasing lives in existing covered populations, expanding into new value-based care lines, cross-selling solutions, and participating in upside risk-sharing arrangements[86](index=86&type=chunk) - Significant market potential in specialty care management, with less than **5% penetration** in Medicare and less than **1%** in Medicaid and Commercial markets as of December 31, 2020[89](index=89&type=chunk) - The company aims to capitalize on the growth of government-driven programs (Medicare, Medicaid) and capture additional value by participating in medical savings through risk-sharing arrangements[93](index=93&type=chunk)[94](index=94&type=chunk) - Future expansion includes PBM capabilities, additional specialty lines (kidney, maternity, end-of-life care), physician employment, on-site/specialty clinic services, and consumer engagement[95](index=95&type=chunk) [Sales and Marketing](index=19&type=section&id=Sales%20and%20Marketing) Evolent Health markets its services to payers and providers across the U.S. through a dedicated sales team that builds long-term relationships and identifies new service opportunities - Sales and marketing efforts target payers and providers throughout the United States[99](index=99&type=chunk) - The sales team works closely with leadership and subject matter experts to build long-term relationships, while a business development team identifies new service opportunities[99](index=99&type=chunk) [Services Partner Relationships](index=19&type=section&id=Services%20Partner%20Relationships) Evolent's business relies on strategic partnerships with over **37 operating partners**, with an average contract length of **5.1 years**, involving monthly payments and some risk-sharing, though contracts may be terminable for convenience - The business model is based on strategic partnerships with leading payers and providers, aiming for cultural alignment and shared financial benefits[100](index=100&type=chunk) - As of December 31, 2020, Evolent had contractual relationships with over **37 operating partners**, with an average contractual relationship of **5.1 years**[101](index=101&type=chunk) Significant Services Partners Revenue Contribution | Partner | 2020 Revenue % | | :------------------------------------ | :-------------:| | Cook County Health and Hospitals System | 20.3% | | Passport | 16.8% | - Contracts typically involve monthly payments based on member count and service utilization, with some including risk-sharing or performance-based components[102](index=102&type=chunk) - Contracts may be terminated for convenience (with fees), failure to meet performance metrics, or other specified events, and often include exclusivity or restrictive provisions[103](index=103&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [Competition](index=20&type=section&id=Competition) The market for Evolent's solutions is fragmented and highly competitive, with rivals ranging from niche companies to large entities, and competition based on product breadth, quality, performance, and price - The market for Evolent's solutions is fragmented, competitive, and characterized by rapidly evolving technology standards and customer needs[109](index=109&type=chunk) - Competitors include smaller niche companies, large well-financed entities, and potential insourcing by partners[109](index=109&type=chunk) - Competition factors include product/service breadth and quality, ability to deliver clinical/financial/operational improvement, reliability, ease of use, brand recognition, integration, price, and aligned performance relationships[109](index=109&type=chunk) - True Health competes with local and regional health plans, large commercial insurers, health system-owned plans, and new market entrants[110](index=110&type=chunk) [Health Care and Insurance Laws and Regulations](index=20&type=section&id=Health%20Care%20and%20Insurance%20Laws%20and%20Regulations) Evolent's business is subject to extensive and complex federal and state healthcare and insurance laws, including the ACA, Stark Law, Anti-kickback Laws, HIPAA, and Medicare/Medicaid regulations, with non-compliance posing significant risks [Health Care Reform](index=20&type=section&id=Health%20Care%20Reform) The Patient Protection and Affordable Care Act (ACA) has significantly reshaped the health insurance industry, with potential future changes from the Biden administration creating regulatory uncertainty for Evolent - The Patient Protection and Affordable Care Act (ACA) has substantially changed the health insurance industry, with provisions like employer mandates, prohibitions on pre-existing conditions, and medical loss ratio requirements[112](index=112&type=chunk) - The regulatory framework is uncertain, with potential changes from the Biden administration regarding the ACA and its implementation, making the impact on Evolent's business unpredictable[115](index=115&type=chunk) [Stark Law](index=21&type=section&id=Stark%20Law) The federal Stark Law prohibits physician referrals to entities with financial relationships, requiring Evolent to design arrangements to satisfy exceptions or waivers - The federal Stark Law prohibits physicians from referring Medicare/Medicaid patients to entities with which they have a financial relationship, unless an exception applies[116](index=116&type=chunk) - Evolent designs its investment and compensation arrangements to satisfy Stark Law exceptions or Medicare Shared Savings Program waivers[116](index=116&type=chunk) [Anti-kickback Laws](index=21&type=section&id=Anti-kickback%20Laws) Federal and state anti-kickback laws prohibit remuneration for patient referrals under federal healthcare programs, with violations leading to severe penalties, which Evolent mitigates through safe harbors - Federal and state anti-kickback laws prohibit offering or receiving remuneration for patient referrals or health-related business under federal healthcare programs[117](index=117&type=chunk) - Violations can lead to criminal penalties, civil sanctions, and exclusion from federal programs. Evolent evaluates arrangements to fall within safe harbors or waivers to mitigate risk[117](index=117&type=chunk) [Antitrust Laws](index=21&type=section&id=Antitrust%20Laws) Antitrust laws prevent price fixing but permit collaborative efforts to reduce healthcare costs and improve quality if networks are financially or clinically integrated, which Evolent ensures for its partners - Antitrust laws prevent price fixing, but allow collaborative efforts to reduce healthcare costs and improve quality if networks are financially or clinically integrated[118](index=118&type=chunk) - Evolent focuses on network size, composition, and contracting policies to ensure partner networks meet the 'rule of reason' test for pro-competitive activities[120](index=120&type=chunk) [Federal Civil False Claims Act and State False Claims Laws](index=22&type=section&id=Federal%20Civil%20False%20Claims%20Act%20and%20State%20False%20Claims%20Laws) The federal civil False Claims Act imposes liability for knowingly presenting false claims to federal healthcare programs, potentially scrutinizing Evolent's sales, marketing, and risk adjustment solutions - The federal civil False Claims Act imposes liability for knowingly presenting false or fraudulent claims for payment by federal healthcare programs, including 'qui tam' (whistleblower) provisions[121](index=121&type=chunk) - Evolent's sales, marketing, and provider-led risk adjustment solutions may be subject to scrutiny under these laws[121](index=121&type=chunk) [HIPAA, Privacy and Data Security Regulations](index=22&type=section&id=HIPAA%2C%20Privacy%20and%20Data%20Security%20Regulations) Evolent is subject to HIPAA and HITECH Act obligations for protecting individually identifiable health information, with non-compliance or security breaches risking significant penalties and reputational harm - Evolent is subject to HIPAA and HITECH Act compliance obligations for processing individually identifiable health information as a 'business associate' and 'covered entity' (for True Health)[122](index=122&type=chunk)[123](index=123&type=chunk) - Failure to protect privacy and security could lead to contract breaches, investigations by the OCR, civil/criminal penalties, and reputational harm[123](index=123&type=chunk) [HIPAA Health Care Fraud Standards](index=22&type=section&id=HIPAA%20Health%20Care%20Fraud%20Standards) The HIPAA health care fraud statute prohibits schemes to defraud health care benefit programs and false statements related to health care payments, with entities aiding violations punishable as principals - The HIPAA health care fraud statute prohibits schemes to defraud health care benefit programs and false statements related to health care payments[124](index=124&type=chunk) - Entities aiding or abetting violations are punishable as principals[124](index=124&type=chunk) [Medicare and Medicaid](index=22&type=section&id=Medicare%20and%20Medicaid) Evolent's involvement in Medicare and Medicaid programs increases its vulnerability to policy changes, governmental audits, and potential sanctions for non-compliance, with uncertain impacts from new legislative initiatives - Evolent's exposure to Medicare and Medicaid businesses increases its vulnerability to changes in government policy and regulation[125](index=125&type=chunk) - Services may be subject to governmental surveys and audits, with potential sanctions for non-compliance, including premium refunds or program exclusion[126](index=126&type=chunk) - Uncertainty exists regarding the impact of new programs (e.g., block grants for Medicaid) and legislative changes on business operations and financial results[127](index=127&type=chunk)[130](index=130&type=chunk) [Consumer Protection Laws](index=23&type=section&id=Consumer%20Protection%20Laws) Federal and state consumer protection laws regulate the collection, use, storage, and disclosure of personal information and direct marketing practices, impacting Evolent's operations - Federal and state consumer protection laws regulate the collection, use, storage, and disclosure of personal information and direct marketing practices[131](index=131&type=chunk) [State Privacy Laws](index=23&type=section&id=State%20Privacy%20Laws) Some states have privacy and security statutes more stringent than HIPAA, requiring Evolent to modify operations and potentially face additional sanctions for non-compliance - Some states have privacy and security statutes more stringent than HIPAA, requiring operational modifications and potentially leading to additional sanctions for non-compliance[132](index=132&type=chunk) [Other State Laws](index=23&type=section&id=Other%20State%20Laws) State insurance laws mandate licenses for health plan administrative activities and govern prompt payment obligations, with subsidiaries like True Health subject to specific state regulations including minimum capital requirements - State insurance laws require licenses for health plan administrative activities (e.g., TPA, UR agent) and govern prompt payment obligations for healthcare services[133](index=133&type=chunk) - Insurance subsidiaries and investees, like True Health and EVH Passport, are subject to specific state regulations, including minimum capital requirements[134](index=134&type=chunk) [Intellectual Property](index=23&type=section&id=Intellectual%20Property) Evolent protects its intellectual property, including Identifi® software and CarePro™ platform, through copyrights, trademarks, and trade secrets, but faces risks from competition, infringement, and third-party claims - Evolent protects its intellectual property (Identifi® software, CarePro platform) through copyrights, trademarks, trade secrets, licenses, and contractual rights[135](index=135&type=chunk) - Inability to obtain, maintain, and enforce IP rights, or third-party infringement claims, could adversely affect the business, financial condition, and results of operations[135](index=135&type=chunk) [Research and Development](index=24&type=section&id=Research%20and%20Development) Evolent's R&D focuses on enhancing Identifi® software and developing care delivery efficiency programs, capitalizing software development costs for both internal products and acquired entities - R&D expenditures primarily involve enhancing Identifi® software and developing programs for care delivery efficiency and effectiveness[137](index=137&type=chunk) - Software development costs related to Identifi® and products