# Evolent Health, Inc. (EVH) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Evolent Health, Inc.'s 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1628908/000162890824000017/evh-20231231.htm
Accession: 0001628908-24-000017
Filing date: 2024-02-23
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EVH/
All MD&A years: /company/EVH/mda/
Previous year: /company/EVH/mda/fy2022/ (FY 2022)
Next year: /company/EVH/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand the Company’s financial condition and results of operations. The MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to consolidated financial statements presented in “Part II – Item 8. Financial Statements and Supplementary Data” as well as “Part I - Item 1A. Risk Factors.”

INTRODUCTION

Business Overview

We are a market leader in connecting care for people with complex conditions like cancer, cardiovascular disease, and musculoskeletal diagnoses. We work on behalf of health plans and other risk-bearing entities and payers (our customers) to support physicians and other healthcare providers (our users) in providing high quality evidence-based care to their patients. We believe adherence to evidence-based clinical pathways supports better outcomes for patients, a better experience for physicians, and lower costs for the healthcare system overall.

Specialty care represents a significant and fast-growing portion of healthcare costs in the U.S., driven in part by the pace of development of new therapies and treatments. To manage these increasing costs, some health plans and other risk-bearing entities historically deployed cost containment strategies that can limit access to care and operate in narrow silos (for example, prior authorization for radiological studies being considered independently from a comprehensive chemotherapy regimen). We believe Evolent can bring an integrated approach to a patient’s condition across multiple specialties, using technology to recommend our evidence-based clinical pathways in a way that provides rapid feedback to the provider, seeks to remove barriers to care, and aligns

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financial incentives with the best evidence. As a result of this approach, we have seen as much as a 30% increase in adherence to best evidence for populations that we manage.

We were an early innovator in value-based care, founded in 2011 by members of our management team, UPMC, an integrated delivery system based in Pittsburgh, Pennsylvania, and The Advisory Board Company.

Segment Update

The Company made organizational changes, including re-evaluating its reportable segments, as a result of growth in our value-based specialty care business, both organically and through acquisitions. Effective during the three months ended March 31, 2023, the Company changed its reportable segments to reflect changes in the way its chief operating decision maker evaluates the performance of its operations, develops strategy and allocates capital resources. Specifically, the Company collapsed its previous two segments, Evolent Health Services and Clinical Solutions into one segment. The Company's historical disclosures have been recast to be consistent with the current presentation.

All of our revenue is recognized in the United States and substantially all of our long-lived assets are located in the United States.

Recent Events

Impact of Inflation

We experience pricing pressures in the form of competitive prices in addition to rising costs for certain inflation-sensitive operating expenses such as labor, employee benefits and facility leases. We do not believe these impacts were material to our revenues or net income during the year ended December 31, 2023. However, significant sustained inflation driven by the macroeconomic environment or other factors could negatively impact our margins, profitability and results of operations in future periods.

Customers

The following table summarizes those partners who represented at least 10.0% of our consolidated revenue:

[[GREPCENT_TABLE]]
[["","","","For the Year Ended December 31,"],["","","","","","2023","","2022"],["Cook County Health and Hospitals Systems","","","","","15.7%","","22.4%"],["Humana Insurance Company","","","","","12.0%","","*"],["Molina Healthcare, Inc.","","","","","13.5%","","*"],["Florida Blue Medicare, Inc.","","","","","10.4%","","11.5%"]]
[[/GREPCENT_TABLE]]

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*     Represents less than 10.0% of the respective balance

Transactions

The Company has undertaken several transactions, some of which may impact year-to-year comparisons. The following is a discussion of certain of those transactions.

Acquisition of NIA

On November 17, 2022, the Company entered into a definitive agreement for the Company to acquire NIA. On January 20, 2023, we consummated the acquisition of NIA for $387.8 million in cash consideration, which was financed in part with $265.0 million in debt borrowed from affiliates of Ares and the proceeds from the sale of an aggregate 175,000 shares of the Company’s Series A Preferred Stock, resulting in gross proceeds of $168.0 million, and stock consideration of 8.5 million shares of Class A common stock issued to the seller. NIA is part of Evolent’s Specialty Technology and Services Suite. Refer to “Part II - Item 8. Financial Statements and Supplementary Data - Note 4” for additional discussion regarding the NIA acquisition.

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Credit Agreement Amendment

On August 1, 2022 (the “IPG Closing Date”), the Company entered into a credit agreement, by and among the Company, Evolent Health LLC, as the borrower (the “Borrower”), certain subsidiaries of the Company, as guarantors, the lenders from time to time party thereto, and Ares, as administrative agent, collateral agent and revolver agent (the “Existing Credit Agreement” and as modified by the Amendment (defined below), the “Credit Agreement”), pursuant to which the lenders agreed to extend credit to the Borrower in the form of (i) initial term loans in an aggregate principal amount of $175.0 million (the “Initial Term Loan Facility”) and (ii) revolving credit commitments in an aggregate principal amount of $50.0 million (the “Initial Revolving Facility”), the availability of which shall be determined by reference to the lesser of $50.0 million and a borrowing base calculation. The Borrowers borrowed full amount under the Initial Term Loan Facility and the Initial Revolving Facility on the IPG Closing Date. A closing fee of (a) 2.00% of the aggregate amount of the commitments in respect of the Initial Term Loan Facility and (b) 2.00% of the aggregate amount of the commitments in respect of the Initial Revolving Facility was paid as of the IPG Closing Date.

On January 20, 2023, (“the NIA Closing Date”), the Company entered into Amendment No. 1 to the Credit Agreement (the “Amendment”), pursuant to which the lenders agreed to extend credit to the Borrower in the form of (i) additional revolving commitments in an aggregate principal amount equal to $25.0 million (the “Incremental Revolving Facility” and together with the Initial Revolving Facility, the “Revolving Facility”), and (ii) additional term loans in an aggregate principal amount equal to $240.0 million (the “Incremental Term Loan Facility” and together with the Initial Term Loan Facility, the “Term Loan Facility”; the Revolving Facility and the Term Loan Facility are collectively referred to herein as the “Credit Facilities”). The Borrowers borrowed the full amount under the Incremental Term Loan Facility and the Incremental Revolving Facility on the NIA Closing Date to finance, together with the proceeds from the sale of the Series A Preferred Stock, the cash consideration payable in connection with the NIA acquisition on the NIA Closing Date and pay transaction fees and expenses. A closing fee of (a) 3.00% of the aggregate amount of the commitments in respect of the Incremental Term Loan Facility and (b) 3.00% of the aggregate amount of the commitments in respect of the Incremental Revolving Facility was paid as of the NIA Closing Date. Refer to “Part II - Item 8. Financial Statements and Supplementary Data - Note 10.”

