Evolent Health(US:EVH)2023-05-03 16:00PART I - FINANCIAL INFORMATION Financial Statements For Q1 2023, Evolent Health reported $427.7 million revenue and a $26.3 million net loss, with total assets growing to $2.6 billion due to the NIA acquisition Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $157,519 | $188,200 | | Intangible assets, net | $825,857 | $442,784 | | Goodwill | $1,117,945 | $722,774 | | Total assets | $2,589,459 | $1,817,293 | | Long-term debt, net | $632,277 | $412,986 | | Tax receivable agreement liability | $112,134 | $45,950 | | Total liabilities | $1,297,091 | $957,876 | | Total shareholders' equity | $1,121,743 | $859,417 | Consolidated Statement of Operations Highlights (unaudited, except per share data) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Revenue | $427,690 | $297,057 | | Total operating expenses | $438,045 | $299,855 | | Operating loss | $(10,355) | $(2,798) | | Net loss attributable to common shareholders | $(26,258) | $(5,350) | | Loss per common share (Basic and diluted) | $(0.24) | $(0.06) | Consolidated Statement of Cash Flows Highlights (unaudited) | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,974) | $(57,442) | | Net cash (used in) provided by investing activities | $(394,993) | $16,766 | | Net cash provided by (used in) financing activities | $379,729 | $(51,376) | | Net decrease in cash and cash equivalents | $(23,188) | $(92,156) | - Effective Q1 2023, the company changed its reportable segments, collapsing previous Evolent Health Services and Clinical Solutions segments into a single segment to reflect changes in performance evaluation and resource allocation, with historical disclosures recast34 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Revenue grew 44.0% to $427.7 million primarily from acquisitions and new partnerships, while operating loss widened due to increased expenses, prompting a new repositioning plan Results of Operations Comparison | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | Change ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $427,690 | $297,057 | $130,633 | 44.0% | | Cost of revenue | $310,475 | $219,739 | $90,736 | 41.3% | | SG&A expenses | $89,726 | $58,932 | $30,794 | 52.3% | | Operating loss | $(10,355) | $(2,798) | $(7,557) | (270.1)% | - The increase in revenue was primarily due to $82.5 million from the acquisitions of NIA, IPG, and Vital Decisions, and $48.1 million from new and expanded partner relationships248 - The company completed its acquisition of National Imaging Associates (NIA) on January 20, 2023, for consideration including $387.8 million in cash, debt financing, and 8.5 million shares of Class A common stock216217 - In Q1 2023, the company initiated a "Repositioning Plan" involving organizational changes and cost-reduction initiatives to improve operational efficiency and profitability220 Revenue by End-Market | End-Market | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Medicaid | $183,034 | $130,501 | | Medicare | $127,669 | $104,399 | | Commercial and other | $116,987 | $62,157 | | Total | $427,690 | $297,057 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk from its floating-rate debt and preferred stock, with a 1% SOFR increase potentially adding $4.5 million in annual interest expense and $1.8 million in preferred dividends - The company has significant exposure to interest rate fluctuations due to its floating-rate instruments, including a $415.0 million term loan, a $37.5 million revolving facility, and $175.0 million of Series A Preferred Stock283 - For every 1% increase in the SOFR, the company estimates an additional annual interest expense of $4.5 million and an additional $1.8 million in preferred dividends283 - The company has foreign currency risk from operating expenses denominated in Indian Rupee and Philippine Peso, but the impact was not material for the quarter285 Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, excluding recent acquisitions from internal control over financial reporting assessment as permitted by SEC guidelines - Management concluded that disclosure controls and procedures were effective as of March 31, 2023287 - The company excluded the recent acquisitions of IPG (August 2022) and NIA (January 2023) from its evaluation of internal control over financial reporting, as permitted by the SEC for the first year post-acquisition288 PART II - OTHER INFORMATION Legal Proceedings A shareholder derivative action concerning the Passport Health Plan relationship was dismissed by the Delaware Chancery Court on January 5, 2023, resolving the matter - The shareholder derivative action, Lincolnshire Police Pension Fund v. Blackley, et al., was dismissed by the Delaware Chancery Court on January 5, 2023, and the matter is now considered resolved150292 Risk Factors The company supplemented risk factors, emphasizing increased threats from online security risks and potential financial loss due to banking institution failures - The company faces significant online security risks, including cyber-attacks like ransomware and phishing, which could compromise confidential data and harm the business294295 - There is a risk of financial loss from bank failures, as the company is likely to hold cash deposits in excess of the $250,000 FDIC insurance limit299 - Evolving data security and privacy laws (e.g., from the FTC and states like California) require ongoing changes to processes, and non-compliance could lead to significant fines and liability297298 Unregistered Sales of Equity Securities and Use of Proceeds The company reported unregistered sales of Class A common stock for the NIA acquisition and an IPG earn-out provision, with 8,474,576 and 849,715 shares issued respectively - On January 20, 2023, the company issued 8,474,576 shares of Class A common stock in connection with the acquisition of NIA300 - On February 1, 2023, the company issued 849,715 shares of Class A common stock to settle a contingent consideration earn-out related to the IPG acquisition301