from acquired entities (New Century Health, Accordion, Valence Health, Aldera) are capitalized[137](index=137&type=chunk) [Human Capital Management](index=24&type=section&id=Human%20Capital%20Management) Evolent Health manages its approximately **2,900 global employees** through competitive compensation, training, comprehensive well-being benefits, and strong Diversity, Equity, and Inclusion initiatives to reduce care costs and improve quality [Employee Compensation and Incentives](index=24&type=section&id=Employee%20Compensation%20and%20Incentives) Evolent attracts and retains talent through pay-for-performance compensation, annual pay equity assessments, and efforts to reduce unconscious bias in hiring, reviews, and promotions - Evolent aims to attract and retain top talent through pay-for-performance compensation, annual pay equity assessments, and efforts to reduce unconscious bias in hiring, reviews, and promotions[138](index=138&type=chunk) [Employee Training and Career Development](index=24&type=section&id=Employee%20Training%20and%20Career%20Development) The company provides training programs via a company portal and launched an internal mobility initiative in 2020 to offer visibility and opportunities for career growth and increased diversity in senior roles - The company provides training programs via a company portal and launched an internal mobility initiative in 2020 to offer visibility and opportunities for career growth and increased diversity in senior roles[139](index=139&type=chunk) [Employee Well-Being](index=24&type=section&id=Employee%20Well-Being) Evolent offers comprehensive benefits including medical, dental, PTO, 401k, and parental leave, with a robust COVID-19 response that included 100% work-from-home and additional mental health support - Comprehensive benefits include medical, dental, vision, PTO, 401k, paid maternity/parental leave, fertility support, and diabetes/hypertension programs[140](index=140&type=chunk) - COVID-19 response included 100% work-from-home, additional mental health offerings, office setup support, and holistic wellness initiatives[140](index=140&type=chunk) [Diversity, Equity and Inclusion](index=24&type=section&id=Diversity%2C%20Equity%20and%20Inclusion) In 2020, Evolent refocused on DEI initiatives, including leadership training, hiring a Head of DEI, and an internal review of pay, job descriptions, recruiting, and career pathing - In 2020, Evolent refocused on DEI initiatives, including leadership training, hiring a Head of DEI, and an internal review of pay, job descriptions, recruiting, and career pathing[141](index=141&type=chunk) [Information about our Executive Officers](index=25&type=section&id=Information%20about%20our%20Executive%20Officers) Evolent Health's executive leadership team, as of February 25, 2021, comprises experienced professionals in healthcare, driving clinical, financial, and operational improvements Executive Officers as of February 25, 2021 | Name | Age | Position | | :-------------- | :-- | :-------------------------------------------- | | Seth Blackley | 42 | Chief Executive Officer | | John Johnson | 37 | Chief Financial Officer | | Steve Tutewohl | 48 | Chief Operating Officer | | Jonathan Weinberg | 53 | General Counsel | | Aammaad Shams | 37 | Principal Accounting Officer and Corporate Controller | | Frank Williams | 54 | Executive Chairman | - Seth Blackley, co-founder, became CEO in October 2020, previously serving as President since 2011[145](index=145&type=chunk) - John Johnson has served as CFO since July 2019, with prior roles in corporate performance and strategy[146](index=146&type=chunk) [Corporate Information](index=26&type=section&id=Corporate%20Information) Evolent Health, Inc., incorporated in Delaware in December 2014, completed its IPO in June 2015, with its Class A common stock listed on the NYSE under 'EVH', operating as a holding company - Evolent Health, Inc. was incorporated in Delaware in December 2014 and completed its IPO in June 2015[152](index=152&type=chunk) - The Class A common stock is listed on the NYSE under the symbol 'EVH'[152](index=152&type=chunk) - Evolent Health, Inc. is a holding company, with Evolent Health LLC conducting substantially all operations[152](index=152&type=chunk) [Website to Access Our Reports](index=26&type=section&id=Website%20to%20Access%20Our%20Reports) Evolent Health's official website (www.evolenthealth.com) and Investor Relations website (ir.evolenthealth.com) provide corporate governance information, financial data, and SEC filings free of charge - The company's website (www.evolenthealth.com) and Investor Relations website (ir.evolenthealth.com) provide corporate governance and financial information[153](index=153&type=chunk) - Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K are available free of charge on the website after SEC filing[154](index=154&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) Evolent Health faces significant risks including reliance on key partners, regulatory uncertainty, integration challenges from acquisitions, operational growth management, public health emergencies, financial underwriting, data security, intellectual property, and stock price volatility [Risks relating to our business and industry](index=28&type=section&id=Risks%20relating%20to%20our%20business%20and%20industry) Evolent's business and industry risks include significant revenue concentration from major partners, an evolving value-based care market, regulatory uncertainty, challenges in product innovation and acquisitions, dependence on partner growth, and the impact of public health emergencies like COVID-19 - Significant portion of revenue derived from largest partners; loss or renegotiation of contracts with Cook County Health and Hospitals System (**20.3% of 2020 revenue**) or other major partners could negatively impact results[160](index=160&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) - The evolving market for value-based care and uncertain healthcare regulatory framework make forecasting demand and adapting to changes difficult, potentially impacting financial performance[167](index=167&type=chunk)[169](index=169&type=chunk) - Inability to offer new and innovative products or keep pace with industry advances could lead to partner terminations and revenue loss[174](index=174&type=chunk)[175](index=175&type=chunk) - Acquisitions, investments, alliances, and joint ventures (e.g., Passport, GlobalHealth) may be difficult to integrate, divert management resources, result in unanticipated costs, or dilute stockholders[177](index=177&type=chunk)[179](index=179&type=chunk)[184](index=184&type=chunk) - Dependence on partner growth and success, which is unpredictable and subject to external factors like governmental funding reductions, can impact Evolent's revenues[187](index=187&type=chunk)[188](index=188&type=chunk)[192](index=192&type=chunk) - Failure to accurately underwrite performance-based contracts (e.g., New Century Health's specialty care management) could reduce profitability due to unpredictable healthcare costs and pricing pressures[193](index=193&type=chunk)[194](index=194&type=chunk) - Ineffective management of growth and cost structure could harm business and operations, as significant expansion places demands on management, systems, and resources[195](index=195&type=chunk)[196](index=196&type=chunk) - Public health emergencies like COVID-19 could disrupt operations, impact partner payments, increase security risks, and affect capital market access, though Evolent's financial impact has not been severe to date[197](index=197&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) - Inability to contain health care costs for its health plan business (True Health), implement timely premium rate increases, or maintain adequate reserves could adversely affect profitability[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[209](index=209&type=chunk) - Loss of key executive officers or inability to attract and retain skilled employees could adversely affect the business due to intense competition for talent[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk) - Significant goodwill (**$354.7 million** as of Dec 31, 2020) is subject to impairment, as seen with **$199.8 million** (2019) and **$215.1 million** (2020) charges related to Passport, which could negatively affect results[215](index=215&type=chunk)[217](index=217&type=chunk)[219](index=219&type=chunk) - Need for additional financing may result in dilution of ownership or unfavorable terms, and existing indebtedness could limit financial flexibility[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - Past net losses and potential future operating losses may continue if revenue growth and cost management objectives are not met[224](index=224&type=chunk)[225](index=225&type=chunk)[227](index=227&type=chunk) - Litigation, government inquiries, or audits (e.g., class action lawsuit regarding Passport) could result in significant defense costs, judgments, or adverse business impacts[228](index=228&type=chunk)[229](index=229&type=chunk) [Risks Related to Data Protection Privacy, Cybersecurity, Intellectual Property and Technology](index=36&type=section&id=Risks%20Related%20to%20Data%20Protection%20Privacy%2C%20Cybersecurity%2C%20Intellectual%20Property%20and%20Technology) Evolent faces risks related to data protection, cybersecurity breaches, intellectual property infringement, reliance on third-party technologies, and the potential for unrecovered upfront costs in partner relationships, all of which could harm its business and reputation - Significant upfront costs in partner relationships may not be recovered if relationships do not grow over time, impacting operating results[230](index=230&type=chunk)[231](index=231&type=chunk) - Failure to attract new partners and capture new opportunities could prevent achievement of revenue projections[232](index=232&type=chunk)[233](index=233&type=chunk) - Increasing risk-sharing arrangements with partners could limit revenues and profitability due to potential losses from underwriting or capital contributions[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk) - Inaccurate estimates of target market size could impact future growth rates[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk) - Failure to maintain and enhance reputation and brand recognition could harm business and results of operations[241](index=241&type=chunk)[242](index=242&type=chunk) - Consolidation in the healthcare industry could reduce demand for services, lead to fee reductions, or result in competitors developing similar products[243](index=243&type=chunk)[244](index=244&type=chunk) - Intense competition could limit market share expansion and adversely affect business and operating results[245](index=245&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk) - Offerings could be subject to audits by CMS and other governmental payers, and whistleblower claims under the False Claims Act, potentially impacting business and reputation[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - Exclusivity and right of first refusal clauses in contracts may limit ability to partner with other providers, restricting growth[253](index=253&type=chunk)[254](index=254&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk) - Subject to privacy and data protection laws (HIPAA, HITECH Act, state laws); non-compliance or security breaches could lead to significant liabilities, reputational harm, and business disruption[258](index=258&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk)[272](index=272&type=chunk) - Data loss or corruption due to system failures or service disruptions at data centers could adversely affect reputation and partner relationships[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) - Inability to obtain, maintain, and enforce intellectual property protection (trademarks, trade secrets, copyrights) could allow competitors to commercialize similar technology, harming competitive position[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk)[276](index=276&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk) - Third-party claims of intellectual property infringement could be costly to defend, divert resources, and lead to substantial damages or injunctions[280](index=280&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk) - Use of 'open source' software could require public disclosure of proprietary code or lead to