Series A Preferred Stock

In connection with the consummation of the acquisition of NIA, on January 20, 2023, we entered into a Securities Purchase Agreement pursuant to which the Company offered and sold an aggregate 175,000 shares of Series A Preferred Stock, at a purchase price of $960.00 per share, resulting in total gross proceeds to us of $168.0 million. The proceeds from the offer and sale of the Series A Preferred Stock were used, together with the proceeds from the Incremental Revolving Facility and Incremental Term Loan Facility, to finance the cash consideration payable for the acquisition of NIA and pay transaction fees and expenses. Refer to “Part II - Item 8. Financial Statements and Supplementary Data - Note 13” for additional discussion regarding the sale of Series A Preferred Stock.

Redemption of 2024 Notes

On August 2, 2023, the Company issued a notice of redemption to the holders of its outstanding 3.50% Convertible Senior Notes due 2024 (the “2024 Notes”), pursuant to which it redeemed the outstanding 2024 Notes for cash at a price of 100% of the principal amount of the 2024 Notes, plus accrued and unpaid interest, if any, on October 13, 2023 (the “Redemption Date”). Prior to the Redemption Date, holders of the 2024 Notes were entitled to convert to shares of the Company’s Class A Common Stock at a rate of 55.6153 shares per $1,000 principal amount of 2024 Notes.

During the year ended December 31, 2023, holders of the 2024 Notes converted $23.3 million in aggregate principal amount of such notes to 1.3 million shares of the Company’s Class A common stock and repaid the remaining $1.0 million balance in cash, satisfying all of the Company’s remaining obligations under the 2024 Notes on the Redemption Date.

Issuance of 2029 Notes

In December 2023, the Company issued $402.5 million aggregate principal amount of its 2029 Notes in a private placement to qualified institutional buyers within the meaning of Rule 144A of the Securities Act. The 2029 Notes were issued at an issue price of 100.00% of par for net proceeds of approximately $390.2 million, after deducting fees and expenses. We incurred $11.6 million of debt issuance costs in connection with the 2029 Notes. The Company used the net proceeds to prepay interest and prepayment premiums on outstanding borrowings and pay interest and prepayment premiums under its Term Loan Facility. Refer to “Part II – Item 8. Financial Statements and Supplementary Data – Note 10” for additional discussion regarding the 2029 Notes.

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Repayment of Credit Agreement

During the year ended December 31, 2023, the Company prepaid $37.5 million under the Revolving Facility and $415.0 million of the Term Loan Facility that was utilized to acquire IPG and NIA. The total amount paid to Ares under the Credit Agreement in connection with the prepayment was $434.8 million, which included $415.0 million of principal, $9.1 million in accrued interest and $10.7 million in prepayment premium. As of December 31, 2023, there is $37.5 million outstanding under the Company’s Revolving Facility.

Repositioning Costs

During the second quarter of 2023, the Company implemented a broad set of repositioning initiatives designed to further align the Company’s assets and talent towards the value-based specialty care opportunity, with the intent of streamlining its operations and supporting the goal of realizing long-term sustainable earnings growth (the “2023 Repositioning Plan’). These initiatives include making organizational changes across the business that resulted in severance, terminated benefits and related payroll taxes and dedicated employee costs associated with recent acquisitions as well as third-party professional fees. Dedicated employee costs primarily include project management and technology staff costs needed to migrate acquired businesses to Evolent’s integrated technology platform and costs related to the consolidation of brands, internal operations, strategies, processes and platforms. Dedicated employee costs are limited to employees that will have no role in ongoing operations and have no planned role at Evolent once the repositioning activities are completed. Professional services costs primarily relate to services provided by a third-party vendor to review our operating model and organizational design in order to improve our profitability, create value through our solutions and invest in strategic opportunities in future periods. Office space consolidation includes early termination penalties and associated expenses.

As of December 31, 2023, the Company estimates total repositioning charges of $45.0 million to be incurred during the life of the 2023 Repositioning Plan which will be recorded in selling, general and administrative expenses on the consolidated statements of operations and comprehensive income (loss). The repositioning program is anticipated to be substantially complete by the first half of 2024.

The following table provides a summary of our total costs associated with our repositioning plans for the years ended December 31, 2023, 2022 and 2021, by major type of cost (in thousands):

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31, 2023","","Total Amount Expected to be Incurred in the 2023 Repositioning Plan"],["Severance and termination benefits","$","8,564","","","$","10,562"],["Dedicated employee costs","6,900","","","8,929"],["Professional services","12,910","","","15,174"],["Office space consolidation","6,862","","","$","10,362"],["Total","$","35,236","","","$","45,027"]]
[[/GREPCENT_TABLE]]

Critical Accounting Policies and Estimates

We have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition. In applying these critical accounting policies in preparing our financial statements, management must use critical assumptions, estimates and judgments concerning future results or other developments, including the likelihood, timing or amount of one or more future events. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our assumptions, estimates and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances. For a detailed discussion of other significant accounting policies, see “Part II - Item 8. Financial Statements and Supplementary Data - Note 2.”

Goodwill

We recognize the excess of the purchase price plus the fair value of any non-controlling interests in the acquiree over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized, but is reviewed at least annually for indications of impairment, with consideration given to financial performance and other relevant factors. We perform impairment tests of goodwill at a reporting

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unit level. We perform impairment tests between annual tests if an event occurs, or circumstances change, that we believe would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Our goodwill impairment analysis first assesses qualitative factors to determine whether events or circumstances existed that would lead the Company to conclude it is more likely than not that the fair value of our reporting unit is below its carrying amount. Qualitative factors include macroeconomic, industry and market considerations, overall financial performance, industry, legal and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring our reporting unit’s fair value.