litigation for non-compliance with license terms[283](index=283&type=chunk)[284](index=284&type=chunk) - Dependence on licensed technologies (e.g., from UPMC) means loss of rights or disputes could prevent development/commercialization of products[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) - Restrictions on data use or failure to license data and integrate third-party technologies could materially affect business, financial condition, and results of operations[291](index=291&type=chunk)[292](index=292&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Reliance on Internet infrastructure, bandwidth, data center providers, and internal systems means any failure or interruption could lead to litigation and negatively impact partner relationships[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) - Reliance on third-party vendors to host and maintain the technology platform (Identifi®) means deterioration of relationships or termination of agreements could disrupt operations[305](index=305&type=chunk)[306](index=306&type=chunk)[307](index=307&type=chunk) - Past material weaknesses in internal control over financial reporting, though remediated, indicate future weaknesses could impact ability to produce timely and accurate financial statements[308](index=308&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk) [Risks relating to our structure](index=45&type=section&id=Risks%20relating%20to%20our%20structure) Evolent's structural risks include substantial payments to pre-IPO investors under a Tax Receivables Agreement, potential non-reimbursement for disallowed tax benefits, and accelerated payments that could impact liquidity - Required to pay pre-IPO investors for certain tax benefits (e.g., tax basis increases, NOLs) under a Tax Receivables Agreement (TRA), with payments potentially substantial (**$101.7 million** estimated)[316](index=316&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk)[321](index=321&type=chunk) - No reimbursement for TRA payments if tax benefits are disallowed, potentially leading to payments in excess of cash tax savings[324](index=324&type=chunk)[325](index=325&type=chunk) - Inability to realize all or a portion of expected tax benefits from Class B Exchanges and TRA payments could negatively affect cash flows and stockholders' equity[326](index=326&type=chunk)[327](index=327&type=chunk) - TRA payments may be accelerated or exceed realized tax benefits in certain cases (e.g., change of control, early termination), impacting liquidity[328](index=328&type=chunk)[329](index=329&type=chunk) - Agreements with pre-IPO investors may contain terms less favorable than those with unaffiliated third parties due to affiliated relationships[330](index=330&type=chunk)[331](index=331&type=chunk) [Risks Relating to Our Convertible Notes](index=47&type=section&id=Risks%20Relating%20to%20Our%20Convertible%20Notes) Risks related to Evolent's convertible notes include potential cash settlement requirements upon conversion, higher non-cash interest expense due to accounting methods, and adverse impacts on reported EPS from changes in accounting standards - Conditional conversion feature of 2025 Notes, if triggered, could require cash settlement, adversely affecting liquidity[332](index=332&type=chunk)[333](index=333&type=chunk) - Accounting method for convertible debt (ASC 470-20) requires separate accounting for liability and equity components, leading to higher non-cash interest expense and potentially lower reported net income[334](index=334&type=chunk)[335](index=335&type=chunk) - Changes in accounting standards (e.g., ASU 2020-06) could impact the use of the treasury stock method for diluted EPS, potentially adversely affecting reported EPS[336](index=336&type=chunk) [Risks relating to ownership of our Class A common stock](index=48&type=section&id=Risks%20relating%20to%20ownership%20of%20our%20Class%20A%20common%20stock) Ownership risks for Evolent's Class A common stock include price volatility, exposure to securities class action litigation, potential dilution from convertible notes, anti-takeover provisions, and the absence of anticipated cash dividends - Stock price is expected to be volatile due to economic conditions, financial results, new products, competitor actions, regulatory developments, and litigation[337](index=337&type=chunk)[338](index=338&type=chunk) - Subject to securities class action litigation (e.g., regarding Passport business), which could result in substantial costs and divert management attention[342](index=342&type=chunk)[343](index=343&type=chunk) - Market price could decline due to large number of shares issuable upon conversion of convertible notes or substantial sales of Class A common stock[344](index=344&type=chunk)[345](index=345&type=chunk) - Provisions in Delaware law and charter documents (e.g., staggered board, no written consent, 'blank check' preferred stock) may deter third parties from acquiring the company[346](index=346&type=chunk)[347](index=347&type=chunk)[348](index=348&type=chunk)[350](index=350&type=chunk) - Charter provisions renounce Evolent's interest in certain corporate opportunities identified by pre-IPO investors (e.g., UPMC), potentially leading to lost business opportunities[351](index=351&type=chunk)[352](index=352&type=chunk) - Delaware courts are designated as the sole forum for certain stockholder actions, potentially limiting stockholders' ability to choose a favorable judicial forum[353](index=353&type=chunk)[354](index=354&type=chunk) - No cash dividends are anticipated in the foreseeable future, meaning capital appreciation is the sole source of investment gain[355](index=355&type=chunk)[356](index=356&type=chunk) [Item 1B. Unresolved Staff Comments](index=50&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - Not applicable[357](index=357&type=chunk) [Item 2. Properties](index=50&type=section&id=Item%202.%20Properties) Evolent Health's corporate headquarters are in Arlington, Virginia, occupying approximately **91,000 square feet** of leased office space, with other leased facilities in the U.S. and India, incurring **$21.2 million** in rental expense for 2020 - Corporate headquarters are in Arlington, Virginia, occupying approximately **91,000 square feet** of leased office space[359](index=359&type=chunk) - The company leases all its facilities, including offices in the United States and Pune, India, and owns no real property[359](index=359&type=chunk) - Total rental expense on operating leases, net of sublease income, was **$21.2 million** for the year ended December 31, 2020[359](index=359&type=chunk) [Item 3. Legal Proceedings](index=51&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 10 – Commitments and Contingencies – Litigation Matters in the Financial Statements and Supplementary Data section - Information regarding legal proceedings is detailed in 'Part II – Item 8. Financial Statements and Supplementary Data - Note 10 - Commitments and Contingencies - Litigation Matters'[360](index=360&type=chunk) [Item 4. Mine Safety Disclosures](index=51&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Evolent Health, Inc - Not applicable[360](index=360&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=52&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Evolent Health's Class A common stock trades on the NYSE under 'EVH', with **48 record holders** as of February 22, 2021, and no cash dividends anticipated, while a performance graph compares stockholder returns against market indices [Market Information](index=52&type=section&id=Market%20Information) Evolent Health's Class A common stock is traded on the New York Stock Exchange under the symbol 'EVH' - Evolent Health's Class A common stock is traded on the New York Stock Exchange under the symbol 'EVH'[363](index=363&type=chunk) [Holders](index=52&type=section&id=Holders) As of February 22, 2021, there were **48 holders of record** of the company's Class A common stock - As of February 22, 2021, there were **48 holders of record** of the company's Class A common stock[363](index=363&type=chunk) [Dividends](index=52&type=section&id=Dividends) The company has not declared or paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future, with future decisions dependent on earnings and financial needs - The company has not declared or paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future[364](index=364&type=chunk) - Future dividend decisions depend on earnings, financial condition, cash flows, and financing needs[364](index=364&type=chunk) [Performance Graph](index=52&type=section&id=Performance%20Graph) A graph compares the cumulative total stockholder return of Class A common stock for the last **5 years** ended December 31, 2020, against the NASDAQ Health Care Index and NYSE Composite Index, noting historical performance is not indicative of future results - A graph compares the cumulative total stockholder return of Class A common stock for the last **5 years** ended December 31, 2020, against the NASDAQ Health Care Index and NYSE Composite Index[365](index=365&type=chunk) - Historical stock price performance is not indicative of future performance[365](index=365&type=chunk) [Recent Sales of Unregistered Securities, Purchases of Equity Securities by the Issuer or Affiliated Purchases or Other Stockholder Matters](index=53&type=section&id=Recent%20Sales%20of%20Unregistered%20Securities%2C%20Purchases%20of%20Equity%20Securities%20by%20the%20Issuer%20or%20Affiliated%20Purchases%20or%20Other%20Stockholder%20Matters) This section is not applicable to the current report - Not applicable[367](index=367&type=chunk) [Item 6. Selected Financial Data](index=53&type=section&id=Item%206.%20Selected%20Financial%20Data) This section, typically containing selected financial data, has been omitted from this report - This section is omitted[368](index=368&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Evolent Health's financial condition and results for 2018-2020, detailing the COVID-19 response, significant transactions, a repositioning plan, key financial indicators, accounting policies, liquidity, and cash flows, noting strong services revenue growth offset by goodwill impairments [INTRODUCTION](index=53&type=section&id=INTRODUCTION) The introduction outlines Evolent Health's holding company structure, its response to the COVID-19 pandemic, significant transactions like the Passport sale and True Health divestiture, and a repositioning plan for operational efficiency and profitability, leading to a 2021 segment reorganization - Evolent Health, Inc. is a holding company, with operations primarily conducted through Evolent Health LLC[371](index=371&type=chunk) - The COVID-19 pandemic has not materially impacted financial condition or results of operations to date, but long-term impacts remain uncertain[374](index=374&type=chunk) - Key transactions include the sale of EVH Passport assets to Molina (September 2020), resulting in consolidation of EVH Passport, and the agreement to sell True Health (January 2021)[387](index=387&type=chunk)[393](index=393&type=chunk) - A Repositioning Plan, initiated in Q4 2020, aims to improve operational efficiency and profitability through organizational changes and cost-reduction initiatives, expected to continue through Q4 2021[396](index=396&type=chunk)[397](index=397&type=chunk) - Effective Q1 2021, the Services segment will bifurcate into Evolent Health Services and Clinical Solutions[403](index=403&type=chunk) [Critical Accounting Policies and Estimates](index=57&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Evolent's financial statements rely on critical accounting policies and estimates for goodwill impairment, revenue recognition, income taxes, and claims reserves, with significant charges recorded for Passport and new accounting standards adopted for credit losses in 2020 - Goodwill is reviewed annually for impairment, with interim assessments if triggering events occur. A **$215.1 million** impairment charge was recorded in Q2 2020 due to EVH Passport's Medicaid contract non-renewal[407](index=407&type=chunk)[408](index=408&type=chunk)[410](index=410&type=chunk) - Revenue recognition for the Services segment follows a 5-step model, differentiating between transformation (fixed fee, recognized over time) and platform/operations (variable fee, multi-year arrangements)[415](index=415&type=chunk)[416](index=416&type=chunk)[417](index=417&type=chunk)[418](index=418&type=chunk) - True Health segment revenue is derived from premiums earned over insurance policy terms[421](index=421&type=chunk) - Significant judgment is required for income taxes, deferred tax assets/liabilities, and valuation allowances. The company's tax status changed to a disregarded entity in 2019[422](index=422&type=chunk)[423](index=423&type=chunk)[425](index=425&type=chunk)[429](index=429&type=chunk) - Reserves for claims and performance-based arrangements are estimated using actuarial principles, assumptions, and completion factors, reflecting inherent uncertainty[430](index=430&type=chunk)[431](index=431&type=chunk) - Adopted ASU 2016-13 (Financial Instruments-Credit Losses) effective January 1, 2020, changing the approach for measuring and recognizing credit losses[432](index=432&type=chunk) [RESULTS OF OPERATIONS](index=61&type=section&id=RESULTS%20OF%20OPERATIONS) Evolent Health's consolidated results show **20.8% total revenue growth in 2020 to $1.02 billion**, driven by **35.4% growth in platform and operations services**, despite a **$215.1 million goodwill impairment** and a **31.7% decrease in True Health premiums**, resulting in an operating loss of **$(270.6) million** [Key Components of our Results of Operations](index=61&type=section&id=Key%20Components%20of%20our%20Results%20of%20Operations) Key components of Evolent's results include revenue from transformation, platform and operations services, and premiums, alongside cost of revenue, claims expenses, and selling, general, and administrative expenses - Revenue sources include transformation services (implementation, wind-down activities), platform and operations services (multi-year clinical and administrative solutions), and premiums earned (True Health segment)[436](index=436&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk)[440](index=440&type=chunk) - Cost of revenue includes direct expenses, shared resources, employee-related costs, TPA support, professional fees, and in some cases, claims and capitation payments[444](index=444&type=chunk) - Claims expenses are direct medical expenses for the health plan, recognized when services are provided, including paid and estimated incurred but not reported claims[445](index=445&type=chunk) - Selling, general and administrative expenses cover employee-related costs for various corporate functions, professional fees, centralized infrastructure, and R&D[446](index=446&type=chunk) [Evolent Health, Inc. Consolidated Results](index=63&type=section&id=Evolent%20Health%2C%20Inc.%20Consolidated%20Results) Evolent Health's consolidated results show **total revenue of $1.02 billion** in 2020, an operating loss of **$(270.6) million**, and a net loss attributable to common shareholders of **$(334.2) million**, with a basic and diluted loss per common share of **$(3.94)** Consolidated Financial Highlights (in thousands) | Metric | 2020 | 2019 | 2018 | | :------------------------------------------------------------------ | :------------ | :------------ | :------------ | | **Revenue:** | | | | | Transformation services | $11,990 | $15,203 | $32,916 | | Platform and operations services | $893,066 | $659,438 | $500,190 | | Premiums | $117,377 | $171,742 | $93,957 | | **Total Revenue** | **$1,022,433**| **$846,383** | **$627,063** | | | | | | | **Expenses:** | | | | | Cost of revenue (exclusive of depreciation and amortization) | $701,373 | $513,059 | $327,825 | | Claims expenses | $87,951 | $135,774 | $70,889 | | Selling, general and administrative expenses | $222,600 | $257,046 | $235,418 | | Depreciation and amortization expenses | $61,475 | $60,913 | $44,515 | | Loss (gain) on disposal of assets and consolidation | $698 | $(9,600) | $— | | Goodwill impairment | $215,100 | $199,800 | $— | | Change in fair value of contingent consideration and indemnification asset | $3,860 | $(3,997) | $(4,104) | | **Total Operating Expenses** | **$1,293,057**| **$1,152,995**| **$674,543** | | **Operating Loss** | **$(270,624)**| **$(306,612)**| **$(47,480)** | | | | | | | **Net Loss Attributable to Common Shareholders of Evolent Health, Inc.** | **$(334,246)**| **$(301,971)**| **$(52,658)** | | **Basic and Diluted Loss per Common Share** | **$(3.94)** | **$(3.67)** | **$(0.68)** | [Comparison of the Results for the Year Ended December 31, 2020 to 2019](index=63&type=section&id=Comparison%20of%20the%20Results%20for%20the%20Year%20Ended%20December%2031%2C%202020%20to%202019) In 2020, total revenue increased by **20.8% to $1.02 billion**, driven by **35.4% growth in platform and operations services**, while claims expenses decreased by **35.2%**, and a **$215.1 million goodwill impairment** was recorded Revenue Comparison (2020 vs 2019) | Revenue Type | 2020 ($M) | 2019 ($M) | Change ($M) | Change (%) | | :--------------------------- | :-------- | :-------- | :---------- | :--------- | | Total Revenue | 1,022.4 | 846.4 | 176.1 | 20.8% | | Transformation services | 12.0 | 15.2 | (3.2) | (21.1)% | | Platform and operations services | 893.1 | 659.4 | 233.6 | 35.4% | | Premiums (True Health) | 117.4 | 171.7 | (54.4) | (31.7)% | - Platform and operations services revenue growth was driven by membership growth with existing partners, cross-selling, and new partner additions. This growth is expected to be negatively impacted in 2021 by the wind-down of EVH Passport's operations[452](index=452&type=chunk)[453](index=453&type=chunk) - Premiums decreased primarily due to the termination of the quota-share reinsurance agreement with NMHC in Q4 2019[455](index=455&type=chunk) - Cost of revenue increased by **36.7% to $701.4 million**, and as a percentage of total services revenue, it rose from **76.0% to 77.5%** due to a shift towards lower gross margin services (New Century Health)[457](index=457&type=chunk) - Claims expenses decreased by **35.2% to $88.0 million**, mainly due to the termination of the NMHC reinsurance agreement and savings from COVID-19 related non-essential service cancellations[458](index=458&type=chunk) - Selling, general, and administrative expenses decreased by **13.4% to $222.6 million**, primarily due to a **$31.8 million** reduction in employee headcount and cost-saving initiatives[459](index=459&type=chunk)[461](index=461&type=chunk) - Goodwill impairment of **$215.1 million** was recorded in 2020, related to the value of the investment in EVH Passport[463](index=463&type=chunk) - A **$5.7 million** bargain purchase gain was recorded from the consolidation of EVH Passport in 2020, following the Molina Closing[465](index=465&type=chunk) - A net loss on extinguishment of debt of **$4.8 million** was recorded in 2020 due to the exchange of 2021 Notes for 2024 Notes[466](index=466&type=chunk) [Comparison of the Results for the Year Ended December 31, 2019 to 2018](index=67&type=section&id=Comparison%20of%20the%20Results%20for%20the%20Year%20Ended%20December%2031%2C%202019%20to%202018) In 2019, total revenue increased by **35.0% to $846.4 million**, with platform and operations services growing by **31.8%**, and a **$199.8 million goodwill impairment** recorded related to the EVH Passport investment Revenue Comparison (2019 vs 2018) | Revenue Type | 2019 ($M) | 2018 ($M) | Change ($M) | Change (%) | | :--------------------------- | :-------- | :-------- | :---------- | :--------- | | Total Revenue | 846.4 | 627.1 | 219.3 | 35.0% | | Transformation services | 15.2 | 32.9 | (17.7) | (53.8)% | | Platform and operations services | 659.4 | 500.2 | 159.2 | 31.8% | | Premiums (True Health) | 171.7 | 94.0 | 77.8 | 82.8% | - Platform and operations services revenue increased due to the New Century Health acquisition, new partner additions, cross-selling, and **35.5% enrollment growth** in lives on platform[472](index=472&type=chunk) - Premiums increased significantly due to the quota-share reinsurance agreement with NMHC, which was terminated in Q4 2019[473](index=473&type=chunk) - Cost of revenue increased by **56.5% to $513.1 million**, and as a percentage of total services revenue, it rose from **61.5% to 76.0%** due to integrating new businesses acquired in 2018[474](index=474&type=chunk) - Claims expenses increased to **$135.8 million**, primarily due to the NMHC quota-share reinsurance agreement[475](index=475&type=chunk) - Selling, general, and administrative expenses increased by **9.2% to $257.0 million**, driven by business growth from 2018 acquisitions[476](index=476&type=chunk) - Goodwill impairment of **$199.8 million** was recorded in Q4 2019, related to the value of the investment in EVH Passport[481](index=481&type=chunk) - A non-cash gain on disposal of assets of **$9.6 million** was recorded in 2019 upon the GlobalHealth joint venture arrangement[480](index=480&type=chunk) [Discussion of Non-Operating Results](index=68&type=section&id=Discussion%20of%20Non-Operating%20Results) Non-operating results include decreased interest income, significantly increased interest expense from new convertible notes, a **$47.1 million impairment** of the GlobalHealth equity investment, a **$4.8 million loss** on debt extinguishment, and an income tax benefit in

Financial Data and Key Metrics Changes - Total revenue for Q3 2020 was $264.6 million, representing a 20.2% increase compared to Q3 2019 [7][42] - Adjusted EBITDA for the quarter was $12.7 million, up from $3.3 million in Q3 2019 [42] - Adjusted EBITDA margins improved to 4.8% of revenue, up about 100 basis points from Q2 and over 300 basis points from Q3 2019 [39][42] Business Line Data and Key Metrics Changes - Services segment revenue increased 33.2% to $239.7 million compared to $179.9 million in Q3 2019, driven by new partner additions and cross-sell expansions [43] - The average PMPM (per member per month) fee for the quarter was $23.73, compared to $16.20 in Q3 2019 [44] - Adjusted EBITDA from the services segment was $13.8 million, compared to $3.1 million in the prior year [44] Market Data and Key Metrics Changes - Approximately 3.5 million total lives were on the platform as of September 30, 2020 [7][43] - The company signed eight new partners in 2020, exceeding the previously communicated range of six to eight [9][11] Company Strategy and Development Direction - The company aims for strong organic growth, scaling EBITDA margins, and optimizing its strategic portfolio and balance sheet [5][16] - The focus remains on monetizing health plan assets to deleverage and concentrate on three core solutions [16][18] - The company anticipates mid-teens organic top-line growth in the long term [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving medium-term targets regardless of political outcomes, emphasizing the bipartisan nature of their work [22][24] - The ongoing pressure on healthcare budgets due to COVID-19 is expected to create opportunities for value-based arrangements [24][27] - The company is optimistic about the future, with strong momentum heading into 2021 [36][52] Other Important Information - The company expects total adjusted revenue for 2020 to be in the range of $1 billion to $1.014 billion [49] - Adjusted EBITDA for the full year is forecasted to be between $35 million and $38 million [50] Q&A Session Summary Question: Can you elaborate on the Blues win and its market potential? - Management indicated that having a proof case with Florida Blue Medicare will be beneficial for targeting other Blue plans across the country [55] Question: Which of the three offerings is seeing the most momentum? - Management noted that all three solutions are experiencing pressure from the market, with strong differentiation and opportunities for growth [60][62] Question: What is the opportunity with Florida Blue and the PMPM dynamics? - The initial contract with Florida Blue Medicare is expected to generate an annualized run rate of $75 million, with potential for additional lives in the future [65] Question: How does the Passport sale impact revenue? - Management clarified that while Passport revenue will decline, there will be a gradual wind-down rather than an immediate drop [87] Question: What is the appetite for direct contracting among current customers? - Management stated that direct contracting is still in the early stages, but it could be interesting for future growth as the program matures [80][82]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q _________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ 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 | --- | --- | --- | --- | --- | --- | --- | --- | |-------------- ...