If the Company determines that it is more likely than not that the fair value of our reporting unit is below the carrying amount, a quantitative goodwill assessment is required. In the quantitative evaluation, the fair value is determined and compared to the carrying value. If the fair value is greater than the carrying value, then the carrying value is deemed to be recoverable and no further action is required. If the fair value estimate is less than the carrying value, goodwill is considered impaired for the amount by which the carrying amount exceeds the reporting unit’s fair value and a charge is reported in goodwill impairment on our consolidated statements of operations and comprehensive income (loss). We use both a discounted cash flow analysis and market multiple analysis in order to estimate our reporting units fair value. The discounted cash flow analysis relies on significant judgement and assumptions about expected future cash flows, weighted-average cost of capital, discount rates, expected long-term growth rates and operating margins. These assumptions are based on estimates of future revenue and earnings after considering such factors as general economic and market conditions which drive key assumptions of revenue growth rates, operating margins, capital expenditures and working capital requirements. The weighted average cost of capital is based on market-based factors/inputs but also considers the specific risk characteristics of the reporting unit’s cash flow forecast. A significant change to these estimates and assumptions could cause the estimated fair values of our reporting unit and intangible assets to decline and increase the risk of an impairment charge to earnings. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

On October 31, 2023, the Company performed its annual goodwill impairment review for fiscal year 2023. In addition, the Company underwent organizational changes which required a reassessment of reporting units. As a result, the Company determined it has one reporting unit due to the economic similarity of the services provided to our partners. Based on our qualitative assessment, we did not identify sufficient indicators of impairment that would suggest the fair value of our reporting unit was below its respective carrying values. As a result, a quantitative goodwill impairment analysis was not required.

Revenue Recognition

Contracts with Multiple Performance Obligations

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

Principal vs Agent

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

Income Taxes

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We estimate our actual current tax expense, including permanent charges and benefits, and temporary differences resulting from differing treatment of items, such as deferred revenue for tax and book accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets.

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We assess the likelihood that our deferred tax assets will be recovered from future taxable income by considering both positive and negative evidence relating to their recoverability. If we believe that it is more likely than not that these deferred tax assets will not be recovered, we establish a valuation allowance. To the extent that we increase a valuation allowance in a period, we include an expense in the consolidated statement of operations in the period in which such determination is made.

In assessing the need for a valuation allowance, we considered all available evidence, including recent operating results, projections of future taxable income, our ability to utilize loss and credit carryforwards, and the feasibility of tax planning strategies. A significant piece of objective negative evidence evaluated for jurisdictions in a net deferred tax asset position was cumulative pre-tax losses over the three years ended December 31, 2023.

We account for uncertainty in income taxes by recognizing a tax position only when it is more likely than not that the tax position, based on its technical merits, will be sustained upon ultimate settlement with the applicable tax authority. The tax benefit to be recognized is the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with the applicable tax authority that has full knowledge of all relevant information.

Our gross unrecognized benefits are $2.6 million as of December 31, 2023. Our evaluation of uncertain tax positions is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. If actual settlements differ from these estimates, or we adjust these estimates in future periods, we may need to recognize additional tax benefits or charges that could materially impact our financial position and results of operations.

Reserve for Claims and Performance-based Arrangements

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

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

Business Combinations

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

The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed in the acquired entity is recorded as goodwill. If the Company obtains new information about facts and circumstances that existed as of the acquisition date during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company's consolidated statements of operations and comprehensive income (loss).

For contingent consideration recorded as a liability, the Company initially measures the amount at fair value as of the acquisition date and adjusts the liability, if needed, to fair value each reporting period. Changes in the fair value of contingent consideration, other than measurement period adjustments, are recognized as a change in fair value of contingent consideration on the Company's consolidated statements of operations and comprehensive income (loss). Acquisition-related expenses and post-acquisition restructuring costs are recognized separately from the business combination and are expensed as incurred.

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Adoption of New Accounting Standards

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Specifically, the ASU removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature and no longer permits the use of the treasury stock method from calculating earnings per share. As a result, after adopting the ASU’s guidance, we will not separately present in equity an embedded conversion feature of such debt. Instead, we will account for a convertible debt instrument wholly as debt unless (i) a convertible instrument contains features that require bifurcation as a derivative or (ii) a convertible debt instrument was issued at a substantial premium. Additionally, the ASU removes certain conditions for equity classification related to contracts in an entity’s own equity (e.g., warrants) and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity. The Company adopted the standard using a modified retrospective method as of January 1, 2022, with adjustments which reduced additional paid-in capital by $106.2 million and increased retained earnings by $39.8 million and increased the net carrying amount of the 2024 Notes and 2025 Notes by $25.1 million and $41.3 million, respectively.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. The Company adopted this standard starting in the first quarter of 2023, which did not have a material impact on our consolidated financial statements.

RESULTS OF OPERATIONS

Evolent Health, Inc. is a holding company and its principal asset is all of the Class A common units in Evolent Health LLC, which has owned all of our operating assets and substantially all of our business since inception. The financial results of Evolent Health LLC are consolidated in the financial statements of Evolent Health, Inc.

Key Components of our Results of Operations

Revenue

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

Our performance obligation in these arrangements is to provide an integrated suite of services, including access to our platform that is customized to meet the specialized needs of our partners and providers. Generally, we will apply the series guidance to the performance obligation as we have determined that each time increment is distinct. We primarily utilize a variable fee structure for these services that typically includes a monthly payment that is calculated based on a specified per member per month rate, multiplied by the number of members that our partners are managing under a value-based care arrangement or a percentage of plan premiums. Our arrangements may also include other variable fees related to service level agreements, shared medical savings arrangements and other performance measures. Variable consideration is estimated using the most likely amount based on our historical experience and best judgment at the time.

We also deploy our services in capitation arrangements under our specialty care management solution and total cost of care solution, which we call the “Performance Suite.” Capitation arrangements under the Performance Suite may include performance-based arrangements and/or gainshare features. We occasionally use third parties to assist in satisfying our performance obligations. In order to determine whether we are the principal or agent in the arrangement, we review each third-party relationship on a contract-by- contract basis. As we integrate goods and services provided by third parties into our overall service, we control the services provided to the customer prior to its delivery. As such, we are the principal and we will recognize revenue on a gross basis. In certain cases, we act as an agent and do not control the services from third parties before it is delivered to the customer, thereby recognizing revenue on a net basis.