[Explanatory Note](index=3&type=section&id=Explanatory%20Note) The company operates as a holding company with all business conducted through its primary subsidiary, Evolent Health LLC - Evolent Health, Inc is a holding company, with its operations conducted through its subsidiary Evolent Health LLC, which holds all operating assets and substantially all business since inception[8](index=8&type=chunk) [Forward-Looking Statements - Cautionary Language](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS%20-%20CAUTIONARY%20LANGUAGE) The report contains forward-looking statements subject to significant risks and uncertainties that could cause actual results to differ - The report contains forward-looking statements, which are predictions based on current expectations and projections, subject to risks and uncertainties that may cause actual results to differ materially[10](index=10&type=chunk)[11](index=11&type=chunk) - Key risks include the potential negative impact of the COVID-19 pandemic, the pending sale of Passport assets, **significant revenue concentration** from largest partners, and uncertainties in the healthcare regulatory framework[11](index=11&type=chunk) - Other risks involve managing growth, offering new products, integrating acquisitions, maintaining profitability for performance-based contracts, and the ability to attract new partners[11](index=11&type=chunk) PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements and detailed notes for the quarter and six months ended June 30, 2020 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet reflects a significant decrease in total assets and shareholders' equity, primarily due to a goodwill impairment charge Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2020 (Unaudited) | December 31, 2019 | | :------------------------------------- | :------------------------ | :------------------ | | Total current assets | $274,658 | $228,801 | | Total assets | $1,270,134 | $1,498,015 | | Total current liabilities | $245,122 | $192,769 | | Total liabilities | $623,270 | $568,968 | | Total shareholders' equity (deficit) | $646,864 | $929,047 | - Total assets decreased by approximately **$227.9 million** from December 31, 2019, to June 30, 2020, primarily due to a significant goodwill impairment charge[16](index=16&type=chunk) - Total shareholders' equity (deficit) decreased by approximately **$282.2 million**, largely influenced by the net loss and goodwill impairment[16](index=16&type=chunk) [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Revenue increased year-over-year, but a substantial goodwill impairment charge led to a significantly wider operating and net loss Consolidated Statements of Operations Highlights (in thousands, except per share data) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $238,632 | $191,959 | $485,917 | $389,715 | | Total operating expenses | $466,101 | $217,192 | $738,886 | $461,594 | | Operating loss | $(227,469) | $(25,233) | $(252,969) | $(71,879) | | Net loss | $(203,521) | $(31,900) | $(282,273) | $(80,549) | | Net loss attributable to common shareholders | $(203,521) | $(31,615) | $(282,273) | $(78,354) | | Basic and diluted loss per common share | $(2.38) | $(0.38) | $(3.32) | $(0.97) | - Total revenue increased by **24.3%** for the three months and **24.7%** for the six months ended June 30, 2020, compared to the prior year periods[17](index=17&type=chunk) - Operating loss significantly widened due to a **$215.1 million goodwill impairment charge** in the three and six months ended June 30, 2020[17](index=17&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity (Deficit)](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(Deficit)) Shareholders' equity decreased substantially during the quarter, driven by a significant net loss that reduced retained earnings Changes in Shareholders' Equity (Deficit) (in thousands) | Item | Balance as of March 31, 2020 | Balance as of June 30, 2020 | | :-------------------------------------- | :--------------------------- | :-------------------------- | | Class A Common Stock Amount | $855 | $855 | | Additional Paid-In Capital | $1,180,288 | $1,183,605 | | Accumulated Other Comprehensive Income (Loss) | $(387) | $(391) | | Retained Earnings (Accumulated Deficit) | $(333,684) | $(537,205) | | Total Equity (Deficit) | $847,072 | $646,864 | - Net loss of **$203.5 million** for the three months ended June 30, 2020, significantly reduced retained earnings and total equity[19](index=19&type=chunk) - Additional paid-in capital increased due to stock-based compensation expense and exercise of stock options[19](index=19&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations improved significantly year-over-year, driven by non-cash adjustments despite a larger net loss Consolidated Statements of Cash Flows Highlights (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash and restricted cash from (used in) operating activities | $17,125 | $(39,242) | | Net cash and restricted cash used in investing activities | $(18,382) | $(90,816) | | Net cash and restricted cash from (used in) financing activities | $25,910 | $(121,071) | | Net increase (decrease) in cash and restricted cash | $24,679 | $(251,158) | | Cash and restricted cash as of end-of-period | $153,210 | $137,167 | - Operating activities generated **$17.1 million in cash** for the six months ended June 30, 2020, a significant improvement from a $39.2 million outflow in the prior year, despite a larger net loss, primarily due to non-cash adjustments like goodwill impairment[22](index=22&type=chunk)[366](index=366&type=chunk) - Financing activities provided **$25.9 million in cash** for the six months ended June 30, 2020, mainly from changes in working capital balances related to claims processing on behalf of partners[22](index=22&type=chunk)[372](index=372&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes elaborating on accounting policies, significant transactions, and specific financial items [Note 1. Organization](index=11&type=section&id=Note%201.%20Organization) The company supports healthcare providers in transitioning to value-based care through its Services and True Health segments - Evolent Health, Inc supports health systems, physician organizations, and health plans in transitioning to value-based care, operating through two segments: **Services** and **True Health**[24](index=24&type=chunk)[25](index=25&type=chunk) - The Services segment offers clinical and administrative solutions, including total cost of care management, specialty care management, and comprehensive health plan administrative services[25](index=25&type=chunk) - The True Health segment is a physician-led health plan in New Mexico, serving commercial, individual, and federal employee markets[25](index=25&type=chunk) [Note 2. Basis of Presentation, Summary of Significant Accounting Policies and Change in Accounting Principle](index=11&type=section&id=Note%202.%20Basis%20of%20Presentation%2C%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Change%20in%20Accounting%20Principle) The financial statements are unaudited but include all necessary adjustments and should be read with the 2019 Form 10-K - The unaudited interim consolidated financial statements include all necessary adjustments for fair presentation and should be read with the 2019 Form 10-K[30](index=30&type=chunk) - Key accounting estimates involve valuation of assets (including intangibles and long-lived assets), liabilities, revenue recognition, and reserves for claims[33](index=33&type=chunk) - The Company operates through two reportable segments: Services and True Health, with discrete financial information evaluated by the CODM[35](index=35&type=chunk) [Note 3. Recently Issued Accounting Standards](index=16&type=section&id=Note%203.%20Recently%20Issued%20Accounting%20Standards) The company adopted new accounting standards for leases and credit losses, with the latter resulting in an adjustment to retained earnings - The Company adopted ASU 2016-02 (Leases) effective January 1, 2019, resulting in **$51.4 million in right-of-use assets** and **$47.4 million in lease liabilities**, with no material impact on results of operations[63](index=63&type=chunk) - ASU 2016-13 (Financial Instruments-Credit Losses) was adopted effective January 1, 2020, with a cumulative effect adjustment of **$3.0 million to retained earnings**, changing the credit loss measurement from 'incurred loss' to 'expected credit loss'[67](index=67&type=chunk) - The adoption of ASU 2018-15 (Internal Use Software) and ASU 2018-13 (Fair Value Measurement) did not have a material impact on the consolidated financial statements[64](index=64&type=chunk)[68](index=68&type=chunk) [Note 4. Transactions](index=17&type=section&id=Note%204.%20Transactions) This note details the Passport transaction, the impact of its non-renewal of a key contract, and a loss on asset disposal - On December 30, 2019, Passport Buyer acquired substantially all assets and liabilities of Passport and PHS I for **$70.0 million cash** and a 30% equity interest to Sponsors; Evolent accounts for its 70% investment in Passport under the equity method[69](index=69&type=chunk) - Passport was not awarded a Kentucky managed Medicaid contract for the next period, leading to an expectation of **no material revenue from Passport Buyer after December 31, 2020**, and a requirement for Evolent to acquire the Sponsors' 30% interest for $20.0 million[71](index=71&type=chunk) - The Company recorded a **$6.4 million loss on disposal of assets** in Q1 2020 from selling its interest in a subsidiary providing services to providers[72](index=72&type=chunk) [Note 5. Revenue Recognition](index=18&type=section&id=Note%205.%20Revenue%20Recognition) Services segment revenue is disaggregated into transformation services and platform and operations services, recognized over time - Services segment revenue is derived from transformation services (fixed fee, recognized over time by input method) and platform and operations services (variable fee, recognized over time by output method)[73](index=73&type=chunk)[74](index=74&type=chunk)[76](index=76&type=chunk) - Contract assets and deferred revenue balances are reported, with **$108.2 million of transaction price** allocated to unsatisfied performance obligations as of June 30, 2020, primarily fixed consideration in long-term contracts[77](index=77&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) Services Revenue Disaggregation (in thousands) | Service Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Transformation services | $755 | $1,944 | $5,993 | $5,297 | | Platform and operations services: | | | | | | Clinical solutions | $161,774 | $94,573 | $321,582 | $191,204 | | Administrative solutions | $50,562 | $49,058 | $100,616 | $99,683 | [Note 6. Credit Losses](index=21&type=section&id=Note%206.%20Credit%20Losses) The company is exposed to credit losses from various financial instruments and estimates these losses based on historical and forward-looking data - The Company is exposed to credit losses from accounts receivable, investments, and customer advances, estimating losses based on past events, current conditions, and forecasts, including COVID-19 impact[87](index=87&type=chunk) - The Passport Note of **$40.0 million** (plus $2.7 million accrued interest) is due July 1, 2025, and its performance is not materially impacted by macroeconomic conditions due to sufficient risk-based capital[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) Allowance for Credit Losses on Accounts Receivables (in thousands) | Item | Six Months Ended June 30, 2020 | | :---------------------------------------- | :----------------------------- | | Balance as of December 31, 2019 | $(41) | | Cumulative transition adjustment | $(2,815) | | Provision for credit losses | $(260) | | Charge-offs | $1,575 | | Balance as of June 30, 2020 | $(1,541) | [Note 7. Property and Equipment, Net](index=23&type=section&id=Note%207.%20Property%20and%20Equipment%2C%20Net) Capitalized internal-use software development costs represent the largest component of property and equipment and continued to increase - Capitalized internal-use software development costs increased to **$126.2 million** as of June 30, 2020, from $112.5 million at December 31, 2019[104](index=104&type=chunk) - Depreciation expense for property and equipment was **$13.9 million** for the six months ended June 30, 2020, with $11.6 million related to internal-use software amortization[105](index=105&type=chunk) Property and Equipment, Net (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------- | :------------ | :---------------- | | Computer hardware | $12,061 | $11,604 | | Internal-use software development costs | $126,203 | $112,501 | | Total property and equipment, net | $88,555 | $85,155 | | Accumulated depreciation and amortization | $(68,834) | $(55,014) | [Note 8. Goodwill and Intangible Assets, Net](index=24&type=section&id=Note%208.