Due to the nature of our arrangements, certain estimates may be constrained if it is probable that a significant reversal of revenue will occur when the uncertainty is resolved. We recognize revenue from services over time using the time elapsed output method. Fixed consideration is recognized ratably over the contract term. In accordance with the series guidance, we allocate variable consideration to the period to which the fees relate.

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Contracts with Multiple Performance Obligations

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

Cost of Revenue (exclusive of depreciation and amortization)

Our cost of revenue includes direct expenses and shared resources that perform services in direct support of our partners. Costs consist primarily of claims expense, employee-related expenses (including compensation, benefits and stock-based compensation), expenses for TPA support and other services, as well as other professional fees. In certain cases, our cost of revenue also includes claims and capitation payments to providers and payments for pharmaceutical treatments and other health care expenditures through performance-based arrangements.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist of employee-related expenses (including compensation, benefits and stock-based compensation) for selling and marketing, corporate development, finance, legal, human resources, corporate information technology, professional fees and other corporate expenses associated with these functional areas. Selling, general and administrative expenses also include costs associated with our centralized infrastructure and research and development activities to support our network development capabilities, claims processing services, including PBM administration, technology infrastructure, clinical program development and data analytics.

Depreciation and Amortization Expense

Depreciation and amortization expenses consist of the amortization of intangible assets associated with the step up in fair value of Evolent Health LLC’s assets and liabilities for the Offering Reorganization, amortization of intangible assets recorded as part of our various business combinations and asset acquisitions and depreciation of property and equipment, including the amortization of capitalized software.

Lives on Platform and PMPM Fees

Performance Suite Lives on Platform are calculated by summing monthly members covered for specialty care services for contracts not under ASO arrangements, plus members managed by Complex Care in risk arrangements and divided by the number of months in the period. Specialty Technology and Services Suite Lives on Platform are calculated by summing monthly members covered for oncology, cardiology, musculoskeletal, advanced imaging and other diagnostics specialty care services for contracts under ASO arrangements divided by the number of months in the period. Administrative Services Lives on Platform are calculated by summing monthly members covered for administrative services implementation and core performance services divided by the number of months in the period. Cases are calculated by summing the number of individuals receiving services through our surgery management and advanced care planning programs in a given period. Members covered for more than one category are counted in each category.

Performance Suite Average PMPM fee is defined as revenue pertaining to our Performance Suite during the period reported divided by Performance Suite Lives on Platform for the period divided by the number of months in the period. Specialty Technology and Services Suite Average PMPM fee is defined as revenue pertaining to the Specialty Technology and Services Suite during the period reported divided by Specialty Technology and Services Suite Lives on Platform for the period divided by the number of months in the period. Administrative Services Average PMPM fee is defined as revenue pertaining to the Administrative Services during the period reported divided by the Administrative Services Lives on Platform for the period divided by the number of months in the period. Revenue per Case is calculated by the revenue pertaining to surgery management and advanced care planning programs divided by the number of cases for a given period.

Average Unique Members are calculated by summing members covered by our Performance Suite, Specialty Technology and Services Suite and Administrative Services. In cases where partners cross between multiple solutions, we only capture members from the solution with the maximum number of members.

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Management uses Lives on Platform, PMPM fees, Cases, Revenue per Case and Average Unique Members because we believe that they provide insight into the unit economics of our services. We believe that these measures are also useful to investors because they allow further insight into the period over period operational performance.

Due to our change in segments during the first quarter of 2023, the Company changed its presentation of Lives on Platform to reflect the membership that corresponds to quarterly revenue. The Company recast periods prior to the first quarter of 2023 to reflect the current presentation of Lives on Platform, PMPM fees and Revenue per Case. The current Performance Suite maps to the prior disclosure of the Clinical Solutions Performance Suite. The current Specialty Technology and Services Suite maps to the prior disclosure of the Clinical Solutions New Century Health Technology and Services Suite. The current Administrative Services maps to the prior disclosure of Evolent Health Services segment. There has been no change in the presentation of Cases from prior period.

Consolidated Results

[[GREPCENT_TABLE]]
[["(in thousands, except percentages)","","","","","For the Year Ended December 31,","","Change Over Prior Period","","For the Year Ended December 31,","","Change Over Prior Period"],["","","","","","","","","2023","","2022","","$","","%","","2022","","2021","","$","","%"],["Revenue","","","","","","","","","$","1,963,896","","","$","1,352,013","","","$","611,883","","","45.3%","","$","1,352,013","","","$","907,957","","","$","444,056","","","48.9%"],["Expenses"],["Cost of revenue","","","","","","","","","1,503,426","","","1,035,429","","","467,997","","","45.2%","","1,035,429","","","657,551","","","377,878","","","57.5%"],["Selling, general and administrative expenses","","","","","","","","","358,110","","","269,269","","","88,841","","","33.0%","","269,269","","","219,499","","","49,770","","","22.7%"],["Depreciation and amortization expenses","","","","","","","","","123,415","","","67,195","","","56,220","","","83.7%","","67,195","","","60,037","","","7,158","","","11.9%"],["Loss on disposal of non-strategic assets","","","","","","","","","8,107","","","\u2014","","","8,107","","","100.0%","","\u2014","","","\u2014","","","\u2014","","","\u2014%"],["Right-of-use assets impairment","","","","","","","","","24,065","","","\u2014","","","24,065","","","100.0%","","\u2014","","","\u2014","","","\u2014","","","\u2014%"],["Change in fair value of contingent consideration","","","","","","","","","17,984","","","(23,522)","","","41,506","","","176.5%","","(23,522)","","","13,281","","","(36,803)","","","(277.1)%"],["Total operating expenses","","","","","","","","","2,035,107","","","1,348,371","","","686,736","","","50.9%","","1,348,371","","","950,368","","","398,003","","","41.9%"],["Operating income (loss)","","","","","","","","","$","(71,211)","","","$","3,642","","","$","(74,853)","","","(2,055.3)%","","$","3,642","","","$","(42,411)","","","$","46,053","","","108.6%"],["Cost of revenue as a % of revenue","","","","","","","","","76.6","%","","76.6","%","","","","","","76.6","%","","72.4","%"],["Selling, general and administrative expenses as a % of revenue","","","","","","","","","18.2","%","","19.9","%","","","","","","19.9","%","","24.2","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Results for Year Ended December 31, 2023 to 2022

Revenue

Total revenue increased by $611.9 million, or 45.3%, to $1,963.9 million for the year ended December 31, 2023, as compared to 2022. This increase includes $318.0 million from our acquisitions of and launches of new integrated products with NIA and IPG. Total growth in the Performance Suite and Specialty Technology and Services Suite was $406.0 million from the addition of new partners

53

and expansion with existing partners, partially offset by a reduction in nationwide Medicaid members as a result of the end of the public health emergency. Growth was also offset in part by a $111.3 million decline in Administrative Services revenue.

The following table represents Evolent’s revenue disaggregated by end-market (in thousands):

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31,"],["","2023","","2022"],["Medicaid","$","785,053","","","$","559,362"],["Medicare","708,853","","","458,413"],["Commercial and other","469,990","","","334,238"],["Total","$","1,963,896","","","$","1,352,013"]]
[[/GREPCENT_TABLE]]

The following table represents the Company’s Lives on Platform, Cases, Average PMPM fees, Revenue per Case and Average Unique Members for the year ended December 31, 2023 and 2022 (Lives on Platform in thousands):

[[GREPCENT_TABLE]]
[["","Average Lives on Platform/ Cases","","Average PMPM Fees / Revenue per Case"],["","For the Year Ended December 31,","","For the Year Ended December 31,"],["","2023","","2022","","2023","","2022"],["Performance Suite","4,236","","","2,363","","","$","23.90","","","$","38.02"],["Specialty Technology and Services Suite","69,494","","","14,860","","","0.36","","","0.39"],["Administrative Services","1,831","","","2,100","","","13.48","","","21.56"],["Cases","61","","","39","","","2,575","","","2,133"],["Average Unique Members","41,340","","","16,223"]]
[[/GREPCENT_TABLE]]

Changes in average PMPM fees for the year ending December 31, 2023 as compared to 2022 were driven primarily by Medicaid redeterminations in the second half of 2023, changes in the mix of services provided, including a higher percentage of services in the Medicaid line of business, and the launch in 2023 of the Performance Suite for advanced imaging with a lower average PMPM fee.

Cost of Revenue

Cost of revenue increased by $468.0 million, or 45.2%, to $1,503.4 million for the year ended December 31, 2023, as compared to 2022, principally as a result of the 45.3% growth in our revenue compared to the year ended December 31, 2022. The increase included approximately $344.1 million from higher claims cost from acquisitions and transition from ASO to risk based contracts for certain customers. This claims cost was offset in part by lower claims cost for contracts that are less than three years old, which we refer to as the maturation of our Performance Suite. Cost of revenue also included $91.0 million of higher personnel costs due to increased headcount from our acquisitions, employee benefit, bonus accruals for employees and severance payments to former employees and $58.3 million of surgical management costs at IPG. These increases were offset in part by a decrease of $8.9 million in professional fees due primarily to the termination of external staffing contracts and other customer focused services and a decrease of $13.8 million from a decrease in TPA fees from the wind down of contracts. Approximately $1.7 million and $4.4 million of total personnel costs in costs of revenue was attributable to stock-based compensation expense for the year ended December 31, 2023, and 2022, respectively. Cost of revenue represented 76.6% of total revenue for both the year ended December 31, 2023, and 2022, respectively. Our cost of revenue increased as a percentage of our total revenue due to a change in the mix of our service offerings with the rapid growth of our Performance Suite solutions. We expect our cost of revenue to decrease as a percentage of total revenue over the longer-term subject to the composition of our growth.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $88.8 million, or 33.0%, to $358.1 million for the year ended December 31, 2023, as compared to 2022, principally as a result of our IPG and NIA acquisitions and increased employee costs across the organization. The increase was primarily driven by the NIA transition services administration fee of $30.0 million, higher personnel fees due to increased headcount from the acquisition of NIA and expected benefit accruals to employees of $22.7 million, higher stock compensation of $9.2 million due to the achievement and change in projected achievement of certain performance measurements,

54

higher bad debt expense of $2.3 million due to collection timing from our customers, technology services due to higher headcount of $3.9 million, $1.5 million of severance costs and acquisition costs of $15.1 million.

Approximately $38.8 million and $29.6 million of total personnel costs were attributable to stock-based compensation expense for the year ended December 31, 2023 and 2022, respectively. Acquisition and severance costs accounted for approximately $16.6 million and $24.9 million of total selling, general and administrative expenses for the year ended December 31, 2023, and 2022, respectively. Selling, general and administrative expenses represented 18.2% and 19.9% of total revenue for the year ended December 31, 2023, as compared to 2022, respectively. While our selling, general and administrative expenses are expected to grow as our business continues to grow, we expect them to decrease as a percentage of our total revenue over the long-term due to fixed cost leverage and the scalability of our enterprise.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $56.2 million, or 83.7%, to $123.4 million for the year ended December 31, 2023, as compared to 2022 due primarily to $51.5 million of amortization of intangible assets acquired through our acquisitions and $6.4 million of accelerated amortization of trade name intangibles due to our consolidation of trade names under Evolent. We expect depreciation and amortization expenses to increase in future periods as we continue to capitalize internal-use software and amortize intangible assets resulting from asset acquisitions and business combinations.

Right-of-Use Asset Impairment

During the year ended December 31, 2023, the Company decommissioned its Chicago, IL lease and wrote off the associated right-of-use asset, recognizing an impairment charge of $24.1 million in right-of-use assets impairment on the consolidated statements of operations and comprehensive income (loss). There were no such impairments in 2022.

Change in Fair Value of Contingent Consideration

We recorded a loss (gain) on change in fair value of contingent consideration of $18.0 million for the year ended December 31, 2023, related to the liabilities acquired as a result of the acquisitions of NIA in January 2023 and IPG in August 2022 combined with $7.9 million related to Evolent Care Partners earn out, and $(23.5) million for the year ended December 31, 2022, primarily related to liabilities acquired as a result of the acquisition of Vital Decisions and IPG. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 19” in this Form 10-K for more information related to changes in the fair value of contingent consideration.