%20Goodwill%20and%20Intangible%20Assets%2C%20Net) A significant non-cash goodwill impairment charge was recorded due to Passport's failure to secure a key Medicaid contract - A non-cash goodwill impairment charge of **$215.1 million** was recorded for the three and six months ended June 30, 2020, due to Passport not being awarded a Kentucky managed Medicaid contract, reducing the fair value of one Services segment reporting unit[116](index=116&type=chunk)[118](index=118&type=chunk) Goodwill Carrying Amount by Segment (in thousands) | Segment | Balance as of December 31, 2019 | Impairment | Balance as of June 30, 2020 | | :---------------- | :------------------------------ | :--------- | :-------------------------- | | Services | $566,359 | $(215,100) | $348,990 | | True Health | $5,705 | — | $5,705 | | Consolidated | $572,064 | $(215,100) | $354,695 | Intangible Assets, Net (in thousands) | Asset Type | Net Carrying Value (June 30, 2020) | Net Carrying Value (December 31, 2019) | | :-------------------------- | :--------------------------------- | :----------------------------------- | | Corporate trade name | $17,719 | $18,409 | | Customer relationships | $230,231 | $246,769 | | Technology | $24,718 | $33,162 | | Provider network contracts | $9,675 | $9,405 | | Total intangible assets, net | $282,913 | $308,459 | [Note 9. Long-term Debt](index=26&type=section&id=Note%209.%20Long-term%20Debt) The company's long-term debt consists of a term loan facility and two series of convertible senior notes - The Company entered into a Credit Agreement on December 30, 2019, for an Initial Term Loan Facility of **$75.0 million** and a Delayed Draw Term Loan (DDTL) Facility of up to **$50.0 million**, maturing December 30, 2024[123](index=123&type=chunk)[125](index=125&type=chunk) - The 2025 Notes (1.50% Convertible Senior Notes due 2025) have an aggregate principal of **$172.5 million**, convertible at $33.43 per share, with a debt component of $100.7 million and an equity component of $71.8 million[125](index=125&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - The 2021 Notes (2.00% Convertible Senior Notes due 2021) have an aggregate principal of **$125.0 million**, convertible at $24.03 per share, maturing December 1, 2021[132](index=132&type=chunk)[134](index=134&type=chunk) Convertible Senior Notes Carrying Value (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------------------- | :------------ | :---------------- | | 2025 Notes Carrying value | $111,665 | $107,169 | | 2025 Notes Principal amount | $172,500 | $172,500 | | 2021 Notes Carrying value | $123,697 | $123,237 | | 2021 Notes Principal amount | $125,000 | $125,000 | [Note 10. Commitments and Contingencies](index=29&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) The company faces a commitment to acquire a Passport interest, a performance bond liability, a class action lawsuit, and significant customer concentration - The Company is committed to acquire the Sponsors' **30% ownership interest in Passport Buyer for $20.0 million** within twelve months following December 31, 2020, due to Passport not being awarded a new Medicaid contract[140](index=140&type=chunk) - A performance bond of **$25.0 million** secures Passport's Medicaid contract, with Evolent and Passport jointly and severally liable; the expiry date was extended to December 31, 2020[144](index=144&type=chunk) - A class action lawsuit was filed against the Company alleging false or misleading statements regarding its business with Passport; the Company believes the case has little legal or factual merit[161](index=161&type=chunk) Significant Customer Revenue Concentration | Customer | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Passport | 25.2% | 13.2% | 23.6% | 13.1% | | New Mexico Health Connections | * | 13.2% | * | 13.6% | | Cook County Health and Hospitals Systems | 19.9% | * | 19.3% | * | * Represents less than 10.0% of the respective balance. [Note 11. Leases](index=32&type=section&id=Note%2011.%20Leases) The company's lease obligations primarily consist of operating leases for office space and data centers with varying terms - The Company leases office space, data centers, and equipment under operating lease agreements, with rent expense recognized on a straight-line basis[168](index=168&type=chunk)[170](index=170&type=chunk) Lease Cost Components (in thousands) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $3,586 | $3,838 | $6,642 | $7,119 | | Variable lease cost | $1,465 | $1,121 | $2,517 | $2,576 | | Total lease cost | $5,202 | $4,959 | $9,461 | $9,695 | Maturity of Lease Liabilities (in thousands) as of June 30, 2020 | Year | Operating Lease Expense | | :--------- | :---------------------- | | 2020 | $6,039 | | 2021 | $11,726 | | 2022 | $9,801 | | 2023 | $9,376 | | 2024 | $8,833 | | Thereafter | $56,093 | | Total lease payments | $101,868 | | Present value of lease liabilities | $74,449 | [Note 12. Earnings (Loss) Per Common Share](index=34&type=section&id=Note%2012.%20Earnings%20(Loss)%20Per%20Common%20Share) This note details the calculation of basic and diluted loss per share, excluding a significant number of potentially dilutive securities Loss Per Common Share (in thousands, except per share data) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss available for common shareholders | $(203,521) | $(31,615) | $(282,273) | $(78,354) | | Weighted-average common shares outstanding | 85,349 | 82,289 | 84,977 | 80,820 | | Basic and diluted loss per common share | $(2.38) | $(0.38) | $(3.32) | $(0.97) | Anti-dilutive Shares Excluded from EPS Calculation (in thousands) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Exchangeable Class B common stock | — | 1,080 | — | 2,129 | | Restricted stock units (RSUs), performance-based RSUs and leveraged stock units (LSUs) | 554 | 985 | 376 | 1,014 | | Stock options | 711 | 1,495 | 841 | 1,729 | | Convertible senior notes | 10,361 | 10,361 | 10,361 | 10,361 | | Total | 11,626 | 13,921 | 11,578 | 15,233 | [Note 13. Stock-based Compensation](index=35&type=section&id=Note%2013.%20Stock-based%20Compensation) Stock-based compensation expense decreased year-over-year, primarily due to the elimination of performance-based RSU awards - Total stock-based compensation expense decreased by **$1.0 million** for the three months and **$2.1 million** for the six months ended June 30, 2020, primarily due to the elimination of performance-based RSU awards[179](index=179&type=chunk)[333](index=333&type=chunk)[347](index=347&type=chunk) Total Stock-based Compensation Expense by Award Type (in thousands) | Award Type | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $638 | $903 | $1,388 | $2,263 | | RSUs | $2,006 | $2,630 | $3,862 | $5,060 | | LSUs | $1,059 | $717 | $1,886 | $970 | | Total compensation expense | $3,703 | $4,750 | $7,211 | $9,287 | [Note 14. Income Taxes](index=35&type=section&id=Note%2014.%20Income%20Taxes) The company recorded an income tax benefit in Q2 2020, primarily due to a valuation allowance reversal under the CARES Act - The income tax benefit in Q2 2020 primarily resulted from a **$2.3 million valuation allowance reversal** due to carrying back New Century Health's 2018 NOL under the CARES Act, and a $1.4 million benefit from federal tax rate differences[184](index=184&type=chunk) - The Company maintains a **full valuation allowance** against its net deferred tax asset, except for limited indefinite-lived components[185](index=185&type=chunk) Income Tax Provision (Benefit) (in thousands) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax (benefit) expense | $(3,904) | $1,398 | $(3,634) | $902 | | Effective tax rate | 1.9% | (4.6)% | 1.3% | (1.1)% | [Note 15. Investments In and Advances to Equity Method Investees](index=36&type=section&id=Note%2015.%20Investments%20In%20and%20Advances%20to%20Equity%20Method%20Investees) The company recorded significant gains from equity method investees, offset by a large non-cash impairment charge on its GlobalHealth investment - The Company holds economic interests (4%-70%) and voting interests (25%-57%) in several equity method investees, recognizing its proportional share of earnings/losses[189](index=189&type=chunk) - Gains from equity method investees were **$25.1 million** for the three months and **$24.7 million** for the six months ended June 30, 2020, a significant increase from losses in prior periods[189](index=189&type=chunk) - A non-cash impairment charge of **$47.1 million** was recorded for the GlobalHealth investment in Q1 2020, as GlobalHealth, Inc transferred 100% equity interests to new investors for no consideration due to regulatory capital requirements[195](index=195&type=chunk) [Note 16. Non-controlling Interests](index=38&type=section&id=Note%2016.%20Non-controlling%20Interests) Non-controlling interests were fully reclassified into shareholders' equity as the company's economic interest in Evolent Health LLC reached 100% - The Company's economic interest in Evolent Health LLC increased to **100%** during 2019 due to Class B Exchanges, leading to reclassification of non-controlling interests into shareholders' equity[200](index=200&type=chunk) Changes in Non-controlling Interests (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Non-controlling interests balance as of beginning of period | $6,689 | $45,532 | | Decrease in non-controlling interests as a result of Class B Exchanges | — | $(33,946) | | Net loss attributable to non-controlling interests | — | $(2,195) | | Reclassification of non-controlling interests | $(6,689) | $187 | | Non-controlling interests balance as of end of period | — | $16,078 | [Note 17. Fair Value Measurement](index=38&type=section&id=Note%2017.%20Fair%20Value%20Measurement) The company's Level 3 liabilities, including contingent consideration and warrants, are measured using unobservable inputs - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[203](index=203&type=chunk)[205](index=205&type=chunk) - Changes in contingent consideration, measured using Level 3 inputs, resulted in net realized and unrealized losses of **$4.9 million** for the six months ended June 30, 2020[211](index=211&type=chunk) Recurring Fair Value Measurements (in thousands) | Item | June 30, 2020 (Level 3) | December 31, 2019 (Level 3) | | :-------------------------- | :---------------------- | :------------------------ | | Contingent consideration | $3,600 | $9,883 | | Warrants | $4,900 | $7,092 | | Total Level 3 liabilities | $8,500 | $16,975 | [Note 18. Related Parties](index=41&type=section&id=Note%2018.%20Related%20Parties) The company generates significant revenue from service agreements with its equity-method investees - The Company has service agreements with equity-method investees, generating **$71.4 million** and **$131.3 million** in revenue for the three and six months ended June 30, 2020, respectively[217](index=217&type=chunk) Related Party Assets (in thousands) | Item | June 30, 2020 | December 31, 2019 | | :------------------------------------------------- | :------------ | :---------------- | | Accounts receivable | $7,597 | $8,781 | | Customer advance for regulatory capital requirements, net | $39,955 | $40,000 | Related Party Revenue and Expenses (in thousands) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Platform and operations services revenue | $73,885 | $16,874 | $141,833 | $29,818 | | Cost of revenue | $(2,171) | $6,657 | $1,076 | $14,487 | [Note 19. Segment Reporting](index=41&type=section&id=Note%2019.%20Segment%20Reporting) The company's performance is reported across two segments, Services and True Health, with management using Adjusted EBITDA to evaluate them - The Company operates in two reportable segments: **Services** (clinical and administrative solutions) and **True Health** (commercial health plan in New Mexico)[221](index=221&type=chunk) - Management uses revenue and **Adjusted EBITDA** to evaluate segment performance and allocate resources, as these metrics exclude items not indicative of core operating performance[223](index=223&type=chunk)[225](index=225&type=chunk) Segment Revenue (in thousands) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Services revenue | $217,299 | $149,543 | $438,732 | $303,246 | | True Health premiums | $25,541 | $45,764 | $57,928 | $93,140 | | Total revenue | $238,632 | $191,959 | $485,917 | $389,715 | Segment Adjusted EBITDA (in thousands) | Segment | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Services | $10,519 | $(8,797) | $14,395 | $(24,296) | | True Health | $(1,480) | $1,123 | $(1,729) | $1,844 | | Segments Total | $9,039 | $(7,674) | $12,666 | $(22,452) | [Note 20. Reserve for Claims and Performance-Based Arrangements](index=44&type=section&id=Note%2020.%20Reserve%20for%20Claims%20and%20Performance-Based%20Arrangements) Reserves for claims are estimated using actuarial principles to account for incurred but not yet reported medical expenses - Reserves for claims and performance-based arrangements reflect estimates for incurred but not reported claims, reported claims in process, and other medical expenses, using actuarial principles and assumptions[231](index=231&type=chunk)[232](index=232&type=chunk) - The liability is primarily calculated using historical completion factors adjusted for current trends and operational factors, with more recent months relying on medical cost trend and expected loss ratio analysis[234](index=234&type=chunk)[235](index=235&type=chunk) Activity in Reserves for Claims and Performance-Based Arrangements (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Beginning balance | $61,150 | $27,595 | | Incurred costs related to current year | $245,696 | $161,620 | | Paid costs related to current year | $200,989 | $100,254 | | Ending balance | $94,409 | $33,052 | [Note 21. Investments](index=45&type=section&id=Note%2021.