Comparison of the Results for Year Ended December 31, 2022 to 2021

Revenue

Total revenue increased by $444.1 million, or 48.9%, to $1,352.0 million for the year ended December 31, 2022, as compared to 2021. This increase is primarily due to $79.3 million from our acquisitions of IPG and Vital Decisions and $364.8 million from the addition of new partners and expansion with existing partners.

The following table represents Evolent’s revenue disaggregated by end-market (in thousands):

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31,"],["","2022","","2021"],["Medicaid","$","559,362","","","$","421,069"],["Medicare","458,413","","","407,331"],["Commercial and other","334,238","","","79,557"],["Total","$","1,352,013","","","$","907,957"]]
[[/GREPCENT_TABLE]]

55

The following table represents the Company’s Lives on Platform, Cases, PMPM fees, Revenue per Case and Average Unique Members for the year ended December 31, 2022 and 2021 (Lives on Platform in thousands):

[[GREPCENT_TABLE]]
[["","Average Lives on Platform/ Cases","","Average PMPM Fees / Revenue per Case"],["","For the Year Ended December 31,","","For the Year Ended December 31,"],["","2022","","2021","","2022","","2021"],["Performance Suite","2,363","","","1,441","","","$","38.02","","","$","31.87"],["Specialty Technology and Services Suite","14,860","","","10,837","","","0.39","","","0.33"],["Administrative Services","2,100","","","1,649","","","21.56","","","15.66"],["Cases","39","","","4","","","2,133","","","1,057"],["Average Unique Members","16,223","","","12,313"]]
[[/GREPCENT_TABLE]]

Cost of Revenue

Cost of revenue increased by $377.9 million, or 57.5%, to $1,035.4 million for the year ended December 31, 2022, as compared to 2021, principally as a result of the growth in our revenue generating services. The increase included approximately $253.8 million from higher claims cost from acquisitions and transition from ASO to risk based contracts for certain customers, $33.6 million of higher personnel costs due to increased headcount, employee benefits and bonus accruals for employees, $22.1 million in higher professional fees primarily due to costs incurred for contracts that went live during the year and third-party service fees for existing customers, $40.9 million of surgical management costs at IPG and $12.3 million of severance costs. Approximately $4.4 million and $2.3 million of total personnel costs in costs of revenue was attributable to stock-based compensation expense for the year ended December 31, 2022 and 2021, respectively. Cost of revenue represented 76.6% and 72.4% of total revenue for the year ended December 31, 2022 and 2021, respectively. Our cost of revenue increased as a percentage of our total revenue due to a change in the mix of our service offerings with the rapid growth of our Performance Suite solutions. We expect our cost of revenue to decrease as a percentage of total revenue over the longer-term subject to the composition of our growth.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by $49.8 million, or 22.7%, to $269.3 million for the year ended December 31, 2022, as compared to 2021, principally as a result of acquisitions and employee costs across all business units. The increase was primarily driven by higher personnel fees due to increased headcount and expected benefit accruals to employees of $33.1 million, higher stock compensation of $15.2 million due to the achievement and change in projected achievement of certain performance measurements, technology services due to higher headcount of $9.1 million, $1.5 million of severance costs and acquisition costs of $7.5 million, offset, in part by lower professional fees from cost savings initiatives of $9.6 million and the termination of certain leases of $3.9 million. Approximately $29.6 million and $14.4 million of total personnel costs were attributable to stock-based compensation expense for the years ended December 31, 2022 and 2021, respectively. Acquisition and severance costs accounted for approximately $24.9 million and $4.4 million of total selling, general and administrative expenses for the year ended December 31, 2022 and 2021, respectively. Selling, general and administrative expenses represented 19.9% and 24.2% of total revenue for the year ended December 31, 2022, as compared to 2021, respectively. While our selling, general and administrative expenses are expected to grow as we integrate IPG operations, we expect them to decrease as a percentage of our total revenue over the long-term due to cost saving initiatives completed in the fourth quarter of 2021 and higher operating performance.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $7.2 million, or 11.9%, to $67.2 million for the year ended December 31, 2022, as compared to 2021 due primarily to amortization of intangible assets acquired through our asset acquisitions and business combinations. We expect depreciation and amortization expenses to increase in future periods as we continue to capitalize internal-use software and amortize intangible assets resulting from asset acquisitions and business combinations.

Change in Fair Value of Contingent Consideration

We recorded a loss on change in fair value of contingent consideration of $(23.5) million for the year ended December 31, 2022, related to the liabilities acquired as a result of the acquisitions of Vital Decisions in October 2021 and IPG in August 2022, and $13.3 million for the twelve months ended December 31, 2021, related to liabilities acquired as a result of the acquisition of Vital Decisions in 2021.

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Discussion of Non-Operating Results

Interest Expense

Our interest expense in the year ended December 31, 2023 is primarily attributable to our Credit Agreement with Ares as well as the 2024 Notes and 2025 Notes. We recorded interest expense (including amortization of deferred financing costs) of approximately $54.2 million, $15.6 million and $25.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. The increase in interest expense for the year ended December 31, 2023 compared to 2022 and 2021, is driven primarily by interest expense incurred on our Loans to fund the NIA and IPG acquisitions, offset by decreases of $8.7 million and $2.8 million during the years ended December 31, 2022 and 2023 due to the exchange of our 2024 Notes in August 2022 and September 2023 and $8.7 million during the year ended December 31, 2022 due to the exchange of our 2025 Notes in December 2021. We expect interest expense to decrease in future periods after we repaid our floating rate Term Loan Facility offset by issuance of our 2029 Notes. In addition, we are focused on deleveraging the balance sheet in the long-term thereby decreasing interest expense. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 10” in this Form 10-K for more information related to interest expense by debt issuance.

Gain from Equity Method Investees

The Company allocated its proportional share of the investees’ earnings and losses each reporting period. The Company’s proportional share of the gain from these investments was approximately $1.3 million, $4.6 million and $13.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. The change in gain from equity method investees for the year ended December 31, 2023, compared to 2022 and 2021 is driven primarily by runout from the sale of our Florida equity investee’s membership during the three months ended March 31, 2021.