%20Investments) The company's investment portfolio consists of fixed-income securities classified as held-to-maturity - Investments are classified as **held-to-maturity**, with the intent and ability to hold them until maturity[239](index=239&type=chunk) - No securities were held in an unrealized loss position for more than twelve months as of June 30, 2020 or December 31, 2019[240](index=240&type=chunk) Investments Held at Amortized Cost and Fair Value (in thousands) | Item | Amortized Cost (June 30, 2020) | Fair Value (June 30, 2020) | Amortized Cost (December 31, 2019) | Fair Value (December 31, 2019) | | :-------------------------------- | :----------------------------- | :------------------------- | :--------------------------------- | :----------------------------- | | U.S. Treasury bills | $8,909 | $9,401 | $10,784 | $11,054 | | Corporate bonds | $1,706 | $1,828 | $1,705 | $1,775 | | Collateralized mortgage obligations | $5,695 | $5,914 | $5,472 | $5,523 | | Yankees | $597 | $648 | $597 | $627 | | Total investments | $16,907 | $17,791 | $18,558 | $18,979 | [Note 22. Supplemental Cash Flow Information](index=46&type=section&id=Note%2022.%20Supplemental%20Cash%20Flow%20Information) This note discloses significant non-cash investing and financing activities, including stock issuance for earn-outs and lease liability exchanges Supplemental Disclosure of Non-cash Investing and Financing Activities (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Increase to goodwill from measurement period adjustments/business combinations | $2,200 | $596 | | Class A common stock issued for payment of earn-outs | $4,185 | $800 | | Leased assets obtained in exchange for operating lease liabilities | $(1,354) | $30,181 | | Decrease in non-controlling interests as a result of Class B Exchanges | — | $33,946 | [Note 23. Subsequent Events](index=46&type=section&id=Note%2023.%20Subsequent%20Events) Subsequent to the quarter end, the company entered into an agreement to sell certain Passport assets to Molina Healthcare, Inc - On July 16, 2020, Evolent Health LLC and Passport Health Plan, Inc entered into an Asset Purchase Agreement (Molina APA) with Molina Healthcare, Inc for the sale of certain Passport assets[242](index=242&type=chunk) - Passport will sell intellectual property rights, its Medicaid contract with CHFS, D-SNP contract rights, and certain provider/vendor agreements and real property leases to Molina[245](index=245&type=chunk)[246](index=246&type=chunk) - Molina will pay Passport **$20.0 million in cash** at closing, placed in escrow until January 1, 2021, and Passport is eligible for an additional **$40.0 million Membership Payment** based on enrollee numbers[250](index=250&type=chunk)[251](index=251&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, highlighting revenue growth, the impact of the Passport contract loss, and COVID-19 effects [Introduction](index=49&type=section&id=INTRODUCTION) Evolent is a market leader in value-based care that has incurred operating losses since inception while investing in growth - Evolent is a market leader in value-based care, providing integrated, technology-enabled services to health systems, physician organizations, and payers across Medicare, Medicaid, and commercial markets[261](index=261&type=chunk)[262](index=262&type=chunk) - The Company manages operations through two segments: **Services** (clinical and administrative solutions) and **True Health** (commercial health plan in New Mexico)[263](index=263&type=chunk) - Evolent has incurred operating losses since inception due to heavy investment in growth and expects continued losses, with liquidity believed sufficient for the next 12 months[264](index=264&type=chunk)[265](index=265&type=chunk) [Services Overview](index=49&type=section&id=Services%20Overview) The Services segment generates recurring revenue from multi-year contracts but faces significant customer concentration and the loss of Passport revenue - The Services segment offers total cost of care management (using Identifi® technology), specialty care management (oncology and cardiology), and comprehensive health plan administration services[266](index=266&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk) - The majority of Services revenue comes from recurring multi-year platform and operations contracts, which accounted for **89.0% of consolidated revenue** for the three months ended June 30, 2020[271](index=271&type=chunk) - Revenue concentration is significant, with **Passport and Cook County Health and Hospitals Systems accounting for 25.2% and 19.9% of total revenue**, respectively, for the three months ended June 30, 2020[273](index=273&type=chunk) - **No material revenue is expected from Passport after December 31, 2020**, due to the non-renewal of its Kentucky Medicaid contract, and Passport's assets are being sold to Molina Healthcare, Inc in a subsequent event[274](index=274&type=chunk)[275](index=275&type=chunk) [True Health](index=50&type=section&id=True%20Health) The True Health segment is a commercial health plan in New Mexico whose future revenues will be diminished by a terminated reinsurance agreement - True Health is a physician-led commercial health plan in New Mexico, acquired in 2018, deriving revenue from premiums earned over insurance policy terms[277](index=277&type=chunk)[278](index=278&type=chunk) - Revenue from reinsurance premiums assumed from NMHC terminated in Q4 2019, which will diminish future True Health revenues[279](index=279&type=chunk) [Background and Recent Events](index=51&type=section&id=Background%20and%20Recent%20Events) Evolent Health, Inc is a holding company whose financial results consolidate its primary operating subsidiary, Evolent Health LLC - Evolent Health, Inc is a holding company, with Evolent Health LLC conducting substantially all operations and its financial results consolidated[281](index=281&type=chunk) [Evolent Health's Response to COVID-19](index=51&type=section&id=Evolent%20Health's%20Response%20to%20COVID-19) The COVID-19 pandemic has not materially impacted financial results to date, though the company is actively managing its response - The COVID-19 pandemic has not materially impacted Evolent's financial condition or results of operations to date, with sufficient liquidity for the next 12 months[284](index=284&type=chunk) - Evolent's response focuses on employee health and safety, maintaining service quality, and monitoring compliance, with a multi-faceted approach overseen by its Emergency Preparedness Team[285](index=285&type=chunk) - The Services business expects a net benefit from increased Medicaid membership due to rising unemployment and state rule changes, while the True Health plan observed a decline in medical utilization due to state mandates[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) [Transactions](index=52&type=section&id=Transactions) This section highlights the potential accounting impact of the Passport transaction, a major investment impairment, and a new credit agreement - Passport's unsuccessful bid for the Kentucky Medicaid contract may lead to a change in accounting for Evolent's investment, potentially requiring consolidation and materially impacting financial statements[297](index=297&type=chunk) - A non-cash impairment charge of **$47.1 million** was recorded for the GlobalHealth investment in Q1 2020, as GlobalHealth, Inc transferred 100% equity interests to new investors for no consideration due to regulatory capital requirements[298](index=298&type=chunk) - The Company entered into a Credit Agreement in December 2019 for **$75.0 million** (Initial Term Loan) and up to **$50.0 million** (DDTL Facility) to finance the Passport transaction and potential repayment of 2021 Notes[299](index=299&type=chunk) [Critical Accounting Policies and Estimates](index=53&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key accounting policies include the annual review of goodwill for impairment and the recent adoption of the expected credit loss model - Goodwill is reviewed for impairment at least annually or when circumstances indicate the fair value of a reporting unit may be below its carrying amount, leading to a quantitative assessment if necessary[304](index=304&type=chunk)[306](index=306&type=chunk)[307](index=307&type=chunk) - The Company adopted ASU 2016-13 (Credit Losses) effective January 1, 2020, changing the credit loss recognition model to an expected credit loss framework, resulting in a **$3.0 million cumulative effect adjustment** to retained earnings[308](index=308&type=chunk) [Results of Operations](index=55&type=section&id=RESULTS%20OF%20OPERATIONS) This section details the components of the company's revenue and expenses and provides a comparative analysis of its consolidated results [Key Components of our Results of Operations](index=55&type=section&id=Key%20Components%20of%20our%20Results%20of%20Operations) Revenue is derived from services and premiums, while costs include direct expenses, employee costs, and claims expenses - Revenue sources include transformation services (fixed fee, input method), platform and operations services (variable fee, output method), and premiums earned (True Health segment)[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[316](index=316&type=chunk) - Cost of revenue includes direct expenses, shared resources, employee-related costs, TPA support, and in some cases, claims and capitation payments[320](index=320&type=chunk) - Claims expenses for the True Health segment include direct medical expenses and estimated incurred but unpaid claims, recognized in the period services are provided[321](index=321&type=chunk) [Evolent Health, Inc. Consolidated Results](index=57&type=section&id=Evolent%20Health%2C%20Inc.%20Consolidated%20Results) The consolidated results show revenue growth overshadowed by a massive goodwill impairment charge, leading to a substantial net loss Consolidated Results (in thousands, except percentages) | Item | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $238,632 | $191,959 | $485,917 | $389,715 | | Total operating expenses | $466,101 | $217,192 | $738,886 | $461,594 | | Operating loss | $(227,469) | $(25,233) | $(252,969) | $(71,879) | | Goodwill impairment | $215,100 | — | $215,100 | — | | Net loss available for common shareholders | $(203,521) | $(31,615) | $(282,273) | $(78,354) | | Basic and diluted loss per common share | $(2.38) | $(0.38) | $(3.32) | $(0.97) | [Comparison of the Results for the three months ended June 30, 2020 to 2019](index=57&type=section&id=Comparison%20of%20the%20Results%20for%20the%20three%20months%20ended%20June%2030%2C%202020%20to%202019) Quarterly revenue grew significantly, but a goodwill impairment charge caused the operating loss to widen dramatically - Total revenue increased by **$46.7 million (24.3%)** to $238.6 million, driven by a $67.9 million (46.9%) increase in platform and operations services revenue from existing partners, new additions, and cross-sells[326](index=326&type=chunk)[329](index=329&type=chunk) - Premiums decreased by **$20.0 million (43.9%)** to $25.5 million, primarily due to the termination of the NMHC quota-share reinsurance agreement and premium rebate accruals from COVID-19 impact[330](index=330&type=chunk) - Operating loss significantly widened to **$(227.5) million** from $(25.2) million, primarily due to a **$215.1 million non-cash goodwill impairment charge**[325](index=325&type=chunk)[336](index=336&type=chunk) [Comparison of the Results for the Six Months Ended June 30, 2020 to 2019](index=59&type=section&id=Comparison%20of%20the%20Results%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202020%20to%202019) For the six-month period, revenue grew strongly while SG&A expenses decreased, but a goodwill impairment drove a large operating loss - Total revenue increased by **$96.2 million (24.7%)** to $485.9 million, with platform and operations services revenue growing by $130.5 million (44.7%) to $422.3 million[339](index=339&type=chunk)[341](index=341&type=chunk) - Premiums decreased by **$35.0 million (37.7%)** to $57.6 million, mainly due to the termination of the NMHC reinsurance agreement[342](index=342&type=chunk) - Selling, general, and administrative expenses decreased by **$36.6 million (25.8%)** to $105.2 million, driven by a $31.2 million reduction in personnel costs due to lower employee headcount and elimination of performance-based RSU awards[347](index=347&type=chunk) - A non-cash goodwill impairment charge of **$215.1 million** was recorded, contributing to a significant operating loss[349](index=349&type=chunk) [Discussion of Non-Operating Results](index=61&type=section&id=Discussion%20of%20Non-Operating%20Results) Non-operating results were impacted by lower interest income, higher interest expense, and a significant impairment charge on an equity method investment - Interest income decreased in 2020 due to lower income from the capital-only reinsurance agreement with NMHC, which terminated in Q4 2019[353](index=353&type=chunk) - Interest expense increased to **$6.3 million** for three months and **$12.6 million** for six months ended June 30, 2020, from $3.7 million and $7.1 million in prior periods, primarily due to the 2021 Notes, 2025 Notes, and the Credit