Gain from Transfer of Membership

During the year ended December 31, 2021, EVH Passport earned a cash payment from Molina in the amount of $46.0 million based on the number of enrollees above a certain threshold in the dual eligible special needs plan business and Molina's Medicaid plan following the open enrollment period for plan year 2021. 50% of the payment was received during the year ended December 31, 2021, and the remaining 50% was received in the first quarter of 2022.

Loss on Repayment of Long-Term Debt, Net

On August 11, 2022, the Company entered into exchange agreements with certain holders of the 2024 Notes. Pursuant to the agreements, these holders exchanged $92.8 million in aggregate principal amount of such notes for shares of the Company’s Class A common stock. On August 17 and 18, 2022, the Company consummated the exchanges and issued an aggregate of 5,394,165 shares of Class A common stock to the holders. The August 2022 exchanges of the 2024 Notes resulted in a $10.2 million loss on repayment of debt, net, on the consolidated statements of operations and comprehensive income (loss).

During the year ended December 31, 2023, the Company repaid $415.0 million of the Term Loan Facility that was utilized to acquire IPG and NIA and recorded a loss on repayment/extinguishment of long-term debt of $21.0 million comprised of $10.7 million in prepayment premium and $10.3 million of acceleration of amortization of deferred financing costs.

Change in Tax Receivables Agreement Liability

Due to the reduction in the Company’s valuation allowance primarily resulting from deferred tax liabilities established as part of the NIA acquisition, the Company has recorded the remaining TRA liability of $62.0 million for the year ended December 31, 2023, resulting in a total TRA liability of $107.9 million as of December 31, 2023.

Benefit from Income Taxes

An income tax provision for (benefit from) of $(89.4) million, $(43.4) million and $0.5 million was recognized for the years ended December 31, 2023, 2022 and 2021, respectively, which resulted in effective tax rates of 44.2%, 69.9% and (1.6)%, respectively.

Dividends and Accretion of Series A Preferred Stock

We pay quarterly regular cash dividends on the Series A Preferred Stock at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%. In addition, we accrete deferred financing costs and the redemption value in excess of par value in additional paid-in-capital on the consolidated balance sheets. The Company paid $18.8 million of dividends and accreted $10.4 million of deferred issuance costs and redemption value during the year ended December 31, 2023.

57

REVIEW OF CONSOLIDATED FINANCIAL CONDITION

Liquidity and Capital Resources

The Company reported net loss attributable to common shareholders of Evolent Health, Inc. of $(142.3) million, $(19.2) million and $(37.6) million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, the Company had $192.8 million of cash and cash equivalents and $30.6 million in restricted cash and restricted investments.

We believe our current cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities and the timing and extent of our spending to support our investment efforts and expansion into other markets. We may also seek to invest in, or acquire complementary businesses, applications or technologies, which may require us to seek sources of financing.

Cash Flows

The following summary of cash flows (in thousands) has been derived from our financial statements included in “Part II - Item 8. Financial Statements and Supplementary Data - Consolidated Statements of Cash Flows:”

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31,"],["","2023","","2022","","2021"],["Net cash and restricted cash provided by (used in) operating activities","$","142,582","","","$","(11,553)","","","$","38,747"],["Net cash and restricted cash used in investing activities","(415,544)","","","(259,115)","","","(15,786)"],["Net cash and restricted cash provided by (used in) financing activities","281,340","","","131,541","","","(29,548)"]]
[[/GREPCENT_TABLE]]

Operating Activities

Cash flows from operating activities primarily represent inflows and outflows associated with our operations. Primary activities include net income from operations adjusted for non-cash transactions, working capital changes and changes in other assets and liabilities.

Cash flows provided by operating activities of $142.6 million for the year ended December 31, 2023 were affected by increases in accounts receivable from our acquisition of NIA of $51.8 million and timing of our partner and vendor payments including lower cash receipts from certain performance-based customers including Cook County Health and Hospitals System totaling $142.7 million, which is then offset by higher reserve for claims and performance-based arrangements of $204.3 million. In addition, accrued liabilities were impacted by an increase in expected contingent consideration payments of $18.0 million.

Cash flows used in operating activities of $11.6 million for the year ended December 31, 2022 were primarily due to our net loss of $19.2 million, non-cash items including depreciation and amortization expenses of $67.2 million, stock-based compensation expense of $34.0 million, deferred tax benefit of $(45.6) million, amortization of contract cost assets of $23.1 million, loss on extinguishment of debt of $10.2 million, change in fair value of contingent consideration of $(23.5) million and change in our tax receivable liability of $46.0 million. Our operating cash outflows were affected by the timing of our customer and vendor payments primarily driven by increases in accounts receivables from Cook County Health and Hospitals System of approximately $99.2 million, reduction of our accrued liabilities due to a decrease in expected IPG and Vital Decisions contingent consideration payments of $25.7 million and an increase in reserves for liabilities related to payments to providers and pharmacies under performance-based arrangements related to its total cost of care and specialty care management services of $28.4 million.

Cash flows from operating activities of $38.7 million for the year ended December 31, 2021 were primarily due to our net loss of $37.6 million, a loss on the repayment and termination of our Credit Agreement and 2021 Notes of $21.3 million, a loss on disontinued operations of $6.8 million, gain on the transfer of memberships of $45.9 million, and non-cash items including depreciation and amortization expenses of $60.0 million, stock-based compensation expense of $16.7 million and change in fair value of contingent consideration and indemnification asset of $13.3 million. Our operating cash inflows were affected by the timing of our customer and vendor payments. In addition to these non-cash items, increases in accounts receivables and contract cost assets and reductions in reserves for claims and performance-based arrangements contributed and accrued liabilities approximately $28.9 million to our cash outflows. Those cash outflows were offset, in part by higher accounts payable and accrued compensation and employee benefits of approximately $10.8 million.

58

Investing Activities

Cash flows used in investing activities of $415.5 million in the year ended December 31, 2023 were primarily attributable to $388.2 million paid for the acquisition of NIA and $28.7 million of investments in internal-use software and purchases of property and equipment.

Cash flows used in investing activities of $259.1 million in the year ended December 31, 2022 were primarily attributable to $248.1 million paid for the acquisition of IPG, $9.2 million paid for a purchase price adjustment related to our disposal of True Health and $38.4 million of investments in internal-use software and purchases of property and equipment, offset in part, by $31.0 million from the transfer of membership and release of EVH Passport escrow and $5.6 million from returns from our equity method investments.