Agreement[354](index=354&type=chunk)[355](index=355&type=chunk) - A non-cash impairment charge of **$47.1 million** was recorded for equity method investments due to GlobalHealth, Inc's transfer of equity interests to new investors[356](index=356&type=chunk) [Review of Consolidated Financial Condition](index=61&type=section&id=REVIEW%20OF%20CONSOLIDATED%20FINANCIAL%20CONDITION) This section reviews the company's liquidity, capital resources, and cash flows, confirming sufficiency for the next twelve months despite operating losses [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) Despite continued operating losses, management believes current cash and liquidity sources are sufficient for the next twelve months - The Company incurred operating losses of **$253.0 million** and **$71.9 million** for the six months ended June 30, 2020 and 2019, respectively[362](index=362&type=chunk) - As of June 30, 2020, the Company had **$98.3 million in cash and cash equivalents** and **$55.7 million in restricted cash and restricted investments**[363](index=363&type=chunk) - Management believes current cash and other liquidity sources are sufficient for working capital and capital expenditure requirements for the next twelve months[364](index=364&type=chunk) [Cash Flows](index=62&type=section&id=Cash%20Flows) Cash flow from operations turned positive, driven by non-cash impairment charges, while investing activities focused on internal-use software - Operating activities generated **$17.1 million in cash** for the six months ended June 30, 2020, primarily due to non-cash adjustments like goodwill and equity method investment impairments, despite a net loss[366](index=366&type=chunk) - Investing activities used **$18.4 million**, mainly for internal-use software and property/equipment purchases, offset by investment maturities[370](index=370&type=chunk) - Financing activities provided **$25.9 million**, primarily from an increase in working capital balances for claims processing services[372](index=372&type=chunk) Summary of Cash Flows (in thousands) | Item | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash and restricted cash from (used in) operating activities | $17,125 | $(39,242) | | Net cash and restricted cash used in investing activities | $(18,382) | $(90,816) | | Net cash and restricted cash from (used in) financing activities | $25,910 | $(121,071) | [Contractual Obligations](index=63&type=section&id=Contractual%20Obligations) The company has significant future contractual obligations related to debt repayment, operating leases, and a buyout commitment Estimated Contractual Obligations (in thousands) as of June 30, 2020 | Obligation Type | 2020 | 2021-2022 | 2023-2024 | 2025+ | Total | | :--------------------------------- | :----- | :-------- | :-------- | :------ | :------ | | Operating leases for facilities | $6,003 | $21,418 | $18,202 | $56,093 | $101,716 | | Passport buyout commitment | — | $20,000 | — | — | $20,000 | | Purchase obligations related to vendor contracts | $3,415 | $6,982 | $93 | — | $10,490 | | Commitments to equity-method investees | $3,600 | — | — | — | $3,600 | | Debt interest payments | $6,433 | $23,837 | $21,337 | $2,588 | $54,195 | | Debt principal repayment | — | $125,000 | $75,000 | $172,500 | $372,500 | | Contingent consideration | $3,600 | — | — | — | $3,600 | | Total contractual obligations | $23,051 | $197,237 | $114,632 | $231,181 | $566,101 | [Restricted Cash and Restricted Investments](index=64&type=section&id=Restricted%20Cash%20and%20Restricted%20Investments) A total of $55.7 million in cash and investments is restricted, primarily for claims management services and lease collateral - As of June 30, 2020, restricted cash and restricted investments totaled **$55.7 million**, including $44.9 million for claims management services and $3.6 million for facility lease collateral[377](index=377&type=chunk) [Uses of Capital](index=64&type=section&id=Uses%20of%20Capital) The company's primary uses of capital are for operations and strategic growth, with no plans for near-term cash dividends - Principal uses of cash are for business operations, expansion, and strategic acquisitions; the Company does not anticipate paying cash dividends on Class A common stock in the foreseeable future[378](index=378&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the Company's exposure to market risks, including interest rate, foreign currency, and inflation risks [Interest Rate Risk](index=66&type=section&id=Interest%20Rate%20Risk) The company is exposed to interest rate risk through its cash equivalents and floating-rate debt, but not its fixed-rate notes - As of June 30, 2020, the Company had **$153.9 million** in cash and cash equivalents and restricted cash and investments, with **$297.5 million** in fixed-rate convertible notes and **$75.0 million** in floating-rate secured term loans[386](index=386&type=chunk)[388](index=388&type=chunk) - Changes in interest rates affect interest earned on cash and cash equivalents, but held-to-maturity investments are not subject to interest rate risk[387](index=387&type=chunk) [Foreign Currency Exchange Risk](index=66&type=section&id=Foreign%20Currency%20Exchange%20Risk) The company has minor foreign currency risk related to the Indian Rupee, resulting in a small translation loss - The Company has foreign currency risks primarily related to the Indian Rupee, as it is a net payor of non-U.S. dollar currencies, and recognized foreign currency translation losses of **$0.2 million** for the six months ended June 30, 2020[389](index=389&type=chunk) [Inflation Risk](index=66&type=section&id=Inflation%20Risk) Inflation has not had a material effect on the company's operations to date, but significant future inflation could pose a risk - Inflation has not had a material effect on the Company's business, financial condition, or results of operations to date, but significant inflationary pressures could harm future performance if not offset by price increases[390](index=390&type=chunk) [Item 4. Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were not effective due to material weaknesses in internal control over financial reporting, with remediation ongoing [Evaluation of Disclosure Controls and Procedures](index=67&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were not effective as of June 30, 2020, due to material weaknesses - Management concluded that disclosure controls and procedures were **not effective** as of June 30, 2020, due to material weaknesses in internal control over financial reporting[392](index=392&type=chunk) - The COVID-19 pandemic has not materially impacted internal controls over financial reporting, despite most employees working remotely[393](index=393&type=chunk) [Description of Material Weaknesses](index=67&type=section&id=Description%20of%20Material%20Weaknesses) Material weaknesses were identified in user access controls and claims data management within a claims processing system - Material weaknesses were identified in user access role definitions and segregation of duties within a claims processing system, and inadequate controls over set-up and modifications of claims data[396](index=396&type=chunk)[397](index=397&type=chunk) - These deficiencies could result in material misstatements to claims expense and cost of revenue, though no adjustments were made to 2019 or interim 2020 financial statements[398](index=398&type=chunk) [Plan of Remediation to Address Material Weaknesses in Internal Controls over Financial Reporting](index=67&type=section&id=Plan%20of%20Remediation%20to%20Address%20Material%20Weaknesses%20in%20Internal%20Controls%20over%20Financial%20Reporting) Management has designed and is implementing system enhancements and updated policies to remediate the identified material weaknesses - Management designed and implemented system enhancements, role-based access, and updated policies for user access and segregation of duties within the claims processing system, with testing ongoing[399](index=399&type=chunk) - Remediation efforts also include expanding controls over claims data set-up/modification and enhancing procedures for monitoring control performance related to third-party claims data[399](index=399&type=chunk) [Changes in Internal Control over Financial Reporting](index=68&type/section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) As part of remediation, new controls surrounding user access and segregation of duties have been implemented - Controls surrounding user access role definitions and segregation of duties within one claims processing system have been designed and implemented as part of remediation efforts[401](index=401&type=chunk) [Inherent Limitations of Internal Controls](index=68&type=section&id=Inherent%20Limitations%20of%20Internal%20Controls) Internal controls provide only reasonable, not absolute, assurance due to inherent limitations like human error or management override - Internal controls provide only **reasonable assurance**, not absolute, that objectives are met, due to inherent limitations such as faulty judgments, errors, circumvention by individuals, or management override[402](index=402&type=chunk) PART II [Item 1. Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed discussion of legal proceedings within the financial statements notes - Information regarding legal proceedings, including a class action lawsuit, is detailed in Note 10 of the financial statements[405](index=405&type=chunk) [Item 1A. Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new or updated risks, particularly concerning the pending sale of Passport assets and the COVID-19 pandemic - The pending sale of Passport Health Plan, Inc assets to Molina Healthcare, Inc may not be consummated, or expected benefits may not be realized, due to conditions, governmental approvals, or other factors[407](index=407&type=chunk) - The ongoing COVID-19 pandemic poses risks including potential delays or non-payment of premiums for True Health, budget pressures on state Medicaid agencies, heightened security risks from remote work, and capital market volatility[408](index=408&type=chunk)[409](index=409&type=chunk) - The full impact of COVID-19 is uncertain and could materially adversely affect the Company's business, financial position, results of operations, and cash flows[410](index=410&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=70&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable for the reporting period [Item 3. Defaults Upon Senior Securities](index=70&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period [Item 4. Mine Safety Disclosures](index=70&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period [Item 5. Other Information](index=70&type=section&id=Item%205.%20Other%20Information) No other information is reported for this period [Item 6. Exhibits](index=71&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the report, including the Molina Asset Purchase Agreement and Sarbanes-Oxley certifications - Exhibits include the Asset Purchase Agreement with Molina Healthcare, Inc, and certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[417](index=417&type=chunk)[418](index=418&type=chunk) [Signatures](index=72&type=section&id=SIGNATURES) The report was duly signed by the company's Chief Financial Officer and Controller on August 7, 2020 - The report is signed by John Johnson, Chief Financial Officer, and Aammaad Shams, Controller, on behalf of Evolent Health, Inc on August 7, 2020[421](index=421&type=chunk)[422](index=422&type=chunk)

Evolent Health, Inc. (NYSE:EVH) Q2 2020 Earnings Conference Call August 4, 2020 5:00 PM ET Company Participants Frank Williams - Co-Founder & CEO John Johnson - CFO Seth Blackley - Co-Founder, President Conference Call Participants Ryan Daniels - William Blair Jack Rogoff - Goldman Sachs Matthew Gilmore - Baird Charles Rhyee - Cowen Richard Close - Canaccord Genuity Sandy Draper - SunTrust Anne Samuel - JPMorgan Operator Welcome to Evolent Health Earnings Conference Call for the Quarter Ended June 30, 2020. ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ FORM 10-Q _________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ 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. | --- | --- | --- | -- ...

| --- | --- | |----------------------------------------------------------------------|-------| | | | | | | | Bank of America Health Care Conference: Evolent Health May 13, 2020 | | | | | | | | Safe Harbor Statement Certain statements in this presentation 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 fa ...

Evolent Health, Inc. (NYSE:EVH) Q1 2020 Results Earnings Conference Call May 7, 2020 5:00 PM ET Company Participants Frank Williams - Co-Founder, Chief Executive Officer John Johnson - Chief Financial Officer Seth Blackley - Co-Founder, President Conference Call Participants Charles Rhyee - Cowen Robert Jones - Goldman Sachs Ryan Daniels - William Blair Sandy Draper - SunTrust Jessica Tassan - Piper Sandler Operator Welcome to Evolent Health earnings conference call for the quarter ended March 31, 2020. As ...

| --- | --- | |-------------------------------------------------------------|-------| | | | | | | | Cowen Health Care Conference: Evolent Health March 3, 2020 | | | | | Safe Harbor Statement Certain statements in this presentation 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 limitati ...