Cash flows used in investing activities of $15.8 million in the year ended December 31, 2021 were primarily attributable to cash flows of $46.5 million for the acquisition of Vital Decisions and $25.0 million of investments in internal-use software and purchases of property and equipment offset, in part by, $43.0 million from the transfer of membership and release of EVH Passport escrow and returns of investment on equity method investments of $14.2 million.

Financing Activities

Cash flows provided by financing activities of $281.3 million in the year ended December 31, 2023, were primarily related to $647.5 million received from our Credit Facilities and 2029 Notes and $168.0 million from the issuance of preferred equity, offset in part, by $464.2 million of cash outflows related to the payment on our Credit Facilities, $46.9 million from the payment of contingent consideration, $18.8 million of preferred dividends paid on our Series A Preferred Stock and $15.3 million from withholding taxes paid in respect of vested restricted stock units that were net settled.

Cash flows provided by financing activities of $131.5 million in the year ended December 31, 2022, were primarily related to $219.7 million received from our Credit Agreement, offset in part, by $59.4 million of cash outflows related to claims processing services on behalf of partners and $18.3 million from taxes withheld for restricted stock unit vesting.

Cash flows used in financing activities of $29.5 million in the year ended December 31, 2021, were primarily related to the repayment and termination of our Credit Agreement and settlement of our outstanding warrant agreements with Ares of $98.4 million, offset, in part, by a $61.2 million increase in net working capital balances held on behalf of our partners for claims processing services and a $13.3 million increase from cash proceeds from stock option exercises.

Contractual and Other Obligations

We believe that the amount of cash and cash equivalents on hand and cash flows from operations will be adequate for us to execute our business strategy and meet anticipated requirements for lease obligations, capital expenditures working capital and debt service for the next twelve months. Our estimated known contractual obligations (in thousands) as of December 31, 2023, were as follows:

[[GREPCENT_TABLE]]
[["","2024","","2025-2026","","2027-2028","","2029+","","Total"],["Operating leases for facilities","$","12,572","","","$","17,955","","","$","15,005","","","$","16,033","","","$","61,565"],["Purchase obligations related to vendor contracts","13,143","","","8,797","","","935","","","\u2014","","","22,875"],["Convertible notes interest payments","16,401","","","30,763","","","28,175","","","14,088","","","89,427"],["Convertible notes principal repayment","\u2014","","","172,500","","","\u2014","","","402,500","","","575,000"],["Contingent consideration","83,600","","","\u2014","","","\u2014","","","\u2014","","","83,600"],["Total known contractual obligations","$","125,716","","","$","230,015","","","$","44,115","","","$","432,621","","","$","832,467"]]
[[/GREPCENT_TABLE]]

In addition, as of December 31, 2023, we had $37.5 million of aggregate principal amount in a secured revolving credit facility which will mature in 2029. The interest rate for the secured revolving credit facility will be calculated, at the option of the borrowers at either the Adjusted Term SOFR Rate (as defined in the Credit Agreement) plus 4.00%, or the base rate plus 3.00%.

Also, as of December 31, 2023, we had 175,000 shares of the Series A Preferred Stock outstanding. Regular dividends on the Series A Preferred Stock are paid quarterly in cash in arrears at a rate per annum equal to Adjusted Term SOFR (as defined in the Certificate of Designation) plus 6.00%. The regular dividend rate will also increase by 2.0% per annum upon the occurrence and during the continuance of certain triggering events.

59

Accounts Receivable, net

Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. During the year ended December 31, 2023, accounts receivable, net, increased primarily due to the timing of cash receipts from certain customers including an increase of $101.4 million from Cook County Health and Hospitals System combined with $28.1 million of receivables acquired as part of the NIA acquisition.

Restricted Cash and Restricted Investments

Restricted cash and restricted investments of $30.6 million is carried at cost and includes cash held on behalf of other entities for pharmacy and claims management services of $12.3 million, collateral for letters of credit required as security deposits for facility leases of $2.1 million, amounts held with financial institutions for risk-sharing arrangements of $16.2 million as of December 31, 2023. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 2” for further details of the Company’s restricted cash balances.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are carried at cost and includes prepaid expenses and non-trade accounts receivable. During the years ended December 31, 2023, 2022 and 2021, prepaid insurance increased as a result of higher premiums and the acquisition of NIA.

Goodwill and Intangible Assets

We recognize the excess of the purchase price, plus the fair value of any non-controlling interests in the acquiree, over the fair value of identifiable net assets acquired as goodwill. Identified intangible assets are recorded at their estimated fair values at the date of acquisition and are amortized over their respective estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are used. As part of our acquisition of NIA in January 2023 we added $404.0 million of intangible assets and $395.2 million of goodwill. As part of our acquisition of IPG in August 2022, we added $195.7 million of intangible assets and $296.6 million of goodwill. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 4” for further details of the Company’s additions of goodwill and intangible assets.

Tax Receivables Agreement

In connection with the Offering Reorganization, we entered into the TRA with the holders of Class B common units. The agreement requires us to pay to such holders 85% of the cash savings, if any, in U.S. federal, state and local, and foreign income tax (as applicable) we realize as a result of any deductions attributable to the increase in tax basis following the Class B Exchanges or deductions attributable to imputed interest or future increases in tax basis following payments made under the TRA. Additionally, pursuant to the same agreement we will pay the former stockholders of Evolent Health Holdings 85% of the amount of the cash savings, if any, in U.S. federal, state and local, and foreign income tax that we realize as a result of the utilization of the NOLs of Evolent Health Holdings (and the affiliate of TPG) attributable to periods prior to the Offering Reorganization, approximately $79.3 million, as well as deductions attributable to imputed interest on any payments made under the agreement. Payments under the TRA are due within 100 days of filing the Company’s annual U.S. federal income tax return. The Company recorded a TRA liability of $107.9 million as of December 31, 2023. See “Part II - Item 8. Financial Statements and Supplementary Data - Note 16” for further details of the Company’s TRA.

Uses of Capital

Our principal uses of cash are in the operation and expansion of our business, payment of interest on our convertible debt and secured borrowings and payment of preferred dividends. The Company does not anticipate paying a cash dividend on our Class A common stock in the foreseeable future.

60